1
EXHIBIT 99.1
DRAFT: 12/26/96
THE SECURITIES SUBSCRIBED FOR HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED
STATES SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE OFFERED OR
SOLD IN THE UNITED STATES (AS DEFINED IN REGULATION S UNDER THE ACT) OR TO OR
FOR THE ACCOUNT OR BENEFIT OF U.S. PERSONS (AS DEFINED IN REGULATION S) EXCEPT
PURSUANT TO REGISTRATION UNDER OR AN EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE ACT.
OFFSHORE SECURITIES SUBSCRIPTION AGREEMENT
This Offshore Securities Subscription Agreement (the "Agreement"), dated
December 20, 1996, is entered into by and between Pinnacle Micro, Inc., a
company incorporated in the state of Delaware (the "Company"), and ((1)) (the
"Buyer").
The Company has offered for sale outside the United States (as that term is
defined in Regulation S ("Regulation S") under the Act up to $5,000,000 of 6%
Convertible Notes due December 20, 2001 (the "Securities"), convertible into
common stock of the Company. Buyer has been offered $ ((2)) in principal amount
of the Securities. Interest on the Securities will be payable as provided in the
form of Convertible Note attached hereto as Annex A. The terms on which the
Securities may be converted into shares of the Company's common stock (such
shares underlying the Securities being referred to herein as "Shares") and the
other terms of the Securities are set forth in the Form of Convertible Note
attached as Annex A. Capitalized terms used herein and not defined herein shall
have the meanings given to them in Regulation S as the same may be amended from
time to time.
The parties hereto agree as follows:
1. Purchase and Sale of Securities. Upon the basis of the representations and
warranties, and subject to the terms and conditions, set forth in this
Agreement, the Company covenants and agrees to sell to the Buyer on the Closing
Date (as hereinafter defined) $ ((2)) of the Securities at a price of 100% of
the original principal amount of the Securities, and upon the basis of the
representations and warranties, and subject to the terms and conditions, set
forth in this Agreement, the Buyer covenants and agrees to purchase from the
Company, on the Closing Date $ ((2)) of the Securities of the Company at 100% of
the original principal amount of the Securities.
2. Closing Instructions to Escrow Agent. (a) The closing of the purchase and
sale of the Securities pursuant to Section 1 hereof shall take place on or
before December 20, 1996 (the "Closing Date") after the Company has delivered to
the offices of First Bermuda Securities, Limited (the "Escrow Agent") located at
▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇, 33/35 ▇▇▇▇ Street, ▇▇▇▇▇▇▇▇, ▇▇ 12 Bermuda,
Convertible Notes (each a "Convertible Note") representing
2
EXHIBIT 99.1 (CONTINUED)
the Securities in amounts of not less than $100,000, in denominations of not
less than $25,000 and integral multiples thereof, registered in the name of the
Buyer (representing the maximum amount of Securities to be purchased by the
Buyer hereunder) and Warrants (as defined below) registered in the name of the
Buyer.
(b) The Company and the Buyer agree that they shall instruct the Escrow
Agent as provided in Annex B and as follows:
(i) On the Closing Date, for each Convertible Note and Warrant
subscribed for and delivered to the Escrow Agent pursuant to paragraph 2(a)
above, the Escrow Agent shall, upon confirmation in the form of a federal funds
wire number that First Bermuda Securities Limited has wired payment of the
aggregate purchase price for the Securities (less any fees the Company has
authorized Escrow Agent to deduct) in immediately available funds to the
Company's account as provided in the escrow instructions attached as Annex B,
release the Securities and the Warrants described in paragraph 2(a) above. The
Escrow Agent shall return to the Company any Convertible Notes and Warrants that
the Buyer does not purchase on the Closing Date. If the closing shall not have
taken place by December 20, 1996, this Agreement shall terminate.
(ii) The Escrow Agent will make delivery of the number of
Convertible Notes and Warrants set forth in clause (2a) above in accordance with
the instructions of the Buyer subject to customary settlement procedures upon
confirmation of the wiring of funds to the Company as described in clause
2(b)(i) above, except that all such Convertible Notes and the Warrants shall be
delivered to a location outside the United States and none of the Convertible
Notes or Warrants shall be delivered to a U.S. Person (as defined in Regulation
S).
3. Representations and Warranties of the Buyer: The Buyer understands and
represents and warrants to, and agrees with the Company that:
(a) The Buyer understands that no federal or state agency has passed on,
or made any recommendation or endorsement of the Securities.
(b) The Buyer acknowledges that, in making the decision to purchase the
Securities, it has relied solely upon independent investigations made by it and
not upon any representations made by the Company with respect to the Company or
the Securities, except for the representations and warranties in this Agreement,
the Convertible Note, the Warrant, the Registration Rights Agreement and the
Officer Certificate (as defined below), except that the Buyer has received,
reviewed and relied upon the Opinions of Counsel (as defined below) and copies
of the report on Form 10-Q for the quarter ended September 28, 1996, the report
Form 10-K for the year ended December 30, 1995, filed by the Company
3
EXHIBIT 99.1 (CONTINUED)
pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and all other filings, including filings on Form 8-K, under the Exchange
Act since December 30, 1995, which, together with any filings by Company after
the date hereof and prior the Closing, are defined as "Exchange Act Reports".
(c) The Buyer understands that the Securities are being offered and sold
to it in reliance on specific exemptions from or non-application of the
registration requirements of federal and state securities laws and that the
Company is relying upon the truth and accuracy of the representations,
warranties, agreements, acknowledgments and understandings of the Buyer set
forth herein in order to determine the applicability of such exemptions and the
suitability of the Buyer to acquire the Securities.
(d) The Buyer is not a U.S. Person (as defined in Regulation S) and is
not and will not be an affiliate (as defined in the Exchange Act) of the
Company. To enable the Company to avoid withholding interest paid, the Buyer
certifies under penalty of perjury that it is neither a citizen nor a resident
of the United States and that its address set forth in the Escrow Agreement is
correct.
(e) No public offer or solicitation of the Securities or the Shares
issuable on conversion of the Securities was made to the Buyer and no offer of
the Securities or the Shares issuable on conversion of the Securities was made
to the Buyer while the Buyer was present in the United States.
(f) At the time the buy order for the Securities was originated the Buyer
was located outside the United States and is outside the United States on the
date of the execution and delivery of this agreement and will be outside the
United States on the Closing Date.
(g) The Buyer is aware that the Securities and the Shares issuable upon
exercise of conversion rights have not been and will not be registered under the
Act (except as may be required under the Registration Rights Agreement) and may
only be offered or sold pursuant to registration under the Act or an available
exemption therefrom and Buyer has not, and will not, engage in any public
offering or distribution of the Securities or the Shares.
(h) The Buyer (i) will not, during the period commencing on the Closing
Date and ending 40 days after the Closing Date (the "Restricted Period"), offer
or sell or agree to sell the Securities in the United States, to a U.S. Person
or for the account or benefit of a U.S. Person or other than in accordance with
Rule 903 or 904, as applicable, of Regulation S, and (ii) will, after the
expiration of the Restricted Period, offer, sell, pledge or otherwise
4
EXHIBIT 99.1 (CONTINUED)
transfer the Securities or the common stock issuable upon the exercise of
conversion rights only pursuant to registration under the Act or an available
exemption therefrom and, in any case, in accordance with applicable federal and
state securities laws.
(i) The Buyer and its affiliates have been advised of and are familiar
with, have complied, and will comply, with the offering restrictions, and any
other requirements, of Regulation S.
(j) The transactions contemplated by this Agreement (i) have not been
pre-arranged by the Buyer with a purchaser located in the United States which is
a U.S. Person, and (ii) are not part of a plan or scheme by the Buyer to evade
the registration provisions of the Act.
(k) The Buyer is an "accredited investor" as defined in the Act and will
be purchasing the Securities for its account for the purpose of investment and
not (i) with a view to, or for sale in connection with, any distribution thereof
or (ii) for the account or on behalf of any U.S. Person.
(l) Neither the Buyer nor any of its affiliates has entered, has the
intention of entering, or will during the Restricted Period enter into, with any
U.S. Person, any put option, short position or other similar instrument or
position with respect to the Securities or securities into which the Securities
are convertible or participate in any other attempt designed to lower the
trading prices of the Company's common stock.
(m) The Buyer shall indemnify the Company against any loss, cost or
damages (including reasonable attorney's fees and expenses) incurred as a result
of such parties' breach of any representation, warranty, covenant or agreement
in this Agreement.
4. Registration Rights; Warrant. On or prior to the Closing Date, the Company
and Buyer agree to execute a Registration Rights Agreement (the "Registration
Rights Agreement") and a Warrant (the "Warrant") in the forms substantially set
out in Annex C and Annex D attached hereto, respectively.
5. Conversion of Securities. The Securities may be converted into the Shares, as
herein defined, at the option of the holder thereof under the terms set forth in
the Form of Convertible Note, attached hereto as Annex A.
6. Representations and Warranties of the Company. The Company represents and
warrants to, and agrees with, the Buyer that:
(a) The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of Delaware.
5
EXHIBIT 99.1 (CONTINUED)
(b) This Agreement has been duly authorized, executed and delivered by
the Company and is a valid and binding agreement enforceable in accordance with
its terms, subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general applicability relating to
or affecting creditors' rights generally and to general principles of equity;
and the Company has full corporate power and authority necessary to enter into
this Agreement and to perform its obligations thereunder.
(c) No consent, approval, authorization or order of any court,
governmental agency or body or arbitrator having jurisdiction over the Company
or any of its affiliates is required for execution of this Agreement, including,
without limitation, the issuance and sale of the Securities, or the performance
of its obligations hereunder.
(d) Except as disclosed to the Buyer or its representatives in writing,
neither the sale of Securities pursuant to, nor the performance of its
obligations under this Agreement by the Company will (i) violate, conflict with,
result in a breach of, or constitute a default (or an event which with the
giving of notice or the lapse of time or both would be reasonably likely to
constitute a default) under (A) the certificate of incorporation, charter or
by-laws of the Company or any of its affiliates, (B) any decree, judgment,
order, law, treaty, rule, regulation or determination applicable to the Company
or any of its affiliates of any court, governmental agency or body, or
arbitrator having jurisdiction over the Company or any of its affiliates or over
the properties or assets of the Company or any of its affiliates, (C) the terms
of any bond, debenture, note or any other evidence of indebtedness, or any
material agreement, stock option or other similar plan, indenture, lease,
mortgage, deed of trust or other material instrument to which the Company or any
of its affiliates is a party, by which the Company or any of its affiliates is
bound, or to which any of the properties of the Company or any of its affiliates
is subject, or (D) the terms of any "lock-up" or similar provision of any
underwriting or similar agreement to which the Company or any of its affiliates
is a party to; or (ii) result in the creation or imposition of any lien, charge
or encumbrance upon the Securities or any of the assets of the Company or any of
its affiliates.
(e) The Company has an authorized capitalization consisting of 30,000,000
shares of common stock, par value $.001 per share (the "Common Stock"), and
5,000,000 shares of Preferred Stock, par value $.001 per share ("Preferred
Stock"). The Company has issued and outstanding 9,859,986 shares of Common Stock
and nil shares of Preferred Stock as of December 16, 1996. All of the issued
shares of capital stock of the Company have been duly and validly authorized and
issued, are fully paid and non-assessable; prior to the Closing Date, the
authorized capitalization shall include the Shares to be issued upon conversion
of the Securities. The shares of Common Stock issuable upon conversion of the
Securities, when issued and delivered in accordance with the terms of the
Securities, will be duly and validly issued, fully paid and non-assessable. The
issuance of the Shares will not be in violation of any preemptive or similar
rights of the holders of any securities of the
6
EXHIBIT 99.1 (CONTINUED)
Company. The Securities (i) are free and clear of any security interests, liens,
claims or other encumbrances, (ii) have been duly and validly authorized and on
the Closing Date will be duly and validly issued, fully paid and non assessable,
(iii) will not have been, individually and collectively, issued or sold in
violation of any preemptive or other similar rights of the holders of any
securities of the Company and (iv) will not subject the holders thereof to
personal liability by reason of being such holders. The Common Stock underlying
the Securities is quoted on, and will be, following the completion of the
Restricted Period (if sold in accordance with the provisions of this Agreement,
applicable securities law and Regulation S as then in effect), eligible for
trading on, The Nasdaq Stock Market ("NASDAQ").
(f) The Company is a Reporting Issuer (as defined in Regulation S)
because it has a class of securities registered pursuant to Section 12(g) of the
Exchange Act and has filed all the material required to be filed pursuant to
Section 13(a) of the Exchange Act for a period of at least twelve (12) months
preceding the date of this Agreement, except that, as disclosed in subparagraph
(j) below, certain of the Company's reports contain 1993 financial statements
which are not audited for the reasons stated in such reports. The Common Stock
is listed on NASDAQ and the Company has received no notice, oral or written,
with respect to its continued eligibility for such listing. The Company hereby
agrees, promptly following the Closing of the transactions contemplated by this
Agreement, to take such action as is necessary to cause the Shares issued upon
exercise of conversion rights under the Convertible Note to be listed on NASDAQ
upon such conversion following expiration of the Restricted Period (subject, if
required, to notice to NASDAQ of the actual number of shares issued). The
Company further agrees, if the Company applies to have the Common Stock traded
on any other principal stock exchange or market, it will include in such
application the Shares and will take such other action as is necessary or
desirable to cause the Shares to be listed on such other exchange or market upon
expiration of the Restricted Period.
(g) The Exchange Act Reports are the only filings made by the Company
since December 30, 1995 pursuant to Sections 13(a), 13(c), 14 and 15(d) of the
Exchange Act, and the Company will cause its Common Stock to continue to be
registered under Section 12(g) or 12(b) of the Securities Exchange Act of 1934,
will comply in all respects with its reporting and filing obligations under said
Act, and will not take any action or file any document (whether or not permitted
by said Act or the rules thereunder) to terminate or suspend such registration
or to terminate or suspend its reporting and filing obligations under said Act.
The Company will take all action necessary to continue the listing and trading
of its Common Stock on NASDAQ and will comply in all respects with the Company's
reporting, filing and other obligations under the by-laws or rules of the NASD
and NASDAQ.
7
EXHIBIT 99.1 (CONTINUED)
(h) The Company 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. The Company 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. "Material Adverse Effect" means any adverse effect on
the business, operations, properties, prospects, or financial condition of the
entity with respect to which such term is used and which is material to such
entity.
(i) The Company has furnished or made available to the Buyer true and
correct copies of the Company's Certificate of Incorporation as in effect on the
date hereof (the "Certificate of Incorporation"), and the Company's By-Laws, as
in effect on the date hereof (the "By-Laws").
(j) The Company has delivered or made available to the Buyer true and
complete copies of the Exchange Act Reports (including, without limitation,
proxy information and solicitation materials excluding any preliminary proxy not
distributed). The Company has not provided to the Buyer any information which,
according to applicable law, rule or regulation, should have been disclosed
publicly by the Company but which has not been so disclosed. As of their
respective dates, the Exchange Act Reports complied in all material respects
with the requirements of the Exchange Act and the 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; except that the Company's 1993 financial statements are
not audited for the reasons stated in the Exchange Act Reports and the related
disclosures contained in such reports. 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;
except that the Company's 1993 financial statements are not audited for the
reasons stated in the Exchange Act Reports and the related disclosures contained
in such reports. 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 in all material respects the financial
position 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).
8
EXHIBIT 99.1 (CONTINUED)
(k) Except as set forth in the financial statements and other documents
filed by the Company under the Exchange Act, the Company has no liabilities,
contingent or otherwise, other than (i) liabilities incurred in the ordinary
course of business subsequent to September 28, 1996 and (ii) obligations under
contracts and commitments incurred in the ordinary course of business and not
required under generally accepted accounting principles to be reflected in such
financial statements, which individually or in the aggregate, are not material
to the financial condition or operating results of the Company. The Company has
not provided to the Buyer any information which, according to applicable law,
rule or regulation, should have been disclosed publicly by the Company but which
has not been so disclosed.
(l) Since September 28, 1996 there has been no material adverse change
and no material adverse development in the business, properties, operations,
financial condition, results of operations or prospects of the Company, except
as disclosed in accordance with the Exchange Act Reports and except that the
Company continues to incur losses.
(m) There is no material action, suit, proceeding, inquiry or to the
knowledge of the Company, investigation before or by any court, public board,
government agency, self-regulatory organization or body pending, or to the
knowledge of the Company or any of its subsidiaries, threatened against or
affecting the Company or any of its subsidiaries, except as disclosed in the
Exchange Act Reports.
(n) Neither the Company, nor any or 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 of the Securities under the Act.
(o) 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
Buyer relating to this Agreement of the transactions contemplated hereby, except
for dealings with First Bermuda Securities Limited, whose commissions and fees
will be paid for by the Company.
(p) 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,
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
Securities; provided, however, that the number of shares so reserved shall at
all times be at least 2,000,000 in aggregate for purposes of conversion of the
Securities and exercise of the Warrants. The number of shares so reserved may be
reduced by the number of shares actually delivered pursuant to the conversion of
the Securities and exercise of the Warrants (provided that in no event shall the
number of shares so reserved be less than the number required to satisfy the
9
EXHIBIT 99.1 (CONTINUED)
remaining conversion rights on the unconverted Securities or exercise rights on
the exercised Warrants) and the number of shares so reserved shall be increased
to reflect stock splits and stock dividends and distributions.
(q) No legend has been or shall be placed on the Securities or share
certificates representing the Securities or Shares and no note or stock transfer
instructions have been or shall be given to the Company's transfer agent with
respect thereto other than as set forth in Section 10.
(r) Based upon the truth and accuracy of the representations and
warranties made by the Buyer, the sale of the Securities pursuant to this
Agreement will be made in accordance with the provisions and requirements of
Regulation S and applicable state law, except that as disclosed in subparagraph
(j) above, certain of the Company's reports contain financial statements that
are not audited.
(s) No offer to sell the Securities was made by the Company to any
person in the United States.
(t) None of the Company, any affiliate of the Company, or any person
acting on behalf of the Company or any such affiliate has engaged, or will
engage, in any Directed Selling Efforts as that term is defined in Regulation S
with respect to the Securities nor any general solicitation of the Securities.
(u) The transactions contemplated by this Agreement (i) have not been
pre-arranged with a purchaser who is in the United States or is a U.S. Person,
and (ii) are not part of a plan or scheme to evade the registration provisions
of the Act.
(v) The Company undertakes and agrees to make all necessary filings in
connection with this offering as required by the laws and regulations of all
appropriate jurisdictions and securities exchanges in the United States of
America.
(w) The Company shall indemnify the Holder against any loss, cost or
damages (including reasonable attorney's fees and expenses) incurred as a result
of such parties' breach of any representation, warranty, covenant or agreement
in this Agreement.
7. Offering Materials. All offering materials and documents used in connection
with the offers and sales of the Securities prior to the expiration of the
Restricted Period include statements to the effect that the Securities and the
Shares issuable upon the exercise of conversion rights have not been registered
under the Act and that the Buyer, may not directly or indirectly offer or sell
the Securities or such shares in the United States or to a U.S. Persons (other
than distributors) unless the Securities or shares are registered under the Act,
or an exemption from the registration requirements of the Act is available. Such
10
EXHIBIT 99.1 (CONTINUED)
statements shall appear (1) on the cover of any prospectus or offering circular
used in connection with the offer or sale of the Securities and (2) in the
placement section of any prospectus or offering circular used in connection with
the offer or sale of the Securities. Buyer represents that all offering
materials and documents received by it in connection with the offers and sales
of the Securities prior to the Closing of the transactions contemplated herein
have complied with the foregoing. Nothing contained in this Section 7 shall
negate or detract from any of the representations, warranties and agreements of
Buyer contained in Section 3 above.
8. Covenants of the Company. (a) The Company agrees that during the period
beginning on the date hereof and ending 90 days following the Closing Date, the
Company will not contract with any party to obtain additional equity financing
(including debt financing with an equity component) in any form. The foregoing
limitation shall not apply to a subsequent offering (the "Future Offering") of
convertible debt securities not exceeding $3 million which is expected to close
within the next 90 days after this closing and any transaction involving the
Company's commercial banking arrangements or issuances of securities in
connection with a merger, consolidation or sale of assets, or in connection with
any strategic partnership or joint venture (the primary purpose of which is not
to raise equity capital), or in connection with the disposition or acquisition
of a business, product or license by the Company (so long as the securities so
issued are "restricted securities" within the meaning of Rule 144 under the Act
and do not carry registration or piggy back rights for at least 360 days from
the date of this Agreement), the issuance of securities to settle securities
litigation, or exercise of options by or the grant of performance shares to
employees, consultants or directors. The Company agrees that it will deliver to
the Buyer at least ten (10) business days prior to the closing of the Future
Offering, written notice describing the proposed Future Offering, including the
terms and conditions thereof, and provide the Buyer an option during such ten
(10) day period to purchase all or any portion of its "pro-rata share" of the
securities being offered in the Future Offering on the same terms as
contemplated by the Future Offering. The term "pro-rata share" means the
principal amount of all Securities initially purchased by all buyers divided by
the aggregate principal amount of all Securities sold hereunder.
(b) The parties shall use their best efforts timely to satisfy each of
the conditions described in Section 9 of this Agreement.
(c) So long as the Buyer beneficially owns any of the Securities, the
Company shall timely file all reports required to be filed with the SEC pursuant
to the Exchange Act, and the Company shall not terminate its status as an issuer
required to file reports under the Exchange Act even if the Exchange Act or the
rules and regulations thereunder would permit such termination, except in the
event of a merger, consolidation or sale of all or substantially all of the
Company's assets, as long as the surviving or successor entity in such
11
EXHIBIT 99.1 (CONTINUED)
transaction (i) assumes the Company's obligations hereunder and under the
agreements and instruments entered into in connection herewith and (ii) is a
publicly traded corporation whose Common Stock is listed for trading on the
AMEX, the NYSE or the NASDAQ.
(d) At Buyer's request, the Company agrees to send the following reports
to Buyer until Buyer transfers, assigns, or sells all of the Securities: (i)
within ten (10) days after the filing with the SEC, a copy of its Annual Report
on Form 10-K, its Quarterly Reports on Form 10-Q and any Current Reports on Form
8-K; and (ii) within two (2) business days after release, copies of all press
releases issued by the Company or any of its subsidiaries.
(e) The Company shall at all times have authorized, and reserved for the
purpose of issuance, a sufficient number of shares of Common Stock to provide
for the full conversion of the outstanding Securities and issuance of the Shares
in connection therewith (based on the conversion price of the Securities in
effect from time to time). In that regard, on the Closing Date, the Company
shall have at least 2,000,000 shares reserved for issuance upon conversion of
the Securities and exercise of the Warrants (subject to adjustment in order to
comply with the immediately preceding sentence); provided that the Company shall
not reduce the number of shares of Common Stock reserved for issuance upon
conversion of the Securities and exercise of the Warrants without the consent of
a majority-in-interest of the buyers of the Securities and the buyers of the
Securities, which consent will not be unreasonably withheld.
(f) So long as the Buyer beneficially owns any Securities, the Company
shall maintain its corporate existence, except in the event of a merger,
consolidation or sale of all or substantially all of the Company's assets, as
long as the surviving or successor entity in such transaction (i) assumes the
Company's obligations hereunder and under the agreements and instruments entered
into in connection herewith and (ii) is a publicly traded corporation whose
Common Stock is listed for trading on the AMEX, the NYSE or the NASDAQ.
(g) The Company and the Buyer agree that the Closing Date, when certified
by Escrow Agent as the Closing shall be deemed to be a conclusion of the
offering of the Securities contemplated hereby. The Company acknowledges and
agrees that, for purposes of clarifying and specifying the applicable Restricted
Period under Regulation S, the Buyer intends to observe as the Restricted Period
(as defined in Regulation S) for the Securities, the period of 40 days
commencing on the Closing Date and ending 40 days thereafter.
(h) The Shares issued upon conversion of the Securities and the
certificates evidencing the same shall at all times be free of legends (except
as provided in Section 10 below), "stock transfer restrictions," or other
restrictions, except as expressly set forth in this Agreement and the
Convertible Note.
12
EXHIBIT 99.1 (CONTINUED)
9. Conditions Precedent to the Buyer's Obligation. The obligations of the Buyer
hereunder are subject to the performance by the Company of the following
additional conditions precedent:
(a) The Buyer shall receive, on the Closing Date, an opinion of
independent counsel to the Company, dated the Closing Date, as to the
representations made by the Company in Sections 6(a) through and including 6(c)
hereof, and the opinion of the Company's general counsel as to matters
represented by the Company in Sections 6(d) through 6(f) hereof, and in Sections
6(m) and 6(n) hereof, and such other matters as Buyer reasonably requests
(collectively, the "Opinions of Counsel"). The form of the Opinions of Counsel
shall be as set forth in Exhibits 1 and 2 hereof.
(b) Delivery of the notes representing the Securities with restrictive
legends to the Escrow Agent as set forth herein.
(c) The Company shall have delivered to the Buyer a certificate (the
"Officer Certificate") in form and substance reasonably satisfactory to the
Buyer, executed by an executive officer of the Company, to the effect that all
the conditions to the Closing shall have been satisfied and the representations
and warranties of the Company herein are true and correct as of the date when
made and as of the Closing Date, and certifying as to the Company's Certificate
of Incorporation, By-Laws, resolutions authorizing transaction, and incumbency
of Company officers.
(d) The Company and the Buyer shall have entered into the Registration
Rights Agreement and the Warrant as contemplated by Section 4.
10. Legends. (a) The certificates representing the Securities, and the Shares
issued during the Restricted Period, shall bear the following legend (the
"Legend"):
"The securities represented hereby have been issued pursuant to
Regulation S promulgated under the Securities Act of 1933, as amended
(the "1933 Act"), and have not been registered under the 1933 Act. Such
securities may not be transferred, offered or sold prior to the end of
the forty (40) day period (the "Restricted Period") commencing on
December 20, 1996 unless such transfer, offer or sale is made in an
"offshore transaction" and not to or for the account of or benefit of a
"U.S. Person" (as such terms are defined in Regulation S) and is
otherwise in accordance with the requirements of Regulation S.
Following expiration of the Restricted Period, the securities
represented hereby may not be offered, sold or otherwise transferred in
the United States or to a U.S. Person unless the securities are
registered under the 1933 Act and applicable state securities laws, or
such offers, sales and transfers are made pursuant to an available
exemption from the registration requirements of those laws."
13
EXHIBIT 99.1 (CONTINUED)
(b) Following the expiration of the Restricted Period, and subject to
Section 10(d) below, the Company will remove or will promptly instruct its
transfer agent to remove the Legend from the Shares issued during the Restricted
Period (and will instruct its transfer agent to issue without the Legend, the
Shares issuable upon any conversion or exercise occurring after the Restricted
Period), if the Buyer holding such Securities or any other person in whose name
the certificates have been or are to be validly and legally issued shall have
delivered a certificate (a "Removal Certificate") to the Company to the
following effect:
"The undersigned acknowledges that the securities to which this
certificate relates have not been registered under Securities Act of
1933, as amended (the "1933 Act") and that offers, sales or other
transfer of such securities must be made in compliance with Regulation
S promulgated under the 1933 Act, pursuant to an effective registration
statement under the 1933 Act or pursuant to an available exemption from
registration, and the undersigned certifies that the undersigned has
not made, nor will the undersigned make or cause to be made, any offer,
sale or other transfer of such securities, in violation of the 1933
Act, other applicable securities laws or the rules and regulations of
the Securities and Exchange Commission."
(c) Upon the submission, at any time after the expiration of the
Restricted Period, by Buyer of a written request for legend removal for the
purpose of a bona fide pledge or deposit of the Shares with a margin account,
together with the certificates for which the legend removal is being requested
and a Removal Certificate signed by both the Buyer and the pledgee or other
holder of the Shares, the Company will reissue or will promptly instruct its
transfer agent to reissue the certificates representing the Shares to be so
pledged or deposited without the Legend.
(d) Notwithstanding the provisions of this Section 10, if with respect to
the Company's receipt of a Removal Certificate from any person, prior to any
removal of the Legend, there shall have been after the date hereof any amendment
to the Act or Regulation S or any no action letter, interpretative release or
other advice from the Securities and Exchange Commission after the date hereof
which disallows the removal of the Legend under the circumstances in which the
request that it be removed is being made, then the Company shall have no
obligation to remove or to instruct its transfer agent to remove the Legend,
unless the Company shall have received from the person requesting such removal a
written letter of counsel to such person reasonably acceptable to the Company
and its counsel confirming that the Legend may be so removed or share
certificates may be so issued without the Legend without violation of the Act.
If the person requesting a removal of the Legend is unable to supply the legal
opinion referred to above then the Company shall, upon demand of such person, be
obligated to register the Common Stock for resale pursuant to the terms of the
Registration Rights Agreement.
14
EXHIBIT 99.1 (CONTINUED)
11. Transfer Agent Instructions. The Company's transfer agent will be instructed
to reserve for issuance such number of shares of the Company's Common Stock as
would be issuable if the Convertible Notes were converted on the Closing Date
and such additional number of shares as, from time to time, shall be necessary
to provide for the issuance of Shares upon the conversion of the Convertible
Note. Additionally, the Company shall deliver to its transfer agent promptly
after closing irrevocable instructions substantially in the form set forth in
Annex E attached hereto, pursuant to which the transfer agent shall be
instructed to issue upon conversion the number of shares provided for in the
Convertible Note being converted on the terms provided for therein without
restrictive legend, registered in the names provided by the Holders, subject to
the terms and conditions in this Agreement and in the Convertible Note. The
Company warrants and covenants that no instructions restricting the
transferability of the Shares other than the instructions in the immediately
preceding sentence and instructions for a "stop transfer" instruction until the
end of the Restricted Period have been given, or shall be given, to the transfer
agent, and that the Shares shall otherwise be freely transferable on the books
and records of the Company, subject to the restrictions in this Agreement and in
the Convertible Note. Nothing in this section, however, shall affect in any way
the obligations and agreement of the Buyer to comply with all applicable
federal, state and foreign securities laws upon resale of the Securities.
12. Miscellaneous. (a) This Agreement may be executed in one or more
counterparts and it is not necessary that signatures of all parties appear on
the same counterpart, but such counterparts together shall constitute but one
and the same agreement.
(b) This Agreement shall be governed by and constructed in accordance
with the laws of the State of California.
(c) This agreement shall inure to the benefit of and be binding upon the
parties hereto, their respective successors, and no other person shall have any
right or obligation hereunder. This Agreement shall not be assignable by either
party without the prior written consent of the other, and any assignment in
violation hereof shall be void. Notwithstanding the foregoing, the Buyer may
assign its rights in this Agreement subject to the terms and conditions of this
Agreement and the Convertible Note, and the provisions of this Agreement shall
then inure to the benefit of, and be enforceable by, any transferee of any of
the Securities or Shares.
(d) This Agreement together with the Convertible Note, the Registration
Rights Agreement and the Warrant constitutes the entire agreement of the parties
with respect to the subject matter hereof and supersedes all prior oral or
written proposals or agreements related thereto. This Agreement may not be
amended or any provision hereof waived, in whole or in part, except by a written
amendment signed by both of the parties hereto.
15
EXHIBIT 99.1 (CONTINUED)
IN WITNESS WHEREOF, the parties hereto have duly executed and delivered
this Agreement, all as of the day and year above written.
BY: PINNACLE MICRO, INC.
---------------------------------------------
Name: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Title: President
or
Name: ▇▇▇▇▇ ▇▇▇
Title: Executive Vice President
and Chief Financial Officer
BY: ((1))
Name:
---------------------------------------
Title:
--------------------------------------
