EXHIBIT 10.30
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (the "Agreement") dated as of November 10,
1997, is entered into by and among GateField Corporation, a Delaware corporation
with offices at 00000 Xxxxxxx Xxxxxxx, Xxxxxxx, Xxxxxxxxxx 00000 (the
"Company"), and the entities listed on Exhibit A hereto (the "Purchasers"), in
connection with the purchase of (i) 1,000,000 shares of the Company's Series B
Convertible Preferred Stock, par value $.10 (the "Preferred Stock"), convertible
into up to 6,110,000 shares of the Company's common stock, $.10 par value (the
"Common Stock"), to be sold to the Purchasers at the First Closing (as defined
below), (ii) Common Stock Purchase Warrants in the form attached hereto as
Exhibit B, to purchase an aggregate of 997,751 shares of Common Stock at a
purchase price of $1.00 per share (collectively, the "Warrants"), to be sold to
the Purchasers at the First Closing (as defined below), and (iii) 4,582,500
shares of Common Stock to be sold to the Purchasers at the Second Closing (as
defined below). The shares of Common Stock issuable upon conversion of the
Preferred Stock, the shares of Common Stock issuable upon exercise of the
Warrants, and the Common Stock sold to the Purchasers at the Second Closing are
collectively referred to herein as the "Shares". The Certificate of Designation
setting forth the rights, restrictions, privileges and preferences of the
Preferred Stock (the "Certificate of Designation") is attached hereto as Exhibit
C. The solicitation of this Agreement and the offer and sale of the Preferred
Stock, the Warrants and the Shares, are being made in reliance upon the
provisions of Regulation D ("Regulation D") promulgated by the Securities and
Exchange Commission ("SEC") under the United States Securities Act of 1933, as
amended (the "Securities Act") or upon the provisions of Section 4(2) of the
Securities Act. The Preferred Stock, the Warrants and the Shares are sometimes
collectively referred to herein as the "Securities." The Common Stock issuable
upon conversion of the Preferred Stock and the Common Stock issuable upon
exercise of the Warrants are sometimes collectively referred to herein as the
"Underlying Stock."
In consideration of the mutual promises, representations, warranties and
conditions set forth herein, and intending to be legally bounded hereby, the
Company and the Purchasers agree as follows:
1. PURCHASE AND SALE OF SECURITIES; CLOSING CONDITIONS
1.1 PURCHASE AND SALE OF SECURITIES.
(a) PURCHASE OF PREFERRED STOCK AND THE WARRANTS. Each of the
Purchasers hereby agrees to purchase and the Company agrees to sell to each
of the Purchasers (i) the number of shares of Preferred Stock set forth
opposite such Purchaser's name on Exhibit A and (ii) a Warrant to purchase
the number of shares of Common Stock set forth opposite such Purchaser's
name on Exhibit A, for the aggregate purchase price set forth opposite such
Purchaser's name on Exhibit A. The closing of the purchase of such Preferred
Stock and the Warrants shall take place on the "First Closing," subject to
the satisfaction (or waiver) of the conditions thereto set forth in Sections
1.2 and 1.3 below:
(b) PURCHASE OF COMMON STOCK. Each of the Purchasers hereby agrees to
purchase and the Company agrees to sell to each of the Purchasers the number
of shares of Common Stock set forth opposite such Purchaser's name on
Exhibit A for the purchase price of $1.00 per share. The closing of the
purchase of such Common Stock shall take place on the "Second Closing,"
subject to the satisfaction (or the waiver) of the conditions set forth in
Sections 1.2 and 1.3 below. Notwithstanding the foregoing, if the
stockholders of the Company do not approve the proposals to be submitted to
them at the 1997 Annual Meeting of Stockholders to be held on or prior to
December 19, 1997, as set forth in Section 1.3(a)(x), each of the Purchasers
shall be relieved of its obligation to purchase Common Stock at the Second
Closing.
1
(c) PAYMENT AND DELIVERY OF STOCK CERTIFICATES. On each Closing Date
(as defined below), (i) each of the Purchasers shall pay the portion of the
purchase price for the Securities to be issued and sold at the applicable
Closing to such Purchaser by check or wire transfer to the Company, in
accordance with the Company's written instructions, against delivery of duly
executed stock certificates and the warrant which each such Purchaser is
then purchasing and (ii) the Company shall deliver to each such Purchaser
such stock certificates and the warrant against delivery of such purchase
price.
(d) CLOSING DATES. Subject to the satisfaction (or waiver) of the
conditions thereto set forth in Sections 1.2 and 1.3 below, the date and
time of the issuance and sale of the Preferred Stock, the Warrants and
Common Stock pursuant to this Agreement (the "Closing Dates") shall be (i)
in the case of the First Closing, 10:00 a.m. Pacific Standard Time on
November 10, 1997 (the "First Closing Date"), and (ii) in the case of the
Second Closing, 10:00 a.m. Pacific Standard Time, three business days
following notification of the satisfaction (or waiver) of the condition to
such Closing set forth in Section 1.3(b)(vii) (the "Second Closing Date")
or, in each case, at such mutually agreed upon time.
1.2 CONDITIONS PRECEDENT TO THE OBLIGATION OF THE COMPANY TO ISSUE AND SELL
THE PREFERRED STOCK, WARRANTS AND COMMON STOCK. The obligation hereunder of the
Company to issue and sell the Preferred Stock, Warrants and Common Stock to each
of the Purchasers at each respective Closing is subject to the satisfaction, at
or before such Closing, of each of the conditions set forth below. These
conditions are for the Company's sole benefit and may be waived by the Company
at any time in its sole discretion.
(a) ACCURACY OF THE PURCHASER'S REPRESENTATION AND WARRANTIES. The
representations and warranties of the Purchasers contained in this Agreement
shall be true and correct as of the date when made and as of the applicable
Closing Date as though made at each such time.
(b) PERFORMANCE BY THE PURCHASER. The Purchasers shall have performed,
satisfied and complied in all respects with all covenants, agreements and
conditions required by this Agreement to be performed, satisfied or complied
with by the Company at or prior to the applicable Closing.
(c) NO INJUNCTION. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated
or endorsed by any court or governmental authority of competent jurisdiction
which prohibits or adversely affects any of the transactions contemplated by
this Agreement, and no proceeding shall have been commenced which may have
the effect of prohibiting or adversely affecting any of the transactions
contemplated by this Agreement.
1.3 CONDITIONS PRECEDENT TO THE OBLIGATION OF THE PURCHASERS TO ACQUIRE THE
PREFERRED STOCK, WARRANTS AND COMMON STOCK. The obligation of the Purchasers
hereunder to acquire and pay for the Preferred Stock, Warrants and Common Stock
at each of the First Closing and the Second Closing, as applicable, is subject
to the satisfaction, at or before the Closing Date in respect of such Closing,
of each of the following conditions. Each of these conditions is for each of the
Purchaser's sole benefit and may be waived by a Purchaser at any time in its
sole discretion.
(a) As to the First Closing:
(i) ACCURACY OF THE COMPANY'S REPRESENTATIONS AND WARRANTIES. The
representations and warranties of the Company contained in this Agreement
shall be true and correct as of the date when made and as of the First
Closing Date as though made at each such time.
(ii) PERFORMANCE BY THE COMPANY. The Company shall have performed,
satisfied and complied in all respects with all covenants, agreements and
conditions contained in this Agreement and in all other agreements
related to this Agreement to be performed, satisfied or complied with by
the Company at or prior to the First Closing.
(iii) NO INJUNCTION. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of
competent jurisdiction which prohibits or adversely effects any of the
transactions
2
contemplated by this Agreement, and no proceeding shall have been
commenced which may have the effect of prohibiting or adversely affecting
any of the transactions contemplated by this Agreement.
(iv) ADVERSE CHANGES. Since December 31, 1996, no event which had
or is likely to have a Material Adverse Effect has occurred, except as
described in the Company's Form 10-Qs filed with the SEC for the
quarterly periods ended March 31, and June 30, 1997. For purposes of this
Agreement, "Material Adverse Effect" means any effect on the business,
operations, properties, prospects, condition, financial or otherwise, net
worth, or results of operations of the Company and which is material and
adverse to the Company or to other entities controlled by the Company,
taken as a whole, and/or any condition or situation which would prohibit
or otherwise interfere with the ability of the Company or other entity
controlled by the Company to enter into and perform its obligations under
this Agreement.
(v) NO SUSPENSION OF TRADING IN OR DELISTING OF COMMON STOCK. As
of the First Closing Date, (A) the trading of the Common Stock shall not
have been suspended by the SEC, The Nasdaq Stock Market, Inc. ("Nasdaq
Inc.") or the National Association of Securities Dealers, Inc. (the
"NASD"), (B) the Common Stock shall not have been delisted from the
Nasdaq National Market (the "Exchange"), and (C) the Company shall not
have been advised in writing that the Common Stock will be delisted from
the Exchange.
(vi) THE LEGAL OPINION. The Company shall have delivered to each
of the Purchasers the opinion of Xxxxxx Xxxxxxx Xxxxxxxx & Xxxxxx,
Professional Corporation, independent counsel to the Company, with
respect to the matters set forth in Exhibit D attached hereto, dated as
of the First Closing Date.
(vii) OFFICER'S CERTIFICATE. The Company shall have delivered to
the Purchasers a certificate in such form and substance as shall be
reasonably satisfactory to the Purchasers, executed by an executive
officer of the Company as of the First Closing Date, to the effect that
all of the conditions to the First Closing shall have been satisfied.
(viii) REGISTRATION RIGHTS AGREEMENT. The Company and the Purchasers
shall have executed and delivered the Registration Rights Agreement
attached hereto as Exhibit E.
(ix) IRREVOCABLE LETTER OF INSTRUCTION. The Company shall have
issued to the transfer agent for the Common Stock (and to any substitute
or replacement transfer agent for its Common Stock coterminous with the
Company's appointment of any such substitute or replacement transfer
agent) irrevocable instructions regarding the issuance of certificates
representing the Securities in such form and substance as shall be
reasonably satisfactory to the Purchasers.
(x) PROXY STATEMENT. The Company shall have filed with the SEC and
Nasdaq Inc., a Notice of 1997 Annual Meeting of Stockholders to be held
on or prior to December 19, 1997, together with a preliminary Proxy
Statement requesting stockholder approval (A) of an amendment to the
Company's Certificate of Incorporation providing for the classification
of the Board of Directors into three classes, with members of each class
serving staggered three-year terms, (B) of an amendment to the Company's
Certificate of Incorporation providing for the increase in the number of
shares of authorized Common Stock from 40,000,000 to 65,000,000 and (C)
to sell securities of the Company to the Purchasers which prior to such
sale represent more than 20% of the Company's outstanding voting stock;
and nominating a four (4) person Board of Directors with Xx. Xxxxx X.
Xxxxxxxx being nominated as a Class I Director for an initial term of one
year, Messrs. Xxxxx X. Xxxxxxxx and Xxxxx X. Xxxx being nominated as
Class II Directors for an initial term of two years, and Xx. Xxxxxxxx X.
Xxxxxxxx being nominated as a Class III Director for an initial term of
three years.
3
(xi) CERTIFICATE AND DOCUMENTS. The Company shall have delivered
to the Purchasers:
(A) the Certificate of Incorporation of the Company, as amended
and in effect as of the date of the First Closing, certified
by the Secretary of State of the State of Delaware;
(B) certificates, as of the most recent practicable dates, as to
the corporate good standing of the Company issued by the
Secretary of State of the State of Delaware and the
Secretary of State of the State of California;
(C) the By-laws of the Company, as amended and in effect as of
the date of the First Closing, certified by the Secretary of
the Company; and
(D) resolutions of the Board of Directors of the Company
authorizing and approving all matters in connection with this
Agreement and the transactions contemplated hereby and
authorizing and approving the amendments to the Company's
Certificate of Incorporation and the other matters described
in Section 1.3(a)(x) of this Agreement, certified by the
Secretary of the Company as of the First Closing Date.
(xii) OTHER MATTERS. All corporate and other proceedings in
connection with the transactions contemplated by this Agreement and all
documents and instruments incident to such transactions shall be
reasonably satisfactory in substance and form to the Purchasers and their
counsel, and the Purchasers and their counsel shall have received all
such counterpart originals or certified or other copies of such documents
as they may reasonably request.
(b) As to the Second Closing:
(i) ACCURACY OF THE COMPANY'S REPRESENTATIONS AND WARRANTIES. The
representations and warranties of the Company contained in this Agreement
shall be true and correct as of the date when made and as of the Second
Closing Date as though made at each such time.
(ii) PERFORMANCE BY THE COMPANY. The Company shall have performed,
satisfied and complied in all respects with all covenants, agreements and
conditions contained in this Agreement and in all other agreements
related to this Agreement to be performed, satisfied or complied with by
the Company at or prior to the Second Closing.
(iii) ADVERSE CHANGES. Since December 31, 1996, no event which had
or is likely to have a Material Adverse Effect has occurred, except as
described in the Company's Form 10-Qs filed with the SEC for the
quarterly periods ended March 31, and June 30, 1997.
(iv) NO SUSPENSION OF TRADING OR DELISTING OF COMMON STOCK. As of
the Second Closing Date, (A) the trading of the Common Stock shall not
have been suspended by the SEC, Nasdaq Inc. or the NASD, (B) the Common
Stock shall not have been delisted from the Exchange, and (C) the Company
shall not have been advised in writing that the Common Stock will be
delisted from the Exchange.
(v) THE LEGAL OPINION. The Company shall have delivered to each of
the Purchasers the opinion of Xxxxxx Xxxxxxx Xxxxxxxx & Xxxxxx,
Professional Corporation, independent counsel to the Company, dated as of
the Second Closing Date, with respect to the matters set forth in Exhibit
D attached hereto, dated as of the Second Closing Date.
(vi) OFFICER'S CERTIFICATE. The Company shall have delivered to
the Purchasers a certificate in such form and substance as shall be
reasonably satisfactory to the Purchasers, executed by an executive
officer of the Company as of the Second Closing Date, to the effect that
all the conditions to the Second Closing shall have been satisfied.
4
(vii) STOCKHOLDER'S MEETING. The stockholders of the Company shall
have approved the amendments to the Company's Certificate of
Incorporation and other matters specified in Section 1.3(a)(x).
(viii) XXXX-XXXXX-XXXXXX ACT. All applicable waiting periods (and
any extensions thereof) under the Xxxx-Xxxxx-Xxxxxx Act shall have
expired or otherwise been terminated.
(ix) AMENDMENT TO BYLAWS. The Board of Directors of the Company
shall have amended the Bylaws of the Company to include a provision with
respect to the matters specified in Section 4.10.
(x) CERTIFICATE AND DOCUMENTS. The Company shall have delivered to
the Purchasers:
(A) the Certificate of Incorporation of the Company, as amended
and in effect as of the date of the Second Closing, certified
by the Secretary of State of the State of Delaware;
(B) certificates, as of the most recent practicable dates, as to
the corporate good standing of the Company issued by the
Secretary of State of the State of Delaware and the
Secretary of State of the State of California;
(C) the By-laws of the Company, as amended and in effect as of
the date of the Second Closing, certified by the Secretary
of the Company; and
(D) resolutions of the Board of Directors of the Company
authorizing and approving all matters in connection with this
Agreement and the transactions contemplated hereby, certified
by the Secretary of the Company as of the Second Closing
Date.
(xi) OTHER MATTERS. All corporate and other proceedings in
connection with the transactions contemplated by this Agreement and all
documents and instruments incident to such transactions shall be
reasonably satisfactory in substance and form to the Purchasers and their
counsel, and the Purchasers and their counsel shall have received all
such counterpart originals or certified or other copies of such documents
as they may reasonably request.
1.4 CONVERSION OF PREFERRED STOCK. In the event the stockholders of the
Company fail to approve the proposals specified in Section 1.3(a)(x) at the 1997
Annual Meeting of Stockholders to be held on or prior to December 19, 1997, the
Purchasers holding at least 51% of the then outstanding shares of Preferred
Stock shall have the right, upon fifteen (15) days prior written notice to the
Company, to redeem the Preferred Stock, in whole or in part, for a cash payment
from the Company equal to $4.5825 per share plus accrued and unpaid dividends
thereon (subject to adjustment for stock splits, stock dividends, combination or
similar recapitalizations affecting such shares); provided, however, that if the
Purchasers do not elect to redeem the Preferred Stock, as provided above, the
Conversion Price (as defined in the Certificate of Designation of the Preferred
Stock) of all shares of the Preferred Stock shall be reduced from $1.00 to $.75
per share.
2. REPRESENTATIONS AND WARRANTIES OF PURCHASER
Each of the Purchasers severally represents and warrants to the Company
that:
2.1 NO GOVERNMENT RECOMMENDATION OR APPROVAL. Such Purchaser
understands that no United States federal or state agency, or similar agency
of any other country, has passed upon or made any recommendation or
endorsement of the Company or the offering of the Securities.
2.2 INTENT. Such Purchaser is purchasing the Securities for its own
account and not with a view towards distribution and such Purchaser has no
present arrangement (whether or not legally binding) at any time to sell the
Securities to or through any person or entity; provided, however, that by
making the representations herein, such Purchaser does not agree to hold the
Securities for any minimum or
5
other specific term and reserves the right to dispose of the Securities at
any time in accordance with Federal and state securities laws applicable to
such disposition. Such Purchaser understands that the Securities must be
held indefinitely unless such Securities are subsequently registered under
the Securities Act or an exemption from registration is available. Such
Purchaser has been advised or is aware of the provisions of Rule 144
promulgated under the Securities Act.
2.3 SOPHISTICATED INVESTOR. Such Purchaser is a sophisticated investor
(as described in Rule 506(b)(2)(ii) of Regulation D) and, except for the
Xxxxxxxxx Xxxxx Trust, an accredited investor (as defined in Rule 501 of
Regulation D), and such Purchaser has such experience in business and
financial matters that it is capable of evaluating the merits and risks of
an investment in the Securities. Such Purchaser acknowledges that the
Securities are speculative and involve a high degree of risk.
2.4 INDEPENDENT INVESTIGATION. Such Purchaser, in making its decision
to purchase the Securities subscribed for hereunder, has relied upon an
independent investigation made by it and/or its representatives and has not
relied on any oral or written representations or assurances from the Company
or any representative or agent of the Company, other than as set forth in
this Agreement, in the public filings of the Company and in the documents
described herein. Prior to the date hereof, such Purchaser has been
furnished with and has reviewed the Company's latest proxy statement and
Annual Report on Form 10-K sent to the Company's stockholders and all
documents filed by the Company since December 31, 1996 pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), (such documents are collectively referred to in this
Agreement as the "Exchange Act Reports"). Such Purchaser has had a
reasonable opportunity to ask questions of and receive answers from the
Company concerning the Company and the offering of securities and has
received satisfactory answers to all inquiries it has made with respect to
the Company and the Securities. Such Purchaser acknowledges the price and
terms of the Securities offered hereby have been determined by negotiation
based, in part, on the market price for the Common Stock, and does not
necessarily bear any relationship to the assets, book value or potential
performance of the Company or any other recognized criteria of value.
2.5 AUTHORITY. This Agreement has been duly authorized and validly
executed, and delivered by such Purchaser and is a valid and binding
agreement enforceable in accordance with its terms, subject to general
principles of equity and to bankruptcy or other laws affecting the
enforcement of creditors' rights generally.
2.6 NO LEGAL ADVICE FROM COMPANY. Such Purchaser acknowledges that it
has had the opportunity to review this Agreement and the transactions
contemplated by this Agreement with his or its own legal counsel and tax
advisors. Except for any statements or representations of the Company made
in this Agreement and in the Exchange Act Reports, the Purchaser is relying
solely on such counsel and advisors and not on any statements or
representations of the Company or any of its representative or agents for
legal, tax or investment advice with respect to this investment, the
transactions contemplated by this Agreement or the securities laws of any
jurisdiction.
2.7 NO BROKERS. Such Purchaser has taken no action which would give
rise to any claim by any person for brokerage commission, finder's fees or
similar payments by the Company relating to this Agreement or the
transactions contemplated hereby.
2.8 NOT AN AFFILIATE. Prior to the First Closing, such Purchaser has
not been an officer, director or "affiliate" (as that term is defined in
Rule 405 of the Securities Act) of the Company.
2.9 RELIANCE ON REPRESENTATIONS AND WARRANTIES. Such Purchaser
understands that the Securities are being offered and sold to it in reliance
on specific provisions of United States federal and state securities laws
and that the Company is relying upon the truth and accuracy of the
representations, warranties, agreements, acknowledgements and understandings
of such Purchaser set forth in this Agreement in order to determine the
applicability of such provisions.
6
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Subject to and except as disclosed by the Company in APPENDIX A annexed
hereto (the "Disclosure Schedule"), the Company represents and warrants to each
of the Purchasers that:
3.1 COMPANY STATUS. The Company has registered the Common Stock
pursuant to Section 12(b) or 12(g) of the Exchange Act, is in full
compliance with all reporting requirements of the Exchange Act, and the
Company has maintained all requirements for the continued listing of the
Common Stock, and the Common Stock is currently listed on the Exchange. The
Company has not been advised that the Common Stock will be delisted from the
Exchange.
3.2 CURRENT PUBLIC INFORMATION. The Exchange Act Reports are the only
filings made by the Company since December 31, 1996 pursuant to Sections
13(a), 13(c), 14 and 15(d) of the Exchange Act.
3.3 NO DIRECTED SELLING EFFORTS OR GENERAL SOLICITATION IN REGARD TO
THIS TRANSACTION. Neither the Company nor any of its affiliates nor any
distributor or any person acting on its or their behalf has conducted any
"directed selling efforts" with respect to the Preferred Stock, the Warrants
or the Common Stock nor has the Company conducted any general solicitation
(as that term is used in Regulation D) with respect to any of the
Securities, nor have they made any offers or sales of any security or
solicited any offers to buy any security, under circumstances that would
require registration of the Securities under the Securities Act.
3.4 CAPITALIZATION; ISSUANCE OF SECURITIES.
(a) As of the date of this Agreement, the authorized capital stock of
the Company consists of 40,000,000 shares of Common Stock, of which
35,538,756 shares are issued and outstanding, and 2,000,000 shares of series
preferred stock, of which 1,000,000 shares have been designated Preferred
Stock, none of which shares are issued or outstanding. The Company has
adopted and filed the Certificate of Designation with the Secretary of State
of the State of Delaware. As of the date of the Second Closing, the
authorized capital stock of the Company consists of 65,000,000 shares of
Common Stock and 2,000,000 shares of series preferred stock, of which
1,000,000 shares have been designated Preferred Stock, all of which are
issued and outstanding. All of the issued and outstanding shares of Common
Stock have been duly and validly issued and are fully paid and
non-assessable. Except as set forth in Section 3.4 of the Disclosure
Schedule (i) no subscription, warrant, option, convertible security or other
right (contingent or otherwise) to purchase or acquire any shares of capital
stock of the Company is authorized or outstanding, (ii) the Company has no
obligation (contingent or otherwise) to issue any subscription, warrant,
option, convertible security or other such right or to issue or distribute
to holders of any shares of its capital stock any evidences of indebtedness
or assets of the Company, and (iii) the Company has no obligation
(contingent or otherwise) to purchase, redeem or otherwise acquire any
shares of its capital stock or any interest therein or to pay any dividend
or make any other distribution in respect thereof. All of the issued and
outstanding shares of capital stock of the Company have been offered, issued
and sold by the Company in compliance with applicable Federal and state
securities laws.
(b) The issuance, sale and delivery of the Securities in accordance with
this Agreement, the issuance and delivery of the shares of Common Stock
issuable upon conversion of the Preferred Stock and the issuance and
delivery of the shares of Common Stock upon exercise of the Warrants, have
been duly authorized by all necessary corporate action on the part of the
Company, and after the approval by the Company's stockholders of an
amendment to the Company's Certificate of Incorporation increasing the
number of authorized shares of Common Stock, all such shares shall be duly
reserved for issuance. Upon issuance of the Securities (other than the
Underlying Stock), the Securities (other than the Underlying Stock) will be
duly and validly issued, fully paid and non-assessable; after the approval
by the Company's stockholders of an amendment to the Company's
7
Certificate of Incorporation increasing the number of authorized shares of
Common Stock, the shares of Common Stock issuable upon conversion of the
Preferred Stock shall be duly reserved by the Company for issuance, and when
issued and delivered in accordance with the terms of the Preferred Stock,
will be duly and validly issued, fully paid and non-assessable; and after
the approval by the Company's stockholders of an amendment to the Company's
Certificate of Incorporation increasing the number of authorized shares of
Common Stock, the shares of Common Stock issuable upon exercise of the
Warrants have been duly reserved by the Company for issuance, and when
issued and delivered in accordance with the terms of the Warrants, will be
duly and validly issued, fully paid and non-assessable.
(c) There are no agreements, written or oral, between the Company and
any holder of its capital stock or any security convertible into its capital
stock, or to the best of the Company's knowledge, among any such holders,
relating to the acquisition (including, without limitation, rights of first
refusal or pre-emptive rights), disposition, registration under the
Securities Act, or voting of the capital stock of the Company.
3.5 ORGANIZATION AND QUALIFICATION. The Company is a corporation duly
incorporated and existing in good standing under the laws of the State of
Delaware and has the requisite corporate power to own its properties and to
carry on its business as now being conducted. The Company does not have any
subsidiaries, except for those listed on its Form 10-K filed with the SEC
for the year ended December 31, 1996. The Company and each such subsidiary
is duly qualified as a foreign corporation to do business and is in good
standing in every jurisdiction in which the nature of the business conducted
or property owned by it makes such qualification necessary other than those
in which the failure so to qualify would not have a Material Adverse Effect.
References to the "Company" in this Agreement shall also include each
subsidiary of the Company, except where the context otherwise requires.
3.6 AUTHORIZATION; ENFORCEMENT. (i) The Company has the requisite
corporate power and authority to enter into and perform this Agreement and
to issue the Securities in accordance with the terms hereof and thereof,
(ii) the execution, issuance and delivery of this Agreement, the Preferred
Stock, the Warrants and the Common Stock by the Company and all other
agreements, including without limitation, the Registration Rights Agreement,
required to be executed by the Company as provided herein (collectively, the
"Ancillary Agreements"), and the consummation by the Company of the
transactions contemplated hereby and thereby, including without limitation,
the issuance of Common Stock upon the conversion or exercise thereof, have
been duly authorized by all necessary corporate action, and no further
consent or authorization of the Company or its Board of Directors or
stockholders is required, (iii) this Agreement and the Ancillary Agreements
have been duly executed and delivered by the Company, and (iv) this
Agreement, the Ancillary Agreements, the Preferred Stock and the Warrants
constitute, and upon execution, issuance and delivery thereof the Preferred
Stock and the Warrants shall be, valid and binding obligations of the
Company enforceable against the Company in accordance with their terms,
except as such enforceability may be limited by applicable bankruptcy,
insolvency, or similar laws relating to, or affecting generally the
enforcement of, creditors' rights and remedies or by other equitable
principles of general application.
3.7 CORPORATE DOCUMENTS. The Company has furnished or made available
to the Purchaser true and correct copies of the Company's Certificate of
Incorporation, as in effect on the date hereof (the "Certificate"), and the
Company's By-Laws, as in effect on the date hereof (the "By-Laws").
3.8 NO CONFLICTS. The execution, delivery and performance of this
Agreement and the Preferred Stock, the Warrants and Common Stock by the
Company and the consummation by the Company of the transactions contemplated
hereby and thereby, including without limitation the issuance of common
stock upon the conversion or exercise thereof, do not and will not (i)
result in a violation of or conflict with the Certificate or By-Laws or (ii)
violate, conflict with, or constitute a
8
breach of or default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any material agreement,
indenture or instrument to which the Company or any of its subsidiaries is a
party, or result in a violation of any Federal, state, local or foreign law,
rule, regulation, order, judgment or decree (including federal and state
securities laws and regulations) applicable to the Company or any of its
subsidiaries or by which any property or asset of the Company or any of its
subsidiaries is bound or affected, except for such conflicts, defaults,
terminations, amendments, accelerations, cancellations and violations as
would not, individually or in the aggregate, have a Material Adverse Effect.
The business of the Company is not being conducted in violation of any law,
ordinance or regulations of any governmental entity, except for possible
violations which either singly or in the aggregate do not and will not have
a Material Adverse Effect. The Company is not required under Federal, state
or local law, rule or regulation in the United States to obtain any consent,
authorization or order of, or make any filing or registration with, any
court or governmental agency in order for it to execute, deliver or perform
any of its obligations under this Agreement or issue and sell the Securities
in accordance with the terms hereof and thereof (other than (i) compliance
with the applicable requirements of the Xxxx-Xxxxx-Xxxxxx Antitrust
Improvements Act of 1976, as amended (the "Xxxx-Xxxxx-Xxxxxx Act") and (ii)
any SEC, NASD, Nasdaq Inc. or state securities filings which may be required
to be made by the Company subsequent to either the First Closing or the
Second Closing, and any registration statement which may be filed pursuant
hereto); provided that, for purposes of the representation made in this
sentence, the Company is assuming and relying upon the accuracy of the
relevant representations and agreements of the Purchasers herein.
3.9 EXCHANGE ACT REPORTS; FINANCIAL STATEMENTS. The Company has
delivered or made available to the Purchasers true and complete copies of
the Exchange Act Reports (including, without limitation, proxy information
and solicitation materials). As of their respective dates, the Exchange Act
Reports complied in all material respects with the requirements of the
Exchange Act and rules and regulations of the SEC promulgated thereunder and
other Federal, state and local laws, rules and regulations applicable to
such Exchange Act Reports, and none of the Exchange Act Reports 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. The financial statements of the Company included in the Exchange
Act Reports comply as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC
or other applicable rules and regulations with respect thereto. Such
financial statements have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis 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 the financial condition of the
Company as of the dates thereof and the results of operations and cash flows
for the periods then ended (subject, in the case of unaudited statements, to
normal year-end audit adjustments which in the aggregate will not be
material).
3.10 NO MATERIAL ADVERSE CHANGE. Since December 31, 1996, the date
through which the most recent annual report of the Company on Form 10-K
which has been prepared and filed with the SEC, a copy of which is included
in the Exchange Act Reports, there has been no material adverse change in
the business, operations, properties, prospects, condition, financial or
otherwise, net worth, or results of operations of the Company or its
subsidiaries, except as described in the Company's Form 10-Qs filed with the
SEC for the quarterly periods ended March 31, and June 30, 1997, and the
Disclosure Schedule.
3.11 NO UNDISCLOSED LIABILITIES. The Company and its subsidiaries have
no liabilities or obligations of any type, which in the aggregate exceed
$100,000, that are not fully reflected or disclosed in
9
the Exchange Act Reports, other than those incurred in the ordinary course
of the Company's or its subsidiaries' respective businesses since June 30,
1997.
3.12 NO UNDISCLOSED EVENTS OR CIRCUMSTANCES. No event or circumstance
has occurred or exists with respect to the Company or its subsidiaries or
their respective businesses, properties, prospects, operations or condition,
financial or otherwise, which, under applicable law, rule or regulation,
requires disclosure in the Exchange Act Reports or public disclosure prior
to the date hereof by the Company and which has not been so disclosed.
3.13 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 of any security or solicited any offers
to buy any security, under circumstances that would require registration
under the Securities Act of the offer, issuance and sale of the Securities
to the Purchasers.
3.14 NO BROKERS. The Company has taken no action which would give rise
to any claim by any person for brokerage commissions, finder's fees or
similar payments by the Purchasers relating to this Agreement or the
transactions contemplated hereby.
3.15 PROFORMA SEPTEMBER 30, 1997 FINANCIAL STATEMENTS. The proforma
balance sheet and financial statements of the Company as of September 30,
1997 (the "Pro Forma Financials") which have been furnished to the
Purchasers are true and correct in all material respects. The Pro Forma
Financials have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis during the periods
involved (except to the extent they may not include footnotes or may be
condensed or summary statements) and fairly present the financial condition
of the Company as of the dates thereof and the results of operations and
cash flows for the periods then ended (subject to normal year-end audit
adjustments which in the aggregate will not be material).
3.16 GOVERNMENTAL CONSENTS. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration
or filing with, any governmental authority is required on the part of the
Company in connection with the execution and delivery of this Agreement, the
offer, issuance, sale and delivery of the Securities, or the other
transactions to be consummated at the First and Second Closings (other than
the stockholder approval with respect to the Second Closing in accordance
with Section 1.3(b)(vii)), as contemplated by this Agreement, except such
filings as shall have been made prior to and shall be effective on and as of
such Closing. Based on the representations made by the Purchasers in Section
2 of this Agreement, the offer and sale of the Securities to the Purchasers
will be in compliance with applicable Federal and state securities laws.
3.17 LITIGATION. There is no action, suit or proceeding, or
governmental inquiry or investigation, pending, or, to the best of the
Company's knowledge, any basis therefor or threat thereof, against the
Company, which questions the validity of this Agreement or the right of the
Company to enter into it, or which might result, either individually or in
the aggregate, in a Material Adverse Effect.
3.18 INTELLECTUAL PROPERTY. Set forth in the Disclosure Schedule is a
true and complete list of all patents, patent applications, trademarks,
service marks, trademark and service xxxx applications, trade names,
copyright registrations and licenses presently used by the Company or
necessary for the conduct of the Company's business as conducted and as
proposed to be conducted, as well as any agreement under which the Company
has access to any confidential information used by the Company in its
business (collectively, the "Intellectual Property Rights"). The Company
owns, or has the right to use under the agreements or upon the terms
described in the Disclosure Schedule, all of the Intellectual Property
Rights, and has taken all actions reasonably necessary to protect the
Intellectual Property Rights. The business conducted or proposed by the
Company does not and will not cause the Company to infringe or violate any
of the patents, trademarks, service marks, trade names, copyrights,
licenses, trade secrets or other intellectual property rights of any other
person or entity. The Company is not aware that any employee is obligated
under any contract (including any license, covenant or
10
commitment of any nature), or subject to any judgment, decree or order of
any court or administrative agency, that would conflict or interfere with
(i) the performance of employee's duties as an officer, employee or director
of the Company, (ii) the use of such employee's best efforts to promote the
interests of the Company or (iii) the Company's business as conducted or
proposed to be conducted. No other person or entity (including without
limitation any prior employer of any employee of the Company) has any right
to or interest in any inventions, improvements, discoveries or other
confidential information utilized by the Company in its business.
3.19 MATERIAL CONTRACTS AND OBLIGATIONS. Section 3.19 of the
Disclosure Schedule lists each material agreement to which the Company is a
party or subject, including without limitation all material employment and
consulting agreements, employee benefit, bonus, pension, profit-sharing,
stock option, stock purchase and similar plans and arrangements, and
distributor and sales representative agreements. The Disclosure Schedule
lists each agreement with any stockholder, officer or director of the
Company, or any "affiliate" or "associate" of such persons (as such terms
are defined in the rules and regulations promulgated under the Securities
Act), including without limitation any agreement or other arrangement
providing for the furnishing of services by, rental of real or personal
property from, or otherwise requiring payments to, any such person or entity
and any agreement relating to the Intellectual Property Rights. The Company
has delivered to counsel to the Purchasers copies of all of the foregoing
agreements. All of such agreements and contracts are valid, binding and in
full force and effect.
3.20 EMPLOYEES. All employees of the Company whose employment
responsibility requires access to confidential or proprietary information of
the Company have executed and delivered nondisclosure and assignment of
invention agreements in the form attached hereto as Exhibit F, and all of
such agreements are in full force and effect.
3.21 ERISA. The Company does not have or otherwise contribute to or
participate in any employee benefit plan subject to the Employee Retirement
Income Security Act of 1974.
3.22 BOOKS AND RECORDS. The minute books of the Company contain
complete and accurate records of all meetings and other corporate actions of
its stockholders and its Board of Directors and committees thereof. The
Company has delivered to counsel to the Purchasers copies of all of the
minutes of all meetings and other corporate actions of its stockholders and
its Board of Directors and committees thereof held or taken since October 1,
1995.
3.23 SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW. The
transactions contemplated by this Agreement have been approved by the Board
of Directors of the Company for purposes of Section 203 of the Delaware
General Corporation Law.
3.24 DISCLOSURES. Neither this Agreement nor any Attachment or Exhibit
hereto, nor any report, certificate or instrument furnished to any Purchaser
or its counsel in connection with the transactions contemplated by this
Agreement, when read together, contains or will contain any untrue statement
of a material fact or omits or will omit to state a material fact necessary
in order to make the statements contained herein or therein, in light of the
circumstances under which they were made, not misleading. The Company knows
of no information or fact which has or would have a Material Adverse Effect
which has not been disclosed in the Disclosure Schedule.
4. COVENANTS
4.1 REGISTRATION RIGHTS. The Company agrees that, at the First Closing, it
will enter into a Registration Rights Agreement with the Purchasers, in the form
and substance of Exhibit E attached hereto.
11
4.2 RESERVATION OF COMMON STOCK.
(a) As of the date hereof, the Company has reserved and the Company shall
continue to reserve and keep available at all times, free of preemptive rights,
250,000 shares of Common Stock for the purpose of enabling the Company to
satisfy any obligation to issue shares of its Common Stock upon conversion of
the Preferred Stock and exercise of the Warrants, and to sell to each of the
Purchasers shares of its Common Stock at the Second Closing. The number of
shares so reserved shall be increased to reflect stock splits and stock
dividends and distributions.
(b) From and after the date of stockholder approval of an amendment to the
Company's Certificate of Incorporation to increase the number of authorized
shares of Common Stock, the Company shall reserve and keep available at all
times, free of preemptive rights, shares of Common Stock for the purpose of
enabling the Company to satisfy any obligation to issue shares of its Common
Stock upon conversion of the Preferred Stock and exercise of the Warrants, and
to sell to each of the Purchasers shares of its Common Stock at the Second
Closing. The number of shares so reserved shall be increased to reflect stock
splits and stock dividends and distributions.
4.3 LISTING OF SHARES. The Company hereby agrees, promptly following the
First Closing, to take such action to cause the Shares to be listed on the
Exchange as promptly as possible but no later than 90 days following the First
Closing Date. The Company further agrees, if the Company applies to have its
Common Stock traded on any principal stock exchange or market, it will include
the Shares in such application and will take such other action as is necessary
or desirable to cause the Shares to be listed on such other exchange or market
as promptly as possible.
4.4 EXCHANGE ACT REGISTRATION. The Company will cause its Common Stock to
continue to be registered under Section 12(g) or 12(b) of the Exchange Act, will
comply in all respects with its reporting and filing obligations under the
Exchange Act, and will not take any action or file any document (whether or not
permitted by the Exchange Act or the rules thereunder) to terminate or suspend
such registration or to terminate or suspend its reporting and filing
obligations under the Exchange Act. The Company will take all action under its
control to continue the listing and trading of its Common Stock on the Exchange
and will comply in all respects with the Company's reporting, filing and other
obligations under the bylaws or rules of the NASD, the Nasdaq Inc. and the
Exchange.
4.5 LEGENDS. The Shares, and certificates evidencing the same shall, upon
the effectiveness of the Registration Statement to be filed pursuant to the
Registration Rights Agreement described in Section 4.1 (the "Registration
Statement") be free of legends (except as provided in Section 5.1 below), "stop
transfers," so-called, "stock transfer restrictions," or other restrictions.
4.6 CORPORATE EXISTENCE. The Company will take all steps necessary to
preserve and continue the corporate existence of the Company.
4.7 BOARD OF DIRECTORS NOMINATIONS. The Company will cause Xxxxx X. Xxxx
and Xxxxxxxx X. Xxxxxxxx, or their successors as designated by the Purchasers
(by action of the holders of at least 51% of the then outstanding Shares on
as-converted basis), to be nominated on the Company's management slate of
Directors for election to the Company's Board of Directors at the 1997 Annual
Meeting of Stockholders to be held on or prior to December 19, 1997, and for
re-election to the Company's Board of Directors on each Proxy Statement filed
for each subsequent Annual Meeting of Stockholders (or Special Meeting of
Stockholders where directors are elected) as their respective board seats come
up for re-election until the earlier of (a) the date that the Company first
reports Annual Net Income of at least Fifteen Million Dollars ($15,000,000) and
(b) the date that the Purchasers (including for this purpose each of the
Purchaser's general partners and members of their respective immediate families
to whom shares may have been distributed by a Purchaser) collectively own less
than the Minimum Holdings (as defined below). The "Minimum Holdings" shall be
the number of shares of Common Stock equal to 50% of the sum of (i) 4,582,500
(subject to appropriate adjustment for any stock dividend, stock split,
combination or other
12
similar recapitalization) (such number being the total number of shares of
Common Stock issuable, as of the First Closing, upon conversion of the Preferred
Stock issued to the Purchasers at the First Closing) and (ii) the total number
of shares of Common Stock, if any, issued to the Purchasers at the Second
Closing. For purposes of determining the total number of shares of Common Stock
owned by the Purchasers, each of the Purchaser's general partners and members of
their respective immediate families to whom shares may have been distributed by
a Purchaser, such holders shall be deemed to own the total number of shares of
Common Stock issuable upon conversion of the Preferred Stock. "Annual Net
Income", as used herein, means the net income of the Company for a full fiscal
year as reported in the Company's audited financial statements for such year,
adjusted, however, by excluding from revenue for such fiscal year any
extraordinary or non-recurring revenue and any up-front license fees which
entitle the licensee-payor to license rights for a period in excess of one year.
4.8 RIGHT OF FIRST REFUSAL.
(a) Until such time as the earlier of (i) the date that the Company first
reports Annual Net Income of Fifteen Million Dollars ($15,000,000) and (ii) the
date that the Purchasers and their respective affiliates described in Section
4.7 collectively own less than the Minimum Holdings, each of the Purchasers
shall have the right of first refusal to purchase all or part of its pro rata
share of any New Securities (as defined below) which the Company may, from time
to time, propose to sell and issue, subject to the terms and conditions set
forth below. Each Purchaser's pro rata share, for purposes of this Section 4.8,
shall equal a fraction, the numerator of which is the number of shares of Common
Stock then held by such Purchaser or issuable upon conversion or exercise of any
shares of Preferred Stock, the Warrants or other convertible securities,
options, rights or warrants then held by such Purchaser, and the denominator of
which is the total number of shares of Common Stock then outstanding plus the
number of shares of Common Stock issuable upon conversion or exercise of then
outstanding Preferred Stock or the Warrants or other convertible securities,
option, rights or warrants held by the Purchasers.
(b) "New Securities" shall mean any shares of capital stock of the Company
whether now authorized or not, and rights, options or warrants to purchase
capital stock, and securities of any type whatsoever which are, or may become,
convertible into capital stock; provided, however, that the term "New
Securities" does not include
(i) the shares of Preferred Stock and the Warrants issued or issuable to
the Purchasers pursuant to the terms of this Agreement or the shares of
Common Stock issued or issuable to the Purchasers upon conversion of such
securities;
(ii) securities issued for the acquisition of another corporation by the
Company by merger, purchase of substantially all the assets of such
corporation or another reorganization resulting in the ownership by the
Company of not less than a majority of the voting power of such corporation;
(iii) not more than 4,037,618 shares of Common Stock (such number being
subject to adjustment for any stock dividend, stock split, subdivision,
combination or other recapitalization of the Common Stock of the Company)
issued to directors or employees of or consultants to the Company pursuant
to the Company's stock option plans and such additional shares of Common
Stock that may be issued to employees of or consultants to the Company
pursuant to stock option plans approved by a majority of the members of the
Company's Board of Directors then in office;
(iv) not more than 117,433 shares of Common Stock (such number being
subject to adjustment for any stock dividend, stock split, subdivision,
combination or other recapitalization of the Common Stock of the Company)
issued to employees of the Company pursuant to the Company's employee stock
purchase plan;
(v) not more than 304,500 shares of Common Stock (such number being
subject to adjustment for any stock dividend, stock split, subdivision,
combination or other recapitalization of the Common
13
Stock of the Company) issued to Halifax Fund L.P. or Capital Ventures
International or their permitted transferees, pursuant to warrants issued to
such holders and outstanding on the date hereof;
(vi) not more than 202,595 shares of Common Stock (such number being
subject to adjustment for any stock dividend, stock split, subdivision,
combination or other recapitalization of the Common Stock of the Company)
issued to Xxxxxxxx Xxxxxxxx, Xxxxx Xxxxxxxx, Ton Xxxxx and Xxxxx Xxxxxxxx or
their permitted transferees, pursuant to warrants issued to such holders and
outstanding on the date hereof;
(vii) not more than 500,000 shares of Common Stock (such number being
subject to adjustment for any stock dividend, stock split, subdivision,
combination or other recapitalization of the Common Stock of the Company)
issued to Siemens Aktiengesellschaft ("Siemens"), pursuant to Section 5.1 of
that certain License Agreement between the Company and Siemens dated October
22, 1997; or
(viii) securities issued as a result of any stock split, stock dividend or
reclassification of Common Stock, distributable on a pro rata basis to all
holders of Common Stock.
(c) In the event the Company intends to issue New Securities, it shall give
each Purchaser written notice of such intention, describing the type of New
Securities to be issued, the price thereof and the general terms upon which the
Company proposes to effect such issuance. Each of the Purchasers shall have 20
days from the date of its receipt of any such notice to agree to purchase all or
part of its pro rata share of New Securities, and any additional New Securities
not purchased by the other Purchasers, for the price and upon the general terms
and conditions specified in the Company's notice by giving written notice to the
Company stating the quantity of New Securities to be so purchased. In the event
a Purchaser elects not to purchase all of its pro rata share of New Securities,
and if each of the other Purchasers has given written notice to the Company that
it does not desire to purchase the New Securities not being purchased, the
Company may issue the New Securities described in the Company's notice within 30
days after the expiration of such 20-day period, for the price and upon the
general terms and conditions specified in the Company's notice to the
Purchasers.
(d) For purposes of this Section 4.8, "Purchaser" shall include the general
partners, officers or other affiliates of the Purchaser and members of their
families, and the Purchasers may apportion, to the extent such apportionment
would not prevent the Company from issuing New Securities in satisfaction of its
obligations under this Section 4.8 pursuant to an exemption from registration
under the Securities Act, its pro rata share among itself and such general
partners, officers, affiliates and family members in such proportion as it deems
appropriate.
4.9 ABSENCE OF STOCKHOLDER APPROVAL. In the event the stockholders of the
Company do not approve the proposals described in Section 1.3(a)(x) of this
Agreement at the Company's 1997 Annual Meeting of Stockholders to be held on or
prior to December 19, 1997, the Company shall promptly reimburse each of the
Purchasers for the reasonable costs and expenses, including reasonable
attorneys' fees, incurred by such Purchaser in connection with this Agreement
and the transactions contemplated hereby; and the condition to exercise
contained in the second paragraph of the Warrants shall cease to apply with the
effect that such Warrants shall be irrevocably exercisable in accordance with
their terms.
4.10 BOARD OF DIRECTORS EXPANSION, ETC. The Company and the Purchasers
agree that the election of the Chairman of the Board of the Company, if any, and
the nomination of additional Directors to serve as members of the Board beyond
the number specified in Section 1.3(a)(x) of this Agreement shall require the
affirmative vote of three-fourths of the members of the Board of Directors then
in office, and the Company shall use its best efforts to cause its Board of
Directors to amend by the By-laws of the Company to include therein such a
provision. Any amendments to such bylaw provision shall require the affirmative
vote of three-fourths of the members of the Board of Directors then in office.
4.11 XXXX-XXXXX-XXXXXX ACT. The Company and the Purchasers shall each
promptly file any Notification and Report Forms and related material that it may
be required to file with the Federal Trade
14
Commission and the Antitrust Division of the United States Department of Justice
under the Xxxx-Xxxxx-Xxxxxx Act, shall use its best efforts to obtain an early
termination of the applicable waiting period, and shall make any further filings
or information submissions pursuant thereto that may be necessary, proper or
advisable.
4.12 SALE OF SHARES UNDER RULE 144. From and after the First Closing, at
the request of any holder of Shares (or other Registrable Securities (as defined
in the Registration Rights Agreement) who proposes to sell the same in
compliance with Rule 144 under the Securities Act, the Company shall (a)
promptly furnish to such holder a written statement as to its compliance with
the filing requirements of the SEC as set forth in Rule 144, as the same may be
amended from time to time, and (b) make such additional filings of reports with
the SEC as will enable the holders of Registrable Securities to make sales
thereof pursuant to such Rule. The Company shall provide its transfer agent with
appropriate instructions and/or opinions of counsel in order for any restrictive
legend contained on the certificates for the Shares (or other Registrable
Securities) to be removed when appropriate and for such holders to sell,
transfer and/or dispose of the Registrable Securities in accordance with Rule
144.
4.13 EXERCISE OF THE WARRANTS. Each of the Purchasers agrees that it shall
not exercise the Warrants, in whole or in part, on or prior to December 19,
1997, PROVIDED, HOWEVER, each of the Purchasers may elect to exercise Warrants,
in whole or in part, prior to such date in the event of any proposed (a) merger
or consolidation of the Company into or with another corporation or other
entity, (b) sale or other transfer in one or more transactions of 50% or more of
the assets or earning power of the Company, (c) tender or exchange offer for
securities of the Company, (d) sale or other transfer in one or more
transactions of 20% or more of the securities of the Company, or (e)
liquidation, dissolution or winding up of the Company.
4.14 ABSENCE OF MATERIAL CHANGES. In addition to any other rights provided
by law or in the Certificate of Designations, prior to January 31, 1998, without
the prior written consent of the Purchasers holding at least 51% of the Shares
then outstanding, the Company shall not: (a) issue any stock, bonds or other
corporate securities or grant any option or issue any warrant to purchase or
subscribe for any of such securities or issue any securities convertible into
such securities, EXCLUDING, HOWEVER, options to purchase Common Stock issued to
employees of the Company in the ordinary course of business pursuant to the
Company's existing stock option plans; (b) declare or make any payment or
distribution to its stockholders with respect to its stock, including without
limitation a stock split or stock dividend, or purchase or redeem any shares of
its capital stock; (c) reclassify any shares of its capital stock; (d) merge or
consolidate with or into any corporation or other entity, or sell all or
substantially all of its assets; or (e) commit or agree to do any of the
foregoing in the future.
5. LEGENDS
5.1 LEGENDS. The certificates evidencing the Preferred Stock, the
certificates evidencing the Common Stock purchased by the Purchaser at the
Second Closing and certificates evidencing any shares of Common Stock issued
upon conversion of the Preferred Stock prior to the effectiveness of the
Registration Statement and, except as hereinafter provided in this Section 5.1,
after effectiveness of the Registration Statement, will bear the following
legend (the "Legend"):
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD OR OFFERED FOR SALE
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES
UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR AN APPLICABLE
EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS.
At the First Closing, the Company will issue to the transfer agent for its
Common Stock (and to any substitute or replacement transfer agent for its Common
Stock coterminous with the Company's appointment of any such substitute or
replacement transfer agent) irrevocable instructions in form and substance
reasonably satisfactory to the Purchasers. It is the intent and purpose of such
instructions to require the
15
transfer agent for the Common Stock from time to time to issue certificates
evidencing the Shares free of the Legend during the following periods and under
the following circumstances and without consultation by the transfer agent with
Company or its counsel and without the need for any further advice or
instruction to the transfer agent by or from the Company or its counsel:
(a) At any time from and after the effectiveness of the Registration
Statement, except during periods when use of the Registration Statement is
suspended (as described in Section 7 of the Registration Rights Agreement):
(i) Upon any surrender of one or more Preferred Stock certificates
for conversion into Underlying Stock, to the extent such surrender is
accompanied by a conversion notice requesting the issuance of
certificates evidencing Common Stock free of the Legend and either
containing or also accompanied by representations to the effect that the
holder of the surrendered securities intends to effect one or more sales
of such Shares pursuant to and in accordance with the Registration
Statement, including the prospectus delivery requirements applicable
thereto; and
(ii) upon any surrender of one or more certificates evidencing
Shares and which bear the Legend, to the extent accompanied by a notice
requesting the issuance of new certificates free of the Legend to replace
those surrendered and containing or also accompanied by representations
by the holder of the surrendered securities to the effect of those
described in Section 5.1(a)(i) above.
(b) At any time from and after the First Closing Date, upon any
surrender of one or more certificates evidencing Shares and which bear the
Legend, to the extent accompanied by a notice requesting the issuance of new
certificates free of the Legend to replace those surrendered and containing
or also accompanied by representations that (i) the holder thereof is
permitted to dispose thereof pursuant to Rule 144 promulgated under the
Securities Act or (ii) the holder intends to effect the sale or other
disposition of such securities, whether or not pursuant to the Registration
Statement, to a purchaser or purchasers who will not be subject to the
registration requirements of the Securities Act, or (iii) such holder is not
then subject to such requirements.
In addition, and if applicable, the Company shall reissue the Preferred
Stock, the Common Stock and the Underlying Stock without the Legend at such time
as (i) the holder thereof is permitted to dispose thereof pursuant to Rule 144
under the Securities Act or (ii) the holder intends to effect a sale thereof to
a purchaser or purchasers who will not be subject to the registration
requirements of the Securities Act, or (iii) the holder is not then subject to
such requirements.
5.2 NO OTHER LEGEND OR STOCK TRANSFER RESTRICTIONS. No legend has been or
shall be placed on the share certificates representing the Securities and no
instructions or "stop transfers," so called, "stock transfer restrictions," so
called, or other restrictions have been or shall be given to the Company's
transfer agent with respect thereto, other than as set forth in this Section 5.
5.3 PURCHASER'S COMPLIANCE. Nothing in this section shall affect in any
way the Purchasers' obligations under and agreement to comply with all
applicable securities laws upon resale of the Securities.
6. CHOICE OF LAW AND VENUE
THIS AGREEMENT SHALL BE CONSTRUED UNDER THE LAWS OF THE STATE OF CALIFORNIA,
WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW OR CHOICE OF LAW, EXCEPT TO THE
EXTENT THAT THE LAW OF THE STATE OF DELAWARE REGULATES THE COMPANY'S ISSUANCE OF
SECURITIES.
16
7. ASSIGNMENT; ENTIRE AGREEMENT; AMENDMENT
7.1 ASSIGNMENT. This Agreement may not be assigned by the Purchasers or
the Company to any other person. Notwithstanding the foregoing, the provisions
of this Agreement shall inure to the benefit of, and be enforceable by, any
assignee of a Purchaser which is a general partner of such Purchaser and by any
transferee of any of the Securities purchased or acquired by such Purchaser
hereunder with respect to the Securities held by such person or entity.
7.2 ENTIRE AGREEMENT; AMENDMENT. This Agreement, the Preferred Stock, the
Warrants, the Common Stock, the Registration Rights Agreement, the Ancillary
Agreements and the other agreements and documents delivered pursuant hereto
constitute the full and entire understanding and agreement between the parties
with regard to the subjects hereof and thereof and supersede all prior
agreements and understandings relating to such subject matter, and no party
shall be liable or bound to any other party in any manner by any warranties,
representations or covenants except as specifically set forth in this Agreement
or therein. Except as expressly provided in this Agreement, neither this
Agreement nor any term hereof may be amended, waived, discharged or terminated
other than by a written instrument signed by the party against whom enforcement
of any such amendment, waiver, discharge or termination is sought.
8. PUBLICITY
The Company agrees that it will not disclose, and will not include in any
public announcement, the name of a Purchaser without its consent, unless and
until such disclosure is required by law or applicable regulation, and then only
to the extent of such requirement and subject to the prior review of the content
of such disclosure by each of the Purchasers.
9. NOTICES, ETC.; EXPENSES; INDEMNITY
9.1 NOTICES. Any notice, demand, request or other communication required
or permitted to be given by either the Company or a Purchaser pursuant to the
terms of this Agreement shall be in writing and shall be deemed to have been
duly given when delivered personally or by facsimile, with a hard copy to follow
by overnight delivery by a reputable courier:
If to the Company, at 00000 Xxxxxxx Xxxxxxx, Xxxxxxx, Xxxxxxxxxx 00000,
Attention: President, Facsimile No: (000) 000-0000, or at such other address
or addresses as may have been furnished in writing by the Company to the
Purchasers, with a copy to Xxxxxx X. Xxxxxx, Esq., Xxxxxx Xxxxxxx Xxxxxxxx &
Xxxxxx, Professional Corporation, 000 Xxxx Xxxx Xxxx, Xxxx Xxxx, Xxxxxxxxxx
00000, Facsimile No. (000) 000-0000; or
If to a Purchaser, at its address set forth in Exhibit A, or at such
other address or addresses as may have been furnished to the Company in
writing by such Purchaser, with a copy to Xxxx X. Xxxxxxxx, Esq., Xxxx and
Xxxx LLP, 00 Xxxxx Xxxxxx, Xxxxxx, Xxxxxxxxxxxxx 00000, Facsimile No: (617)
526-5000.
9.2 INDEMNIFICATION. Each party ("Indemnifying Party") shall indemnify the
other party against any loss, liabilities, expenses, cost or damages (including
reasonable attorney's fees) incurred as a result of the Indemnifying Party's
breach of any representation, warranty, covenant or agreement in this Agreement.
In addition, if the Company fails for any reason to sell the Preferred Stock to
the Purchasers at the First Closing, the Company shall promptly pay the
Purchaser an amount equal to the Purchasers' reasonable expenses and costs
(including without limitation, reasonable attorneys' fees) incurred in
connection with this Agreement and the transactions contemplated hereby.
17
10.COUNTERPARTS
This Agreement may be executed in any number of counterparts, each of which
shall be enforceable against the parties actually executing such counterparts,
and all of which together shall constitute one instrument.
11.SURVIVAL; SEVERABILITY
The representations, warranties, covenants and agreements of the parties
hereto shall survive both the First Closing and the Second Closing. In the event
that any provision of this Agreement becomes or is declared by a court of
competent jurisdiction to be illegal, unenforceable or void, this Agreement
shall continue in full force and effect without said provision; provided that
the absence of such provision does not materially change the economic benefit of
this Agreement to any party.
12.TITLE AND SUBTITLES
The titles and subtitles used in this Agreement are used for convenience
only and are not to be considered in construing or interpreting this Agreement.
IN WITNESS WHEREOF, the parties have signed this Agreement the day and year
first written above.
ATTEST GATEFIELD CORPORATION
/s/ XXXXXXX X. XXXXX By: /s/ XXXXX X. XXXXXXXX
---------------------------------------------
Xxxxxxx X. Xxxxx --------------------------------------------
VICE PRESIDENT, GENERAL COUNSEL Xxxxx X. Xxxxxxxx
AND CORPORATE SECRETARY ITS PRESIDENT AND CHIEF EXECUTIVE OFFICER
PURCHASERS:
IDANTA PARTNERS LTD.
By: /s/ XXXXX X. XXXX
--------------------------------------------
Xxxxx X. Xxxx, TRUSTEE
XXXX FAMILY TRUST
GENERAL PARTNER
XXXX FAMILY TRUST
By: /s/ XXXXX X. XXXX
--------------------------------------------
Xxxxx X. Xxxx, TRUSTEE
XXXXXXXXX XXXXX TRUST
By: /s/ XXXXXXXXX XXXXX
--------------------------------------------
Xxxxxxxxx Xxxxx, TRUSTEE
18
EXHIBIT A
LIST OF PURCHASERS
NO. OF SHARES NO. OF SHARES NO. OF SHARES
OF PREFERRED OF COMMON STOCK OF COMMON STOCK
STOCK ISSUABLE UPON AGGREGATE PURCHASE TO BE PURCHASED
TO BE PURCHASED EXERCISE OF PRICE TO BE PAID AT SECOND
NAME AND ADDRESS OF PURCHASER AT FIRST CLOSING WARRANT AT FIRST CLOSING CLOSING
------------------------------------ ----------------- ------------------ ------------------ ----------------
Idanta Partners Ltd. ............... 790,000 788,223 $ 3,620,175 3,620,175
0000 Xx Xxxxx Xxxxxxx Xxxxx, Xxxxx
000
Xxx Xxxxx, Xxxxxxxxxx 00000
Attn: Xxxxx X. Xxxx
Facsimile No.: (000) 000-0000
Xxxx Family Trust .................. 200,000 199,550 $ 916,500 916,500
0000 Xx Xxxxx Xxxxxxx Xxxxx, Xxxxx
000
Xxx Xxxxx, Xxxxxxxxxx 00000
Attn: Xxxxx X. Xxxx, Trustee
Facsimile No.: (000) 000-0000
Xxxxxxxxx Xxxxx Trust .............. 10,000 9,978 $ 45,825 45,825
0000 Xx Xxxxx Xxxxxxx Xxxxx, Xxxxx
000
Xxx Xxxxx, Xxxxxxxxxx 00000
Attn: Xxxxxxxxx Xxxxx, Trustee
Facsimile No.: (000) 000-0000
----------------- ---------- ------------------ ----------------
TOTAL........................... 1,000,000 997,751 $ 4,582,500 4,582,500
----------------- ---------- ------------------ ----------------
----------------- ---------- ------------------ ----------------
A-1
EXHIBIT B
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUED UPON ITS
EXERCISE ARE SUBJECT TO THE RESTRICTIONS ON
TRANSFER SET FORTH IN SECTION 4 OF THIS WARRANT
Warrant No. ______ Number of Shares: ____________________
(subject to adjustment)
Date of Issuance: November 10, 1997
GATEFIELD CORPORATION
COMMON STOCK PURCHASE WARRANT
(Void after November 10, 1999)
GateField Corporation, a Delaware corporation (the "Company"), for value
received, hereby certifies that ______, or its registered assigns (the
"Registered Holder"), is entitled, subject to the terms set forth below, to
purchase from the Company, at any time or from time to time on or after the date
of issuance and on or before November 10, 1999 at not later than 5:00 p.m.
(California time), ______ shares of Common Stock, $.10 par value per share, of
the Company, at a purchase price of $1.00 per share. The shares purchasable upon
exercise of this Warrant, and the purchase price per share, each as adjusted
from time to time pursuant to the provisions of this Warrant, are hereinafter
referred to as the "Warrant Shares" and the "Purchase Price," respectively.
Notwithstanding the foregoing, if (A) the stockholders of the Company
approve the proposals to be submitted to them at the 1997 Annual Meeting of
Stockholders to be held or or prior to December 19, 1997, as set forth in
Section 1.3(a)(x) of the Stock Purchase Agreement among the Company, the
Registered Holder, the Xxxx Family Trust and the Xxxxxxxxx Xxxxx Trust
(collectively, the "Purchasers"), dated November 10, 1997 (the "Stock Purchase
Agreement"), and (B) the Company issues 4,582,500 shares of its Common Stock to
the Purchasers at the Second Closing (as defined the Stock Purchase Agreement),
then, and only in such event, this Warrant shall be cancelled and all of the
rights of the Registered Holder and the obligations of the Company hereunder
shall be of no further force or effect and shall terminate effective at the
later of, (i) the time such stockholder approval is so obtained and certified by
the Secretary of the Company and the amendment to the Certificate of
Incorporation of the Company so approved by the stockholders is duly filed and
recorded under the laws of the State of Delaware and (ii) the effective time of
the transactions consummated at the Second Closing (as defined in the Stock
Purchase Agreement).
1. EXERCISE.
(a) This Warrant may be exercised by the Registered Holder, in whole or in
part, by surrendering this Warrant, with the purchase form appended hereto as
EXHIBIT I duly executed by such Registered Holder or by such Registered Holder's
duly authorized attorney, at the principal office of the Company, or at such
other office or agency as the Company may designate, accompanied by payment in
full, in lawful money of the United States, of the Purchase Price payable in
respect of the number of Warrant Shares purchased upon such exercise.
(b) The Registered Holder may, at its option, elect to pay some or all of
the Purchase Price payable upon an exercise of this Warrant by cancelling a
portion of this Warrant exercisable for such number of Warrant Shares as is
determined by dividing (i) the total Purchase Price payable in respect of the
number of Warrant Shares being purchased upon such exercise by (ii) the excess
of the Fair Market Value per share of Common Stock as of the effective date of
exercise, as determined pursuant to subsection 1(c) below (the
B-1
"Exercise Date") over the Purchase Price per share. If the Registered Holder
wishes to exercise this Warrant pursuant to this method of payment with respect
to the maximum number of Warrant Shares purchasable pursuant to this method,
then the number of Warrant Shares so purchasable shall be equal to the total
number of Warrant Shares, minus the product obtained by multiplying (x) the
total number of Warrant Shares by (y) a fraction, the numerator of which shall
be the Purchase Price per share and the denominator of which shall be the Fair
Market Value per share of Common Stock as of the Exercise Date. The Fair Market
Value per share of Common Stock shall be determined as follows:
(i) If the Common Stock is listed on a national securities exchange, the
Nasdaq National Market, or another nationally recognized exchange or trading
system as of the Exercise Date, the Fair Market Value per share of Common
Stock shall be deemed to be the last reported sale price per share of Common
Stock thereon on the Exercise Date; or, if no such price is reported on such
date, such price on the next preceding business day (provided that if no
such price is reported on the next preceding business day, the Fair Market
Value per share of Common Stock shall be determined pursuant to clause
(ii)).
(ii) If the Common Stock is not listed on a national securities
exchange, the Nasdaq National Market, or another nationally recognized
exchange or trading system as of the Exercise Date, the Fair Market Value
per share of Common Stock shall be deemed to be the amount most recently
determined by the Board of Directors to represent the fair market value per
share of the Common Stock (including without limitation a determination for
purposes of granting Common Stock options or issuing Common Stock under an
employee benefit plan of the Company); and, upon request of the Registered
Holder, the Board of Directors (or a representative thereof) shall promptly
notify the Registered Holder of the Fair Market Value per share of Common
Stock. Notwithstanding the foregoing, if the Board of Directors has not made
such a determination within the three-month period prior to the Exercise
Date, then (A) the Fair Market Value per share of Common Stock shall be the
amount next determined by the Board of Directors to represent the fair
market value per share of the Common Stock (including without limitation a
determination for purposes of granting Common Stock options or issuing
Common Stock under an employee benefit plan of the Company), (B) the Board
of Directors shall make such a determination within 15 days of a request by
the Registered Holder that it do so, and (C) the exercise of this Warrant
pursuant to this subsection 1(b) shall be delayed until such determination
is made.
(c) Each exercise of this Warrant shall be deemed to have been effected
immediately prior to the close of business on the day on which this Warrant
shall have been surrendered to the Company as provided in subsection 1(a) above.
At such time, the person or persons in whose name or names any certificates for
Warrant Shares shall be issuable upon such exercise as provided in subsection
1(d) below shall be deemed to have become the holder or holders of record of the
Warrant Shares represented by such certificates.
(d) As soon as practicable after the exercise of this Warrant in full or in
part, and in any event within 10 days thereafter, the Company, at its expense,
will cause to be issued in the name of, and delivered to, the Registered Holder,
or as such Holder (upon payment by such Holder of any applicable transfer taxes)
may direct:
(i) a certificate or certificates for the number of full Warrant Shares
to which such Registered Holder shall be entitled upon such exercise plus,
in lieu of any fractional share to which such Registered Holder would
otherwise be entitled, cash in an amount determined pursuant to Section 3
hereof; and
(ii) in case such exercise is in part only, a new warrant or warrants
(dated the date hereof) of like tenor, calling in the aggregate on the face
or faces thereof for the number of Warrant Shares equal (without giving
effect to any adjustment therein) to the number of such shares called for on
the face of this Warrant minus the sum of (a) the number of such shares
purchased by the Registered Holder
B-2
upon such exercise plus (b) the number of Warrant Shares (if any) covered by
the portion of this Warrant cancelled in payment of the Purchase Price
payable upon such exercise pursuant to subsection 1(b) above.
2. ADJUSTMENTS.
(a) If outstanding shares of the Company's Common Stock shall be subdivided
into a greater number of shares or a dividend in Common Stock shall be paid in
respect of Common Stock, the Purchase Price in effect immediately prior to such
subdivision or at the record date of such dividend shall simultaneously with the
effectiveness of such subdivision or immediately after the record date of such
dividend be proportionately reduced. If outstanding shares of Common Stock shall
be combined into a smaller number of shares, the Purchase Price in effect
immediately prior to such combination shall, simultaneously with the
effectiveness of such combination, be proportionately increased. When any
adjustment is required to be made in the Purchase Price, the number of Warrant
Shares purchasable upon the exercise of this Warrant shall be changed to the
number determined by dividing (i) an amount equal to the number of shares
issuable upon the exercise of this Warrant immediately prior to such adjustment,
multiplied by the Purchase Price in effect immediately prior to such adjustment,
by (ii) the Purchase Price in effect immediately after such adjustment.
(b) If there shall occur any capital reorganization or reclassification of
the Company's Common Stock (other than a change in par value or a subdivision or
combination as provided for in subsection 2(a) above), or any consolidation or
merger of the Company with or into another corporation, or a transfer of all or
substantially all of the assets of the Company, then, as part of any such
reorganization, reclassification, consolidation, merger or sale, as the case may
be, lawful provision shall be made so that the Registered Holder of this Warrant
shall have the right thereafter to receive upon the exercise hereof the kind and
amount of shares of stock or other securities or property which such Registered
Holder would have been entitled to receive if, immediately prior to any such
reorganization, reclassification, consolidation, merger or sale, as the case may
be, such Registered Holder had held the number of shares of Common Stock which
were then purchasable upon the exercise of this Warrant. In any such case,
appropriate adjustment (as reasonably determined in good faith by the Board of
Directors of the Company) shall be made in the application of the provisions set
forth herein with respect to the rights and interests thereafter of the
Registered Holder of this Warrant, such that the provisions set forth in this
Section 2 (including provisions with respect to adjustment of the Purchase
Price) shall thereafter be applicable, as nearly as is reasonably practicable,
in relation to any shares of stock or other securities or property thereafter
deliverable upon the exercise of this Warrant.
(c) When any adjustment is required to be made in the Purchase Price, the
Company shall promptly mail to the Registered Holder a certificate setting forth
the Purchase Price after such adjustment and setting forth a brief statement of
the facts requiring such adjustment. Such certificate shall also set forth the
kind and amount of stock or other securities or property into which this Warrant
shall be exercisable following the occurrence of any of the events specified in
subsection 2(a) or (b) above.
3. FRACTIONAL SHARES. The Company shall not be required upon the exercise
of this Warrant to issue any fractional shares, but shall make an adjustment
therefor in cash on the basis of the Fair Market Value per share of Common
Stock, as determined pursuant to subsection 1(b) above.
4. REQUIREMENTS FOR TRANSFER.
(a) This Warrant and the Warrant Shares shall not be sold or transferred
unless either (i) they first shall have been registered under the Securities Act
of 1933, as amended (the "Act"), or (ii) the Company first shall have been
furnished with an opinion of legal counsel, reasonably satisfactory to the
Company, to the effect that such sale or transfer is exempt from the
registration requirements of the Act.
(b) Notwithstanding the foregoing, no registration or opinion of counsel
shall be required for (i) a transfer by a Registered Holder which is a
partnership to a partner of such partnership or a retired partner
B-3
of such partnership who retires after the date hereof, or to the estate of any
such partner or retired partner, if the transferee agrees in writing to be
subject to the terms of this Section 4, or (ii) a transfer made in accordance
with Rule 144 under the Act.
(c) Each certificate representing Warrant Shares shall bear a legend
substantially in the following form:
"The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended, and may not be offered,
sold or otherwise transferred, pledged or hypothecated unless and until
such securities are registered under such Act or an opinion of counsel
satisfactory to the Company is obtained to the effect that such
registration is not required."
The foregoing legend shall be removed from the certificates representing any
Warrant Shares, at the request of the holder thereof, at such time as they
become eligible for resale pursuant to Rule 144(k) under the Act.
5. NO IMPAIRMENT. The Company will not, by amendment of its charter or
through reorganization, consolidation, merger, dissolution, sale of assets or
any other voluntary action, avoid or seek to avoid the observance or performance
of any of the terms of this Warrant, but will at all times in good faith assist
in the carrying out of all such terms and in the taking of all such action as
may be necessary or appropriate in order to protect the rights of the holder of
this Warrant against impairment.
6. LIQUIDATING DIVIDENDS. If the Company pays a dividend or makes a
distribution on the Common Stock payable otherwise than in cash out of earnings
or earned surplus (determined in accordance with generally accepted accounting
principles) except for a stock dividend payable in shares of Common Stock (a
"Liquidating Dividend"), then the Company will pay or distribute to the
Registered Holder of this Warrant, upon the exercise hereof, in addition to the
Warrant Shares purchased upon such exercise, the Liquidating Dividend which
would have been paid to such Registered Holder if he had been the owner of
record of such Warrant Shares immediately prior to the date on which a record is
taken for such Liquidating Dividend or, if no record is taken, the date as of
which the record holders of Common Stock entitled to such dividends or
distribution are to be determined.
7. NOTICES OF RECORD DATE, ETC. In case:
(a) the Company shall take a record of the holders of its Common Stock
(or other stock or securities at the time deliverable upon the exercise of
this Warrant) for the purpose of entitling or enabling them to receive any
dividend or other distribution, or to receive any right to subscribe for or
purchase any shares of stock of any class or any other securities, or to
receive any other right; or
(b) of any capital reorganization of the Company, any reclassification
of the capital stock of the Company, any consolidation or merger of the
Company with or into another corporation (other than a consolidation or
merger in which the Company is the surviving entity), or any transfer of all
or substantially all of the assets of the Company; or
(c) of the voluntary or involuntary dissolution, liquidation or
winding-up of the Company, then, and in each such case, the Company will
mail or cause to be mailed to the Registered Holder of this Warrant a notice
specifying, as the case may be, (i) the date on which a record is to be
taken for the purpose of such dividend, distribution or right, and stating
the amount and character of such dividend, distribution or right, or (ii)
the effective date on which such reorganization, reclassification,
consolidation, merger, transfer, dissolution, liquidation or winding-up is
to take place, and the time, if any is to be fixed, as of which the holders
of record of Common Stock (or such other stock or securities at the time
deliverable upon the exercise of this Warrant) shall be entitled to exchange
their shares of Common Stock (or such other stock or securities) for
securities or other property deliverable upon
B-4
such reorganization, reclassification, consolidation, merger, transfer,
dissolution, liquidation or winding-up. Such notice shall be mailed at least
ten (10) days prior to the record date or effective date for the event
specified in such notice.
8. RESERVATION OF STOCK. The Company will at all times reserve and keep
available, solely for issuance and delivery upon the exercise of this Warrant,
such number of Warrant Shares and other stock, securities and property, as from
time to time shall be issuable upon the exercise of this Warrant.
9. EXCHANGE OF WARRANTS. Upon the surrender by the Registered Holder of
any Warrant or Warrants, properly endorsed, to the Company at the principal
office of the Company, the Company will, subject to the provisions of Section 4
hereof, issue and deliver to or upon the order of such Holder, at the Company's
expense, a new Warrant or Warrants of like tenor, in the name of such Registered
Holder or as such Registered Holder (upon payment by such Registered Holder of
any applicable transfer taxes) may direct, calling in the aggregate on the face
or faces thereof for the number of shares of Common Stock called for on the face
or faces of the Warrant or Warrants so surrendered.
10. REPLACEMENT OF WARRANTS. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and (in the case of loss, theft or destruction) upon delivery of an
indemnity agreement (with surety if reasonably required) in an amount reasonably
satisfactory to the Company, or (in the case of mutilation) upon surrender and
cancellation of this Warrant, the Company will issue, in lieu thereof, a new
Warrant of like tenor.
11. TRANSFERS, ETC.
(a) The Company will maintain a register containing the names and addresses
of the Registered Holders of this Warrant. Any Registered Holder may change its
or his address as shown on the warrant register by written notice to the Company
requesting such change.
(b) Subject to the provisions of Section 4 hereof, this Warrant and all
rights hereunder are transferable, in whole or in part, upon surrender of this
Warrant with a properly executed assignment (in the form of EXHIBIT II hereto)
at the principal office of the Company.
(c) Until any transfer of this Warrant is made in the warrant register, the
Company may treat the Registered Holder of this Warrant as the absolute owner
hereof for all purposes; PROVIDED, HOWEVER, that if and when this Warrant is
properly assigned in blank, the Company may (but shall not be obligated to)
treat the bearer hereof as the absolute owner hereof for all purposes,
notwithstanding any notice to the contrary.
12. MAILING OF NOTICES, ETC. All notices and other communications from the
Company to the Registered Holder of this Warrant shall be mailed by first-class
certified or registered mail, postage prepaid, to the address furnished to the
Company in writing by the last Registered Holder of this Warrant who shall have
furnished an address to the Company in writing. All notices and other
communications from the Registered Holder of this Warrant or in connection
herewith to the Company shall be mailed by first-class certified or registered
mail, postage prepaid, to the Company at its principal office set forth below.
If the Company should at any time change the location of its principal office to
a place other than as set forth below, it shall give prompt written notice to
the Registered Holder of this Warrant and thereafter all references in this
Warrant to the location of its principal office at the particular time shall be
as so specified in such notice.
13. NO RIGHTS AS STOCKHOLDER. Until the exercise of this Warrant, the
Registered Holder of this Warrant shall not have or exercise any rights by
virtue hereof as a stockholder of the Company.
14. CHANGE OR WAIVER. Any term of this Warrant may be changed or waived
only by an instrument in writing signed by the party against which enforcement
of the change or waiver is sought.
15. HEADINGS. The headings in this Warrant are for purposes of reference
only and shall not limit or otherwise affect the meaning of any provision of
this Warrant.
B-5
16. GOVERNING LAW. This Warrant will be governed by and construed in
accordance with the laws of the State of California.
GATEFIELD CORPORATION
By:
------------------------------------
Xxxxx X. Xxxxxxxx
ITS PRESIDENT AND CHIEF EXECUTIVE
OFFICER
ATTEST
---------------------------------------------
Xxxxxxx X. Xxxxx
VICE PRESIDENT, GENERAL COUNSEL
AND CORPORATE SECRETARY
B-6
EXHIBIT C
TERMS OF
CERTIFICATE OF DESIGNATION OF
SERIES B CONVERTIBLE PREFERRED STOCK
OF
GATEFIELD CORPORATION
One million (1,000,000) shares of the authorized and unissued Preferred
Stock of the Corporation are hereby designated "Series B Convertible Preferred
Stock" (the "Series B Preferred Stock") with the following rights, preferences,
powers, privileges and restrictions, qualifications and limitations.
1. DIVIDENDS.
(a) The holders of shares of Series B Preferred Stock shall be entitled to
receive dividends of $0.137475 per share per annum (subject to appropriate
adjustment in the event of any stock dividend, stock split, combination or other
similar recapitalization affecting such shares), payable when and as declared by
the Board of Directors of the Corporation. The right to receive dividends on
Series B Preferred Stock shall accrue and shall be cumulative from the date of
issuance of each share of Series B Preferred Stock, whether or not declared.
(b) The Corporation shall not declare or pay any distributions (as defined
below) on shares of Common Stock until the holders of the Series B Preferred
Stock then outstanding shall have first received a distribution at the rate
specified in paragraph (a) of this Section 1.
(c) For purposes of this Section 1, unless the context requires otherwise,
"distribution" shall mean the transfer of cash or property without
consideration, whether by way of dividend or otherwise, payable other than in
Common Stock or other securities of the Corporation, or the purchase or
redemption of shares of the Corporation (other than repurchases of Common Stock
held by employees or directors of, or consultants to, the Corporation upon
termination of their employment or services pursuant to agreements providing for
such repurchase at a price equal to the original issue price of such shares and
other than redemptions in liquidation or dissolution of the Corporation) for
cash or property, including any such transfer, purchase or redemption by a
subsidiary of this Corporation.
2. LIQUIDATION, DISSOLUTION OR WINDING UP; CERTAIN MERGERS, CONSOLIDATIONS
AND ASSET SALES.
(a) In the event of any voluntary or involuntary liquidation, dissolution or
winding up of the Corporation, including any insolvency or bankruptcy proceeding
affecting the Company which is not dismissed within sixty (60) days of the
filing thereof, the holders of shares of Series B Preferred Stock then
outstanding shall be entitled to be paid out of the assets of the Corporation
available for distribution to its stockholders, before any payment shall be made
to the holders of Common Stock or any other class or series of stock ranking on
liquidation junior to the Series B Preferred Stock (such Common Stock and other
stock being collectively referred to as "Junior Stock") by reason of their
ownership thereof, an amount equal to the greater of (i) $9.165 per share
(subject to appropriate adjustment in the event of any stock dividend, stock
split, combination or other similar recapitalization affecting such shares),
plus any accrued and unpaid dividends, whether declared or not, or (ii) such
amount per share as would have been payable had each such share been converted
into Common Stock pursuant to Section 4 immediately prior to such liquidation,
dissolution or winding up. If upon any such liquidation, dissolution or winding
up of the Corporation the remaining assets of the Corporation available for
distribution to its stockholders shall be insufficient to pay the holders of
shares of Series B Preferred Stock the full amount to which they shall be
entitled, the holders of shares of Series B Preferred Stock and any class or
series of stock ranking on liquidation on a parity with the Series B Preferred
Stock shall share ratably in any distribution of the remaining assets and funds
of the Corporation in proportion to the respective amounts which would
C-1
otherwise be payable in respect of the shares held by them upon such
distribution if all amounts payable on or with respect to such shares were paid
in full.
(b) After the payment of all preferential amounts required to be paid to the
holders of Series B Preferred Stock and any other class or series of stock of
the Corporation ranking on liquidation on a parity with the Series B Preferred
Stock, upon the dissolution, liquidation or winding up of the Corporation, the
holders of shares of Junior Stock then outstanding shall be entitled to receive
the remaining assets and funds of the Corporation available for distribution to
its stockholders.
(c) In the event of any merger or consolidation of the Corporation into or
with another corporation (except one in which the holders of capital stock of
the Corporation immediately prior to such merger or consolidation continue to
hold at least 80% by voting power of the capital stock of the surviving
corporation), or the sale of all or substantially all the assets of the
Corporation, if the holders of at least 51% of the then outstanding shares of
Series B Preferred Stock so elect by giving written notice thereof to the
Corporation at least three days before the effective date of such event, then
such merger, consolidation or asset sale shall be deemed to be a liquidation of
the Corporation, and all consideration payable to the stockholders of the
Corporation (in the case of a merger or consolidation), or all consideration
payable to the Corporation, together with all other available assets of the
Corporation (in the case of an asset sale), shall be distributed to the holders
of capital stock of the Corporation in accordance with Subsections 2(a) and 2(b)
above. The Corporation shall promptly provide to the holders of shares of Series
B Preferred Stock such information concerning the terms of such merger,
consolidation or asset sale and the value of the assets of the Corporation as
may reasonably be requested by the holders of Series B Preferred Stock in order
to assist them in determining whether to make such an election. If the holders
of the Series B Preferred Stock make such an election, the Corporation shall use
its best efforts to amend the agreement or plan of merger or consolidation to
adjust the rate at which the shares of capital stock of the Corporation are
converted into or exchanged for cash, new securities or other property to give
effect to such election. The amount deemed distributed to the holders of Series
B Preferred Stock upon any such merger or consolidation shall be the cash or the
value of the property, rights or securities distributed to such holders by the
acquiring person, firm or other entity. The value of such property, rights or
other securities shall be determined in good faith by the Board of Directors of
the Corporation. If no notice of the election permitted by this Subsection (c)
is given, the provisions of Subsection 4(h) shall apply.
3. VOTING.
(a) Each holder of outstanding shares of Series B Preferred Stock shall be
entitled to the number of votes equal to the number of whole shares of Common
Stock into which the shares of Series B Preferred Stock held by such holder are
then convertible (as adjusted from time to time pursuant to Section 4 hereof),
at each meeting of stockholders of the Corporation (and written actions of
stockholders in lieu of meetings) with respect to any and all matters presented
to the stockholders of the Corporation for their action or consideration. Except
as provided by law, by the provisions of Subsection 3(b) or Subsection 3(c)
below or by the provisions establishing any other series of Preferred Stock,
holders of Series B Preferred Stock and of any other outstanding series of
Preferred Stock shall vote together with the holders of Common Stock as a single
class.
(b) The Corporation shall not amend, alter or repeal the preferences,
special rights or other powers of the Series B Preferred Stock so as to affect
adversely the Series B Preferred Stock, without the written consent or
affirmative vote of the holders of a majority of the then outstanding shares of
Series B Preferred Stock, given in writing or by vote at a meeting, consenting
or voting (as the case may be) separately as a class. For this purpose, without
limiting the generality of the foregoing, the authorization of any shares of
capital stock on a parity with, or with priority or preference over, the Series
B Preferred Stock as to the right to receive either dividends or amounts
distributable upon liquidation, dissolution or winding up of the Corporation
shall be deemed to affect adversely the Series B Preferred Stock.
C-2
(c) In addition to any other rights provided by law, so long as at least
500,000 shares of Series B Preferred Stock shall be outstanding (subject to
appropriate adjustment in the event of any stock dividend, stock split,
combination or other similar recapitalization affecting such shares), the
Corporation shall not, without first obtaining the affirmative vote or written
consent of the holders of not less than 50% of the then outstanding shares of
Series B Preferred Stock:
(i) Amend or repeal any provision of, or add any provision to, the
Corporation's Certificate of Incorporation or By-laws, if such action would
adversely affect the preferences, rights, privileges or powers of, or the
restrictions provided for the benefit of, Series B Preferred Stock;
(ii) Authorize or issue any new or existing class or classes or series
of capital stock, excluding, however, shares of Common Stock issued (A) for
a per share consideration greater than the Conversion Price (as defined in
Section 4(a)), or (B) upon the exercise of options and warrants to acquire
Common Stock which were outstanding prior to the Original Issue Date (as
defined in Section 4(d)), other than the stock warrant to acquire Common
Stock granted to Siemens Aktiengesellschaft ("Siemens") pursuant to Section
5.2 of that certain License Agreement, dated as of October 22, 1997, between
the Company and Siemens;
(iii) Authorize or issue shares of stock of any class or any bonds,
debentures, notes or other obligations convertible into or exchangeable for,
or having rights to purchase, any shares of stock of the Corporation;
(iv) Reclassify any Common Stock or any new or existing class or classes
or series of capital stock;
(v) Pay or declare any dividend or distribution on any shares of its
capital stock (except dividends payable solely in shares of Common Stock),
or apply any of its assets to the redemption, retirement, purchase or
acquisition, directly or indirectly, through subsidiaries or otherwise, of
any shares or its capital stock; or
(vi) Issue any options, warrants or other securities exercisable or
exchangeable for or convertible into shares of stock of the Corporation,
EXCLUDING, HOWEVER, options and warrants to purchase Common Stock for a per
share consideration (including for this purpose the consideration paid for
any such warrants plus the consideration, if any, paid upon the acquisition
of such shares of Common Stock) of greater than the Conversion Price (as
defined in Section 4(a)).
4. OPTIONAL CONVERSION. The holders of the Series B Preferred Stock shall
have conversion rights as follows (the "Conversion Rights"):
(a) RIGHT TO CONVERT. Each share of Series B Preferred Stock shall be
convertible, at the option of the holder thereof, at any time and from time
to time, and without the payment of additional consideration by the holder
thereof, into such number of fully paid and nonassessable shares of Common
Stock as is determined by dividing $4.5825 by the Conversion Price (as
defined below) in effect at the time of conversion. The "Conversion Price"
shall initially be $1.00 per share or if the election is made to reduce the
Conversion Price pursuant to the provisions of Section 5(a) hereof, $.75 per
share. Such initial Conversion Price, and the rate at which shares of Series
B Preferred Stock may be converted into shares of Common Stock, shall be
subject to adjustment as provided below. In addition, any accrued and unpaid
dividends in respect of shares of Series B Preferred Stock surrendered for
conversion shall be convertible into such number of fully paid and
nonassessable shares of Common Stock as is determined by dividing the
aggregate dollar amount of such accrued and unpaid dividends by the
Conversion Price.
In the event of a notice of redemption of any shares of Series B
Preferred Stock pursuant to Section 5 hereof, the Conversion Rights of the
shares designated for redemption shall terminate at the close of business on
the fifth business day preceding the date fixed for redemption, unless the
C-3
redemption price is not paid when due, in which case the Conversion Rights
for such shares shall continue until such price is paid in full. In the
event of a liquidation of the Corporation, the Conversion Rights shall
terminate at the close of business on the first full day preceding the date
fixed for the payment of any amounts distributable on liquidation to the
holders of Series B Preferred Stock.
(b) FRACTIONAL SHARES. No fractional shares of Common Stock shall be
issued upon conversion of the Series B Preferred Stock. In lieu of any
fractional shares to which the holder would otherwise be entitled, the
Corporation shall pay cash equal to such fraction multiplied by the then
effective Conversion Price.
(c) MECHANICS OF CONVERSION.
(i) In order for a holder of Series B Preferred Stock to convert shares
of Series B Preferred Stock into shares of Common Stock, such holder shall
surrender the certificate or certificates for such shares of Series B
Preferred Stock, at the office of the transfer agent for the Series B
Preferred Stock (or at the principal office of the Corporation if the
Corporation serves as its own transfer agent), together with written notice
that such holder elects to convert all or any number of the shares of the
Series B Preferred Stock represented by such certificate or certificates.
Such notice shall state such holder's name or the names of the nominees in
which such holder wishes the certificate or certificates for shares of
Common Stock to be issued. If required by the Corporation, certificates
surrendered for conversion shall be endorsed or accompanied by a written
instrument or instruments of transfer, in form satisfactory to the
Corporation, duly executed by the registered holder or his or its attorney
duly authorized in writing. The date of receipt of such certificates and
notice by the transfer agent (or by the Corporation if the Corporation
serves as its own transfer agent) shall be the conversion date ("Conversion
Date"). The Corporation shall, as soon as practicable after the Conversion
Date, issue and deliver at such office to such holder of Series B Preferred
Stock, or to his or its nominees, a certificate or certificates for the
number of shares of Common Stock to which such holder shall be entitled,
together with cash in lieu of any fraction of a share.
(ii) The Corporation shall at all times when the Series B Preferred
Stock shall be outstanding, reserve and keep available out of its authorized
but unissued stock, for the purpose of effecting the conversion of the
Series B Preferred Stock, such number of its duly authorized shares of
Common Stock as shall from time to time be sufficient to effect the
conversion of all outstanding Series B Preferred Stock. Before taking any
action which would cause an adjustment reducing the Conversion Price below
the then par value of the shares of Common Stock issuable upon conversion of
the Series B Preferred Stock, the Corporation will take any corporate action
which may, in the opinion of its counsel, be necessary in order that the
Corporation may validly and legally issue fully paid and nonassessable
shares of Common Stock at such adjusted Conversion Price.
(iii) Upon any such conversion, all accrued and unpaid dividends on the
shares of Series B Preferred Stock surrendered for conversion shall be paid
to the holders thereof.
(iv) All shares of Series B Preferred Stock which shall have been
surrendered for conversion as herein provided shall no longer be deemed to
be outstanding and all rights with respect to such shares, including the
rights, if any, to receive notices and to vote, shall immediately cease and
terminate on the Conversion Date, except only the right of the holders
thereof to receive shares of Common Stock in exchange therefor and payment
of any dividends declared but unpaid thereon. Any shares of Series B
Preferred Stock so converted shall be retired and cancelled and shall not be
reissued, and the Corporation (without the need for stockholder action) may
from time to time take such appropriate action as may be necessary to reduce
the authorized Series B Preferred Stock accordingly.
(v) The Corporation shall pay any and all issue and other taxes that may
be payable in respect of any issuance or delivery of shares of Common Stock
upon conversion of shares of Series B Preferred
C-4
Stock pursuant to this Section 4. The Corporation shall not, however, be
required to pay any tax which may be payable in respect of any transfer
involved in the issuance and delivery of shares of Common Stock in a name
other than that in which the shares of Series B Preferred Stock so converted
were registered, and no such issuance or delivery shall be made unless and
until the person or entity requesting such issuance has paid to the
Corporation the amount of any such tax or has established, to the
satisfaction of the Corporation, that such tax has been paid.
(d) ADJUSTMENT FOR STOCK SPLITS AND COMBINATIONS. If the Corporation
shall at any time or from time to time after the date on which a share of
Series B Preferred Stock was first issued ("Original Issue Date") effect a
subdivision of the outstanding Common Stock, the Conversion Price then in
effect immediately before that subdivision shall be proportionately
decreased. If the Corporation shall at any time or from time to time after
the Original Issue Date combine the outstanding shares of Common Stock, the
Conversion Price then in effect immediately before the combination shall be
proportionately increased. Any adjustment under this paragraph shall become
effective at the close of business on the date the subdivision or
combination becomes effective.
(e) ADJUSTMENT FOR CERTAIN DIVIDENDS AND DISTRIBUTIONS. In the event
the Corporation at any time, or from time to time after the Original Issue
Date shall make or issue, or fix a record date for the determination of
holders of Common Stock entitled to receive, a dividend or other
distribution payable in additional shares of Common Stock, then and in each
such event the Conversion Price for the Series B Preferred Stock then in
effect shall be decreased as of the time of such issuance or, in the event
such a record date shall have been fixed, as of the close of business on
such record date, by multiplying the Conversion Price for the Series B
Preferred Stock then in effect by a fraction:
(1) the numerator of which shall be the total number of shares of
Common Stock issued and outstanding immediately prior to the time of such
issuance or the close of business on such record date, and
(2) the denominator of which shall be the total number of shares of
Common Stock issued and outstanding immediately prior to the time of such
issuance or the close of business on such record date plus the number of
shares of Common Stock issuable in payment of such dividend or
distribution;
provided, however, if such record date shall have been fixed and such
dividend is not fully paid or if such distribution is not fully made on the
date fixed therefor, the Conversion Price for the Series B Preferred Stock
shall be recomputed accordingly as of the close of business on such record
date and thereafter the Conversion Price for the Series B Preferred Stock
shall be adjusted pursuant to this paragraph as of the time of actual
payment of such dividends or distributions; and provided further, however,
that no such adjustment shall be made if the holders of Series B Preferred
Stock simultaneously receive a dividend or other distribution of shares of
Common Stock in a number equal to the number of shares of Common Stock as
they would have received if all outstanding shares of Series B Preferred
Stock had been converted into Common Stock on the date of such event.
(f) ADJUSTMENTS FOR OTHER DIVIDENDS AND DISTRIBUTIONS. In the event
the Corporation at any time or from time to time after the Original Issue
Date for the Series B Preferred Stock shall make or issue, or fix a record
date for the determination of holders of Common Stock entitled to receive, a
dividend or other distribution payable in securities of the Corporation
other than shares of Common Stock, then and in each such event provision
shall be made so that the holders of the Series B Preferred Stock shall
receive upon conversion thereof in addition to the number of shares of
Common Stock receivable thereupon, the amount of securities of the
Corporation that they would have received had the Series B Preferred Stock
been converted into Common Stock on the date of such event and had they
thereafter, during the period from the date of such event to and including
the conversion date, retained such securities receivable by them as
aforesaid during such period, giving application to all adjustments called
for during such period under this paragraph with respect to the rights of
the
C-5
holders of the Series B Preferred Stock; and provided further, however, that
no such adjustment shall be made if the holders of Series B Preferred Stock
simultaneously receive a dividend or other distribution of such securities
in an amount equal to the amount of such securities as they would have
received if all outstanding shares of Series B Preferred Stock had been
converted into Common Stock on the date of such event.
(g) ADJUSTMENT FOR RECLASSIFICATION, EXCHANGE, OR SUBSTITUTION. If the
Common Stock issuable upon the conversion of the Series B Preferred Stock
shall be changed into the same or a different number of shares of any class
or classes of stock, whether by capital reorganization, reclassification, or
otherwise (other than a subdivision or combination of shares or stock
dividend provided for above, or a reorganization, merger, consolidation, or
sale of assets provided for below), then and in each such event the holder
of each such share of Series B Preferred Stock shall have the right
thereafter to convert such share into the kind and amount of shares of stock
and other securities and property receivable upon such reorganization,
reclassification, or other change, by holders of the number of shares of
Common Stock into which such shares of Series B Preferred Stock might have
been converted immediately prior to such reorganization, reclassification,
or change, all subject to further adjustment as provided herein.
(h) ADJUSTMENT FOR MERGER OR REORGANIZATION, ETC. In case of any
consolidation or merger of the Corporation with or into another corporation
or the sale of all or substantially all of the assets of the Corporation to
another corporation (other than a consolidation, merger or sale which is
covered by Subsection 2(c)), each share of Series B Preferred Stock shall
thereafter be convertible (or shall be converted into a security which shall
be convertible) into the kind and amount of shares of stock or other
securities or property to which a holder of the number of shares of Common
Stock of the Corporation deliverable upon conversion of such Series B
Preferred Stock would have been entitled upon such consolidation, merger or
sale; and, in such case, appropriate adjustment (as determined in good faith
by the Board of Directors) shall be made in the application of the
provisions in this Section 4 set forth with respect to the rights and
interest thereafter of the holders of the Series B Preferred Stock, to the
end that the provisions set forth in this Section 4 (including provisions
with respect to changes in and other adjustments of the Conversion Price)
shall thereafter be applicable, as nearly as reasonably may be, in relation
to any shares of stock or other property thereafter deliverable upon the
conversion of the Series B Preferred Stock.
(i) NO IMPAIRMENT. The Corporation will not, by amendment of its
Certificate of Incorporation or through any reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or
any other voluntary action, avoid or seek to avoid the observance or
performance of any of the terms to be observed or performed hereunder by the
Corporation, but will at all times in good faith assist in the carrying out
of all the provisions of this Section 4 and in the taking of all such action
as may be necessary or appropriate in order to protect the Conversion Rights
of the holders of the Series B Preferred Stock against impairment.
(j) CERTIFICATE AS TO ADJUSTMENTS. Upon the occurrence of each
adjustment or readjustment of the Conversion Price pursuant to this Section
4, the Corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and furnish to each holder
of Series B Preferred Stock a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The Corporation shall, upon the written request at
any time of any holder of Series B Preferred Stock, furnish or cause to be
furnished to such holder a similar certificate setting forth (i) such
adjustments and readjustments, (ii) the Conversion Price then in effect, and
(iii) the number of shares of Common Stock and the amount, if any, of other
property which then would be received upon the conversion of Series B
Preferred Stock.
C-6
(k) NOTICE OF RECORD DATE. In the event:
(i) that the Corporation declares a dividend (or any other
distribution) on its Common Stock payable in Common Stock or other
securities of the Corporation;
(ii) that the Corporation subdivides or combines its outstanding
shares of Common Stock;
(iii) of any reclassification of the Common Stock of the
Corporation (other than a subdivision or combination of its
outstanding shares of Common Stock or a stock dividend or stock
distribution thereon), or of any consolidation or merger of the
Corporation into or with another corporation, or of the sale of all
or substantially all of the assets of the Corporation; or
(iv) of the involuntary or voluntary dissolution, liquidation or
winding up of the Corporation;
then the Corporation shall cause to be filed at its principal office or at
the office of the transfer agent of the Series B Preferred Stock, and shall
cause to be mailed to the holders of the Series B Preferred Stock at their
last addresses as shown on the records of the Corporation or such transfer
agent, at least ten days prior to the date specified in (A) below or twenty
days before the date specified in (B) below, a notice stating
(A) the record date of such dividend, distribution, subdivision or
combination, or, if a record is not to be taken, the date as of which
the holders of Common Stock of record to be entitled to such
dividend, distribution, subdivision or combination are to be
determined, or
(B) the date on which such reclassification, consolidation, merger, sale,
dissolution, liquidation or winding up is expected to become
effective, and the date as of which it is expected that holders of
Common Stock of record shall be entitled to exchange their shares of
Common Stock for securities or other property deliverable upon such
reclassification, consolidation, merger, sale, dissolution or winding
up.
5. REDEMPTION FOR FAILURE TO OBTAIN STOCKHOLDER APPROVAL AND EVENT OF
NONCOMPLIANCE.
(a) In the event that:
(i) the Corporation's stockholders do not, prior to December 19,
1997, approve (x) an amendment to the Corporation's Certificate of
Incorporation providing for the classification of the Board of
Directors of the Corporation into three classes, with members of each
class serving staggered three-year terms, and the election of one
Director designated by the holders of Series B Preferred Stock as a
Class II Director with an initial term of two years and one Director
designated by the holders of Series B Preferred Stock as a Class III
Director with an initial term of three years, (y) an amendment to the
Company's Certificate of Incorporation providing for the increase in
the number of shares of authorized Common Stock from 40,000,000 to
65,000,000 and (z) the sale to Idanta Partners Ltd., the Xxxx Family
Trust and the Xxxxxxxxx Xxxxx Trust of shares of Common Stock which,
together with the shares of Series B Preferred Stock owned by such
entities, represent more than twenty percent (20%) of the Company's
outstanding Common Stock (on an as-converted basis), or
(ii) an Event of Noncompliance (as defined below) occurs,
the holders of at least 51% of the then outstanding shares of Series B
Preferred Stock may elect to either (A) cause the Company to redeem the
shares of Series B Preferred Stock, in whole or in part, at a redemption
price equal to $4.5825 per share plus accrued and unpaid dividends thereon
(subject to adjustment for stock splits, stock dividends, combinations or
similar recapitalizations affecting such shares) in cash for each share of
Series B Preferred Stock then redeemed (the "Redemption Price")
C-7
or (B) reduce the Conversion Price as to all shares of Series B Preferred
Stock from $1.00 to $.75 per share. If the election is made to reduce the
Conversion Price, it shall be evidenced by a written notice delivered to the
Company by such holders and such reduction shall automatically be effective
on the date of delivery of such notice to the Company.
(b) At least fifteen (15) days prior to the date fixed by holders electing
to redeem their shares of Series B Preferred Stock ("Redeeming Holders"), for
any redemption of Series B Preferred Stock (hereinafter the "Redemption Date"),
the Redeeming Holders shall send the Corporation written notice that notifies
the Corporation of their election to redeem such shares, specifying the
Redemption Date and the number of shares to be redeemed and calling upon the
Corporation to pay the Redemption Price (such notice hereinafter referred to as
the "Redemption Notice"). On or prior to the Redemption Date, each Redeeming
Holder shall surrender his or its certificate or certificates representing such
shares to the Corporation, and thereupon the Redemption Price of such shares
shall be payable to the order of the person whose name appears on such
certificate or certificates as the owner thereof and each surrendered
certificate shall be cancelled. In the event less than all the shares
represented by any such certificate are redeemed, a new certificate shall be
issued representing the unredeemed shares. From and after the Redemption Date,
unless there shall have been a default in payment of the Redemption Price, all
rights of the holders of the Series B Preferred Stock designated for redemption
in the Redemption Notice as holders of Series B Preferred Stock of the
Corporation (except the right to receive the Redemption Price without interest
upon surrender of their certificate or certificates) shall cease with respect to
such shares, and such shares shall not thereafter be transferred on the books of
the Corporation or be deemed to be outstanding for any purpose whatsoever.
(c) "Event of Noncompliance", as used herein, means any of the following:
(i) Any of the representations or warranties made by the Corporation in
the Stock Purchase Agreement between the Corporation and the purchaser of
the Series B Preferred Stock dated November 10, 1997 ("Stock Purchase
Agreement"), or in any certificate or financial or other written statements
of the Corporation furnished by or on behalf of the Corporation in
connection with the execution and delivery of the Stock Purchase Agreement
and the closings of the purchase of the securities contemplated thereby
shall be false or (when taken together with other information furnished by
or on behalf of the Corporation, including reports and/or filings made with
the Securities and Exchange Commission) misleading in any material respect
at the time made; or
(ii) The Corporation shall fail to perform or observe any covenant or
agreement in the Stock Purchase Agreement, or any other covenant, term,
provision, condition, agreement or obligations of the Corporation under the
terms hereof and such failure shall continue uncured for a period of ten
(10) business days after notice from any holder of Series B Preferred Stock
of such failure; or
(iii) The Corporation shall (i) become insolvent; (ii) admit in writing
its inability to pay its debts generally as they mature; (iii) make a
general assignment for the benefit of creditors or commence proceedings for
its dissolution; or (iv) apply for or consent to the appointment of a
trustee, liquidator or receiver for it or for a substantial part of its
property or business; or
(iv) A trustee, liquidator or receiver shall be appointed for the
Corporation or for a substantial part of its property or business without
its consent and shall not be discharged within sixty (60) days after such
appointment; or
(v) Any governmental agency or any court of competent jurisdiction at
the instance of any governmental agency shall assume custody or control of
the whole or any substantial portion of the properties or assets of the
Corporation and shall not be dismissed within sixty (60) days thereafter; or
(vi) Any money judgment, writ or warrant of attachment, or similar
process in excess of Five Hundred Thousand Dollars ($500,000) in the
aggregate shall be entered or filed against the Corporation or any of its
properties or other assets and shall remain unpaid, unvacated, unbonded and
C-8
unstayed for a period of forty-five (45) days or in any event later than ten
(10) days prior to the date of any proposed sale thereunder; or
(vii) Bankruptcy, reorganization, insolvency or liquidation proceedings
or other proceedings, or relief under any bankruptcy law or any law for the
relief of debt shall be instituted by or against the Corporation and, if
instituted against the Corporation, shall not be dismissed within sixty (60)
days after such institution or the Corporation shall by any action or answer
approve of, consent to, or acquiesce in any such proceedings or admit to any
material allegations of, or default in answering a petition filed in, any
such proceeding; or
(viii) If prior to full conversion or redemption of the Series B Preferred
Stock, trading in the shares of the Common Stock on the Nasdaq National
Market shall be suspended for a period of five (5) consecutive trading days,
other than as a result of the suspension of trading in securities in
general, or if such shares are delisted and not relisted on the Nasdaq
National Market within thirty (30) days thereafter; or
(ix) If the Corporation has not, if requested by the holders of Series B
Preferred Stock to do so, in accordance with the Registration Rights
Agreement between the Corporation and the holders of the Series B Preferred
Stock, caused a registration statement relating to the resale of the Common
Stock issuable upon conversion of the Series B Preferred Stock to be filed
with the Securities and Exchange Commission and used its best efforts after
such filing to cause said registration statement to be declared effective,
as promptly as possible and in no event later than 60 days after request by
such holders, by the Securities and Exchange Commission.
6. REDEMPTION FOR FAILURE TO RESERVE SUFFICIENT SHARES OF COMMON STOCK.
(a) In the event that at any time after October 31, 1999 all outstanding
shares of Series B Preferred Stock cannot be fully converted into Common Stock
at any time because the Corporation has failed to reserve or otherwise provide a
sufficient number of shares of Common Stock to effect such conversion, the
holders of at least 51% of the then outstanding shares of Series B Preferred
Stock may elect to cause the Company to redeem the shares of Series B Preferred
Stock, in whole or in part, at a redemption price per share (the "Section 6
Redemption Price") equal to the greater of (i) the Redemption Price and (ii) the
result obtained by multiplying the Fair Market Value per share of Common Stock
(as defined below) by the number of shares of Common Stock into which each share
of Series B Preferred may then be converted.
(b) The "Fair Market Value per share of Common Stock" shall be deemed to be
the last reported sale price per share of Common Stock on a national securities
exchange, the Nasdaq National Market, or another nationally recognized exchange
or trading system on the date immediately preceding the date of delivery of the
Section 6 Redemption Notice; or, if no such price is reported on such date, such
price on the next preceding trading day on which such price is reported.
(c) Holders electing to redeem their shares of Series B Preferred Stock
pursuant to this Section 6 (the "Section 6 Redeeming Holders"), shall send the
Corporation written notice that notifies the Corporation of their election to
redeem such shares in accordance with this Section 6, specifying the date (not
less than ten days after the date of delivery of such notice) fixed by the
Section 6 Redeeming Holders for the redemption of Series B Preferred Stock
(hereinafter the "Section 6 Redemption Date"), and the number of shares to be
redeemed and calling upon the Corporation to pay the Section 6 Redemption Price
(such notice hereinafter referred to as the "Section 6 Redemption Notice").
(d) On or prior to the Section 6 Redemption Date, each Section 6 Redeeming
Holder shall surrender his or its certificate or certificates representing such
shares to the Corporation, and thereupon the Section 6 Redemption Price of such
shares shall be payable to the order of the person whose name appears on such
certificate or certificates as the owner thereof and each surrendered
certificate shall be cancelled. In the event less than all the shares
represented by any such certificate are redeemed, a new certificate shall be
issued representing the unredeemed shares. From and after the Section 6
Redemption Date, unless there
C-9
shall have been a default in payment of the Section 6 Redemption Price, all
rights of the holders of the Series B Preferred Stock designated for redemption
in the Section 6 Redemption Notice as holders of Series B Preferred Stock of the
Corporation (except the right to receive the Section 6 Redemption Price without
interest upon surrender of their certificate or certificates) shall cease with
respect to such shares, and such shares shall not thereafter be transferred on
the books of the Corporation or be deemed to be outstanding for any purpose
whatsoever.
C-10
