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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________________
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): JUNE 4, 1998
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STORM TECHNOLOGY, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 0-21449 77-0239305
(State or other jurisdiction of (Commission File Number) (I.R.S. Employer)
incorporation or organization) Identification No.)
1395 CHARLESTON ROAD 94043
Mountain View, California
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (650) 691-6600
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ITEM 5. OTHER EVENTS.
(a) On June 3, 1998, Storm Technolgoy, Inc. (the "Company") filed a
Certificate of Designation attached as Exhibit 3.2 (the "Certificate of
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Designation") with the Delaware Secretary of State prescribing the rights,
preferences, privileges and limitations of Series B Convertible Preferred Stock
(the "Series B Preferred"). After such filing, on June 4, 1998 the Company (i)
completed its offer and sale to outside investors of 20,000 shares of Series B
Preferred at a price of $100 per share and (ii) agreed with the same such
investors that the Company would have a right to, at its option, receive an
additional $12,000,000 against delivery of shares of the Company's Common Stock
(collectively, the "Call for Proceeds"), subject to the fulfillment of certain
conditions and upon the occurrence of certain other circumstances (collectively,
the "Private Placement"). The aggregate proceeds of $2,000,000 received for sale
of the Series B Preferred and the Calls for Proceeds, if any, will be used for
working capital of the Company.
A copy of the Securities Purchase Agreement used in the Private
Placement is attached as Exhibit 4.10 and is incorporated herein by reference.
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ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(c) The following exhibits are attached hereto and filed herewith:
3.2 Certificate of Designation for Series B Convertible Preferred
Stock filed June 3, 1998.
4.10 Securities Purchase Agreement dated as of June 3, 1998.
4.11 Registration Rights Agreement dated as of June 3, 1998.
4.12 Escrow Agreement dated as of June 3, 1998.
99.1 Press Release dated June 16, 1998.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
STORM TECHNOLOGY, INC.
Date: June 16, 1998 By: /s/ Rick McConnell
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Rick McConnell,
Chief Financial Officer and Assistant
Secretary
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INDEX TO EXHIBITS
Exhibit Document
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3.2 Certificate of Designation for Series B Convertible
Preferred Stock filed June 3, 1998.
4.10 Securities Purchase Agreement dated June 3, 1998.
4.11 Registration Rights Agreement dated June 3, 1998.
4.12 Escrow Agreement dated June 3, 1998.
99.1 Press Release dated June 16, 1998.
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EXHIBIT 3.2
CERTIFICATE OF DESIGNATION
OF
SERIES B CONVERTIBLE PAREFERRED STOCK
OF
STORM TECHNOLOGY, INC.
(Pursuant to Section 151 of the Delaware General Corporation Law)
STORM TECHNOLOGY, INC., a corporation organized and existing under the
General Corporation Law of the State of Delaware (the "Company"), hereby
certifies that the following resolutions were adopted by the Board of Directors
of the Company as required by Section 151 of the General Corporation Law at a
meeting of the Company's Board of Directors held on May 18, 1998:
RESOLVED, that pursuant to the authority granted to and vested in the
Board of Directors of the Company (the "Board") in accordance with the
provisions of the Restated Certificate of Incorporation (the "Certificate of
Incorporation"), the Board hereby creates out of the 500,000 shares of Preferred
Stock, par value $.001 per share, of the Company authorized in Article Fourth of
the Restated Certificate of Incorporation (the "Preferred Stock"), a series of
the Preferred Stock of the Company, par value $0.001 per share, and hereby
states the designation and number of shares, and fixes the relative rights,
preferences, and limitations thereof as follows:
Section 1. Designation and Amount. The shares of such series shall be
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designated as "Series B Convertible Preferred Stock" (the "Series B Preferred
Stock") and the number of shares constituting the Series B Preferred Stock shall
be 20,000.
Section 2. Dividends. The Series B Preferred Stock shall not bear any
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dividends.
Section 3. Conversion.
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(a) The holder of any share or shares of Series B Preferred Stock (a
"Holder") shall have the right, without the payment of any additional
consideration, to convert any share of Series B Preferred Stock held by such
holder into that number of fully paid and non-assessable shares of Common Stock
at the "Conversion Rate" (such Common Stock to be referred to as the "Conversion
Shares") defined as follows:
Subject to the provisions of the Certificate of Designation, at
any time or times on or after the earlier of (i) ninety (90) days after the
Issuance Date (as defined herein), (ii) five (5) days after receiving a
"no-review" status from the SEC in connection with a registration statement
covering the resale of Common Stock issued upon
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conversion of the Series B Preferred Stock and required to be filed by the
Company pursuant to the Registration Rights Agreement between the Company
and its initial holders of Series B Preferred Stock (the "Registration
Rights Agreement"), or (iii) the date that the Registration Statement is
declared effective by the SEC, any holder of Series B Preferred Stock shall
be entitled to convert any Series B Preferred Stock into fully paid and
nonassessable shares (rounded to the nearest whole share in accordance with
this Section 3 of Common Stock) at the Conversion Rate.
The number of shares of Common Stock issuable upon conversion of
each share of the Series B Preferred Stock shall be determined according to
the following formula (the "Conversion Rate");
(.03)(N/365)(100) + 100
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Conversion Price
For purposes of this Certificate of Designation, the following terms
shall have the following meanings:
(i) "Conversion Price" means as, of any Conversion Date
(as defined below), the Floating Conversion Price, in effect as of
such date and subject to adjustment as provided herein;
(ii) "Floating Conversion Price" means, as of any date of
determination, the amount obtained by multiplying the Conversion
Percentage in effect as of such date by the Average Market Price for
the Common Stock for the three (3) consecutive trading days
immediately preceding such date;
(iii) "Conversion Percentage" means 80% and shall be reduced
by an additional 2% for every thirty (30) days (prorated for partial
months) beyond forty-five (45) days from the Issuance Date (the
"Scheduled Filing Date") that the Registration Statement is not filed
by the Company; provided, however, that in the event that a
registration statement (the "Registration Statement") covering the
resale of the Conversion Shares is declared effective by the U.S.
Securities and Exchange Commission (the "SEC") within sixty (60) days
from the Issuance Date, the Conversion Percentage shall be 82%.
(iv) "Average Market Price" means, with respect to any
security for any period, that price which shall be computed as the
arithmetic average of the Closing Bid Prices (as defined below) for
such security for each trading day in such period;
(v) "Closing Bid Price" means, for any security as of any
date, the last closing bid price on the Nasdaq National Market (the
"Nasdaq-NM") as reported by Bloomberg Financial Markets ("Bloomberg"),
or, if the Nasdaq-NM is not the principal trading market for such
security, the last closing bid price of such
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security on the principal securities exchange or trading market where
such security is listed or traded as reported by Bloomberg, or if the
foregoing do not apply, the last closing bid price of such security in
the over-the-counter market on the pink sheets or bulletin board for
such security as reported by Bloomberg, or, if no closing bid price is
reported for such security by Bloomberg, the last closing trade price
of such security as reported by Bloomberg. If the Closing Bid Price
cannot be calculated for such security on such date on any of the
foregoing bases, the Closing Bid Price of such security on such date
shall be the fair market value as reasonably determined in good faith
by the Board of Directors of the Company (all as appropriately
adjusted for any stock dividend, stock split or other similar
transaction during such period);
(vi) "N" means the number of days from, but excluding, the
Issuance Date through and including the Conversion Date for the Series
B Preferred Stock for which conversion is being elected; and
(vii) "Issuance Date" means the date of issuance of the
Series B Preferred Stock.
The Holder shall exercise its right to convert the Series B Preferred
Stock by telecopying an executed and completed written notice of conversion (in
a form designated by the Company) (the "Notice of Conversion") to the Company
and delivering the original Notice of Conversion and the certificate
representing the Series B Preferred Stock to the Company by express courier.
Each business date on which a Notice of Conversion is telecopied to the Company
in accordance with the provisions hereof shall be deemed a conversion date (the
"Conversion Date"). The Company will use its best efforts to transmit the
certificates representing Conversion Shares (together with the certificates
representing the Series B Preferred Stock not so converted) to the Holder via
express courier, by electronic transfer or otherwise within three (3) Nasdaq
trading days after the Conversion Date. In addition to any other remedies which
may be available to the Holder, in the event that the Company fails to use its
best efforts to effect delivery of such shares of Common Stock within such three
(3) Nasdaq trading day period, the Holder will be entitled to revoke the
relevant Notice of Conversion by delivering a notice to such effect to the
Company whereupon the Company and the Holder shall each be restored to their
respective positions immediately prior to delivery of such Notice of Conversion.
In the event that the Common Stock issuable upon conversion of the
Series B Preferred Stock is not delivered within five (5) Nasdaq trading days
after the Conversion Date, the Company shall pay to the Holder, in immediately
available funds, upon demand, as liquidated damages for such failure and not as
a penalty, for each $100,000 principal amount of Series B Preferred Stock sought
to be converted, $250 for each of the first ten (10) days and $500 per day
thereafter that the Conversion Shares are not delivered, which liquidated
damages shall run from the sixth Nasdaq trading day after the Conversion Date.
Such amounts will accrue and be payable to the Holder in cash upon demand.
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(b) In the event that this Series B Preferred Stock has not all been
converted by two (2) years from the Issuance Date, this Series B Preferred Stock
shall automatically be converted as if the Buyer voluntarily elected such
conversion in accordance with the procedure, terms and conditions as set forth
in this Certificate of Designation. Notwithstanding anything to the contrary
contained herein, to the extent that the Company is subject to Section
4460(i)(1)(C)(ii) of the Marketplace Rules, the number of shares of Common Stock
of the Company issuable pursuant to the Certificate of Designation for the
Series B Preferred Stock and the shares of Common Stock issued upon Call for
Proceeds (as defined in the purchase agreement for the Series B Preferred Stock)
shall not exceed 19.99% of the shares of Common Stock issued and outstanding on
the Issuance Date (the "Discounted Securities Limit"). In the event the number
of shares of Common Stock of the Company issuable pursuant to the Series B
Preferred Stock and upon a Call for Proceeds exceed 15% of the shares of Common
Stock issued and outstanding on the Issuance Date, the Company agrees that it
shall immediately call a stockholders meeting for the purpose of approving below
market price issuances of Common Stock to the Buyers in excess of the Discounted
Securities Limit as required by Section 4460(c)(1)(C)(ii) of the Nasdaq
Marketplace Rules. In the event that the aforementioned proposal is not
ratified by the stockholders and the number of shares issuable under the
Certificate of Designation for the Series B Preferred Stock pursuant to a Call
for Proceeds exceeds the Discounted Securities Limit, the Company will seek a
waiver from Nasdaq to permit such issuances. If the Company is unable to obtain
such a waiver within twenty (20) days of applying therefor, the Company will pay
to the Holders the Redemption Price (as defined in Section 8 ("Redemption")) of
that number of shares of Common Stock that would have been issuable to the
Holders above the Discounted Securities Limit.
(c) (1) If the Company shall, at any time or from time to time,
declare and pay to the holders of Common Stock a dividend in shares of Common
Stock, or the Company shall subdivide the outstanding shares of Common Stock
into a greater number of shares of Common Stock, or combine the outstanding
shares of Common Stock into a smaller number of shares of Common Stock then the
Conversion Price shall be adjusted to equal the price determined by multiplying
the Conversion Price by a fraction, the numerator of which shall be the number
of shares of Common Stock issued and outstanding immediately prior to the
happening of such event and the denominator of which shall be the number of
shares of Common Stock issued and outstanding immediately after the happening of
such event. Such adjustment shall become effective immediately after the
opening of business of the day following the record date, in the event of a
stock dividend, or the day upon which the subdivision or combination becomes
effective, as the case may be.
(2) If the Company shall, at any time or from time to time after
the date on which the Series B Preferred Stock was first issued by the Company,
make or issue, or fix a record date for the determination of holders of shares
of Common Stock entitled to receive a dividend or other distribution payable in
securities of the Company, including a distribution of evidence of indebtedness
of the Company, other than shares of Common Stock, then, and in each such event,
provision shall be made by the Company so that the holders of shares of Series B
Preferred Stock shall receive upon conversion thereof, in addition to the
Conversion Shares receivable thereupon, the amount of those securities of the
Company that such holders would
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have received had their shares of Series B Preferred Stock been converted on the
date of such event and had they thereafter, during the period from the date of
such event to and including the date of conversion, retained such securities
receivable by them as aforesaid during such period.
(3) If the shares of Common Stock issuable upon the conversion of
shares of Series B Preferred Stock shall be changed into the same or any
different number of shares of any class or any series of any class of capital
stock, whether by capital reorganization, reclassification or otherwise (other
than a subdivision or combination of shares or a stock dividend provided for
above, or a reorganization, merger, consolidation or sale of assets provided for
in Section 7 ("Consolidation, Merger, etc.") hereof), then, and in each such
event, the Holder of shares of Series B Preferred Stock shall have the right
thereafter to convert such shares of Series B Preferred Stock 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.
(d) At all times, the Company shall reserve and keep available out of
its authorized but unissued Common Stock solely for issuance upon the conversion
of shares of the Series B Preferred Stock as herein provided, such number of
shares of Common Stock as, from time to time, shall be issuable upon the
conversion of all the shares of the Series B Preferred Stock at the time
outstanding.
If at any time the number of authorized but unissued shares of Common
Stock shall be insufficient to satisfy the conversion rights hereunder, in
addition to such other remedies as shall be available to the Holder of Series B
Preferred Stock, the Company will take such corporate action as may, in the
opinion of its counsel, be necessary to increase its authorized but unissued
shares of Common Stock to such number of shares as shall be sufficient for such
purpose.
(e) No fractional shares of Common Stock shall be issued. In lieu of
the issuance of any fractional Conversion Share that would, but for the
foregoing, be issued to a Holder of Series B Preferred Stock on the conversion
thereof, the Corporation shall pay to such Holder, in cash, the value of such
fractional share which value shall be based upon the closing bid price of the
Common Stock as reported on Nasdaq NM or a national securities exchange, as
reported by Bloomberg (each an "Other Exchange") for the trading day immediately
preceding the Conversion Date.
(f) Upon any conversion of Series B Preferred Stock pursuant to this
Section 3, the shares of Series B Preferred Stock which are converted shall not
be reissued. Upon conversion of all of the then outstanding Series B Preferred
Stock pursuant to this Section 3 and upon the taking of any action required by
law, all matters set forth in this Certificate of Designation shall be
eliminated from the Certificate of Incorporation, shares of Series B Preferred
Stock shall not be deemed outstanding for any purpose whatsoever and all such
shares shall revert to the status of authorized and unissued shares of Preferred
Stock.
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(g) Any Holder of the Series B Preferred Stock or any subsequent
holder of Series B Preferred Stock that obtained such Series B Preferred Stock
from a Holder shall be prohibited from converting any portion of the Series B
Preferred Stock which would result in the Holder being deemed the beneficial
owner, in accordance with the provisions of Rule 13d-3 of the Securities
Exchange Act of 1934, as amended (the "1934 Act"), of 4.99% or more of the then
issued and outstanding Common Stock of the Company. Such limitation will not be
effective on the tenth day following notice from the Holder that the Company is
in material breach of any of its obligations with regard to such Holder.
Section 4. Voting Rights. Except as required by applicable law, the
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Holders of shares of Series B Preferred Stock shall not have the right or power
to vote on any question or in any proceeding or to be represented at, or to
receive notice of, any meeting of the Company's stockholders.
Section 5. Reacquired Shares. Any shares of Series B Preferred Stock
-----------------
purchased or otherwise acquired by the Company in any manner whatsoever shall be
retired and canceled promptly after the acquisition thereof. All such shares
shall upon their cancellation become authorized but unissued shares of Series B
Preferred Stock and may be reissued as part of a new series of Series B
Preferred Stock subject to the conditions and restrictions on issuance set forth
herein, in the Certificate of Incorporation, or in any other Certificate of
Designation creating a series of Series B Preferred Stock or any similar stock
or as otherwise required by law.
Section 6. Liquidation, Dissolution or Winding Up. In the event of
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any liquidation, dissolution, or winding up of the Company, the Holders of the
Series B Preferred Stock are entitled to receive out of assets of the Company
available for distribution to stockholders, after satisfaction of indebtedness,
but before any distribution of assets is made to holders of Common Stock or to
holders of any other class of stock of the Company ranking junior to the Series
B Preferred Stock upon liquidation, liquidating distributions on each share of
Series B Preferred Stock held by such holder in the per share amount equal to
the Redemption Price per share of Series B Preferred Stock. If, upon any
liquidation, dissolution or winding up of the Company, the amounts payable with
respect to the Series B Preferred Stock or any other shares of stock of the
Company ranking as to any such distribution on a parity with the Series B
Preferred Stock are not paid in full, the Holders of the Series B Preferred
Stock and of such other shares will share ratably in any such distribution of
assets of the Company in proportion to the full distributable amounts to which
they are entitled. After payment of the full amount of the liquidating
distribution to which they are entitled, the Holders of the Series B Preferred
Stock will not be entitled to any further participation in any distribution of
assets by the Company.
Section 7. Consolidation, Merger, etc. If the Company shall enter
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into any consolidation, merger, combination or other transaction in which the
shares of Common Stock are exchanged for or changed into other stock or
securities, cash and/or any other property, then, in any such case, the Company,
as a condition precedent to such transaction, shall cause effective provisions
to be made so that each Holder of Series B Preferred Stock then outstanding
shall have the right, by converting such share(s) of Series B Preferred Stock
into Common Stock pursuant to Section 3 ("Conversion") hereof, to acquire the
kind and amount of shares of stock, securities,
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cash and/or other property receivable upon such consolidation, merger,
combination or other transaction by a holder of the number of shares of Common
Stock which might have been acquired upon conversion of such Series B Preferred
Stock immediately prior to such consolidation, merger, combination, or other
transaction.
Section 8. Redemption. The Company has the right to redeem the Series
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B Preferred Stock, in whole or in part, at any time and from time to time after
issuance. Such redemption must be on at least ten (10) business days prior
written notice to the Holders of the Series B Preferred Stock (the date of such
notice referred to as the "Redemption Notice Date"). The redemption price (the
"Redemption Price") shall be equal to the greater of: (i) the number of
Conversion Shares calculated as if the Series B Preferred Stock to be redeemed
were converted on the Redemption Notice Date, multiplied by the Closing Bid
Price as of the Redemption Notice Date or (ii) one hundred twenty percent (120%)
(or one hundred eighteen percent (118%) in the event the Registration Statement
is declared effective within sixty (60) days from the Issuance Date) of the
purchase price of the Series B Preferred Stock being called for redemption. The
Company shall, within two (2) days after the end of the ten (10) day notice
period, wire transfer the appropriate amount of funds into an escrow account,
which shall be mutually agreed upon by both the Company and Holder (such date
referred to as the "Redemption Date"). On the Redemption Date, the Holder's
right to convert the Series B Preferred Stock shall terminate and be canceled
immediately. In the event the Company does not wire transfer the appropriate
amount of funds into the escrow account within the two (2) day period, then it
shall have waived its right to redeem the Series B Preferred Stock at any time.
Notice of any redemption setting forth (i) the Redemption Notice Date
and the place fixed for redemption, (ii) the Redemption Price, (iii) a statement
of or reference to the conversion right set forth in Section 3 ("Conversion")
hereof (including that the right to give a Notice of Conversion in respect of
any shares to be redeemed shall terminate on the Redemption Date), shall be
mailed, postage prepaid, at least ten (10) days prior to the Redemption Date to
each holder of record of the Series B Preferred Stock to be redeemed at their
address as the same shall appear on the books of the Company. If fewer than all
the shares of the Series B Preferred Stock owned by such holder are then to be
redeemed, the notice shall specify the number of shares thereof that are to be
redeemed and, if practicable, the numbers of the certificates representing such
shares.
At any time up to the date immediately prior to the Redemption Date,
the Holders shall have the right to convert the Series B Preferred Stock into
Common Stock as more fully provided in Section 3 ("Conversion") hereof. Unless
so converted, at the close of business on the Redemption Date, subject to the
conditions described in this section, each share of Series B Preferred Stock to
be redeemed shall be automatically canceled and converted into a right to
receive the Redemption Price, and all rights of the Series B Preferred Stock,
including the right to conversion, shall cease without further action.
Immediately following the Redemption Date, Holders of the Series B Preferred
Stock shall surrender their certificates at the office of the Company or any
transfer agent therefor, duly endorsed and with signature guaranteed.
The Redemption Price shall be adjusted proportionally upon any
adjustment of the
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Conversion Price under Section 3(c) hereof.
Shares of Series B Preferred Stock redeemed, purchased or otherwise
acquired for value by the Company, including by redemption in accordance with
this Section hereof, shall after such acquisition, have the status of authorized
and unissued shares of Series B Preferred Stock and may be reissued by the
Company at any time as shares of any series of Series B Preferred Stock other
than as shares of Series B Preferred Stock.
Section 9. Reservation of Shares. The Company shall, so long as any
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of the Series B Preferred Stock are outstanding reserve and keep available out
of its authorized and unissued Common Stock, solely for the purpose of effecting
the conversion of the Series B Preferred Stock, such number of shares of Common
Stock as shall from time to time be sufficient to affect the conversion of all
of the Series B Preferred Stock then outstanding; provided that the number of
shares of Common Stock so reserved shall at no time be less than 200% of the
number of shares of Common Stock for which the Series B Preferred Stock are at
any time convertible.
Section 10. Notices.
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(a) Upon the Company. Any notice pursuant to the terms thereof to be
----------------
given or made by a Holder of Series B Preferred Stock to or upon the Company
shall be sufficiently given or made if sent by facsimile or by mail, postage
prepaid, addressed (until another address is sent by the Company to the holder)
as follows:
Storm Technology, Inc.
1395 Charleston Road
Mountain View, CA 94943
Attn: Chief Financial Officer
(b) Upon Series B Preferred Stockholders. Any notice pursuant to the
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terms hereof to be given or made by the Company to or upon any Holder of Series
B Preferred Stock shall be sufficiently given or made if sent by mail, postage
prepaid, addressed (until another address is sent by the Holder to the Company)
to the address of such Holder on the records of the Company.
Section 11. Amendment. This Certificate of Designation shall not be
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amended in any manner which should materially alter or change the powers,
preferences, or special rights of the Series B Preferred Stock so as to affect
them adversely without the affirmative vote of the holders of at least two-
thirds of the outstanding shares of Preferred Stock, voting together as a single
class.
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RESOLVED, FURTHER, that the appropriate officers of the Company hereby
are authorized to execute and acknowledge a certificate setting forth these
resolution and to cause such certificate to be filed and recorded, all in
accordance with the requirements of Section 151 of the General Corporation Law
of the State of Delaware.
IN WITNESS WHEREOF, Storm Technology, Inc., has caused this
Certificate to be signed by its President, and attested to by its Assistant
Secretary, this 3rd day of June, 1998.
STORM TECHNOLOGY, INC.
By:______________________________
Attest: President
___________________________
Assistant Secretary
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EXHIBIT 4.10
THE SECURITIES PURCHASABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, TOGETHER WITH THE REGULATIONS PROMULGATED
THEREUNDER (THE "SECURITIES ACT"), AND MAY NOT BE SOLD, OFFERED FOR SALE,
TRANSFERRED, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT FILED UNDER THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES
LAWS, UNLESS AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE. THIS SUBSCRIPTION
AGREEMENT SHALL NOT CONSTITUTE AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER
TO BUY THE SECURITIES IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION
WOULD BE UNLAWFUL. THE SECURITIES ARE "RESTRICTED" AND MAY NOT BE RESOLD OR
TRANSFERRED EXCEPT AS PERMITTED UNDER THE SECURITIES ACT PURSUANT TO
REGISTRATION OR EXEMPTION THEREFROM.
SECURITIES PURCHASE AGREEMENT
This SECURITIES PURCHASE AGREEMENT (the "Agreement"), is dated as of June
4, 1998, by and among Storm Technology, Inc., a Delaware corporation, with
headquarters located at 1395 Charleston Road, Mountain View, CA 94043 (the
"Company"), and the investors listed on the Schedule of Buyers attached hereto
(individually, a "Buyer" or collectively "Buyers") (the "Schedule of Buyers").
RECITALS
A. The Company and the Buyers are executing and delivering this Agreement
in reliance upon the exemption from securities registration pursuant to Section
4(2) and/or Regulation D ("Regulation D") as promulgated by the U.S. Securities
and Exchange Commission (the "SEC") under the Securities Act of 1933, as amended
(the "Securities Act");
B. The Company has authorized the following new series of its Preferred
Stock, $.001 par value per share (the "Preferred Stock"): the Company's Series B
Convertible Preferred Stock (the "Series B Preferred Stock"), which shall be
convertible into shares of the Company's Common Stock, $.001 par value per share
(the "Common Stock") (as converted, the "Conversion Shares"), in accordance with
the terms of the Certificate of Designation of Series B Preferred Stock,
substantially in the form attached hereto as Exhibit A (the "Certificate of
Designation");
C. The Buyers wish to purchase, upon the terms and conditions stated in
this Agreement, (i) shares of Series B Preferred Stock in the respective amounts
and for the purchase price set forth opposite each Buyer's name on the Schedule
of Buyers annexed hereto; and (ii) up to US$12,000,000 of the Company's Common
Stock in the amounts set forth opposite each Buyer's name of the Schedule of
Buyers (such shares of Common Stock hereafter referred to as the "Drip Shares")
(the Series B Preferred Stock and the Drip Shares collectively referred to as
the "Securities");
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D. Contemporaneously with the execution and delivery of this Agreement,
the parties hereto are executing and delivering a Registration Rights Agreement
in the form attached hereto as Exhibit B (the "Registration Rights Agreement")
pursuant to which the Company has agreed to provide certain registration rights
under the Securities Act and the rules and regulations promulgated thereunder,
and applicable state securities laws and an Escrow Agreement in the form
attached hereto as Exhibit C (the "Escrow Agreement"); and
NOW THEREFORE, the Company and the Buyer hereby agree as follows:
1. PURCHASE AND SALE OF SECURITIES.
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(a) Purchase of Series B Preferred Stock. Subject to the satisfaction
(or waiver) of each of the conditions set forth in Sections 7 ("Conditions to
the Company's Obligation to Sell the Series B Preferred Stock") and 8
("Conditions to Buyers' Obligation to Purchase the Series B Preferred Stock"),
the Company shall issue and sell to the Buyers and the Buyers shall purchase
from the Company an aggregate amount of 20,000 shares of Series B Preferred
Stock for an aggregate purchase price of $2,000,000, in the respective amounts
and for the purchase price set forth opposite each Buyer's name on the Schedule
of Buyers.
(b) Purchase of Drip Shares. Subject to the satisfaction (or waiver)
-----------------------
of each of the conditions set forth in Sections 9 ("Conditions to the Company's
Obligation to Sell the Drip Shares") and 10 ("Conditions to Buyers' Obligations
to Purchase the Drip Shares"), at any time during the eighteen (18) months
following the date the registration statement covering the shares of Common
Stock issuable upon conversion of the Series B Preferred Stock (the "Underlying
Shares") and the Drip Shares (as set forth in the Registration Rights Agreement)
is declared effective (the "Effective Date") by the SEC (the "Commitment
Period"), the Company may, pursuant to the terms of this Section, make Calls for
Proceeds (as defined below) against each Buyer in the aggregate up to the
maximum amounts set forth in Section (1)(b)(ii) below against delivery of Drip
Shares to each such Buyer.
(i) The Company may deliver written notices to Buyer (each such
notice hereafter referred to as a "Call For Proceeds" and the date such a notice
is received by a Buyer hereafter called a "Call Date") stating a dollar amount
(the "Dollar Amount") the Company intends to draw upon during the thirty (30)
days following the Call Date (the "Call Period"). Notice constituting each Call
for Proceeds shall be given by the Company by telecopy after the Principal
Market has closed, but by no later than 5:30 p.m., New York time. For the
purposes of this Agreement, unless the parties mutually agree in writing to the
contrary, "Principal Market" shall refer to the Nasdaq National Market, the
Nasdaq Small-Cap Market, the American Stock Exchange or the New York Stock
Exchange, and any other applicable market in accordance with their requirements
(other than bulletin board markets or pink sheets). At any time during the Call
Period, and at Buyer's sole discretion, Buyer shall provide one or more written
notices to the Company (each a "Call Acceptance") that it will meet all or a
portion of the Call for Proceeds against delivery of Drip Shares as calculated
pursuant to subsection (ii) below. If the Company does not receive Call
Acceptances from Buyers equal to the total Dollar Amount (as permitted
2
<PAGE>
and limited hereunder) within the Call Period, a Call Acceptance shall be deemed
received by the Company as of the last trading day during the Call Period. The
closing for the sale of the Drip Shares shall take place on or before the third
day following receipt or deemed receipt of the Call Acceptance.
(ii) With respect to each Call for Proceeds, the Dollar Amount
shall be subject to each of the following limitations:
(A) Subject to Section (B) below, the aggregate Dollar
Amount among all Buyers may not be more than eight (8%) percent of the Company's
Trading Volume multiplied by the average closing bid price of the Common Stock
as reported by Bloomberg, L.P. from the three (3) trading days (such average
hereafter referred to as the "Current Average Price") preceding the Call Date.
For the purposes of this Agreement, "Trading Volume" shall mean the total number
of shares traded on the Principal Market for the twenty (20) trading days
preceding the Call Date.
(B) The aggregate Dollar Amount on each Call for Proceeds
among all Buyers may not be less than US$50,000 or more than US$1,000,000;
(C) When aggregated with the Series B Preferred Stock and
all other Drip Shares issued in connection with prior and concurrent Calls for
Proceeds, the issuance of Drip Shares for the then current Call for Proceeds
will not result in the Company issuing in the aggregate more than 19.99% of the
number of shares of Common Stock outstanding as of the Closing Date for the sale
of the Series B Preferred Stock unless the Company has first obtained the
approval of the Company's stockholders as required by Section 4460(i)(1)(D)(ii)
of the Nasdaq Marketplace Rules. The "Closing Date Stock" shall be defined as
the number of shares of Common Stock issued and outstanding as of the Closing
Date for the Series B Preferred Stock. The foregoing limitation shall be
accomplished by the following formula to calculate the Dollar Amount available
for a Call for Proceeds at any given point in time:
Current Average Price X [(19.99% X Closing Date Stock) - (Underlying Shares
issued to date + Drip Shares issued to date) - (RP/(Current Average Price
X .50 X (1 - DP)))]
Where:
RP = $2,000,000 less the purchase price of Series B Preferred Stock
converted to date
DP = 20% or, 18% if Effective Date occurs within 60 days after the Closing
Date for the sale of Series B Preferred Stock.
If the Dollar Amount resulting from the foregoing formula results in an
amount less than fifty thousand ($50,000) dollars, no Call for Proceeds may be
made by the Company.
(D) When aggregated with the Series B Preferred Stock and
all other Drip Shares issued in connection with prior and concurrent Calls for
Proceeds, Buyer shall not be required to purchase Drip Shares for the then
current Call for Proceeds if it would result in
3
<PAGE>
the Buyer beneficially owning more than 4.99% of the Closing Date Stock, as
determined in accordance herewith and Section 13(d) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act").
(iii) Notwithstanding anything to the contrary contained herein or in
the Certificate of Designation for the Series B Preferred Stock, to the extent
that the Company is subject to Section 4460(i)(1)(D)(ii) of the Nasdaq
Marketplace Rules, the number of shares of Common Stock of the Company issued
pursuant to the Certificate of Designation for the Series B Preferred Stock
and/or the shares of Common Stock issued upon a Call for Proceeds shall not
exceed 19.99% of the Closing Date Stock. In the event the number of shares of
Common Stock of the Company issuable pursuant to the terms of the Certificate of
Designation for the Series B Preferred Stock, and/or upon a Call for Proceeds
exceeds 15% of the Closing Date Stock, the Company agrees that it shall
immediately call a stockholders meeting for the purpose of approving below
market price issuances of Common Stock to the Buyers in excess of 19.99% of the
Closing Date Stock as required by Section 4460(i)(1)(D)(ii) of the Nasdaq
Marketplace Rules. In the event that the aforementioned proposal is not ratified
by the stockholders and the number of shares issuable under the Certificate of
Designation for the Series B Preferred Stock pursuant to a Call for Proceeds
exceeds 19.99% of the Closing Date Stock, the Company will seek a waiver from
the Nasdaq Stock Market to permit such issuances. If the Company is unable to
obtain such a waiver within twenty (20) days of applying therefor, the Company
will, pay to the Buyers the Redemption Price in accordance with the Redemption
procedures as set forth in the Certificate of Designation for the Series B
Preferred Stock of that number of shares of Common Stock that would have been
issuable to the Subscribers in excess of 19.99% of the Closing Date Stock.
(iv) The number of Drip Shares to be sold at each Closing shall be
equal to the quotient obtained in dividing the Dollar Amount by eighty-five
percent (85%) of the Current Average Price preceding the date the Company
receives the Call Acceptance, rounding any fractional share up to a full share.
(d) Form of Payment. Buyer shall pay the purchase price of the
---------------
Series B Preferred Stock (or the Dollar Amount for each Call for Proceeds
pursuant to a Call Acceptance) by delivering good funds in United States Dollars
by wire transfer to Goldstein, Goldstein & Reis, LLP (the "Escrow Agent") in
accordance with the Escrow Agreement, against delivery of the original
certificates evidencing the Series B Preferred Stock (or the Drip Shares, as the
case may be) duly executed on behalf of the Company and registered in the name
of such Buyer or its designee (the "Certificates") (each such delivery hereafter
referred to as a "Closing" and the date of each such Closing hereafter referred
to as a "Closing Date").
(e) Wire Instructions. Wire Instructions for Goldstein, Goldstein &
-----------------
Reis, LLP are as follows:
Chase Manhattan Bank, N.A.
ABA #021000021
For the Account of:
United States Trust Company of New York
4
<PAGE>
Account No. 920-1-073195
In favor of:
Goldstein, Goldstein & Reis, LLP Attorney Escrow Account
Account No. 59-01383
2. Representation and Warranties of the Buyer. Buyer acknowledges,
------------------------------------------
represents, warrants and agrees as follows:
(a) Organization and Authorization. Buyer is duly incorporated or
------------------------------
organized and validly existing in the jurisdiction of its incorporation or
organization and has all requisite power and authority to purchase and hold the
Securities. The decision to invest and the execution and delivery of this
Agreement by the Buyer, the performance by the Buyer of its obligations
hereunder and the consummation by the Buyer of the transactions contemplated
hereby have been duly authorized and requires no other proceedings on the part
of the Buyer. The undersigned signatory has all right, power and authority to
execute and deliver this Agreement on behalf of the Buyer. This Agreement has
been duly authorized, validly executed and delivered by the Buyer and, assuming
the execution and delivery hereof and acceptance thereof by the Company, will
constitute the legal, valid and binding obligations of the Buyer, enforceable
against the Buyer in accordance with its terms, except as the same may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting the rights of creditors generally and available
equitable remedies.
(b) Evaluation of Risks. Buyer has such knowledge and experience in
-------------------
financial and business matters as to be capable of evaluating the merits and
risks of, and bearing the economic risks entailed by, an investment in the
Company and of protecting its interests in connection with this transaction. It
recognizes that its investment in the Company involves a high degree of risk and
the Buyer can afford the complete loss of Buyer's investment.
(c) Independent Counsel. Buyer acknowledges that it has been advised
-------------------
to consult with its own attorney regarding legal matters concerning the Company
and to consult with its tax advisor regarding the tax consequences of acquiring
the Securities.
(d) Disclosure Documentation. Buyer has received and reviewed copies
------------------------
of the Company's reports filed under the Exchange Act, together with the
regulations promulgated thereunder (the "1934 Act"), including the Company's
Form 10-K's, Form 10-Q's, and Form 8-K's filed by the Company for at least the
twelve month period preceding the Closing Date (collectively, the "SEC
Filings"). Buyer acknowledges that the Company has offered to make available any
additional public information that the Buyer may reasonably request, including
technical information, and other material information about the Company and
Buyer has been offered Company's full cooperation in making such information
available to Buyer and acknowledges that the Company has recommended that the
Buyer request and review such information prior to making an investment
decision. No oral or written representations have been made, or oral or written
information furnished to the undersigned or its advisors, if any, in connection
with the offering of the Securities which were or are in any way inconsistent
with the
5
<PAGE>
SEC Filings.
(e) Opportunity to Ask Questions. Buyer has had a reasonable
----------------------------
opportunity to ask questions of and receive answers from the Company concerning
the Company and the offering, and all such questions, if any, have been answered
to the full satisfaction of Buyer.
(f) SEC Filings Constitute Sole Representations. Except as set forth
-------------------------------------------
in the SEC Filings, or this Agreement (including all Exhibits attached hereto),
no representations or warranties in connection with the offering of the
Securities have been made to Buyer by (i) the Company or any agent, employee or
affiliate of the Company, or (ii) any other person, and in entering into this
transaction Buyer is not relying upon any information, other than that contained
in the SEC Filings and the results of independent investigation by Buyer.
(g) Buyer is Accredited Investor. The undersigned represents and
----------------------------
warrants it is included within one or more of the following categories of
"Accredited Investors."
(i) Any bank as defined in Section 3(a)(2) of the Securities
Act, or any savings and loan associated or other institution as defined in
Section 3(a)(5)A of the Securities Act whether acting in it individual or
fiduciary capacity; any broker or dealer registered pursuant to Section 15 of
the 1934 Act; any insurance company as defined in Section 2(13) of the
Securities Act; any investment company registered under the Investment Company
Act of 1940 or a business development company as defined in Section 2(a)(48) of
that Act; any Small Business Investment Company licensed by the U.S. Small
Business Administration under Section 301(c) or (d) of the Small Business Act of
1958; any plan established and maintained by a state, its political
subdivisions, or any agency or instrumentality of a state or its political
subdivision, for the benefits of its employees if such plan has total assets in
excess of $5,000,000; and employee benefit plan within the meaning of Title I of
the Employee Retirement Income Security Act of 1974 if the investment decision
is made by a plan fiduciary, as defined in Section 3(21) of such Act, which is
either a bank, savings and loan association, insurance company, or registered
investment advisor, or if the employee benefit plan has total assets in excess
of $5,000,000 or, if a self-directed plan, with investment decisions made solely
by persons that are accredited investors;
(ii) Any private business development company as defined in
Section 202(a)(22) of the Investment Advisers Act of 1940;
(iii) Any organization described in Section 501(c)(3) of the
Internal Revenue Code, corporation, Massachusetts or similar business trust, or
partnership, not formed for the specific purpose of acquiring the securities
offered, with total assets in excess of $5,000,000;
(iv) Any director, executive officer, or general partner of the
issuer of the securities being offered or sold, or any director, executive
officer, or general partner of a general partner of that issuer;
(v) Any natural person whose individual net worth, or joint net
worth
6
<PAGE>
with that person's spouse, at the time of his purchase exceeds $1,000,000;
(vi) Any natural person who had an individual income in excess
of $200,000 in each of the two (2) most recent years or joint income with that
person's spouse in excess of $300,000 in each of those years and has a
reasonable expectation of reaching that same income level in the current year;
(vii) Any trust, with total assets in excess of $5,000,000, not
formed for the specific purpose of acquiring the securities offered, whose
purchase is directed by a sophisticated person as described in Section
230.506(b)(2)(ii) of the regulations promulgated under the Securities Act;
(viii) Any entity in which all of the equity owners are
accredited investors; and
(ix) Any self-directed employee benefit plan with investment
decisions made solely by persons that are accredited investors within the
meaning of Rule 501 of Regulation D promulgated under the Securities Act.
(h) No Registration, Review or Approval. Buyer acknowledges and
-----------------------------------
understands that the limited private offering and sale of Securities pursuant to
this Agreement has not been reviewed or approved by the SEC or by any state
securities commission, authority or agency, and is not registered under the
Securities Act or under the securities or "blue sky" laws, rules or regulations
of any state. Buyer acknowledges, understands and agrees that the Securities
are being offered and sold hereunder pursuant to (i) a private placement
exemption to the registration provisions of the Securities Act pursuant to
Section 3(b) or Section 4(2) of such Act and Regulation D promulgated under such
Act, and (ii) a similar exemption to the registration provisions of applicable
state securities laws. Buyer understands that the Company is relying upon the
truth and accuracy of the representations, warranties, agreements,
acknowledgments and understandings of Buyer set forth herein in order to
determine the applicability of such exemptions and the suitability of Buyer to
acquire the Securities.
(i) Investment Intent. Without limiting its ability to resell the
-----------------
Securities pursuant to an effective registration statement, Buyer is acquiring
the Securities solely for its own account and not with a view to the
distribution, assignment or resale to others. Buyer understands and agrees that
it may bear the economic risk of its investment in the Securities for an
indefinite period of time.
(j) [Intentionally Left Blank]
(k) Transfer Restrictions Regarding Securities. Upon conversion of
------------------------------------------
any part or all of the Series B Preferred Stock at any time after the Holding
Period, if the holder of the Series B Preferred Stock being converted makes the
certification, pursuant to a Notice of Conversion in the form attached hereto as
Exhibit D (a "Notice of Conversion"), that such holder has complied with all of
the requirements of Regulation D and such other requirements as set
7
<PAGE>
forth herein, and the registration statement required to be filed by the Company
pursuant to the Registration Rights Agreement is effective or an exemption from
registration exists, then the Company shall cause the Company's transfer agent
(the "Transfer Agent") to deliver the Underlying Shares upon such conversion
without a restrictive legend or stop transfer instructions. Otherwise the
Underlying Shares shall be considered restricted securities and certificates
representing such Underlying Shares shall contain restrictive legends and stop
transfer instructions will be placed with the Transfer Agent regarding such
Underlying Shares, including without limitation the legend in substantially the
following form:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (TOGETHER WITH THE REGULATIONS
PROMULGATED THEREUNDER, THE "SECURITIES ACT"), AND MAY NOT BE SOLD, OFFERED
FOR SALE, OR TRANSFERRED, IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT FILED UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS,
UNLESS AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE."
The certificates representing the Securities, and each certificate
issued in transfer thereof, will also bear any legend required under any
applicable state securities law.
(l) Registration Rights. The parties have entered into the
-------------------
Registration Rights Agreement.
(m) No Advertisements. The Buyer is not subscribing for the
-----------------
Securities as a result of or subsequent to any advertisement, article, notice or
other communication published in any newspaper, magazine, or similar media or
broadcast over television or radio, or presented at any seminar or meeting.
3. Representations and Warranties of the Company. The Company
---------------------------------------------
acknowledges, represents, warrants and agrees as follows, except to the extent
disclosed in the Schedule of Exceptions attached as Exhibit E hereto (the
"Schedule of Exceptions"):
(a) Organization and Authorization. The Company is a corporation duly
------------------------------
organized, validly existing and in good standing under the laws of the State of
Delaware and has all requisite corporate power and authority to own and operate
its properties and assets and to carry on its business as currently conducted.
The Company is qualified to do business as a foreign corporation in each
jurisdiction in which the ownership of its property or the nature of its
business requires such qualification, except where the failure to so qualify
would not have a material adverse effect on the Company. The Company is not in
default or violation of any material term or provision of its Certificate of
Incorporation, as amended, or By-laws nor will the consummation of the
transactions contemplated by this Agreement cause any such default or violation.
The Company has all requisite corporate power and authority to enter into this
Agreement, to sell the Securities hereunder and to carry out and perform its
obligations under the terms of this Agreement. This Agreement is a valid and
binding obligation of the Company,
8
<PAGE>
enforceable in accordance with its terms, except as the same may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws affecting the rights of creditors generally and available equitable
remedies. This Agreement has been duly authorized, validly executed and
delivered on behalf of the Company and is a valid and binding agreement in
accordance with its terms, subject to general principles of equity and to
bankruptcy or other laws affecting the enforcement of creditors' rights
generally. Upon their issuance and delivery pursuant to this Agreement, the
Underlying Shares will be validly issued, fully paid and nonassessable and will
be free of any liens or encumbrances; provided, however, that the Underlying
Shares are subject to restrictions on transfer under state and/or federal laws.
(b) Reporting Issuer Company Status. The Company is in full
-------------------------------
compliance, to the extent applicable, with all reporting obligations under
either Section 12(b), 12(g) or 15(d) of the 1934 Act, and shall use its best
efforts to maintain such status on a timely basis. The Company has registered
its Common Stock pursuant to Section 12 of the 1934 Act and, as of the Closing
Date for the Series B Preferred Stock, the Common Stock trades on the NASDAQ
National Market System. The Company has filed all material required to be filed
pursuant to all reporting obligations, under either Section 13(a) or 15(d) of
the 1934 Act for a period of at least twelve (12) months immediately preceding
the offer to sell the Securities (or for such shorter period that the Company
has been required to file such material).
(c) Capitalization. The authorized capital stock of the Company
--------------
consists of 30,000,000 of Common Stock, $0.001 par value, and 500,000 shares of
Preferred Stock, $0.001 par value, of which 30,000 shares have been designated
Series A 8.5% Convertible Preferred Stock, $0.001 par value and 20,000 shares
have been designated Series B Convertible Preferred Stock. As of March 31, 1998,
13,372,976 shares of Common Stock have been issued and are outstanding,
and20,003 shares of Series A 8.5% Convertible Preferred Stock have been issued
and are outstanding. All issued and outstanding shares of Common Stock and
Series B Convertible Preferred Stock have been duly authorized and validly
issued and are fully paid and nonassessable.
(d) Company to Reserve Shares. The Company will reserve from its
--------------------------
authorized but unissued shares of Common Stock such number of shares of Common
Stock to permit the conversion of all of the Series B Preferred Stock and
issuance of the Drip Shares, provided that the number of shares of Common Stock
so reserved shall at no time be less than two hundred (200%) percent of the
number of shares of Common Stock for which the Series B Preferred Stock is at
any time convertible. If at any time the number of authorized but unissued
shares of Common Stock shall be insufficient to satisfy the conversion or
issuance hereunder, in addition to such other remedies as shall be available to
the holder of Series B Preferred Stock, the Company will take such corporate
action as may, in the opinion of its counsel, be necessary to increase its
authorized but unissued shares of Common Stock to such number of shares as shall
be sufficient for such purpose.
(e) Listing. The Company will use best efforts to maintain the
-------
listing of its Common Stock on the NASDAQ National Market System. The Company
will take no action which would import their continued listing or eligibility of
the Company from such listing.
9
<PAGE>
(f) Company to Honor Telecopied Notices. The Company will permit each
-----------------------------------
Buyer to exercise its right to convert the Series B Preferred Stock by
telecopying an executed and completed Notice of Conversion to the Company and
delivering the original Notice of Conversion and the certificate representing
the Series B Preferred Stock to the Company by express courier. The Company
will use all commercially reasonable efforts to transmit the certificates
representing Underlying Shares issuable upon conversion of any Series B
Preferred Stock (together with the certificates representing any then-remaining
unconverted Preferred Stock) to Buyer via express courier, at the address set
forth herein, by electronic transfer or otherwise within three (3) NASDAQ
trading days after the applicable Conversion Date (defined below) if the Company
has received the original Notice of Conversion and Preferred Stock certificate
being so converted by such date. In addition to any other remedies which may be
available to Buyer, in the event that the Company fails for any reason to
transmit such shares of Common Stock within such three (3) NASDAQ trading day
period, Buyer will be entitled to revoke the relevant Notice of Conversion by
delivering a notice to such effect to the Company whereupon the Company and
Buyer shall each be restored to their respective positions immediately prior to
delivery of such Notice of Conversion.
In the event that the Common Stock issuable upon conversion of the
Series B Preferred Stock is not delivered within five (5) NASDAQ trading days of
delivery of a Notice of Conversion by the Company of a valid Notice of
Conversion and the Preferred Stock to be converted (such date of delivery
referred to as the "Conversion Date"), the Company shall pay to the Buyer, in
immediately available funds, upon demand, as liquidated damages for such failure
and not as a penalty, for each $100,000 of Series B Preferred Stock sought to be
converted $250 for each of the first ten (10) days and $500 per day thereafter
that the Underlying Shares are not delivered, which liquidated damages shall run
from the sixth (6th) NASDAQ trading day after the Conversion Date. Any and all
payments required pursuant to this paragraph shall be payable in cash upon
demand of Buyer.
(g) SEC Filings. For a period of at least twelve (12) months
-----------
immediately preceding this offer and sale, or such shorter period that the
Company has been required to file the SEC Filings, to the best of the Company's
knowledge (i) none of the Company's filings with the Securities and Exchange
Commission contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein in light of the circumstances under which they were made, not
misleading, and (ii) the Company has timely filed all requisite forms, reports
and exhibits thereto with the Securities and Exchange Commission.
(h) Full Disclosure. There is no fact known to the Company (other
---------------
than general economic conditions known to the public generally) that has not
been disclosed in writing to the Buyer that (i) could reasonably be expected to
have a material adverse effect on the condition (financial or otherwise) or in
the earnings, business affairs, business prospects, properties or assets of the
Company, or (ii) could reasonably be expected to materially and adversely affect
the ability of the Company to perform its obligations pursuant to this
Agreement.
10
<PAGE>
(i) Other Convertible Interests. Except as described in the SEC
---------------------------
Filings, (i) there are no other outstanding debt or equity securities presently
convertible into shares of Common Stock or that could be convertible into shares
of Common Stock, and (ii) the Company has no outstanding restricted shares of
Common Stock, or shares of Common Stock sold under Regulation S or Regulation D
under the Securities Act or outstanding under any other exemption from
registration, which are available for sale as unrestricted free trading stock.
(j) No Undisclosed Liabilities or Events. The Company has no
------------------------------------
liabilities or obligations other than those disclosed in the SEC Filings, this
Agreement or those incurred in the ordinary course of the Company's business
since March 31, 1998, and which individually or in the aggregate, do not or
would not have a material adverse effect on the properties, business, condition
(financial or otherwise), results of operations or prospects of the Company. No
event or circumstances has occurred or exists with respect to the Company or its
properties, business, condition (financial or otherwise), results of operations
or prospects, which, under applicable law, rule or regulation, requires public
disclosure or announcement prior to the date hereof by the Company but which has
not been so publicly announced or disclosed.
(k) No Default. The Company is not in default in the performance or
----------
observance of any material obligation, agreement, covenant or condition
contained in any indenture, mortgage, deed of trust or other material instrument
or agreement to which it is a party or by which it is or its property is bound,
and neither the execution, nor the delivery by the Company, nor the performance
by the Company of its obligations under this Agreement, including the conversion
provision of the Series B Preferred Stock will conflict with or result in the
breach or violation of any of the terms or provisions of, or constitute a
default or result in the creation or imposition of any lien or charge on any
assets or properties of the Company under, any material indenture, mortgage,
deed of trust or other material agreement applicable to the Company or
instrument to which the Company is a party or by which it is bound or any
statute or the Certificate of Incorporation, as amended, or Bylaws, as amended,
of the Company, or any decree, judgment, order, rule or regulation of any court
or governmental agency or body having jurisdiction over the Company or its
properties, or the Company's listing agreement for its Common Stock.
(l) Intellectual Property Rights. Except as disclosed in the SEC
----------------------------
Filings, the Company has sufficient trademarks, trade names, patent rights,
copyrights and licenses to conduct its business as presently conducted in the
SEC Filings. To the Company's knowledge, neither the Company nor its products
is infringing or will infringe any trademark, trade name, patent right,
copyright, license, trade secret or other similar right of others currently in
existence; and is not aware of any claim being made against it regarding any
trademark, trade name, patent, copyright, license, trade secret or other
intellectual property right which could have a material adverse effect on the
business or financial condition of the Company.
(m) Litigation. Except as disclosed in the SEC Filings, there is no
----------
action, proceeding or investigation pending, or to the Company's knowledge
threatened, against the Company which might result, either individually or in
the aggregate, in any material adverse change in the business, prospects,
conditions, affairs or operations of the Company. The
11
<PAGE>
Company is not a party to or subject to the provisions of any order, writ,
injunction, judgment or decree of any court or government agency or
instrumentality.
(n) Title to Assets. Except as set forth in SEC Filings, the Company
---------------
has good and marketable title to all properties and material assets described in
the SEC Filings as owned by it, free and clear of any pledge, lien, security
interest, encumbrance, claim or equitable interest other than such as are not
material to the business of the Company.
(o) Subsidiaries. Except as disclosed in the SEC Filings, the Company
------------
does not presently own or control, directly or indirectly, any interest in any
other corporation, partnership, association or other business entity.
(p) Required Governmental Permits. The Company is in possession of
-----------------------------
and operating in compliance with all authorizations, licenses, certificates,
consents, orders and permits from state, federal and other regulatory
authorities which are material to the current conduct of its business, all of
which are valid and in full force and effect.
(q) Rule 144 Reporting. With a view to making available the benefits
------------------
of certain rules and regulations of the SEC which may at any time permit the
sale of the Securities to the public without registration, the Company agrees to
use its best efforts to:
(i) make and keep public information available, as those terms
are understood and defined in Rule 144 under the Securities Act, at all times
after the effective date on which the Company becomes subject to the reporting
requirements of the Securities Act or the 1934 Act;
(ii) use its best efforts to file with the SEC in a timely
manner all reports and other documents required of the Company under the
Securities Act and the 1934 Act;
(iii) to furnish to Buyer forthwith upon request a written
statement by the Company as to its compliance with the reporting requirements of
said Rule 144, and of the Securities Act and the 1934 Act, a copy of the most
recent annual or quarterly report of the Company, and such other reports and
documents of the Company and other information in the possession of or
reasonably obtainable by the Company as Buyer may reasonably request in availing
itself of any rule or regulation of the SEC allowing Buyer to sell any such
Securities without registration.
(r) Dilution. The Company is aware and acknowledges that conversion
--------
of the Series B Preferred Stock and the issuance of DRIP Shares could cause
dilution to existing stockholders and could significantly increase the
outstanding number of shares of Common Stock.
(s) Restrictions on Future Financings. The Company cannot, without
---------------------------------
the prior written approval of all of the Buyers, enter into any transaction
whereby the Company issues freely tradable securities or securities that would
be freely tradable for a period of three and one half (3.5) months following the
Effective Date. In the event the Company enters into a
12
<PAGE>
transaction prior to the end of the aforementioned three and one half month
period whereby the Company agrees to issue freely tradable securities, or
securities that would be freely tradable, after the aforementioned three and one
half (3.5) month period, it will contractually prohibit such investor from
conducting any short selling of the Company's securities prior to the expiration
of said three and one half month period.
Notwithstanding the aforementioned, in the event the Company wishes to
enter into a transaction for debt or equity financing which is convertible into
shares of Common Stock of the Company .within eighteen (18) months following the
Closing Date for the Series B Preferred Stock, the Company will give each Buyer
written notice of the terms and conditions of such offer (the "ROFR Notice").
Each Buyer shall have a pro rata right of first refusal to participate in such
offering in an amount not to exceed a total of the greater of (i) an aggregate
of US $5,000,000 or (ii) the sum of US $2,000,000 plus the total dollar value of
all Dollar Amounts through the date of the ROFR Notice. Each Buyer shall have
three (3) business days to reply in writing after receipt of the ROFR Notice
from the Company. Such reply may be sent via facsimile. In the event such
written reply is not received by the Company within such three (3) business day
period, it will be deemed a refusal by such Buyer. Buyers shall have the right
to review all final documentation regarding such placements and such
documentation shall be delivered to each Buyer within ten (10) days from the
closing date of such transaction(s). Each Buyer's pro rata right to exercise
the right of first refusal granted under this Section shall be equal to the
ratio that shares of Series B Preferred Stock that such Buyer purchases bear to
all shares of Series B Preferred Stock sold to all Buyers.
No equity or debt financing, including the issuance of debt
convertible into equity, consummated with a merger or acquisition of assets by
the Company shall constitute a financing which would trigger the right of first
refusal hereunder in favor of the Buyers. The right of first refusal under this
Section shall supersede any other similar right that the Buyers may have with
respect to offerings of securities of the Company.
In the event the Buyers do not exercise their right of first refusal as set
forth above, and the Company enters into a transaction as set forth above, the
Buyers have the right to thereafter reject any Call For Proceeds served upon
them.
(t) Use of Proceeds. The Company agrees that the proceeds received by
it from this transaction shaall be used for working capital purposes and not for
the repayment of any Note.
(u) No Integration. The Company represents that its counsel has been
--------------
orally informed by its Nasdaq representative that the issuance of its Series A
Preferred Stock to the Buyers pursuant to a transaction in December 1997 is not
to be integrated with, nor considered a continuous offering with this
transaction.
(v) Eligibility. The Company represents that as of the date hereof
-----------
meets the eligibility requirements for the filing of a Form S-3 registration
statement.
13
<PAGE>
4. Representations and Warranties of the Company and Buyer. Each of Buyer
-------------------------------------------------------
and the Company represent to the other the following with respect to itself:
(a) Non-contravention/No Conflict. The execution and delivery of this
-----------------------------
Agreement and the consummation of the issuance of the Securities and the
transaction contemplated by this Agreement do not and will not conflict with or
result in a breach by such party of any of the terms or provisions of, or
constitute a default under, the articles of incorporation or by-laws of such
party, or any indenture, mortgage, deed of trust of other material agreement or
instrument to which such party is a party or by which it or any of its
properties or assets are bound, or any existing applicable law, rule or
regulation or any applicable decree, judgment or order of any court, Federal or
State regulatory body, administrative agency or other governmental body having
jurisdiction over such party or any of its properties or assets. The execution,
delivery and performance of this Agreement and the consummation by such party of
the transactions contemplated hereby or relating hereto do not and will not (i)
result in a violation of such party's charter documents, by-laws, partnership
agreement, certificate of limited partnership or other governing documents, as
the case may be, or (ii) conflict with, or constitute a default (or an event
which with notice of lapse of time or both would become a default) under, or
give to others any rights of termination, amendment, acceleration or
cancellation of, any agreement, indenture or instrument to which such party is a
party, or result in a violation of any law, rule, or regulation, or any order,
judgment or decree of any court or governmental agency applicable to such party
or any of its properties. Such party is not required 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 the transactions contemplated hereby;
provided that for purposes of the representation made in this sentence, each
party is assuming and relying upon the accuracy of the relevant representations
and agreements of the other party herein.
(b) Approvals. Neither the Company nor Buyer is aware of any
---------
authorization, approval or consent of any governmental body which is legally
required for the issuance and sale of the Securities, other than filings to
comply with the Securities Act and applicable state securities or "blue sky"
laws.
(c) Indemnification.
---------------
(i) Each of the Company and Buyer agrees to indemnify the other
and to hold the other harmless from and against any and all losses, damages,
liabilities, costs and expenses (including reasonable attorneys' fees) which the
other may sustain or incur in connection with the breach by the indemnifying
party of any representation, warranty or covenant made by it in this Agreement.
(ii) Promptly after receipt by an indemnified party under this
Section of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against the indemnifying party
under this Section, notify the indemnifying party of the commencement thereof;
but the omission so to notify the indemnifying party will not relieve the
indemnifying party from any liability which it may have to any indemnified party
14
<PAGE>
otherwise than as to the particular item as to which indemnification is then
being sought solely pursuant to this Section. In case any such action is
brought against any indemnified party, and it notifies the indemnifying party of
the commencement thereof, the indemnifying party will be entitled to participate
in, and, to the extent that it may wish, jointly with any other indemnifying
party similarly notified, assume the defense thereof, subject to the provisions
herein stated and after notice from the indemnifying party to such indemnified
party of its election so to assume the defense thereof, the indemnifying party
will not be liable to such indemnified party under this Section for any legal or
other expenses subsequently incurred by such indemnified party in connection
with the defense thereof other than reasonable costs of investigation, unless
the indemnifying party shall not pursue the action to its final conclusion. The
indemnified party shall have the right to employ separate counsel in any such
action and to participate in the defense thereof, but the fees and expenses of
such counsel shall not be at the expense of the indemnifying party if the
indemnifying party has assumed the defense of the action with counsel reasonably
satisfactory to the indemnified party; provided that if the indemnified party is
the Buyer, the fees and expenses of such counsel shall be at the expense of the
indemnifying party if (i) the employment of such counsel has been specifically
authorized in writing by the indemnifying party, or (ii) the named parties to
any such action (including any impleaded parties) include both the Buyer and the
indemnifying party and the Buyer shall have been advised by such counsel that
there may be one or more legal defenses available to the indemnifying party
different from or in conflict with any legal defenses which may be available to
the Buyer (in which case the indemnifying party shall not have the right to
assume the defense of such action on behalf of the Buyer, it being understood,
however, that the indemnifying party shall, in connection with any one such
action or separate but substantially similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable only for the reasonable fees and expenses of one separate firm of
attorneys for each Buyer, which firm shall be designated in writing by the
Buyer). No settlement of any action against an indemnified party shall be made
without the prior written consent of the indemnified party, which consent shall
not be unreasonably withheld.
(d) Time of Representations and Warranties. Each representation and
--------------------------------------
warranty made by each party hereunder shall be deemed made as of the date hereof
and as of each Closing Date, unless the context shall clearly require otherwise.
5. Restrictions on Conversion and Exercise. Restrictions on Conversion
---------------------------------------
and Exercise shall be subject to the Certificate of Designation.
6. Registration or Exemption Requirements. Buyer acknowledges and
--------------------------------------
understands that the Securities may not be resold or otherwise transferred
except in a transaction registered under the Securities Act and any applicable
state securities laws or unless an exemption from such registration is
available. Buyer understands that the Securities will be imprinted with a
legend that prohibits the transfer of the Securities unless (i) they are
registered or such registration is not required, and (ii) if the transfer is
pursuant to an exemption from registration other than Rule 144 under the
Securities Act and, if the Company shall so request in writing, an opinion of
counsel reasonably satisfactory to the Company is obtained to the effect that
the transaction is so exempt.
15
<PAGE>
7. Conditions to the Company's Obligation to Sell the Series B Preferred
---------------------------------------------------------------------
Stock. Buyer understands that the Company's obligation to sell the Series B
- -----
Preferred Stock is further conditioned upon:
(a) Execution. The execution and delivery of this Agreement,
---------
including all Exhibits attached hereto, by the Company; and
(b) Delivery of Funds. Delivery into escrow by Buyer of good cleared
-----------------
funds as payment in full for the purchase of the Series B Preferred Stock as
more fully set forth in the Escrow Agreement; and
(c) Representations. All representations and warranties of the Buyer
---------------
shall remain true and correct as of the Closing Date for the Series B Preferred
Stock.
8. Conditions to Buyers' Obligation to Purchase the Series B Preferred
-------------------------------------------------------------------
Stock. Buyer's obligation to purchase the Series B Preferred Stock is
- -----
conditioned upon:
(a) Execution. The execution and delivery of this Agreement,
---------
including Exhibits attached hereto, for the sale of the Series B Preferred
Stock;
(b) Delivery of Certificates. Delivery of the original Series B
------------------------
Preferred Stock Certificate at the Closing Date for the Series B Preferred
Stock;
(c) Representations. All representations and warranties of the
---------------
Company shall remain true and correct as of the Closing Date for the Series B
Preferred Stock;
(d) Legal Opinion. Receipt of opinion of counsel in the form of
-------------
Exhibit F hereto for the Closing Date for the sale and purchase of Series B
Preferred Stock;
(e) Certificate of Designation. Receipt of a copy of the filed
--------------------------
Certificate of Designation for the Series B Preferred Stock immediately prior to
the Closing Date for the sale and purchase of the Series B Preferred Stock;
(f) Transfer Instructions. Receipt of a copy of the executed
---------------------
irrevocable instructions to the Transfer Agent in the form annexed hereto as
Exhibit G; and
9. Conditions Precedent to the Obligation of the Company to Issue and
------------------------------------------------------------------
Sell Common Stock Associated With a Call. The obligation hereunder of the
- ----------------------------------------
Company to issue and sell the Drip Shares to the Buyers incident to each Closing
for Drip Shares is subject to the satisfaction, at or before each such Closing,
of each of the conditions set forth below.
(a) Accuracy of Each of the Buyers Representation and Warranties. The
------------------------------------------------------------
representations and warranties of each of the Buyers shall be true and correct
in all material
16
<PAGE>
respects as of the date of this Agreement and as of the date of each such
Closing as though made at each such time.
(b) Performance by the Buyers. The Buyers 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 Buyers at or prior to such Closing.
10. Conditions Precedent to the Right of the Company to Deliver a Call for
----------------------------------------------------------------------
Proceeds and the Obligation of the Buyers to Purchase Drip Shares. The right of
- -----------------------------------------------------------------
the Company to deliver a Call for Proceeds and the obligation of the Buyers
hereunder to acquire and pay for the Drip Shares incident to a Closing for Drip
Shares is subject to the satisfaction, on (i) the date of delivery of such Call
for Proceeds, and (ii) the applicable Closing Date for each Call for
Proceeds (each a "Condition Satisfaction Date"), of the conditions above, and
each of the following conditions:
(a) Registration of the Common Stock with the SEC. The Company shall
---------------------------------------------
have filed with the SEC a registration statement with respect to the resale of
that number of Drip Shares indicated in the applicable Call for Proceeds in
accordance with the terms of the Registration Rights Agreement. As set forth in
the Registration Rights Agreement and herein, the registration statement
(including all Drip Shares in the Call for Proceeds) shall have previously
become effective and shall remain effective during at least the three (3)
trading days immediately preceding each Condition Satisfaction Date and each
Call Date, and (i) neither the Company nor any of the Buyers shall have received
notice that the SEC has issued or intends to issue a stop order with respect to
the aforementioned registration statement or that the SEC otherwise has
suspended or withdrawn the effectiveness of the aforementioned registration
statement, either temporarily or permanently, or intends or has threatened to do
so (unless the SEC's concerns have been addressed and each of the Buyers are
reasonably satisfied that the SEC no longer is considering or intends to take
such action), and (ii) no other suspension of the use or withdrawal of the
effectiveness of the aforementioned registration statement or related prospectus
shall exist.
(b) Authority. The Company shall have obtained all permits and
---------
qualifications required by any state for the offer, issuance, and sale of the
Drip Shares, or shall have the availability of exemptions therefrom. The sale
and issuance of the Drip Shares shall be legally permitted by all laws and
regulations to which the Company is subject. The Company shall have previously
reserved that number of Drip Shares issuable pursuant to the applicable Call For
Proceeds.
(c) Accuracy of the Company's Representations and Warranties. The
--------------------------------------------------------
representations and warranties of the Company in the Registration Statement,
this Agreement and all Exhibits attached hereto shall be true and correct in all
material respects as of each Condition Satisfaction Date as though made at each
such time (except for representations and warranties specifically made as of a
particular date) with respect to all periods, and as to all events and
circumstances occurring or existing to and including each Condition Satisfaction
Date, except for any conditions which have temporarily caused any
representations or warranties herein to be incorrect and which have been
corrected with no continuing impairment to the Company or the Buyers.
17
<PAGE>
(d) Performance by the Company. The Company shall have performed,
--------------------------
satisfied and complied in all material respects with all covenants, agreements
and conditions required by this Agreement, the Escrow Agreement, the
Registration Rights Agreement, and the Certificate of Designation for the Series
B Preferred Stock to be performed, satisfied or complied with by the Company at
or prior to each Condition Satisfaction Date.
(e) 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 that
prohibits or directly and adversely affects any of the transactions contemplated
by this Agreement or any of the Exhibits annexed hereto, and no proceeding shall
have been commenced that may have the effect of prohibiting or adversely
affecting any of the transactions contemplated by this Agreement or any of the
Exhibits annexed hereto.
(f) Adverse Changes. The Company shall certify in writing that since
---------------
the date of the Company's most recent filing with the SEC, no event that had or
is reasonably likely to have a Material Adverse Effect has occurred. "Material
Adverse Effect" shall mean any effect on the business, operations, properties,
prospects or financial condition of the Company that is material and adverse to
the Company and its subsidiaries and affiliates, taken as a whole, and/or any
condition, circumstance or situation that would prohibit or otherwise in any
material respect interfere with the ability of the Company to enter into and
perform any of its obligations under this Agreement, the Registration Rights
Agreement, the Escrow Agreement, or the Certificate of Designation for the
Series B Preferred Stock in any material respect.
(g) No Suspension of Trading In or Delisting of Common Stock. The
--------------------------------------------------------
trading of the Common Stock (including, without limitation, the Drip Shares) is
not suspended by the SEC, the Nasdaq National Market, or the Nasdaq Small Cap
Stock Market (if applicable), and the Common Stock (including, without
limitation, the Drip Shares) shall have been approved for listing or quotation
on and shall not have been delisted from the Nasdaq National Market, or the
Nasdaq Small Cap Stock Market (if applicable). The issuance of shares of Common
Stock with respect to the applicable Closing, if any, shall not violate the
shareholder approval requirements of the Nasdaq Marketplace Rules. The Company
shall not have received any notice (other than that referred to on the Schedule
of Exceptions) from Nasdaq concerning delisting of the Common Stock on the
Principal Market, and the Company currently meets all listing requirements (or
has received a waiver from such requirements and is in compliance with same)
during the thirty (30) day period immediately preceding any Closing Date for
Drip Shares.
(h) Minimum Price. The closing bid price for the Common Stock must
-------------
equal or exceed one ($1.00) dollar for each of the ten (10) trading days
immediately preceding the completion of all the conditions set forth in this
Section (as adjusted for stock splits, stock dividends, reverse stock splits and
similar events);
(i) No Knowledge. The Company has no knowledge of any event more
------------
likely than not to have the effect of causing such Registration Statement
(including all Drip Shares in the Call for Proceeds) to be suspended or
otherwise ineffective (which event is more likely than not to
18
<PAGE>
occur within the ten (10) trading days following the trading day on which such
Call for Proceeds is deemed delivered).
(j) Trading Cushion. At least thirty (30) calendar days shall have
---------------
elapsed since the next preceding Call Date.
(k) Legal Opinion. The Buyers shall receive an opinion from counsel
-------------
to the Company in the form of Exhibit F annexed hereto on each Closing for Drip
Shares.
(l) Certificate. On each Condition Satisfaction Date, the Buyers
-----------
shall have received from the Company and been reasonably satisfied with such
other certificates and documents as shall have been reasonably requested by the
Buyers in order for the Buyers to confirm the Company's satisfaction of the
conditions set forth in this Section, including, without limitation, a
certificate in substantially the form and substance of Exhibit H hereto,
executed in either case by an executive officer of the Company and to the effect
that all the conditions to such Closing shall have been satisfied as at the date
of each such certificate.
(m) No Bankruptcy. On or prior to such Closing Date, there shall
-------------
have been no filing of a petition in bankruptcy, either voluntarily or
involuntarily, with respect to Company or any subsidiary and there shall not
have commenced any proceedings under any bankruptcy or insolvency laws, or any
laws relating to the relief of debtors, readjustment of indebtedness or
reorganization of debtors and there shall have been no calling of a meeting of
creditors of Company or appointment of a committee of creditors or liquidating
agents or offering of a composition or extension to creditors by, for, with or
without the consent or acquiescence of the Company.
(n) Listing Of Securities. As of such Closing, the Common Shares to
---------------------
be delivered on such Closing shall have been approved for trading on the Nasdaq
National Market or the Nasdaq Small Cap Stock Market, subject to official notice
of issuance.
(o) No Proceeding. There is no action, suit, proceeding, inquiry or
-------------
investigation before or by any court, public board 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, wherein an unfavorable
decision, ruling or finding would have a Material Adverse Effect or which would
adversely affect the validity or enforceability of, or the authority or ability
of the Company to perform its obligations under this Agreement, the Registration
Rights Agreement or any of such other documents.
(p) No Change in Control. No change of control of the Company shall
--------------------
have occurred since the Closing Date for the Series B Preferred Stock.
11. Miscellaneous.
-------------
(a) Governing Law/Jurisdiction. This Agreement will be construed and
--------------------------
enforced in accordance with and governed by the laws of the State of Delaware,
except for
19
<PAGE>
matters arising under the Securities Act, without reference to principles of
conflicts of law. Each of the parties consents to the jurisdiction of the
federal courts whose districts encompass any part of the State of Delaware or
the state courts of the State of Delaware in connection with any dispute arising
under this Agreement and hereby waives, to the maximum extent permitted by law,
any objection, including any objection based on forum non conveniens, to the
bringing of any such proceeding in such jurisdiction. Each party hereby agrees
that if another party to this Agreement obtains a judgment against it in such a
proceeding, the party which obtained such judgment may enforce same by summary
judgment in the courts of any country having jurisdiction over the party against
whom such judgment was obtained, and each party hereby waives any defenses
available to it under local law and agrees to the enforcement of such a
judgment. Each party to this Agreement irrevocably consents to the service of
process in any such proceeding by the mailing of copies thereof by registered or
certified mail, postage prepaid, to such party at its address set forth herein.
Nothing herein shall affect the right of any party to serve process in any other
manner permitted by law.
(b) Confidentiality. If for any reason the transactions contemplated
---------------
by this Agreement are not consummated, each of the parties hereto shall keep
confidential any information obtained from any other party (except information
publicly available or in such party's domain prior to the date hereof, and
except as required by court order) and shall promptly return to the other
parties all schedules, documents, instruments, work papers or other written
information, without retaining copies thereof, previously furnished by it as a
result of this Agreement or in connection herewith. Each of the Company and
Buyer agrees to keep confidential and not to disclose to or use for the benefit
of any third party the terms of this Agreement or any other information which at
any time is communicated by the other party as being confidential without the
prior written approval of the other party; provided, however, that this
provision shall not apply to information which, at the time of disclosure, is
already part of the public domain (except by breach of this Agreement) and
information which is required to be disclosed by the Exchange Act or other
applicable law.
(c) Counterparts; Facsimile. This Agreement may be executed in
-----------------------
multiple counterparts, each of which may be executed by less than all of the
parties and shall be deemed to be an original instrument which shall be
enforceable against the parties actually executing such counterparts and all of
which together shall constitute one and the same instrument. Except as
otherwise stated herein, in lieu of the original documents, a facsimile
transmission or copy of the original documents shall be as effective and
enforceable as the original.
(d) Entire Agreement, Amendments. This Agreement supersedes all other
----------------------------
prior oral or written agreements between the Buyer, the Company, their
affiliates and persons acting on their behalf with respect to the matters
discussed herein, and this Agreement and the instruments referenced herein
contain the entire understanding of the parties with respect to the matters
covered herein and therein and, except as specifically set forth herein or
therein, neither the Company nor any Buyer makes any representation, warranty,
covenant or undertaking with respect to such matters. No provision of this
Agreement may be waived or amended other than by an instrument in writing signed
by the party to be charged with enforcement.
20
<PAGE>
(e) Severability. If any provision of this Agreement shall be invalid
------------
or unenforceable in any jurisdiction, such invalidity or unenforceability shall
not affect the validity or enforceability of the remainder of this Agreement in
that jurisdiction or the validity or enforceability of any provision of this
Agreement in any other jurisdiction.
(f) Fees. Each party shall pay its own fees and expenses (including
----
the fees of any attorneys, accountants, appraisers or others engaged by such
party) in connection with this Agreement and the transactions contemplated
hereby.
(g) Notices. Any notices, consents, waivers, or other communications
-------
required or permitted to be given under the terms of this Agreement must be in
writing and will be deemed to have been delivered (i) upon receipt, when
delivered personally; (ii) upon receipt, when sent by facsimile, provided a copy
is mailed by U.S. certified mail, return receipt requested; (iii) three (3) days
after being sent by U.S. certified mail, return receipt requested, or (iv) one
(I) day after deposit with a nationally recognized overnight delivery service,
in each case properly addressed to the party to receive the same. The addresses
and facsimile numbers for such communications shall be:
If to the Company:
1395 Charleston Road
Mountain View, California 94043
Attn: Chief Financial Officer
Telephone: (650) 691-6600
Facsimile: (650) 691-9825
With a copy to:
Gray Cary Ware & Freidenrich LLP
400 Hamilton Avenue
Palo Alto, California 94301
Attention: James M. Koshland, Esq.
Telephone: (650) 833-2009
Facsimile: (650) 327-3699
If to the Buyer, to its address and facsimile number on the Schedule of
Buyers, with copies to the Buyer's counsel as set forth on the Schedule of
Buyers. Each party shall provide five (5) days' prior written notice to the
other party of any change in address or facsimile number. Unless otherwise
expressly stated, a "day" shall refer to any day on which the Principal Market
is open for trading.
(h) Successors and Assigns. This Agreement shall be binding upon and
----------------------
inure to the benefit of the parties and their respective successors and assigns.
The Company shall not assign this Agreement or any rights or obligations
hereunder without the prior written consent of the Buyer, which consent shall
not be unreasonably withheld. The Buyer may assign its rights
21
<PAGE>
hereunder with notice to the Company, but without the consent of the Company,
provided, however, that any such assignment shall not release the Buyer from its
obligations hereunder unless such obligations are assumed by such assignee and
the Company has consented to such assignment and assumption.
(i) Replacement of Certificates. Upon (i) receipt of evidence
---------------------------
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of a certificate representing the Drip Shares or the Series B
Preferred Stock, and (ii) in the case of any such loss, theft or destruction of
such certificate, upon delivery of an indemnity agreement or security reasonably
satisfactory in form and amount to the Company, or (iii) in the case of any such
mutilation, on surrender and cancellation of such certificate, the Company at
its expense will execute and deliver, in lieu thereof, a new certificate of like
tenor.
[Remainder of Page Intentionally Left Blank]
[Signature Page Follows]
22
<PAGE>
IN WITNESS WHEREOF, the Buyers and the Company have caused this Securities
Purchase Agreement to be duly executed as of the date first written above.
"COMPANY" "BUYERS"
STORM TECHNOLOGY, INC. LIBERTYVIEW FUND, LLC
By: _______________________ By:_______________________
Title:_____________________ Title:____________________
Name:______________________ Name:_____________________
LIBERTYVIEW PLUS FUND
By:_______________________
Title:____________________
Name:_____________________
CPR (USA), INC.
By:_______________________
Title:____________________
Name:_____________________
23
<PAGE>
SCHEDULE OF BUYERS
------------------
<TABLE>
<CAPTION>
Subscriber Purchase Price for Number of Total Aggregate
Name and Address Series B Preferred Preferred Shares Drip Shares Dollar Amount
- ---------------- ------------------ ---------------- -------------------------
<S> <C> <C> <C>
CPR (USA), Inc. $ 1,000,000 10,000
101 Hudson St., 37th Fl.
Jersey City, NJ 07302
State of Origination:
Delaware Corp.
Libertyview Plus Fund $ 800,000 8,000
Hemisphere House
9 Church Street
Hamilton, Bermuda HMDX
State of Origination:
Bermuda Corp.
Libertyview Fund, LLC $ 200,000 2,000
101 Hudson St., 37th Fl.
Jersey City, NJ 07302
State of Origination:
Delaware LLC
</TABLE>
Legal Counsel for all of the above purchasers
Goldstein, Goldstein & Reis, LLP
Address: 65 Broadway, 10th Fl.
New York, NY 10006
Attention: Jeffrey Stein, Esq.
Facsimile: (212) 809-4228
24
<PAGE>
Exhibit A
---------
Certificate of Designation
25
<PAGE>
Exhibit B
---------
Registration Right Agreement
26
<PAGE>
Exhibit C
---------
Escrow Agreement
27
<PAGE>
Exhibit D
---------
Notice of Conversion
28
<PAGE>
Exhibit E
---------
Schedule of Exceptions
29
<PAGE>
Exhibit F
---------
Legal Opinion
30
<PAGE>
EXHIBIT G
INSTRUCTIONS TO TRANSFER AGENT
<PAGE>
EXHIBIT H
COMPLIANCE CERTIFICATE
<PAGE>
EXHIBIT 4.11
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated the 4th day of June, 1998,
between the entities listed on Schedule A (the "Holder" or "Holders") issued
pursuant to a Securities Purchase Agreement of even date herewith, and STORM
TECHNOLOGY, INC., a Delaware corporation, having its principal place of business
at 1395 Charleston Road, Mountain View, CA 94043 (the "Company").
WHEREAS, simultaneously with the execution and delivery of this
Agreement, the Holders are purchasing from the Company, pursuant to a Securities
Purchase Agreement dated the date hereof (the "Securities Purchase Agreement"),
upon conversion thereof, an aggregate of up to Two Million ($2,000,000) Dollars
face value of non-voting Series B Convertible Preferred Stock (the "Preferred
Stock") and an aggregate of up to Twelve Million ($12,000,000) Dollars principal
amount of shares of Common Stock of the Company (the Common Stock and Preferred
Stock are referred to as the "Securities"). Capitalized terms defined in the
Securities Purchase Agreement and not otherwise defined herein shall have the
meanings specified in the Securities Purchase Agreement; and
WHEREAS, the Company desires to grant to the Holders the registration
rights set forth herein with respect to the Securities.
NOW, THEREFORE, the parties hereto mutually agree as follows:
Section 1. Registrable Securities. As used herein the term
----------------------
"Registrable Security" means shares of Common Stock underlying the Preferred
Stock, and the shares of Common Stock issuable pursuant to the Company's right
to call (as set forth in the Securities Purchase Agreement); provided, however,
that with respect to any particular Registrable Security, such security shall
cease to be a Registrable Security when, as of the date of determination, (i) it
has been effectively registered under the Securities Act of 1933, as amended
(the "Securities Act") and disposed of pursuant thereto, (ii) registration under
the Securities Act is no longer required for the immediate public distribution
(without volume limitation) of such security as a result of the provisions of
Rule 144 or Regulation D, or (iii) it has ceased to be outstanding. The term
"Registrable Securities" means any and/or all of the securities falling within
the foregoing definition of a "Registrable Security." In the event of any
merger, reorganization, consolidation, recapitalization or other change in
corporate structure affecting the Common Stock, such adjustment shall be made in
the definition of "Registrable Security" as is appropriate in order to prevent
any dilution or enlargement of the rights granted pursuant to this Section 1.
Section 2. Restrictions on Transfer. The Holders acknowledge and
------------------------
understand that prior to the registration of the Securities as provided herein,
the Securities are "restricted securities" as defined in Rule 144 promulgated
under the Securities Act. The Holders understand that no disposition or
transfer of the Securities may be made by Holders in the absence of (i) an
<PAGE>
opinion of counsel reasonably satisfactory to the Company that such transfer may
be made without registration under the Securities Act, or (ii) a registration
statement under the Securities Act is then in effect with respect thereto.
Section 3. Registration Rights.
-------------------
(a) The Company shall prepare and file with the Securities and
Exchange Commission ("SEC"), within thirty (30) days after the Closing Date for
the Preferred Stock, a registration statement (on Form S-3, or other appropriate
registration statement) under the Securities Act (the "Registration Statement"),
on one occasion, at the sole expense of the Company (except as provided in
Section 3(c) hereof), in respect of all holders of Registrable Securities, so as
to permit a non-underwritten public offering and sale of the Registrable
Securities under the Securities Act. The Company shall use its best efforts to
cause the Registration Statement to become effective within ninety (90) days
from the Closing Date of the Preferred Stock. The number of shares of Common
Stock to be registered shall be four million (4,000,000).
(b) The Company will maintain any Registration Statement or post-
effective amendment filed under this Section 3 hereof current under the
Securities Act until the earlier of (i) the date that all of the Registrable
Securities have been sold pursuant to the Registration Statement, (ii) the date
the holders thereof receive an opinion of counsel that the Registrable
Securities may be sold (without any volume limitations) under the provisions of
Rule 144, or (iii) the second anniversary of the effective date of the
Registration Statement.
(c) All fees, disbursements and out-of-pocket expenses and costs
incurred by the Company in connection with the preparation and filing of any
Registration Statement under subparagraph 3(a) and in complying with applicable
securities and Blue Sky laws (including, without limitation, all attorneys'
fees) shall be borne by the Company. In addition, the Company shall bear the
cost of underwriting discounts and commissions, if any, applicable to the
Registrable Securities being registered and the fees and expenses of its
counsel. The Company shall use its best efforts to qualify any of the
securities for sale in such states as such Holder reasonably designates and
shall furnish indemnification in the manner provided in Section 8 hereof.
However, the Company shall not be required to qualify in any state which will
require an escrow or other restriction relating to the Company and/or the
sellers. The Company at its expense will supply the Holders with copies of such
Registration Statement and the prospectus or offering circular included therein
and other related documents in such quantities as may be reasonably requested by
the Holders.
(d) The Company shall not be required by this Section 3 to include a
Holder's Registrable Securities in any Registration Statement which is to be
filed if, in the opinion of counsel for both the Holders and the Company (or,
should they not agree, in the opinion of another counsel experienced in
securities law matters acceptable to counsel for the Holder and the Company) the
proposed offering or other transfer as to which such registration is requested
is exempt from applicable federal and state securities laws and would result in
all purchasers or
2
<PAGE>
transferees obtaining securities which are not "restricted securities", as
defined in Rule 144 under the Securities Act.
(e) In the event the Registration Statement to be filed by the
Company pursuant to Section 3(a) above is not filed by the Company with the SEC
within thirty (30) days after the Closing Date for the Preferred Stock, and/or
is not declared effective by the SEC within ninety (90) days from the Closing
Date (the "Proposed Effective Date"), then the Company will pay Holders by wire
transfer, as liquidated damages for such failure and not as a penalty, two (2%)
percent of the outstanding principal amount of the Preferred Stock per month
thereafter, which amount will be increased to three (3%) percent of the
outstanding principal amount of the Preferred Stock in the event the
Registration Statement is not declared effective within thirty (30) days after
the Proposed Effective Date. In the event the registration statement is not
declared effective by the SEC within sixty (60) days after the Proposed
Effective Date, the Company will pay the Holders, in addition to the
aforementioned liquidated damages, additional liquidated damages in the amount
of one (1%) percent of the outstanding principal balance of the Preferred Stock
for each full thirty (30) day period thereafter during which the registration
statement is not declared effective. Payments as set forth in this Section shall
be made in cash or stock at the Company's option (the first month shall be pro
rated on a weekly basis) until the Company procures registration of the
Registrable Securities. If the Company does not remit the damages to the Holders
as set forth above, the Company will pay the Holders reasonable costs of
collection, including attorneys fees, in addition to the liquidated damages.
Such payment shall be made to the Holders in cash immediately if the
registration of the Securities are not effected; provided, however, that the
payment of such liquidated damages shall not relieve the Company from its
obligations to register the Registrable Securities pursuant to this Section. The
registration of the securities pursuant to this provision shall not effect or
limit Holders other rights or remedies as set forth in this Agreement. In
addition to the aforementioned, in the event the Registration Statement is not
declared effective within ninety (90) days after the Closing Date for the
Preferred Stock, each Holder shall have the right to permanently terminate the
Company's right to exercise any Call rights (as set forth in the Securities
Purchase Agreement).
(f) No provision contained herein shall preclude the Company from
selling securities pursuant to any Registration Statement in which it is
required to include Registrable Securities pursuant to this Section 3.
(g) If at any time or from time to time after the effective date of
the Registration Statement, the Company notifies the Holders in writing of the
existence of a Potential Material Event, as defined in this Section 3(g) herein,
the Holder shall not offer or sell any Registrable Securities or engage in any
other transaction involving or relating to Registrable Securities, from the time
of the giving of notice with respect to a Potential Material Event under such
Holders receive written notice from the Company that such Potential Material
Event either has been disclosed to the public or no longer constitutes a
Potential Material Event; provided, however, that the Company may not so suspend
the right to such holders of shares of Common Stock issuable upon conversion of
the Series B Preferred Stock (the "Conversion Shares") for more than ten (10)
days during any 12-month period with at least a ten (10) business days advance
notice during which time such holder shall continue to have the right to convert
the
3
<PAGE>
shares of Preferred Stock. If a Potential Material Event shall occur prior to
the date the Registration Statement is filed, then the Company's obligation to
file the Registration Statement shall be delayed without penalty for not more
than ten (10) days. The Company shall not be allowed to exercise its Call rights
under the Securities Purchase Agreement within days following the occurrence of
a Potential Material Event.
In the event there are any blackout periods in effect for any reason
which extend beyond the time period allotted above, the Company shall pay to the
Holders on a pro rata basis by wire transfer, as liquidated damages for such
blackout periods, three (3%) percent of the principal amount of the Securities
for each month thereafter (or part thereof) until the blackout period is no
longer in effect. The Company must give Holder notice in writing at least two
(2) business days prior to the first day of the period and the Holder shall
continue to have the right to convert Shares during this blackout notice period.
A "Potential Material Event" shall mean any of the following: (a) the
possession by the Company of material information not ripe for disclosure in a
registration statement, which shall be evidenced by determinations in good faith
by the Chief Executive Officer or the Board of Directors of the Company that
disclosure of such information in the Registration Statement covering the resale
of the Conversion Shares would be detrimental to the business and affairs of the
Company; or (b) any material engagement or activity by the Company which would,
in the good faith determination of the Chief Executive Officer or the Board of
Directors of the Company, be adversely affected by disclosure in a registration
statement at such time, which determination shall be accompanied by a good faith
determination by the Chief Executive Officer or the Board of Directors of the
Company that the Registration Statement would be materially misleading absent
the inclusion of such information.
Section 4. Cooperation with Company. Holders will cooperate with the
------------------------
Company in all respects in connection with this Agreement, including, timely
supplying all information reasonably requested by the Company and executing and
returning all documents reasonably requested in connection with the registration
and sale of the Registrable Securities.
Section 5. Registration Procedures. If and whenever the Company is
-----------------------
required by any of the provisions of this Agreement to effect the registration
of any of the Registrable Securities under the Securities Act, the Company shall
(except as otherwise provided in this Agreement), as expeditiously as possible:
(a) prepare and file with the Commission such amendments and
supplements to such registration statement and the Prospectus used in connection
therewith as may be necessary to keep such registration statement effective for
two (2) years and to comply with the provisions of the Securities Act with
respect to the sale or other disposition of all securities covered by such
registration statement when the Holder or Holders of such securities shall
desire to sell or otherwise dispose of the same (including prospectus
supplements with respect to the sales of securities from time to time in
connection with a registration statement pursuant to Rule 415 under the
Securities Act);
4
<PAGE>
(b) furnish to each Holder such numbers of copies of a summary
prospectus or other prospectus, including a preliminary prospectus or any
amendment or supplement to any prospectus, in conformity with the requirements
of the Securities Act, and such other documents, as such Holder may reasonably
request in order to facilitate the public sale or other disposition of the
securities owned by such Holder;
(c) use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or blue sky
laws of such jurisdictions as the Holder, shall reasonably request, and do any
and all other acts and things which may be necessary or advisable to enable each
Holder to consummate the public sale or other disposition in such jurisdiction
of the securities owned by such Holder, except that the Company shall not for
any such purpose be required to qualify to do business as a foreign corporation
in any
5
<PAGE>
jurisdiction wherein it is not so qualified or to file therein any general
consent to service of process;
(d) use its best efforts to list such securities on the NASDAQ
National Market System or any securities exchange on which any securities of the
Company is then listed, if the listing of such securities is then permitted
under the rules of such exchange or NASDAQ National Market System;
(e) enter into and perform its obligations under an underwriting
agreement, if the offering is an underwritten offering, in usual and customary
form, with the managing underwriter or underwriters of such underwritten
offering;
(f) notify each Holder of Registrable Securities covered by such
registration statement, at any time when a prospectus relating thereto covered
by such registration statement is required to be delivered under the Securities
Act, of the happening of any event of which it has knowledge as a result of
which the prospectus included in such registration statement, as then in effect,
includes an untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading in the light of the circumstances then existing.
Section 6. Assignment. The rights granted to the Holders under this
----------
Agreement shall not be assigned without the written consent of the Company,
which consent shall not be unreasonably withheld. In the event of a transfer of
the rights granted under this Agreement, the Holders agree that the Company may
require that the transferee comply with reasonable conditions as determined in
the discretion of the Company. This Agreement is binding upon and inures to the
benefit of the parties hereto and their respective heirs, successors and
permitted assigns.
Section 7. Termination of Registration Rights. The rights granted
----------------------------------
to this Agreement shall terminate as to each Investor (and permitted transferees
or assignees) upon the occurrence of any of the following:
(a) all such Holder's securities subject to this Agreement have been
registered;
(b) such Holder's securities subject to this Agreement may be sold
without such registration pursuant to Rule 144 or Regulation D promulgated by
the SEC pursuant to the Securities Act; or
(c) such Holder's securities subject to this Agreement can be sold
pursuant to Rule 144(k).
6
<PAGE>
Section 8. Indemnification.
---------------
(a) In the event of the filing of any Registration Statement with
respect to Registrable Securities pursuant to this Agreement hereof, the Company
agrees to indemnify and hold harmless the Holder and each person, if any, who
controls the Holder within the meaning of the Securities Act ("Distributing
Holders") against any losses, claims, damages or liabilities, joint or several
(which shall, for all purposes of this Agreement, include, but not be limited
to, all costs of defense and investigation and all attorneys' fees), to which
the Distributing Holders may become subject, under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any such Registration
Statement, or any related preliminary prospectus, final prospectus, offering
circular, notification or amendment or supplement thereto, or arise out of or
are based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading; provided, however, that the Company will not be liable in any such
case to the extent that any such loss, claim, damage or liability arises out of
or is based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in such Registration Statement, preliminary prospectus,
final prospectus, offering circular, notification or amendment or supplement
thereto in reliance upon, and in conformity with, written information furnished
to the Company by the Distributing Holders, specifically for use in the
preparation thereof. This Section shall not inure to the benefit of any
Distributing Holder with respect to any person asserting such loss, claim,
damage or liability who purchased the Registrable Securities which are the
subject thereof if the Distributing Holder failed to send or give (in violation
of the Securities Act or the rules and regulations promulgated thereunder) a
copy of the prospectus contained in such Registration Statement to such person
at or prior to the written confirmation to such person of the sale of such
Registrable Securities, where the Distributing Holder was obligated to do so
under the Securities Act or the rules and regulations promulgated hereunder.
This indemnity agreement will be in addition to any liability which the Company
may otherwise have.
(b) Each Distributing Holder agrees that it will indemnify and hold
harmless the Company, and each officer, director of the Company or person, if
any, who controls the Company within the meaning of the Securities Act, against
any losses, claims, damages or liabilities (which shall, for all purposes of
this Agreement, include, but not be limited to, all costs of defense and
investigation and all attorneys' fees) to which the Company or any such officer,
director or controlling person may become subject under the Securities Act or
otherwise, insofar as such losses claims, damages or liabilities (or actions in
respect thereof); arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in a Registration Statement
requested by such Distributing Holder, or any related preliminary prospectus,
final prospectus, offering circular, notification or amendment or supplement
thereto, or arise out of or are based upon the omission or the alleged omission
to state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, but in each case only to the extent
that such untrue statement or alleged untrue statement or omission or alleged
omission was made in such Registration Statement, preliminary prospectus, final
prospectus, offering circular, notification or amendment or supplement thereto
in reliance upon, and in conformity with, written information furnished to the
Company by such Distributing
7
<PAGE>
Holder, specifically for use in the preparation thereof. This indemnity
agreement will be in addition to any liability which the distributing Holders
may otherwise have.
(c) Promptly after receipt by an indemnified party under this Section
of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under this
Section, notify the indemnifying party of the commencement thereof; but the
omission so to notify the indemnifying party will not relieve the indemnifying
party from any liability which it may have to any indemnified party otherwise
than as to the particular item as to which indemnification is then being sought
solely pursuant to this Section. In case any such action is brought against any
indemnified party, and it notifies the indemnifying party of the commencement
thereof, the indemnifying party will be entitled to participate in, and, to the
extent that it may wish, jointly with any other indemnifying party similarly
notified, assume the defense thereof, subject to the provisions herein stated
and after notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party will not be
liable to such indemnified party under this Section for any legal or other
expenses subsequently incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation, unless the
indemnifying party shall not pursue the action to its final conclusion. The
indemnified party shall have the right to employ separate counsel in any such
action and to participate in the defense thereof, but the fees and expenses of
such counsel shall not be at the expense of the indemnifying party if the
indemnifying party has assumed the defense of the action with counsel reasonably
satisfactory to the indemnified party; provided that if the indemnified party is
the Distributing Holder, the fees and expenses of such counsel shall be at the
expense of the indemnifying party if (i) the employment of such counsel has been
specifically authorized in writing by the indemnifying party, or (ii) the named
parties to any such action (including any impleaded parties) include both the
Distributing Holder and the indemnifying party and the Distributing Holder shall
have been advised by such counsel that there may be one or more legal defenses
available to the indemnifying party different from or in conflict with any legal
defenses which may be available to the Distributing Holder (in which case the
indemnifying party shall not have the right to assume the defense of such action
on behalf of the Distributing Holder, it being understood, however, that the
indemnifying party shall, in connection with any one such action or separate but
substantially similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances, be liable only for the reasonable
fees and expenses of one separate firm of attorneys for the Distributing Holder,
which firm shall be designated in writing by the Distributing Holder). No
settlement of any action against an indemnified party shall be made without the
prior written consent of the indemnified party, which consent shall not be
unreasonably withheld.
Section 10. Contribution. In order to provide for just and equitable
------------
contribution under the Securities Act in any case in which (i) the Distributing
Holder makes a claim for indemnification, but is judicially determined (by the
entry of a final judgment or decree by a court of competent jurisdiction and the
expiration of time to appeal or the denial of the last right of appeal) that
such indemnification may not be enforced in such case notwithstanding the fact
that the express provisions of this Agreement provide for indemnification in
such case, or (ii) contribution under the Securities Act may be required on the
part of any Distributing Holder, then the Company and the applicable
Distributing Holder shall contribute to the aggregate losses,
8
<PAGE>
claims, damages or liabilities to which they may be subject (which shall, for
all purposes of this Agreement, include, but not be limited to, all costs of
defense and investigation and all attorneys' fees), in either such case (after
contribution from others) on the basis of relative fault as well as any other
relevant equitable considerations. The relative fault shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company on the one hand or the applicable
Distributing Holder, on the other hand, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The Company and the Distributing Holder agree that it
would not be just and equitable if contribution pursuant to this Section were
determined by pro rata allocation or by any other method of allocation which
does not take account of the equitable considerations referred to in this
Section. The amount paid or payable by an indemnified party as a result of the
losses, claims, damages or liabilities (or actions in respect thereof) referred
to above in this Section shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
Section 11. Notices. Any notice pursuant to this Agreement by the
-------
Company or by the Holder shall be in writing and shall be deemed to have been
duly given if delivered by (i) hand, (ii) by facsimile and followed by mail
delivery, or (iii) if mailed by certified mail, return receipt requested,
postage prepaid, addressed as follows:
(a) If to the Holders, to its, his or her address set forth on
Schedule A, with a copy to the person designated in the Securities Purchase
Agreement.
(b) If to the Company, at the address set forth herein, or to such
other address as any such party may designate by notice to the other party.
Notices shall be deemed given at the time they are delivered personally or five
(5) days after they are mailed in the manner set forth above. If notice is
delivered by facsimile to the Company and followed by mail, delivery shall be
deemed given two (2) days after such facsimile is sent.
Section 12. Counterparts. This Agreement may be executed in
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
Section 13. Headings. The headings in this Agreement are for reference
--------
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.
Section 14. Governing Law, Venue. This Agreement will be construed
--------------------
and enforced in accordance with and governed by the laws of the State of
Delaware, except for matters arising under the Securities Act, without reference
to principles of conflicts of law. Each of the parties consents to the
jurisdiction of the federal courts whose districts encompass any part of the
State of Delaware or the state courts of the State of Delaware in connection
with any
9
<PAGE>
dispute arising under this Agreement and hereby waives, to the maximum extent
permitted by law, any objection, including any objection based on forum non
---------
conveniens, to the bringing of any such proceeding in such jurisdictions. Each
- ----------
party hereby agrees that if another party to this Agreement obtains a judgment
against it in such a proceeding, the party which obtained such judgment may
enforce same by summary judgment in the courts of any country having
jurisdiction over the party against whom such judgment was obtained, and each
party hereby waives any defenses available to it under local law and agrees to
the enforcement of such a judgment. Each party to this Agreement irrevocably
consents to the service of process in any such proceeding by the mailing of
copies thereof by registered or certified mail, postage prepaid, to such party
at its address set forth herein. Nothing herein shall affect the right of any
party to serve process in any other manner permitted by law.
Section 15. Severability/Defined Terms. If any provision of this
--------------------------
Agreement shall for any reason be held invalid or unenforceable, such invalidity
or unenforceablity shall not affect any other provision hereof and this
Agreement shall be construed as if such invalid or unenforceable provision had
never been contained herein. Terms not otherwise defined herein shall be defined
in accordance with the Securities Purchase Agreement.
[Remainder of Page Intentionally Left Blank]
10
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Registration Rights
Agreement to be duly executed, on the day and year first above written.
"COMPANY"
Attest: STORM TECHNOLOGY, INC.
By:______________________________ By: ______________________________
Title:___________________________ Title:______________________________
Name:____________________________ Name:_______________________________
"PURCHASERS"
LIBERTYVIEW FUND, LLC
By:_________________________________
Title:______________________________
Name:_______________________________
LIBERTYVIEW PLUS FUND
By:_________________________________
Title:______________________________
Name:_______________________________
CPR (USA), INC.
By:_________________________________
Title:______________________________
Name:_______________________________
11
<PAGE>
EXHIBIT 4.12
ESCROW AGREEMENT
THIS AGREEMENT is made as of the 4th day of June, 1998 by and between
STORM TECHNOLOGY, INC., with its principal office at 1395 Charleston Road,
Mountain View, CA 94043 (hereinafter the "Company"), the entities listed on
Schedule A (hereinafter collectively referred to as the "Purchaser" or the
"Purchasers") and GOLDSTEIN, GOLDSTEIN, & REIS, LLP, 65 Broadway, 10th Floor,
New York, New York 10006 (hereinafter the "Escrow Agent").
W I T N E S S E T H:
WHEREAS, pursuant to the Securities Purchase Agreement dated June 4,
1998 (the " Securities Purchase Agreement"), Purchasers will be purchasing
shares of Preferred Stock, and Common Stock of the Company (collectively, the
"Securities") at a purchase price as set forth in the Securities Purchase
Agreement, signed by the Company and Purchasers; and
WHEREAS, the Company has requested that the Escrow Agent hold the
funds of Purchasers in escrow until the Escrow Agent has received the Securities
and had the opportunity to speak with the Company to confirm their issuance.
The Escrow Agent will then immediately wire transfer or otherwise deliver at the
Company's direction immediately available funds to the Company or the Company's
account and arrange for delivery of the Securities to Purchaser per the
Purchaser's written instructions; and
WHEREAS, the parties hereby agree to establish an escrow account with
the Escrow Agent whereby the Escrow Agent shall hold the funds from the
Purchasers for the purchase of the Securities.
NOW, THEREFORE, in consideration of the covenants and mutual promises
contained herein and other good and valuable consideration, the receipt and
legal sufficiency of which are hereby acknowledged and intending to be legally
bound hereby, the parties agree as follows:
ARTICLE 1
---------
TERMS OF THE ESCROW FOR THE PREFERRED STOCK
-------------------------------------------
1.1 Upon Escrow Agent's receipt of cleared funds into his attorney
trustee account of the purchase price for the Preferred Stock the Escrow Agent
shall notify the Company, or the Company's designated attorney or agent, of the
amount of funds it has received into its account.
1.2 The Company, upon receipt of said notice and acceptance of
Purchaser's
<PAGE>
Securities Purchase Agreement, as evidenced by the Company's execution thereof,
shall deliver to the Escrow Agent the shares of Preferred Stock being purchased
on the Closing Date. Escrow Agent shall then communicate with the Company to
confirm the validity of its issuance.
1.3 Once Escrow Agent reasonably confirms the validity of the
issuance of the Preferred Stock, it shall immediately wire. that amount of funds
necessary to purchase the Preferred Stock per the written instructions of the
Company. The Company will furnish Escrow Agent with a "Net Letter" directing
payment of one percent (1%) of the purchase price of the Preferred Stock to
Goldstein, Goldstein & Reis, LLP for legal, administrative and escrow fees.
Such fees are to be remitted in accordance with wire instructions that will be
sent to Escrow Agent from the Company, with the net balance payable to the
Company. Once the funds (as set forth above) have been received per the
Company's instructions, the Escrow Agent shall then arrange to have the
Securities delivered as per instructions from each of the Purchasers.
ARTICLE 2
TERMS OF THE ESCROW FOR THE DRIP SHARES
2.1 Upon Escrow Agent's (i) receipt of confirmation in writing that
the Company (a) has properly served a Call For Proceeds in accordance with the
Securities Purchase Agreement, and (b) satisfied each of the conditions set
forth in the Securities Purchase Agreement, and (ii) received the Purchase Price
for the Drip Shares into its attorney trustee account, it shall notify the
Company, or the Company's designated attorney or agent, of the amount of funds
it has received into its account.
2.2 The Company, upon receipt of said notice, and acceptance by the
Purchasers, shall deliver to the Escrow Agent the Drip Shares being purchased.
Escrow Agent shall then communicate with the Company to confirm the validity of
their issuance.
2.3 Once Escrow Agent confirms the validity of the issuance of the
Drip Shares, he shall immediately wire that amount of funds necessary to
purchase of the Drip Shares per the written instructions of the Company. The
Company will furnish Escrow Agent with a "Net Letter" directing payment of one
half of one percent (.5%) of the purchase price of the Drip Shares (up to a
maximum of Twenty Five Hundred ($2,500) Dollars, and a minimum of Five Hundred
($500) Dollars, per Closing of each Call For Proceeds) to Goldstein, Goldstein &
Reis, LLP for legal, administrative and escrow fees. Such fees are to be
remitted in accordance with wire instructions that will be sent to Escrow Agent
from the Company, with the net balance payable to the Company. Once the funds
have been received per the Company's instructions, the Escrow Agent shall then
arrange to have the Securities delivered as per instructions from the Investors.
ARTICLE 3
---------
2
<PAGE>
MISCELLANEOUS
-------------
3.1 This Agreement may be altered or amended only with the consent
of all of the parties hereto. Should the Company, or any Purchaser, attempt to
change this Agreement in a manner which, in the Escrow Agent's discretion, shall
be undesirable, the Escrow Agent may resign as Escrow Agent by notifying the
Company and the Purchasers in writing. In the case of the Escrow Agent's
resignation or removal pursuant to the foregoing, his only duty, until receipt
of notice from the Company and the Purchaser or its agent that a successor
escrow agent shall have been appointed, shall be to hold and preserve the
Securities and/or funds. Upon receipt by the Escrow Agent of said notice from
the Company and the Purchasers of the appointment of a successor escrow agent,
the name of a successor escrow account and a direction to transfer the
Securities and/or funds, the Escrow Agent shall promptly thereafter transfer all
of the Securities and/or funds held in escrow to said successor escrow agent.
Immediately after said transfer of Securities, the Escrow Agent shall furnish
the Company and the Purchaser with proof of such transfer. The Escrow Agent is
authorized to disregard any notices, requests, instructions or demands received
by it from the Company or the Purchasers after notice of resignation or removal
shall have been given, unless the same shall be the aforementioned notice from
the Company and the Purchasers to transfer the Securities and funds to a
successor escrow agent or to return same to the respective parties.
3.2 The Escrow Agent shall be reimbursed by the Company and the
Purchasers for any reasonable expenses incurred in the event there is a conflict
between the parties and the Escrow Agent shall deem it necessary to retain
counsel.
3.3 The Escrow Agent shall not be liable for any action taken or
omitted by him in good faith in accordance with the advice of the Escrow Agent's
counsel; and in no event shall the Escrow Agent be liable or responsible except
for the Escrow Agent's own gross negligence or willful misconduct.
3.4 The Company and the Purchasers warrant to and agree with the
Escrow Agent that, unless otherwise expressly set forth in this Agreement:
(i) there is no security interest in the Securities or any part
thereof;
(ii) no financing statement under the Uniform Commercial Code is on
file in any jurisdiction claiming a security interest or in
describing (whether specifically or generally) the Securities or
any part thereof; and
(iii) the Escrow Agent shall have no responsibility at any time to
ascertain whether or not any security interest exists in the
Securities or any part thereof or to file any financing
statement under the Uniform Commercial Code with respect to the
Securities or any part thereof.
3.5 The Escrow Agent has no liability hereunder to either party
other than to hold the Securities and funds and to deliver them under the terms
hereof. Each party hereto
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agrees to indemnify and hold harmless the Escrow Agent from and with respect to
any suits, claims, actions or liabilities arising in any way out of this
transaction including the obligation to defend any legal action brought which in
any way arises out of or is related to this Escrow.
3.6 No waiver or any breach of any covenant or provision herein
contained shall be deemed a waiver of any preceding or succeeding breach
thereof, or of any other covenant or provision herein contained. No extension
of time for performance of any obligation or act shall be deemed any extension
of the time for performance of any other obligation or act.
3.7 All notices or other communications required or permitted
hereunder shall be in writing, and shall be sent by fax, overnight courier,
registered or certified mail, postage prepaid, return receipt requested, and
shall be deemed received upon receipt thereof, as follows:
(i) Storm Technology, Inc.
1395 Charleston Road
Mountain View, CA 94043
Attn: Chief Financial Officer
Tel: (650) 691-6600
Fax: (650) 691-6699
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(ii) Goldstein, Goldstein & Reis, LLP
65 Broadway
New York, NY 10006
Attn: Scott H. Goldstein, Esq.
Tel: (212) 809-4220
Fax: (212) 809-4228
(iii) To the Purchasers at the addresses indicated on Schedule
A.
3.8 This Agreement shall be binding upon and shall inure to the
benefit of the permitted successors and assigns of the parties hereto.
3.9 This Agreement is the final expression of, and contains the
entire Agreement between, the parties with respect to the subject matter hereof
and supersedes all prior understandings with respect thereto. This Agreement
may not be modified, changed, supplemented or terminated, nor may any
obligations hereunder be waived, except by written instrument signed by the
parties to be charged or by its agent duly authorized in writing or as otherwise
expressly permitted herein.
3.10 Whenever required by the context of this Agreement, the singular
shall include the plural and masculine shall include the feminine. This
Agreement shall not be construed as if it had been prepared by one of the
parties, but rather as if both parties had prepared the same. Unless otherwise
indicated, all references to Articles are to this Agreement.
3.11 The Company acknowledges and confirms that it is not being
represented in a legal capacity by Goldstein, Goldstein & Reis, LLP and it has
had the opportunity to consult with its own legal advisors prior to the signing
of this Agreement.
3.12 This Agreement will be construed and enforced in accordance with
and governed by the laws of the State of Delaware, except for matters arising
under the Securities Act, without reference to principles of conflicts of law.
Each of the parties consents to the jurisdiction of the federal courts whose
districts encompass any part of the State of Delaware or the state courts of the
State of Delaware in connection with any dispute arising under this Agreement
and hereby waives, to the maximum extent permitted by law, any objection,
including any objection based on forum non conveniens, to the bringing of any
such proceeding in such jurisdiction. Each party hereby agrees that if another
party to this Agreement obtains a judgment against it in such a proceeding, the
party which obtained such judgment may enforce same by summary judgment in the
courts of any country having jurisdiction over the party against whom such
judgment was obtained, and each party hereby waives any defenses available to it
under local law and agrees to the enforcement of such a judgment. Each party to
this Agreement irrevocably consents to the service of process in any such
proceeding by the mailing of copies thereof by registered or certified mail,
postage prepaid, to such party at its address set forth herein. Nothing herein
shall affect the right of any party to serve process in any other manner
permitted by law.
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IN WITNESS WHEREOF, the parties hereto have executed this Escrow Agreement
as of the 4th day of June 1998.
"COMPANY" "PURCHASERS"
STORM TECHNOLOGY, INC. LIBERTYVIEW FUND, LLC
By: ___________________________ BY: ___________________________
Title: ___________________________ Title: ___________________________
Name: ___________________________ Name: ___________________________
LIBERTYVIEW PLUS FUND
By: ___________________________
Title: ___________________________
Name: ___________________________
CPR (USA), INC.
By: ___________________________
Title: ___________________________
Name: ___________________________
GOLDSTEIN, GOLDSTEIN & REIS, LLP
ESCROW AGENT
By:______________________________
Scott H. Goldstein
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<PAGE>
EXHIBIT 99.1
FOR RELEASE AT 5:00 A.M. PDT, JUNE 16, 1998
CONTACT:
Rick M. McConnell
Storm Technology, Inc.
Chief Financial Officer and
Vice President, Finance &
Administration
650-691-6600
STORM TECHNOLOGY COMPLETES $2,000,000 IN PRIVATE PLACEMENT FINANCING
MOUNTAIN VIEW, CALIF. -- JUNE 16, 1998 -- Storm Technology, Inc. (NASDAQ: EASY),
a leading supplier of affordable, high-quality color scanners, today announced
the completion of the sale of $2 million of two-year convertible preferred stock
to a single institutional investor in a private placement. Under the terms of
the financing agreement, the holder may convert the preferred shares into common
stock in the company at a discount to the market price as of the date of
conversion. The company has the option to redeem the preferred shares at a
premium under certain circumstances.
Simultaneous with the convertible preferred financing, Storm secured an equity
credit line financing with the same institutional investor to provide Storm with
up to a maximum of $12 million in additional funding over an 18 month period.
Funds under this line would be drawn at the option of the company subject to
certain limitations and requirements at the time of each funding request. The
equity credit line will become available in an estimated sixty to ninety days
upon effectiveness of an S-3 registration statement covering the shares under
the line.
"This investment provides additional funding to help keep the development and
release of our innovative, next generation products on track for the second half
of this year," stated Bill Krause, president and CEO of Storm Technology, Inc.
"We expect to put these funds to good use in order to deliver high value
products with unique functionality to our customers at competitive price
points."
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Forward-looking statements contained in this release are made pursuant to the
safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
Investors are cautioned that these forward-looking statements are subject to a
variety of risks and uncertainties that could cause actual results to differ
materially from those projected in the forward-looking statement, including
risks associated with the company's limited capital resources, the development
of consumer demand for digital images on PC's in general and for the company's
products in particular, the company's success in developing, introducing,
manufacturing and shipping products in a timely manner, the purchasing patterns
and potential product returns from the company's retail distribution, the
potential for reduced revenue due to price protection granted to distributors
and resellers, and intense competition form larger, more recognized companies.
Further information on potential factors which may affect the company's results
are included in the company's Annual Report on Form 10-K for the year ended
December 31, 1997.
ABOUT STORM TECHNOLOGY
Storm Technology, Inc. (http://www.stormtech.com) is a leading supplier of
personal scanners that enable customers to input, organize, store and use
digital images with their computers. Storm is committed to developing
innovative digital imaging products that deliver the latest technology with the
highest quality at the most affordable prices. Storm's current scanner line
includes EasyPhoto ImageWave /TM/, EasyPhoto SmartPage Pro /TM/, PageScan /TM/
USB and TotalScan /TM/. Storm scanners are sold at major computer retailers in
the United States, Canada and Europe. Additionally, Storm licenses digital
imaging software to leading technology providers including Adobe,
Hewlett-Packard, Intel, Microsoft and Sharp. Founded in 1990, Storm is based in
Mountain View, California.
###
Note: Storm Technology, EasyPhoto, EasyPhoto ImageWave, EasyPhoto SmartPage Pro,
PageScan and TotalScan are trademarks of Storm Technology, Inc., which may be
registered in certain jurisdictions. All other company and product names are
trademarks of their respective holders.
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