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 (Earliest Event Reported): July 17, 1997
Exact name of Registrant
as specified in its charter: The Diana Corporation
State or Other Jurisdiction of Incorporation: Delaware
Commission File Number: 1-5486
I.R.S. Employer Identification Number: 36-2448698
Address of Principal Executive Office: 26025 Mureau Road
Calabasas, CA 91302
Registrant's Telephone Number, Including Area Code: (818) 878-7711
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(c) Exhibits
4.1 Form of Subscription Agreement
4.2 Form of Note
4.3 Form of Registration Rights Agreement
4.4 Offshore Warrant Subscription Agreement
ITEM 9. SALES OF EQUITY SECURITIES PURSUANT TO REGULATION S
(a) Securities sold. On July 17, 1997, the Registrant sold
$2,500,000 in 8% Convertible Notes ("Notes") Due July 17,
2000. At any time commencing one year after the Closing, the
Company may, by written notice to the Holder, prepay the Notes
in whole or in part. The notice shall be given at least ten
(10) days prior to the payment date and on such date the
Company shall pay the outstanding principal and all accrued
interest on the Note, unless prior to such payment date the
Holder has delivered a Notice of Conversion.
(b) Underwriters and other purchasers. First Bermuda Securities
Limited, Chevron House, 11 Church Street, Hamilton HM 11,
Hamilton HM NX, Bermuda, acting as placement agent,
distributor and escrow agent, received executed subscription
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agreements for the purchase of the notes from the following;
Offshore Investments Fund Ltd. ($250,000), Offshore Nominees
Limited ($250,000), Buckingham Global Investors ($500,000),
and Mid Ocean Capital, S. A. ($1,500,000).
(c) Consideration. The aggregate offering price of the Notes was
$2,500,000. Commissions totaling $250,000 and expenses of
$15,000 where deducted resulting in net proceeds to the
Registrant of $2,235,000. In addition, First Bermuda
Securities Limited received warrants to purchase 37,037 shares
of Common Stock at an exercise price of $6.75 per share.
These warrants are execrable after 41 days of issuance and
expire on July 17, 2000. The holder of the warrants also
received registration rights which are substantially the same
as those given to the purchasers of the Notes.
(d) Exemption from registration claimed. The Registrant claims
exemption from registration pursuant to Regulation S under the
Securities Act of 1933 as amended. In so doing, the
Registrant has relied upon the representations made by the
purchasers of the Notes and First Bermuda Securities Limited
acting as placement agent, distributor and escrow agent.
These representations include representation as to the
purchasers status as non US persons.
(e) Terms of conversion or exercise. The holder of the Note(s) is
entitled, at its option, at any time commencing forty-five
(45) days after the Closing Date (July 17, 1997), until
maturity to convert one-third (1/3 rd) or any lesser portion
of the initial principal amount which is a least $25,000 into
shares of Common Stock ("Shares") at a conversion price for
each Share equal to the lesser of $ 6.64 per share or eighty
percent (80%) of the average closing bid price of the Common
Stock for the five (5) trading days immediately prior to the
Conversion Date with a conversion floor price (the "Conversion
Floor Price") of $1.50 per Share (Collectively, the
"Conversion Price"); beginning seventy-five (75) days after
the Closing Date, an additional one third (1/3 rd) of the
initial principal amount which is at least $25,000 may be
converted into Shares at the Conversion Price; and beginning
one hundred and five (105) days after the Closing Date, the
remaining one-third (1/3 rd) of the initial principal amount
which is at least $25,000 may be converted into Shares at the
Conversion Price, provided that if the average of the closing
bid price of the Common Stock for the twenty (20) consecutive
trading days immediately prior to a conversion date is less
than $1.50 per share, the Conversion Floor Price will be
adjusted to equal eighty percent (80%) of such twenty (20)
consecutive trading day average of the closing bid price,
provided, however, that in no event shall the Holder be
entitled to convert any portion of the Note in excess of that
portion of the Note upon conversion of which the sum of (1)
the number of shares of Common Stock beneficially owned by the
holder and its affiliates (other than shares of Common Stock
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which may be deemed beneficially owned through the ownership
of the unconverted portion of this note, as defined in the
Subscription Agreement) and (2) the number of Shares issuable
upon the conversion of the portion of the note with respect to
which the determination of this proviso is being made, would
result in beneficial ownership by the holder and its
affiliates of more than 4.9% of the outstanding shares. For
purposes of the proviso to the immediately proceeding
sentence, beneficial ownership shall be determined in
accordance with Section 13(d) of the Securities Exchange Act
of 1934, as amended, and Regulation 13 D-G thereunder, except
as otherwise provided in clause (1) of such proviso. In
addition, if at any time, there occurs a transaction in which
in excess of 50% of the Company's voting power is transferred
(excluding any public or private offering of Company equity
securities), including any consolidation or merger of the
Company with or into any other corporation or other entity or
person (whether or not the Company is the surviving
corporation), or any other corporate reorganization or
transaction or series of transactions, the holder of the note
then outstanding may participate in any such transaction as a
class with the common stockholders on the same basis as if the
note had been converted one day prior to the effective date of
the transaction; provided, however, that at the option of the
holder of the note, such holder may treat the effective date
of any transaction that occurs prior to July 17, 2000 as a
redemption of the note at a price equal to 125% of the
outstanding principal amount of the note, plus accrued but
unpaid interest. The holder shall be entitled to make such
election at any time up to ten (10) days prior to the
effective date of the transaction. The Company has entered
into a registration rights agreement with the Purchasers of
the Notes wherein, upon a decision to convert by the
Purchasers of the Notes, and if the Shares are required to be
registered, the Shares will be registered with the Securities
and Exchange Commission pursuant to Securities Act of 1933, as
amended.
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 thereunto duly authorized.
THE DIANA CORPORATION
(Registrant)
Date: July 31, 1997 /s/ James J. Fiedler
Chairman and Chief Executive
Officer
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THE SECURITIES SUBSCRIBED FOR HEREBY HAVE NOT BEEN REGISTERED UNDER
THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"),
AND MAY NOT BE OFFERED OR SOLD IN THE UNITED STATES (AS DEFINED IN
REGULATION S UNDER THE ACT) OR TO OR FOR THE ACCOUNT OR BENEFIT OF
U.S. PERSONS (AS DEFINED IN REGULATION S) EXCEPT PURSUANT TO
REGISTRATION UNDER OR AN EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE ACT.
OFFSHORE SECURITIES SUBSCRIPTION AGREEMENT
This Offshore Securities Subscription Agreement (the "Agreement"),
dated July 17th, 1997, is entered into by and between The Diana
Corporation, a company incorporated in the state of Delaware (the
"Company"), and _______________________________ (the "Buyer").
The Company has offered for sale outside the United States (as that
term is defined in Regulation S ("Regulation S") under the Act up
to $2,500,000 of an 8% Convertible Note due July 17th, 2000 (the
"Securities") convertible into common stock of the Company. Buyer
has been offered $ __________ in principal amount of the
Securities. Interest on the Securities will be payable as provided
in the form of Convertible Note attached hereto as Annex A. The
terms on which the Securities may be converted into shares of the
Company's common stock (such shares underlying the Securities being
referred to herein as "Shares") and the other terms of the
Securities are set forth in the Form of Convertible Note attached
as Annex A. Capitalized terms used herein and not defined herein
shall have the meanings given to them in Regulation S as the same
may be amended from time to time.
The parties hereto agree as follows:
1. Purchase and Sale of Securities. Upon the basis of the
representations and warranties, and subject to the terms and
conditions, set forth in this Agreement, the Company covenants and
agrees to sell to the Buyer on the Closing Date (as hereinafter
defined) $ 1,500,000 in principal amount of the Securities at a
price of 100% of the original principal amount, and upon the basis
of the representations and warranties, and subject to the terms and
conditions, set forth in this Agreement, the Buyer covenants and
agrees to purchase from the Company, on the Closing Date $
1,500,000 in principal amount of the Securities of the Company at
100% of the original principal amount.
2. Closing Instructions to Escrow Agent. (a) The closing of the
purchase and sale of the Securities pursuant to Section 1 hereof
shall take place on or before July 17th, 1997 (the "Closing Date")
after the Company has delivered to the offices of First Bermuda
Securities Limited (the "Escrow Agent") located at Chevron House,
11 Church Street, Hamilton, HM 11 Bermuda, 1 Convertible Notes
(each a "Convertible Note") representing the Securities in
denominations of not less than $25,000, registered in the name of
the Buyer (representing the maximum amount of Securities to be
purchased by the Buyer hereunder).
(b) The Company and the Buyer agree that they shall instruct
the Escrow Agent as provided in Annex B and as follows:
(i) On the Closing Date, for each Convertible Note
subscribed for and delivered to the Escrow Agent pursuant to
paragraph 2(a) above, the Escrow Agent shall, upon confirmation in
the form of a federal funds wire number that First Bermuda
Securities Limited has wired payment of the aggregate purchase
price for the Securities (less any fees the Company has authorized
Escrow Agent to deduct) in immediately available funds to the
Company's account as provided in the escrow instructions attached
as Annex B, release the
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Securities described in paragraph 2(a) above. The Escrow Agent
shall return to the Company any Convertible Notes that the Buyer
does not purchase on the Closing Date. If the closing shall not
have taken place by July 17th, 1997, this Agreement shall
terminate.
(ii) The Escrow Agent will make delivery of the number
of Convertible Notes set forth in clause 2(a) above in accordance
with the instructions of the Buyer subject to customary settlement
procedures upon confirmation of the wiring of funds to the Company
as described in clause 2(b)(i) above, except that all such
Convertible Notes shall be delivered to a location outside the
United States and none of the Convertible Notes shall be delivered
to a U.S. Person (as defined in Regulation S).
3. Representations and Warranties of the Buyer: The Buyer
understands and represents and warrants to, and agrees with the
Company that:
(a) The Buyer understands that no federal or state agency has
passed on, or made any recommendation or endorsement of the
Securities.
(b) The Buyer acknowledges that, in making the decision to
purchase the Securities, it has relied solely upon independent
investigations made by it and not upon any representations made by
the Company with respect to the Company or the Securities, except
for the representations and warranties in this Agreement, the
Convertible Note, the Registration Rights Agreement and the Officer
Certificate (as defined below), except that the Buyer has received,
reviewed and relied upon the Opinion of Counsel (as defined below)
and copies of the report on Form 10-Q for the quarter ended January
4, 1997, the report on Form 10-K for the year ended March 30, 1996,
filed by the Company pursuant to the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and all other filings,
including filings on Form 8-K, under the Exchange Act since March
30, 1996, which, together with any filings by Company after the
date hereof and prior the Closing, are defined as "Exchange Act
Reports".
(c) The Buyer understands that the Securities are being
offered and sold to it in reliance on specific exemptions from or
non-application of the registration requirements of federal and
state securities laws and that the Company is relying upon the
truth and accuracy of the representations, warranties, agreements,
acknowledgments and understandings of the Buyer set forth herein in
order to determine the applicability of such exemptions and the
suitability of the Buyer to acquire the Securities.
(d) The Buyer is not a U.S. Person (as defined in Regulation
S) and is not and will not be an affiliate (as defined in the
Exchange Act) of the Company. To enable the Company to avoid
withholding interest paid, the Buyer certifies under penalty of
perjury that it is neither a citizen nor a resident of the United
States and that its address set forth in the Escrow Agreement is
correct.
(e) No public offer or solicitation of the Securities or the
Shares issuable on conversion of the Securities was made to the
Buyer and no offer of the Securities or the Shares issuable on
conversion of the Securities was made to the Buyer while the Buyer
was present in the United States.
(f) At the time the buy order for the Securities was
originated the Buyer was located outside the United States and is
outside the United States on the date of the execution and delivery
of this agreement and will be outside the United States on the
Closing Date.
(g) The Buyer is aware that the Securities and the Shares
issuable upon exercise of conversion rights have not been and will
not be registered under the Act (except as may be required under
the Registration Rights Agreement) and may only be offered or
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sold pursuant to registration under the Act or an available
exemption therefrom and Buyer has not, and will not, engage in any
public offering or distribution of the Securities or the Shares.
(h) The Buyer (i) will not, during the period commencing on
the Closing Date and ending 40 days after the Closing Date (the
"Restricted Period"), offer or sell or agree to sell the Securities
in the United States, to a U.S. Person or for the account or
benefit of a U.S. Person or other than in accordance with Rule 903
or 904, as applicable, of Regulation S, and (ii) will, after the
expiration of the Restricted Period, offer, sell, pledge or
otherwise transfer the Securities or the common stock issuable upon
the exercise of conversion rights only pursuant to registration
under the Act or an available exemption therefrom and, in any case,
in accordance with applicable federal and state securities laws.
(i) The Buyer and its affiliates have been advised of and are
familiar with, have complied, and will comply, with the offering
restrictions, and any other requirements, of Regulation S.
(j) The transactions contemplated by this Agreement (i) have
not been pre-arranged by the Buyer with a purchaser located in the
United States which is a U.S. Person, and (ii) are not part of a
plan or scheme by the Buyer to evade the registration provisions of
the Act.
(k) The Buyer is an "accredited investor" as defined in the
Act and will be purchasing the Securities for its account for the
purpose of investment and not (i) with a view to, or for sale in
connection with, any distribution thereof or (ii) for the account
or on behalf of any U.S. Person.
(l) Neither the Buyer nor any of its affiliates has entered,
has the intention of entering, or will during the Restricted Period
enter into, with any U.S. Person, any put option, short position or
other similar instrument or position with respect to the Securities
or securities into which the Securities are convertible or
participate in any other attempt designed to lower the trading
prices of the Company's common stock.
(m) The Buyer shall indemnify the Company against any loss,
cost or damages (including reasonable attorney's fees and expenses)
incurred as a result of the Buyer's breach of any representation,
warranty, covenant or agreement in this Agreement.
4. Registration Rights. On or prior to the Closing Date, the
Company and Buyer agree to execute a Registration Rights Agreement
(the "Registration Rights Agreement") in the form substantially set
out in Annex C attached hereto, respectively.
5. Conversion of Securities The Securities may be converted into
the Shares, as herein defined, at the option of the holder thereof
under the terms set forth in the Form of Convertible Note, attached
hereto as Annex A.
6. Representations and Warranties of the Company. The Company
represents and warrants to, and agrees with, the Buyer that:
(a) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of
Delaware.
(b) This Agreement has been duly authorized, executed and
delivered by the Company and is a valid and binding agreement
enforceable in accordance with its terms, subject to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability relating to or affecting
creditors' rights generally and to general principles of equity;
and the Company has full corporate power and authority
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necessary to enter into this Agreement and to perform its
obligations thereunder.
(c) No consent, approval, authorization or order of any
court, governmental agency or body or arbitrator having
jurisdiction over the Company or any of its affiliates is required
for execution of this Agreement, including, without limitation, the
issuance and sale of the Securities, or the performance of its
obligations hereunder.
(d) Neither the sale of Securities pursuant to, nor the
performance of its obligations under this Agreement by the Company
will (i) violate, conflict with, result in a breach of, or
constitute a default (or an event which with the giving of notice
or the lapse of time or both would be reasonably likely to
constitute a default) under (A) the certificate of incorporation,
charter or by-laws of the Company or any of its affiliates, (B) any
decree, judgment, order, law, treaty, rule, regulation or
determination applicable to the Company or any of its affiliates of
any court, governmental agency or body, or arbitrator having
jurisdiction over the Company or any of its affiliates or over the
properties or assets of the Company or any of its affiliates, (C)
the terms of any bond, debenture, note or any other evidence of
indebtedness, or any material agreement, stock option or other
similar plan, indenture, lease, mortgage, deed of trust or other
material instrument to which the Company or any of its affiliates
is a party, by which the Company or any of its affiliates is bound,
or to which any of the properties of the Company or any of its
affiliates is subject, or (D) the terms of any "lock-up" or similar
provision of any underwriting or similar agreement to which the
Company or any of its affiliates is a party to; or (ii) result in
the creation or imposition of any lien, charge or encumbrance upon
the Securities or any of the assets of the Company or any of its
affiliates.
(e) The Company has an authorized capitalization consisting
of 15,000,000 shares of common stock, par value $1.00 per share
(the "Common Stock"), and 5,000,000 shares of Preferred Stock, par
value $.01 per share ("Preferred Stock"). The Company has issued
and outstanding 7,179,233 shares of Common Stock and 0 shares of
Preferred Stock as of July 17th, 1997. All of the issued shares of
capital stock of the Company have been duly and validly authorized
and issued, are fully paid and non-assessable; prior to the Closing
Date, the authorized capitalization shall include the Shares to be
issued upon conversion of the Securities. The shares of Common
Stock issuable upon conversion of the Securities, when issued and
delivered in accordance with the terms of the Securities, will be
duly and validly issued, fully paid and non-assessable. The
issuance of the Shares will not be in violation of any preemptive
or similar rights of the holders of any securities of the Company.
The Securities (i) are free and clear of any security interests,
liens, claims or other encumbrances, (ii) have been duly and
validly authorized and on the Closing Date will be duly and validly
issued, fully paid and non assessable, (iii) will not have been,
individually and collectively, issued or sold in violation of any
preemptive or other similar rights of the holders of any securities
of the Company and (iv) will not subject the holders thereof to
personal liability by reason of being such holders. The Common
Stock underlying the Securities is quoted on, and will be,
following the completion of the Restricted Period (if sold in
accordance with the provisions of this Agreement, applicable
securities law and Regulation S as then in effect), eligible for
trading on, The National Association of Securities Dealers Inc.
Electronic Bulletin Board ("NASDAQ").
(f) The Company is a Reporting Issuer (as defined in
Regulation S) because it has a class of securities registered
pursuant to Section 12(g) of the Exchange Act and has filed all the
material required to be filed pursuant to Section 13(a) of the
Exchange Act for a period of at least twelve (12) months preceding
the date of this Agreement. The Common Stock is listed on NASDAQ
and the Company has received no notice, oral or written, with
respect to its continued eligibility for such listing. The Company
hereby agrees, promptly following the Closing of the transactions
contemplated by this Agreement, to take such action as is necessary
to cause the Shares issued upon exercise of
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conversion rights under the Convertible Notes to be listed on
NASDAQ upon such conversion following expiration of the Restricted
Period (subject, if required, to notice to NASDAQ of the actual
number of shares issued). The Company further agrees, if the
Company applies to have the Common Stock traded on any other
principal stock exchange or market, it will include in such
application the Shares and will take such other action as is
necessary or desirable to cause the Shares to be listed on such
other exchange or market upon expiration of the Restricted Period.
(g) The Exchange Act Reports are the only filings made by the
Company since March 30, 1996 pursuant to Sections 13(a), 13(c), 14
and 15(d) of the Exchange Act, and the Company will cause its
Common Stock to continue to be registered under Section 12(g) or
12(b) of the Securities Exchange Act of 1934, will comply in all
respects with its reporting and filing obligations under said Act,
and will not take any action or file any document (whether or not
permitted by said Act or the rules thereunder) to terminate or
suspend such registration or to terminate or suspend its reporting
and filing obligations under said Act. The Company will take all
action necessary to continue the listing and trading of its Common
Stock on NASDAQ and will comply in all respects with the Company's
reporting, filing and other obligations under the by-laws or rules
of the NASD and NASDAQ.
(h) The Company has the requisite corporate power to own its
properties and to carry on its business as now being conducted.
The Company is duly qualified as a foreign corporation to do
business and is in good standing in every jurisdiction in which the
nature of the business conducted or property owned by it makes such
qualification necessary other than those in which the failure so to
qualify would not have a Material Adverse Effect. "Material
Adverse Effect" means any adverse effect on the business,
operations, properties, prospects, or financial condition of the
entity with respect to which such term is used and which is
material to such entity.
(i) The Company has furnished or made available to the Buyer
true and correct copies of the Company's Certificate of
Incorporation as in effect on the date hereof (the "Certificate of
Incorporation"), and the Company's By-Laws, as in effect on the
date hereof (the "By-Laws").
(j) The Company has delivered or made available to the Buyer
true and complete copies of the Exchange Act Reports (including,
without limitation, proxy information and solicitation materials
excluding any preliminary proxy not distributed). The Company has
not provided to the Buyer any information which, according to
applicable law, rule or regulation, should have been disclosed
publicly by the Company but which has not been so disclosed. As of
their respective dates, the Exchange Act Reports complied in all
material respects with the requirements of the Exchange Act and the
rules and regulations of the SEC promulgated thereunder and other
federal, state and local laws, rules and regulations applicable to
such Exchange Act Reports, and none of the Exchange Act Reports
contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances
under which they were made, not misleading. The financial
statements of the Company included in the Exchange Act Reports
comply as to form in all material respects with applicable
accounting requirements and the published rules and regulations of
the SEC or other applicable rules and regulations with respect
thereto. Such financial statements have been prepared in
accordance with generally accepted accounting principles applied on
a consistent basis during the periods involved (except (i) as may
be otherwise indicated in such financial statements or the notes
thereto or (ii) in the case of unaudited interim statements, to the
extent they may not include footnotes or may be condensed or
summary statements) and fairly present in all material respects the
financial position of the Company as of the dates thereof and the
results of operations and cash flows for the periods then ended
(subject, in the case of unaudited
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statements, to normal year-end audit adjustments).
(k) Except as set forth in the financial statements and other
documents filed by the Company under the Exchange Act, the Company
has no liabilities, contingent or otherwise, other than (i)
liabilities incurred in the ordinary course of business subsequent
to January 4, 1997 and (ii) obligations under contracts and
commitments incurred in the ordinary course of business and not
required under generally accepted accounting principles to be
reflected in such financial statements, which individually or in
the aggregate, are not material to the financial condition or
operating results of the Company. The Company has not provided to
the Buyer any information which, according to applicable law, rule
or regulation, should have been disclosed publicly by the Company
but which has not been so disclosed.
(l) Since January 4, 1997 there has been no material adverse
change and no material adverse development in the business,
properties, operations, financial condition, results of operations
or prospects of the Company, except as disclosed in accordance with
the Exchange Act Reports.
(m) There is no material action, suit, proceeding, inquiry or
to the knowledge of the Company or any of its subsidiaries,
investigation before or by any court, public board, government
agency, self-regulatory organization or body pending, or to the
knowledge of the Company or any of its subsidiaries, threatened
against or affecting the Company or any of its subsidiaries other
than as set forth in the Exchange Act Reports, public announcements
made by the Company prior to the Closing Date and information
submitted to the Buyers in the letter dated June 30, 1997.
(n) Neither the Company, nor any or its affiliates, nor any
person acting on its or their behalf has, directly or indirectly,
made any offers or sales of any security or solicited any offers to
buy any security, under circumstances that would require
registration of the Securities under the Act.
(o) The Company has taken no action which would give rise to
any claim by any person for brokerage commissions, finder's fees or
similar payments by the Buyer relating to this Agreement or the
transactions contemplated hereby, except for dealings with First
Bermuda Securities Limited, whose commissions and fees will be paid
for by the Company.
(p) As of the date hereof, the Company has reserved and the
Company shall continue to reserve and keep available at all times,
free of preemptive rights, shares of Common Stock for the purpose
of enabling the Company to satisfy any obligation to issue shares
of its Common Stock upon conversion of the Securities; provided,
however, that the number of shares so reserved shall at all times
be at least 1,333,333 in aggregate for purposes of conversion of
the Securities. The number of shares so reserved may be reduced by
the number of shares actually delivered pursuant to the conversion
of the Securities (provided that in no event shall the number of
shares so reserved be less than the number required to satisfy the
remaining conversion rights on the unconverted Securities) and the
number of shares so reserved shall be increased to reflect stock
splits and stock dividends and distributions.
(q) No legend has been or shall be placed on the Securities
or share certificates representing the Securities or Shares and no
note or stock transfer instructions have been or shall be given to
the Company's transfer agent with respect thereto other than as set
forth in Section 10.
(r) Based upon the truth and accuracy of the representations
and warranties made by the Buyer, the sale of the Securities
pursuant to this Agreement will be made in
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accordance with the provisions and requirements of Regulation S and
applicable state law.
(s) No offer to sell the Securities was made by the Company
to any person in the United States.
(t) None of the Company, any affiliate of the Company, or any
person acting on behalf of the Company or any such affiliate has
engaged, or will engage, in any Directed Selling Efforts as that
term is defined in Regulation S with respect to the Securities nor
any general solicitation of the Securities.
(u) The transactions contemplated by this Agreement (i) have
not been pre-arranged with a purchaser who is in the United States
or is a U.S. Person, and (ii) are not part of a plan or scheme to
evade the registration provisions of the Act.
(v) The Company undertakes and agrees to make all necessary
filings in connection with this offering as required by the laws
and regulations of all appropriate jurisdictions and securities
exchanges in the United States of America.
(w) The Company shall indemnify the Holder against any loss,
cost or damages (including reasonable attorney's fees and expenses)
incurred as a result of the Company's breach of any representation,
warranty, covenant or agreement in this Agreement.
7. Offering Materials. All offering materials and documents used
in connection with the offers and sales of the Securities prior to
the expiration of the Restricted Period shall include statements to
the effect that the Securities and the Shares issuable upon the
exercise of conversion rights have not been registered under the
Act and that the Buyer, may not directly or indirectly offer or
sell the Securities or such shares in the United States or to a
U.S. Persons (other than distributors) unless the Securities or
shares are registered under the Act, or an exemption from the
registration requirements of the Act is available. Such statements
shall appear (1) on the cover of any prospectus or offering
circular used in connection with the offer or sale of the
Securities and (2) in the placement section of any prospectus or
offering circular used in connection with the offer or sale of the
Securities. Buyer represents that all offering materials and
documents received by it in connection with the offers and sales of
the Securities prior to the Closing of the transactions
contemplated herein have complied with the foregoing. Nothing
contained in this Section 7 shall negate or detract from any of the
representations, warranties and agreements of Buyer contained in
Section 3 above.
8. Covenants of the Company. (a) The Company covenants and
agrees that during the period beginning on the date hereof and
ending 90 days following the Closing Date, the Company will not,
without the prior written consent of a "Majority-in-interest" of
the Buyers, negotiate or contract with any party to obtain
additional equity financing (including debt financing with an
equity component) pursuant to the exemption from the registration
requirements of Regulation S (the "Future Offerings"). In
addition, the Company will not conduct any Future Offerings during
the period beginning on the 90th day following the date hereof and
ending 180 days following the Closing Date unless it shall have
first delivered to the Buyer at least ten (10) business days prior
to the closing of such Future Offering, written notice describing
the proposed Future Offering, including the terms and conditions
thereof, and providing the Buyer an option during such ten (10) day
period to purchase all or any portion of its "pro-rata" share of
the securities being offered in the Future Offerings on the same
terms as contemplated by such Future Offering (the limitations
referred to in this and the immediately preceding sentence are
collectively referred to as the "Capital Raising Limitation"). The
Capital Raising Limitation shall not apply to any transaction
involving the Company's commercial banking arrangements or
issuances of securities in connection with a merger, consolidation
or sale of assets, or in
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<PAGE>
connection with any strategic partnership or joint venture (the
primary purpose of which is not to raise equity capital), or in
connection with the disposition or acquisition of a business,
product or license by the Company (so long as the securities so
issued are "restricted securities" within the meaning of Rule 144
under the 1933 Act and do not carry registration or piggy back
rights for at least 360 days from the date of this Agreement), the
issuance of securities to settle securities litigation, or exercise
of options by or the grant of performance shares to employees,
consultants or directors. The terms (i) "majority-in-interest"
means Holders of 8% Convertible Notes holding more than 50% of the
Common Stock underlying the Securities (treating the Securities on
an as converted basis) and (ii) "pro-rata share" means the
principal amount of the Securities initially purchased divided by
the aggregate principal amount of all Securities sold hereunder.
(b) The parties shall use their best efforts timely to
satisfy each of the conditions described in Section 9 of this
Agreement.
(c) So long as the Buyer beneficially owns any of the
Securities, the Company shall timely file all reports required to
be filed with the SEC pursuant to the Exchange Act, and the Company
shall not terminate its status as an issuer required to file
reports under the Exchange Act even if the Exchange Act or the
rules and regulations thereunder would permit such termination,
except in the event of a merger, consolidation or sale of all or
substantially all of the Company's assets, as long as the surviving
or successor entity in such transaction (i) assumes the Company's
obligations hereunder and under the agreements and instruments
entered into in connection herewith and (ii) is a publicly traded
corporation whose Common Stock is listed for trading on the AMEX,
the NYSE or the NASDAQ.
(d) At Buyer's request, the Company agrees to send the
following reports to Buyer until Buyer transfers, assigns, or sells
all of the Securities: (i) within ten (10) days after the filing
with the SEC, a copy of its Annual Report on Form 10-K, its
Quarterly Reports on Form 10-Q and any Current Reports on Form 8-K;
and (ii) within two (2) business days after release, copies of all
press releases issued by the Company or any of its subsidiaries.
(e) The Company shall at all times have authorized, and
reserved for the purpose of issuance, a sufficient number of shares
of Common Stock to provide for the full conversion of the
outstanding Securities and issuance of the Shares in connection
therewith (based on the conversion price of the Securities in
effect from time to time). In that regard, on the Closing Date,
the Company shall have at least 1,333,333 shares reserved for
issuance upon conversion of the Securities (subject to adjustment
in order to comply with the immediately preceding sentence);
provided that the Company shall not reduce the number of shares of
Common Stock reserved for issuance upon conversion of the
Securities without the consent of a majority-in-interest of the
buyers of the Securities, which consent will not be unreasonably
withheld.
(f) So long as the Buyer beneficially owns any Securities,
the Company shall maintain its corporate existence, except in the
event of a merger, consolidation or sale of all or substantially
all of the Company's assets, as long as the surviving or successor
entity in such transaction (i) assumes the Company's obligations
hereunder and under the agreements and instruments entered into in
connection herewith and (ii) is a publicly traded corporation whose
Common Stock is listed for trading on the AMEX, the NYSE or the
NASDAQ.
(g) The Company and the Buyer agree that the Closing Date,
when certified by Escrow Agent as the Closing shall be deemed to be
a conclusion of the offering of the Securities contemplated hereby.
The Company acknowledges and agrees that, for purposes of
clarifying and specifying the applicable Restricted Period under
Regulation S,
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<PAGE>
the Buyer intends to observe as the Restricted Period (as defined
in Regulation S) for the Securities, the period of 40 days
commencing on the Closing Date and ending 40 days thereafter.
(h) The Shares issued upon conversion of the Securities and
the certificates evidencing the same shall at all times be free of
legends (except as provided in Section 10 below), "stock transfer
restrictions," or other restrictions, except as expressly set forth
in this Agreement and the Convertible Note.
9. Conditions Precedent to the Buyer's Obligation. The
obligations of the Buyer hereunder are subject to the performance
by the Company of the following additional conditions precedent:
(a) The Buyer shall receive, on the Closing Date, an opinion
of counsel to the Company, dated the Closing Date, as to the
representations made by the Company in Sections 6(a) through and
including 6(f) and in Sections 6(m) and 6(n) hereof, and such other
matters as Buyer reasonably requests (collectively, the "Opinion of
Counsel"). The form of the Opinion of Counsel shall be as set
forth in Exhibit 1 hereof.
(b) Delivery of the notes representing the Securities with
restrictive legend to the Escrow Agent as set forth herein.
(c) The Company shall have delivered to the Buyer a
certificate (the "Officer Certificate") in form and substance
reasonably satisfactory to the Buyer, executed by an executive
officer of the Company, to the effect that all the conditions to
the Closing shall have been satisfied and the representations and
warranties of the Company herein are true and correct as of the
date when made and as of the Closing Date, and certifying as to the
Company's Certificate of Incorporation, By-Laws, resolutions
authorizing transaction, and incumbency of Company officers.
(d) The Company and the Buyer shall have entered into the
Registration Rights Agreement as contemplated by Section 4.
10. Legends. (a) The certificates representing the Securities,
and the Shares issued during the Restricted Period, shall bear the
following legend (the "Legend"):
"The securities represented hereby have been issued pursuant
to Regulation S promulgated under the Securities Act of 1933,
as amended (the "1933 Act"), and have not been registered
under the 1933 Act. Such securities may not be transferred,
offered or sold prior to the end of the forty (40) day period
(the "Restricted Period") commencing on July 17th, 1997 unless
such transfer, offer or sale is made in an "offshore
transaction" and not to or for the account of or benefit of a
"U.S. Person" (as such terms are defined in Regulation S) and
is otherwise in accordance with the requirements of Regulation
S. Following the expiration of the Restricted Period, the
securities represented hereby may not be offered, sold or
otherwise transferred in the United States or to a U.S. Person
unless the securities are registered under the 1933 Act and
applicable state securities laws, or such offers, sales and
transfers are made pursuant to an available exemption or safe-
harbor from the registration requirements of those laws."
(b) Following the expiration of the Restricted Period, and
subject to Section 10(d) below, the Company will remove or will
promptly instruct its transfer agent to remove the Legend from the
Shares issued during the Restricted Period (and will instruct its
transfer agent to issue without the Legend, the Shares issuable
upon any conversion or exercise occurring after the Restricted
Period), if the Buyer holding such Securities or any other person
in whose name the certificates have been or are to be validly and
legally
9
<PAGE>
issued shall have delivered a certificate (a "Removal Certificate")
to the Company to the following effect:
"The undersigned acknowledges that the securities to which
this certificate relates have not been registered under
Securities Act of 1933, as amended (the "1933 Act") and that
offers, sales or other transfer of such securities must be
made in compliance with Regulation S promulgated under the
1933 Act, pursuant to an effective registration statement
under the 1933 Act or pursuant to an available exemption from
registration, and the undersigned certifies that the
undersigned has not made, nor will the undersigned make or
cause to be made, any offer, sale or other transfer of such
securities, in violation of the 1933 Act, other applicable
securities laws or the rules and regulations of the Securities
and Exchange Commission."
(c) Upon the submission, at any time after the expiration of
the Restricted Period, by Buyer of a written request for legend
removal for the purpose of a bona fide pledge or deposit of the
Shares with a margin account, together with the certificates for
which the legend removal is being requested and a Removal
Certificate signed by both the Buyer and the pledgee or other
holder of the Shares, the Company will reissue or will promptly
instruct its transfer agent to reissue the certificates
representing the Shares to be so pledged or deposited without the
Legend.
(d) Notwithstanding the provisions of this Section 10, if
with respect to the Company's receipt of a Removal Certificate from
any person, prior to any removal of the Legend, there shall have
been after the date hereof any amendment to the Act or Regulation
S or any no action letter, interpretative release or other advice
from the Securities and Exchange Commission after the date hereof
which disallows the removal of the Legend under the circumstances
in which the request that it be removed is being made, then the
Company shall have no obligation to remove or to instruct its
transfer agent to remove the Legend, unless the Company shall have
received from the person requesting such removal a written letter
of counsel to such person reasonably acceptable to the Company and
its counsel confirming that the Legend may be so removed or share
certificates may be so issued without the Legend without violation
of the Act. If the person requesting a removal of the Legend is
unable to supply the legal opinion referred to above then the
Company shall, upon demand of such person, be obligated to register
the Common Stock for resale pursuant to the terms of the
Registration Rights Agreement.
11. Transfer Agent Instructions. The Company's transfer agent
will be instructed to reserve for issuance such number of shares of
the Company's Common Stock as would be issuable if the Convertible
Notes were converted on the Closing Date and such additional number
of shares as, from time to time, shall be necessary to provide for
the issuance of Shares upon the conversion of the Convertible
Notes. Additionally, the Company shall deliver to its transfer
agent promptly after closing irrevocable instructions substantially
in the form set forth in Annex E attached hereto, pursuant to which
the transfer agent shall be instructed to issue upon conversion the
number of shares provided for in the Convertible Note being
converted on the terms provided for therein without restrictive
legend, registered in the names provided by the Holders, subject to
the terms and conditions in this Agreement and in the Convertible
Note. The Company warrants and covenants that no instructions
restricting the transferability of the Shares other than the
instructions in the immediately preceding sentence and instructions
for a "stop transfer" instruction until the end of the Restricted
Period have been given, or shall be given, to the transfer agent,
and that the Shares shall otherwise be freely transferable on the
books and records of the Company, subject to the restrictions in
this Agreement and in the Convertible Note. Nothing in this
section, however, shall affect in any way the obligations and
agreement of the Buyer to comply with all applicable federal, state
and foreign securities laws upon resale of the Securities.
10
<PAGE>
12. Miscellaneous. (a) This Agreement may be executed in one or
more counterparts and it is not necessary that signatures of all
parties appear on the same counterpart, but such counterparts
together shall constitute but one and the same agreement.
(b) Notices. Any notice or other communication given or
permitted under this Agreement shall be in writing and shall be
deemed to have been duly given if personally delivered or sent by
registered or certified mail, return receipt requested, postage
prepaid or by air courier, (a) if to Buyer, at its address
hereinabove set forth, (b) if to the Company, at its address
hereinabove set forth, and (c) if to a holder other than Buyer, at
the address thereof furnished by like notice to the Company, or (d)
to any such addresses at such other address or addresses as shall
be so furnished to the other parties by like notice.
(c) This agreement shall inure to the benefit of and be
binding upon the parties hereto, their respective successors, and
no other person shall have any right or obligation hereunder. This
Agreement shall not be assignable by either party without the prior
written consent of the other, and any assignment in violation
hereof shall be void. Notwithstanding the foregoing, the Buyer may
assign its rights in this Agreement subject to the terms and
conditions of this Agreement and the Convertible Note, and the
provisions of this Agreement shall then inure to the benefit of,
and be enforceable by, any transferee of any of the Securities or
Shares.
(d) This Agreement together with the Convertible Note and the
Registration Rights Agreement constitutes the entire agreement of
the parties with respect to the subject matter hereof and
supersedes all prior oral or written proposals or agreements
related thereto. This Agreement may not be amended or any
provision hereof waived, in whole or in part, except by a written
amendment signed by both of the parties hereto.
IN WITNESS WHEREOF, the parties hereto have duly executed
and delivered this Agreement, all as of the day and year above
written.
THE DIANA CORPORATION
By: /s/ James J. Fiedler
James J. Fiedler, Chairman & Chief Executive Officer
__________________________
By: ____________________________________________________
11
NOTE NO.
THE SECURITIES REPRESENTED HEREBY AND ANY SHARES (AS DEFINED BELOW)
ISSUED UPON THE EXERCISE OF CONVERSION RIGHTS HEREUNDER HAVE BEEN
AND WILL BE ISSUED PURSUANT TO REGULATION S PROMULGATED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT"), AND HAVE NOT
BEEN REGISTERED UNDER THE 1933 ACT. SUCH SECURITIES MAY NOT BE
TRANSFERRED, OFFERED OR SOLD PRIOR TO THE END OF THE FORTY (40) DAY
PERIOD (THE "RESTRICTED PERIOD") COMMENCING ON JULY 17, 1997 UNLESS
SUCH TRANSFER, OFFER OR SALE IS MADE IN AN "OFFSHORE TRANSACTION"
AND NOT TO OR FOR THE ACCOUNT OF OR BENEFIT OF A "U.S. PERSON" (AS
SUCH TERMS ARE DEFINED IN REGULATION S) AND IS OTHERWISE IN
ACCORDANCE WITH THE REQUIREMENTS OF REGULATION S. THIS NOTE MAY
NOT BE CONVERTED INTO SHARES BY OR ON BEHALF OF ANY U.S. PERSON.
FOLLOWING THE EXPIRATION OF THE RESTRICTED PERIOD, THE SECURITIES
REPRESENTED HEREBY AND ANY SHARES ISSUED UPON THE EXERCISE OF
CONVERSION RIGHTS MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED
IN THE UNITED STATES OR TO A U.S. PERSON UNLESS THE SECURITIES ARE
REGISTERED UNDER THE 1933 ACT AND APPLICABLE STATE SECURITIES LAWS,
OR SUCH OFFERS, SALES AND TRANSFERS ARE MADE PURSUANT TO AN
AVAILABLE EXEMPTION OR SAFE-HARBOR FROM THE REGISTRATION
REQUIREMENTS OF THOSE LAWS.
THE DIANA CORPORATION
8% CONVERTIBLE NOTE DUE JULY 17, 2000
THIS NOTE is one of a duly authorized issue of Convertible Notes of
THE DIANA CORPORATION, a Corporation duly organized and existing
under the laws of the state of Delaware (the "Company") designated
as its 8% Convertible Note Due July 17, 2000, in an aggregate
principal amount of up to $3,000,000 (the "Notes").
FOR VALUE RECEIVED, the Company promises to pay to ______________
__________________ or the permitted registered holder hereof (the
"Holder"), the principal sum of $__________ (United States Dollars)
(the "Initial Principal Amount") or such lesser principal amount as
is indicated on the table (the "Table") below following the
conversion or conversions of this Note in accordance with Paragraph
4 (the "Outstanding Principal Amount") on July 17, 2000 (the
"Maturity Date"), and to pay interest on the Outstanding Principal
Amount from time to time, semi-annually in arrears on the first day
of January and July (the "Interest Payment Dates"), at the rate of
8% per annum accruing from the date of issuance. Accrual of
interest shall commence on the first business day to occur after
the date hereof until repayment in full of the principal sum has
been made or duly provided for. Accrued and unpaid interest shall
bear interest at the same rate from the due date of the interest
payment, until paid. The interest so payable will be paid in shares
of the Company's common stock (the "Common Stock") at the then
applicable conversion price (computed as described in Paragraph 4
below) on January 1st and July 1st to the person in whose name this
Note (or one or more predecessor Notes) is registered on the
records of the Company regarding registration and transfers of the
Notes (the "Note Register") on the tenth day prior to the Interest
Payment Date. The principal of, and interest on, this Note are
payable in such coin or currency of the United States of America as
at the time of payment is legal tender for payment of public and
private debts, at the address last appearing on the Note Register
of the Company as designated in writing by the Holder from time to
time. The Company will pay the principal of and interest upon this
Note on the due date, free of any withholding or deduction of any
kind (subject to the
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<PAGE>
provisions of Paragraph 2 below), to the registered Holder of this
Note as of the due date and addressed to such Holder at the last
address appearing on the Note Register. The forwarding of such
check or shares shall constitute a payment of principal and
interest hereunder and shall satisfy and discharge the liability
for principal and interest on this Note to the extent of the sum
represented by such check plus any amounts so deducted.
TABLE
Outstanding
Conversion Conversion Principal Authorized
Date Amount Amount Signature
- ---------- ---------- ----------- ----------
This Note is subject to the following additional provisions:
1. The Notes are originally issuable in amounts of not less than
$25,000 and integral multiples thereof.
2. All payments on account of the principal of and interest on
this Note and all other amounts payable under this Note
(whether made by the Company or any other person) to or for
the account of the Holder hereunder shall be made free and
clear of and without reduction by reason of any present and
future income, stamp, registration and other taxes, levies,
duties, costs and charges whatsoever imposed, assessed, levied
or collected by the United States or any political subdivision
or taxing authority thereof or therein, together with interest
thereon and penalties with respect thereto, if any, on or in
respect of this Note (all such taxes, levies, duties, costs
and charges being herein collectively called "United States
Taxes"). Should any such payment be subject to any United
States Tax and the provisions of the preceding sentence of
this Paragraph 2 either cannot be effected or do not result in
the Holder actually receiving free and clear of all United
States Taxes an amount equal to the full amount provided under
this Note, the Company shall pay to the Holder such additional
amounts as may be necessary to ensure that the Holder receives
a net amount equal to the full amount that it would have
received had such payment not been made subject to United
States Taxes unless withholding arises because holder has
failed to furnish the data described below in this Paragraph
2. In addition to the United States Taxes
2
<PAGE>
paid by the Company or additional amounts paid to the Holder,
in each case pursuant to the preceding provisions of this
Paragraph 2 ("Additional Payments"), the Company shall also
pay to the Holder upon demand such additional amounts as may
be necessary to compensate the Holder, on an after-tax basis,
for any tax or levy imposed or assessed by any jurisdiction on
or with respect to any such Additional Payments (including any
income taxes payable by the Holder with respect to Additional
Payments pursuant to the income tax laws of the jurisdiction
of its principal office or lending office or any political
subdivision or taxing authority thereof). Holder agrees to
provide Company a Form W-8, a certification under penalty of
perjury, or a certificate from a financial institution
described in Section 871(h)(4)(B) of the Internal Revenue Code
of 1986 demonstrating that the Holder is not a United States
person.
3. If at any time there occurs a transaction in which in excess
of 50% of the Company's voting power is transferred (excluding
any public or private offering of Company equity securities),
including any consolidation or merger of the Company with or
into any other corporation or other entity or person (whether
or not the Company is the surviving corporation), or any other
corporate reorganization or transaction or series of related
transactions, the Holder of this Note then outstanding may
participate in any such transaction as a class with common
stockholders on the same basis as if this Note had been
converted one day prior to the effective date of such
transaction; provided, however, that at the option of the
Holder of this Note, such Holder may treat the effective date
of any transaction that occurs prior to July 17, 2000 as a
redemption date and shall be entitled to have the Company
redeem this Note at a price equal to 125% of the Outstanding
Principal Amount of this Note, plus accrued but unpaid
interest. Such holder shall be entitled to make such election
at any time up to ten (10) days prior to the effective date of
the transaction. The Company shall not effect any stock
split, subdivision or combination with an effective date
within three (3) trading days preceding the effective date of
a merger or consolidation. The Company shall not make, or fix
a record date for the determination of holders of Common Stock
entitled to receive, a dividend or other distribution payable
in additional shares of Common Stock, with an effective date
within three (3) trading days prior to the effective date of
a merger or consolidation.
4. The Holder of this Note is entitled, at its option, at any
time commencing forty-five (45) days after the Closing Date as
defined in the Subscription Agreement (as defined below) until
maturity hereof to convert one-third (1/3rd) or any lesser
portion of the Initial Principal Amount which is at least
$25,000 into shares of Common Stock ("Shares") at a conversion
price for each Share equal to the lesser of $6.64 per share or
eighty percent (80%) of the average closing bid price of the
Common Stock for the five (5) trading days immediately prior
to the Conversion Date with a conversion floor price (the
"Conversion Floor Price") of $1.50 per share (collectively,
the "Conversion Price"); beginning seventy-five (75) days
after the Closing Date, an additional one-third (1/3rd) of the
Initial Principal Amount which is at least $25,000 may be
converted into Shares at the Conversion Price; and beginning
one hundred and five (105) days after the Closing Date, the
remaining one-third (1/3rd) of the Initial Principal Amount
which is at least $25,000 may be converted into Shares at the
Conversion Price, provided that if the average of the closing
bid price of the Common Stock for the twenty (20) consecutive
trading days immediately prior to a conversion date is less
than $1.50 per share, the Conversion Floor Price will be
adjusted to equal eighty percent (80%) of such twenty (20)
consecutive trading day average of the closing bid price,
provided, however, that in no event shall the Holder be
entitled to convert any portion of this Note in excess of that
portion of this Note upon conversion of which the sum of (1)
the number of shares of Common Stock beneficially owned by the
Holder and its affiliates (other than shares of Common Stock
which may be deemed beneficially owned through the ownership
of the unconverted portion of this Note, as defined in the
Subscription Agreement) and (2) the number of Shares issuable
upon the conversion of the portion of this Note with respect
to which the determination of this proviso is being made,
would result in beneficial ownership by the Holder and its
affiliates of more than 4.9% of the outstanding Shares. For
purposes of the proviso to the immediately preceding sentence,
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<PAGE>
beneficial ownership shall be determined in accordance with
Section 13(d) of the Securities Exchange Act of 1934, as
amended, and Regulations 13 D-G thereunder, except as
otherwise provided in clause (1) of such proviso. In the
event of any stock split, dividend, combination or similar
event occurring after the Conversion Date and prior to the
issuance of the respective stock certificates, the conversion
price will be subject to appropriate adjustment. For purposes
of this section, the closing bid price of the Common Stock
shall be the closing bid price as reported by The Nasdaq Stock
Market, or the closing bid price in the over-the-counter
market or, if the Common Stock is listed on a stock exchange,
the closing bid price on such exchange as reported in The Wall
Street Journal. Such conversion shall be effectuated by
surrendering the Notes to be converted to the Company, with
the form of conversion notice attached to the Note as Exhibit
A, executed by the Holder of the Note evidencing such Holder's
intention to convert this Note, and accompanied, if required
by the Company, by proper assignment hereof in blank.
Interest accrued or accruing from the date of issuance to the
date of conversion on the amount so converted shall be paid in
shares of common stock of the Company, calculated at the same
conversion price (as determined above), as would apply on the
conversion date of the principal amount being converted but
using the discount percentage applicable as of such date and
shall constitute payment in full of any such interest on the
same terms as would otherwise apply to the conversion of the
principal amount hereof. No fractional Shares or scrip
representing fractions of Shares will be issued on conversion,
but the number of Shares issuable shall be rounded to the
nearest whole Share. The date on which notice of conversion
is given (the "Conversion Date") shall be deemed to be the
date on which the Holder notifies the Company of its intention
to convert by delivery, by facsimile transmission or
otherwise, of a copy of the Conversion Notice (as defined
below). Notice may be given by facsimile to the Company at
(818) 878-7633. This Note, together with the original
executed copy of the Notice of Conversion, shall be delivered
to the Company as soon as practicable following the date on
which notice of conversion is given as described above. Any
unconverted principal amount and accrued interest thereon
shall at the maturity date be paid, at the option of the
Company, in either (a) cash or (b) Shares valued at a price
equal to the average closing bid price of the Common Stock for
the five (5) trading days immediately preceding the maturity
date.
Upon the surrender of this Note, accompanied by a Notice of
Conversion of Convertible Note in the form attached hereto as
Exhibit A, properly completed and duly executed by the Holder
(a "Conversion Notice"), the Company shall issue and, within
five (5) business days (the "Deadline") after actual delivery
of this Note with the Conversion Notice, deliver to or upon
the order of the Holder (1) that number of Shares for the
portion of the Note converted as shall be determined in
accordance herewith and (2) this Note with the appropriate
notation to the Table by an authorized officer of the Company
to account for the remaining balance of the principal amount
hereof following conversion, if any. Without in any way
limiting the Holder's right to pursue other remedies,
including actual damages and/or equitable relief, the parties
agree that if delivery of the Shares issuable upon conversion
of this Note is more than one (1) business day after the
Deadline the Company shall pay to the Holder $250 per each
$25,000 principal amount Note per day in cash, for the first
day beyond the Deadline and $500 per each $25,000 principal
amount Note per day for each day thereafter that the Company
fails to deliver the Shares. Such cash amount shall be paid
to Holder by the fifth day of the month following the month in
which it has accrued or, at the option of the Holder (by
written notice to the Company by the first day of the month
following the month in which it has accrued), shall be added
to the principal amount of this Note, in which event interest
shall accrue thereon in accordance with the terms of this Note
and such additional principal amount shall be convertible into
Shares in accordance with the terms of this Note.
Furthermore, in addition to any other remedies which may be
available to the Holder, in the event that the Company fails
for any reason to effect delivery of such shares of Common
Stock within five days after the Delivery Date, the Holder
will be entitled to revoke the relevant Notice of Conversion
by delivering a notice to such effect to the Company
4
<PAGE>
whereupon the Company and the Holder shall each be restored to
their respective positions immediately prior to delivery of
such Notice of Conversion.
The number of shares of Common Stock to be issued upon each
conversion of this Note shall be determined by dividing (i)
the sum of (A) that portion of the principal amount of the
Note to be converted plus (B) the "Conversion Date Interest"
(as defined below), by (ii) the conversion price in effect on
the date the Conversion Notice is delivered to the Company by
the Holder. Conversion Date Interest means the product of (i)
the principal amount of the Note to be converted, multiplied
by (ii) a fraction (A) the numerator of which is the number of
days elapsed since the date of issuance of this Note and (B)
the denominator of which is 365, multiplied by (iii) .08.
5. At any time commencing one year after the Closing, Company
may, by written notice to Holder at Holder's registered
address, prepay this Note in whole or in part. Such notice
shall be given at least ten (10) business days prior to the
payment date and on such date Company shall pay the
outstanding principal and all accrued interest on this Note,
unless prior to such payment date Holder has delivered a
Notice of Conversion. Upon delivery of a Notice of
Conversion, the provisions of paragraph 4 shall apply, except
that no further interest shall accrue after the proposed
payment date.
6. Not used.
7. No provision of this Note shall alter or impair the obligation
of the Company, which is absolute and unconditional, to pay
the principal of, and interest on, this Note at the time,
place, and rate, and in the coin or currency or Shares, herein
prescribed. This Note and all other Notes now or hereafter
issued on similar terms are direct obligations of the Company.
This Note ranks equally with all other Notes now or hereafter
issued under the terms set forth herein. In the event of any
liquidation, reorganization, winding up or dissolution
repayment of this Note shall be subordinate in all respects to
any other indebtedness for borrowed money of the Company,
whether outstanding as of the date of this Note or hereafter
incurred. Such subordination shall extend without limiting
the generality of the foregoing, to all indebtedness of the
Company to banks, financial institutions, other secured
lenders, equipment lessors and equipment finance companies,
but shall exclude trade debts; and any warrants, options or
other securities convertible into stock of the Company shall
rank pari passu with the Notes in all respects.
8. The Company hereby expressly waives demand and presentment for
payment, notice of nonpayment, protest, notice of protest,
notice of dishonor, notice of acceleration or intent to
accelerate, bringing of suit and diligence in taking any
action to collect amounts called for hereunder and shall be
directly and primarily liable for the payment of all sums
owing and to be owing hereon, regardless of and without any
notice, diligence, act or omission as or with respect to the
collection of any amount called for hereunder.
9. If the Company at any time or from time to time after the
Closing Date makes, a dividend or other distribution to
holders of Common Stock payable in securities of the Company
other than Shares, then and in each such event provision shall
be made so that the Holder shall receive upon conversion of
this Note pursuant to Paragraph 4 hereof, in addition to the
number of Shares receivable thereupon, the amount of such
other securities of the Company to which the Holder on the
relevant record or payment date, as applicable, of the number
of Shares so receivable upon conversion would have been
entitled, plus any dividends or other distributions which
would have been received with respect to such securities had
the Holder thereafter, during the period from the date of such
event to and including the Conversion Date retained such
securities, subject to all other adjustments called for during
such period under this Note with respect to the rights of the
Holder.
10. If at any time or from time to time after the Closing Date,
the Common Stock issuable upon the conversion of the Note is
changed into the same or different number of shares of
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<PAGE>
any class or classes of stock, whether by re-capitalization,
reclassification or otherwise (other than a subdivision or
combination of shares or stock dividend or reorganization
provided for elsewhere in this Note or a merger or
consolidation, provided for in Paragraph 3), then and in each
such event the Holder shall have the right thereafter to
convert the Note into the kind of stock receivable upon such
re-capitalization, reclassification or other change by holders
of shares of Common Stock, all subject to further adjustment
as provided herein. In such event, the formulae set forth
herein for conversion and redemption shall be equitably
adjusted to reflect such change in number of shares or, if
shares of a new class of stock are issued, to reflect the
market price of the class or classes of stock issued in
connection with the above described transaction.
11. If at any time or from time to time after the Closing Date
there is a capital reorganization of the Common Stock (other
than a re-capitalization, subdivision, combination,
reclassification exchange of shares provided for elsewhere in
this Note) then, as a part of such reorganization, provision
shall be made so that the Holder shall thereafter be entitled
to receive upon conversion of this Note the number of shares
of stock or other securities or property to which a holder of
the number of Shares deliverable upon conversion would have
been entitled on such capital reorganization. In any such
case, appropriate adjustment shall be made in the application
of the provisions of this Note with respect to the rights of
the Holder after the reorganization to the end that the
provisions of this Note shall be applicable after that event
and be as nearly equivalent as may be practicable, including,
by way of illustration and not limitation, by equitably
adjusting the formulae set forth herein for conversion and
redemption to reflect the market price of the securities or
property issued in connection with the above described
transaction.
12. If one or more of the "Events of Default" as described in
Paragraph 13 shall occur, the Company agrees to pay all costs
and expenses, including reasonable attorneys' fees, which may
be incurred by the Holder in collecting any amount due under
this Note.
13. If one or more of the following described "Events of Default"
shall occur:
(a) The Company shall default in the payment of principal or
interest on this Note; or
(b) Any of the representations or warranties made by the
Company herein, in the Offshore Securities Subscription
Agreement dated as of July 16, 1997 between the Company
and the Holder (the "Subscription Agreement"), or in any
certificate or financial or other statements heretofore
or hereafter furnished by or on behalf of the Company in
connection with the execution and delivery of this Note
or the Subscription Agreement shall be false or
misleading in any material respect at the time made; or
The Company fails to issue shares of Common Stock to the
Holder or to cause its Transfer Agent to issue shares of
Common Stock upon exercise by the Holder of the conversion
rights of the Holder in accordance with the terms of this
Debenture, fails to transfer or to cause its Transfer Agent to
transfer any certificate for shares of Common Stock issued to
the Holder upon conversion of this Debenture and when required
by this Debenture or the Registration Rights Agreement, or
fails to remove any restrictive legend or to cause its
Transfer Agent to transfer on any certificate or any shares of
Common Stock issued to the Holder upon conversion of this
Debenture as and when required by this Debenture, the
Agreement or the Registration Rights and any such failure
shall continue uncured for five (5) business days.
(c) The Company shall fail to perform or observe any other
covenant, term, provision, condition, agreement or
obligation of the Company under this Note and such
failure shall continue uncured for a period of thirty
(30) days after notice from the Holder of such failure;
or
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<PAGE>
(d) The Company shall (1) become insolvent; (2) admit in
writing its inability to pay its debts as they mature;
(3) make an assignment for the benefit of creditors or
commence proceedings for its dissolution; or (4) apply
for or consent to the appointment of a trustee,
liquidator or receiver for it or for a substantial part
of its property or business; or
(e) A trustee, liquidator or receiver shall be appointed for
the Company or for a substantial part of its property or
business without its consent and shall not be discharged
within thirty (30) days after such appointment; or
(f) Any governmental agency or any court of competent
jurisdiction at the instance of any governmental agency
shall assume custody or control of the whole or any
substantial portion of the properties or assets of the
Company and shall not be dismissed within thirty (30)
days thereafter; or
(g) Any money judgment, writ or warrant of attachment, or
similar process except mechanics and materialmen's liens
incurred in the ordinary course of business in excess of
Five Hundred Thousand Dollars ($500,000) in the aggregate
shall be entered or filed against the Company or any of
its properties or other assets and shall remain
unsatisfied, unvacated, unbonded or unstayed for a period
of thirty (30) days (unless such order provides for
delayed payment, or is covered by insurance) or in any
event later than five (5) days prior to the date of any
proposed sale thereunder; or
(h) Bankruptcy, reorganization, insolvency or liquidation
proceedings or other proceedings for relief under any
bankruptcy law or any law for the relief of debtors shall
be instituted by or against the Company and, if
instituted against the Company, shall not be dismissed,
stayed or bonded within sixty (60) days after such
institution or the Company shall by any action or answer
approve of, consent to, or acquiesce in any such
proceedings or admit the material allegations of, or
default in answering a petition filed in any such
proceeding; or
(i) The Company shall have its common stock delisted from an
exchange or The Nasdaq Stock Market.
Then, or at any time thereafter, and in each and every such
case, unless such Event of Default shall have been waived in
writing by the holders of a majority of all Notes then
outstanding (which waiver shall not be deemed to be a waiver
of any subsequent default) at the option of the holders of a
majority of all Notes outstanding and in their discretion, the
Holder may consider this Note immediately due and payable,
without presentment, demand, protest or notice of any kind,
all of which are hereby expressly waived, anything herein or
in any note or other instruments contained to the contrary
notwithstanding, and the Holder may immediately, and without
expiration of any period of grace, enforce any and all of the
Holder's rights and remedies provided herein or any other
rights or remedies afforded by law. In such event, this Note
shall be redeemed by the Company at a redemption price per
Note equal to (i) the lesser of (a) 125% of the Outstanding
Principal Amount due hereunder or (b) the maximum redemption
premium which may be permitted under the laws of Delaware
(including any provision of law relating to usury) and (ii)
accrued and unpaid interest.
14. If at any time on or after the date hereof and prior to the
first anniversary of the Closing Date, trading in the shares
on the Common Stock is suspended on the principal market or
exchange for such shares (including The Nasdaq Stock Market),
for a period of five (5) consecutive trading days, other than
as a result of the suspension or trading in securities in
general, or if such Shares are delisted, then, at the Holder's
option, the Company shall redeem the Note at a redemption date
designated by Holder, and for the redemption price provided in
Paragraph 13.
7
<PAGE>
15. Notwithstanding anything to the contrary contained herein,
each Conversion Notice shall contain a representation that,
after giving effect to the Shares to be issued pursuant to
such conversion notice, the total number of Shares deemed
beneficially owned by the Holder, together with all Shares
deemed beneficially owned by the Holder's "affiliates" as
defined in Rule 144 of the Act, will not exceed 4.9% of the
total issued and outstanding Shares.
16. The Holder may, subject to compliance with the Subscription
Agreement and the provisions of Regulation S, without notice,
transfer, assign, mortgage or encumber this Note, any interest
herein or any part hereof integral multiples of $25,000 or the
entire outstanding balance to an "accredited investor" as
defined in the 1933 Act (other than to a U.S. Person or on
behalf of a U.S. Person) that will be acquiring the Note or
interest herein for its account for the purpose of investment
and not with a view to, or for sale in connection with any
distribution hereof and, each assignee, transferee and
mortgagee (which may include any affiliate of the Holder)
shall have the right to transfer or assign its interest
subject to the same limitations. Each such assignee,
transferee and mortgagee shall have all of the rights of the
Holder under this Note. The Company may condition
registrations of transfers on the receipt of a certificate
from the assignee, transferee or mortgagee in a form
acceptable to the Company that contains representations and
warranties similar to those of the Holder contained in Section
3 of the Subscription Agreement, and IRS Form W-8 or an
equivalent certification under penalty of perjury in
compliance with Section 871(h)(4)(B) of the Internal Revenue
Code of 1986.
17. For so long as any amount payable under this Note remains
unpaid, the Company shall furnish to the Holder, upon request
by the Holder, the following information:
(a) No later than one hundred five (105) days following the
end of each fiscal year, beginning with the fiscal year
ending March 31, 1998, consolidated balance sheets,
statements of operations and statements of cash flow and
shareholders' equity of the Company and its subsidiaries,
if any, prepared in accordance with generally accepted
accounting principles, and audited by a firm of
independent public accountants. The Company may satisfy
this requirement by delivering its report on Form 10-K
for each such year.
(b) Within fifty-one (51) days after the end of each quarter
(except the fourth quarter) of each fiscal year,
consolidated balance sheets, statements of operations and
statements of cash flow and shareholders' equity of the
Company and its subsidiaries. The Company may satisfy
this requirement by delivering its report on Form 10-Q
for each such quarter.
18. The Company covenants and agrees that until all amounts due
under this Note have been paid in full, by conversion or
otherwise, unless the Holder waives compliance in writing, the
Company shall:
(a) Give prompt written notice to the Holder of any Event of
Default or of any other matter which has resulted in, or
could reasonably be expected to result in, a materially
adverse change in its financial condition or operations.
(b) Give prompt notice to the Holder of any claim, action or
proceeding which, in the event of any unfavorable
outcome, would or could reasonably be expected to have a
Material Adverse Effect (as defined in the Subscription
Agreement) on the financial condition of the Company.
(c) At all times reserve and keep available out of its
authorized but unissued stock, for the purpose of
effecting the conversion of this Note such number of its
duly authorized Shares as shall from time to time be
sufficient to effect the conversion of the outstanding
principal balance of this Note into Shares. If the
Company does not have a sufficient number of Shares
available to satisfy the Company's obligations to the
Holder upon receipt of a Conversion Notice or is
otherwise unable to issue such Shares in accordance with
the terms
8
<PAGE>
of this Note (a "Conversion Default"), from and after the
fifth (5th) day following a Conversion Default (which for
all purposes shall be deemed to have occurred upon the
Company's receipt of the applicable conversion notice),
the Holder shall have the right to demand from the
Company immediate redemption of this Note in cash at a
redemption price equal to 125% of the Outstanding
Principal Amount, plus accrued but unpaid interest on the
Note; provided, however, that no Redemption Notice may be
delivered by the Holder subsequent to the Holder's
receipt of notice from the Company (sent by overnight or
2-day courier with a copy sent by facsimile) of
availability of sufficient Shares to permit conversion (a
"Post-Default Conversion") of the Note; provided further
that such right shall be reinstated if the Company shall
thereafter fail to perfect such Post-Default Conversion
by delivery of Common Stock certificates in accordance
with the applicable provision of Paragraph 4 hereof and
payment of all accrued and unpaid interest in cash with
respect thereto within five business days of delivery of
the notice of Post-Default Conversion. In addition to
the foregoing, upon a Conversion Default, the rate of
interest on the Note shall, to the maximum extent of the
law, be increased by two percent (2%) (i.e., from 8% to
10% commencing on the first day of the thirty (30) day
period (or part thereof) following a Conversion Default;
an additional two percent (2%) commencing on the first
day of each of the second and third such thirty (30) day
periods (or part thereof); an additional one percent (1%)
on the first day of each consecutive thirty (30) day
period (or part thereof) thereafter until such securities
have been duly converted or redeemed as herein provided.
Any such interest which is not paid when due shall, to
the maximum extent permitted by law, accrue interest
until paid at the rate from time to time applicable to
interest on the Note as to which the Conversion Default
has occurred.
(d) Upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or
mutilation of this Note and
(i) in the case of loss, theft or destruction, upon
provision of indemnity reasonably satisfactory to
it and/or its transfer agent, or
(ii) in the case of mutilation, upon surrender and
cancellation of this Note,
the Company at its expense will execute and deliver a new
Note, dated the date of the lost, stolen, destroyed or
mutilated Note.
19. The Holder of this Note, by acceptance hereof, agrees that
this Note is being acquired for investment and that such
Holder will not offer, sell or otherwise dispose of this Note
or the Shares issuable upon exercise thereof except under
circumstances which will not result in a violation of the 1933
Act or any applicable state securities laws.
20. In case any provision of this Note is held by a court of
competent jurisdiction to be excessive in scope or otherwise
invalid or unenforceable, such provision shall be adjusted
rather than voided, if possible, so that it is enforceable to
the maximum extent possible, and the validity and
enforceability of the remaining provisions of this Note will
not in any way be affected or impaired thereby.
21. This Note, the Subscription Agreement and the Registration
Rights Agreement (as defined in the Subscription Agreement)
between the Company and the Holder constitute the full and
entire understanding and agreement between the Company and the
Holder with respect to the subject hereof. Neither this Note
nor any term hereof may be amended, waived, discharged or
terminated other than by a written instrument signed by the
Company and the Holder.
22. Governing Law; Consent of Jurisdiction. This Agreement and
the validity and performance of the terms hereof shall be
governed by and construed in accordance with the laws of the
State of Delaware. The parties hereto hereby consent to, and
waive any objection to the exercise of, personal jurisdiction
in the State of Delaware with respect to
9
<PAGE>
any action or proceeding arising out of this Agreement.
IN WITNESS WHEREOF, the Company has caused this instrument to
be duly executed by an officer thereunto duly authorized.
THE DIANA CORPORATION
Dated: July 16, 1997 By: /s/ James J. Fiedler
Name: James J. Fiedler
Title: Chairman & Chief Executive Officer
________________________
Dated:__________________ By:______________________________
Name:
Title:
Buyer certifies under penalty of perjury that Buyer is neither
a citizen nor a resident of the United States and that Buyer's
full name and address are as set out below:
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<PAGE>
EXHIBIT A
NOTICE OF CONVERSION
(To be Executed by the Registered Holder in order to Convert the
Note)
Re: a 8% Convertible Note of The Diana Corporation
in the principal amount outstanding of $3,000,000
The undersigned hereby irrevocably elects to convert $
__________________ of the outstanding principal amount of the above
referenced Note No._________ (the "Note") into shares of common
stock of The Diana Corporation (the "Company") according to the
conditions hereof, as of the date written below. The undersigned
represents and warrants that (i) all of the requirements of
Regulation S promulgated under the Securities Act of 1933, as
amended (the "Securities Act") applicable to the undersigned have
been complied with by the undersigned, (ii) the undersigned is not
a "U.S. Person" as defined in Regulation S and the Note is not
being converted on behalf of any "U.S. Person," (iii) the
undersigned has not engaged in any transaction or series of
transactions that is a part of or a plan or scheme to evade the
registration requirements of the Securities Act, (iv) on the date
of the conversion the undersigned was located outside the United
States and (iv) the undersigned has complied with the terms and
conditions of the Note and the Subscription Agreement (as defined
in the Note) pertaining to conversion of the Note. Further, the
undersigned represents and warrants that after giving effect to the
conversion hereby requested, the undersigned will not beneficially
own, together with its affiliates, more than 4.9% of the Company's
issued and outstanding common stock.
________________________________________
Date of Conversion*
________________________________________
Applicable Conversion Price
_______________________________________
Signature
_______________________________________
Name
Address: _____________________________
_______________________________________
* The original Note and this Notice of Conversion must be received
by the Company by the fifth business day following the Date of
Conversion (as defined in the Note).
11
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement"),
entered into as of July 17th, 1997 by and between ______________
________________________________________________________________
(the "Buyer"), and THE DIANA CORPORATION, a Delaware corporation
with offices at 26025 Mureau Road, Calabasas, CA 91302, U. S. A.
(the "Company").
W I T N E S S E T H:
WHEREAS, pursuant to a Convertible Securities
Subscription Agreement, dated as of the date hereof (the
"Subscription Agreement"), by and between the Company and the
Buyer, the Company has agreed to sell and the Buyer has agreed to
purchase U.S. $__________ of the Company's 8% Convertible Notes due
July 17th, 2000 (the "Notes") convertible into shares of the
Company's common stock, $1.00 par value (the "Shares");
WHEREAS, pursuant to the terms of, and in partial
consideration for, the Buyer's agreement to enter into the
Subscription Agreement, the Company has agreed to provide the Buyer
with certain registration rights with respect to the Shares as set
forth in this Agreement;
NOW, THEREFORE, in consideration of the mutual promises,
representations, warranties, covenants and conditions set forth in
the Agreement and this Registration Rights Agreement, the Company
and the Buyer agree as follows:
1. Certain Definitions. As used in this Agreement, the
following terms shall have the following respective meanings:
"Commission" shall mean the Securities and Exchange
Commission or any other federal agency at the time administering
the Securities Act.
"Registrable Securities" shall mean the Shares issued to
Buyer or its designee upon conversion of the Notes or upon any
stock split, stock dividend, recapitalization or similar event with
respect to such Shares; provided, however, that Registrable
Securities shall cease to be Registrable Securities when they may
be sold pursuant to Rule 144 under the Securities Act. Registrable
Securities shall not include the Notes.
The terms "register", "registered" and "registration"
shall refer to a registration effected by preparing and filing a
registration statement in compliance with the Securities Act and
applicable rules and regulations thereunder, and the declaration or
ordering of the effectiveness of such registration statement.
"Registration Expenses" shall mean all expenses to be
incurred by the Company in connection with Buyer's exercise of its
registration rights under this Agreement, including, without
limitation, all registration and filing fees, printing expenses,
fees and disbursements of counsel for the Company, blue sky fees
and expenses, reasonable fees and disbursements of one counsel to
Holders participating in the registration for a review of the
Registration Statement and related documents, and the expense of
any special audits incident to or required by any such registration
(but excluding the compensation of regular employees of the
Company, which shall be paid in any event by the Company).
"Selling Expenses" shall mean all underwriting discounts
and selling commissions applicable to the sale of Registrable
Securities and all fees and disbursements of counsel for Holder not
included with "Registration Expenses".
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<PAGE>
"Holder" shall include the Buyer and any permitted
transferee of Notes, Shares or Registrable Securities which have
not been sold to the public to whom the registration rights
conferred by this Agreement have been transferred in compliance
with Section 11 herein.
"Registration Statement" shall have the meaning set forth
in Section 3(a) herein.
"Regulation S" shall mean Regulation S as promulgated
pursuant to the Securities Act, and as subsequently amended.
"Rule 144" shall mean Rule 144 under the Securities Act,
as such rule may be amended from time to time, or any similar rule
or regulation hereafter adopted by the Commission.
"Securities Act" shall mean the United States Securities
Act of 1933, as amended.
2. Conditions to Registration Requirement. The
Company's obligation hereunder to register Registrable Securities
shall arise in the event that Company receives a written opinion of
counsel for the Holder (which counsel shall be of a law firm
experienced in United States securities matters) indicating that
there has been a material amendment or material change to the
Securities Act or Regulation S after the date hereof, or the
promulgation by the Commission of an interpretative release or
other statement after the date hereof, which prohibits or restricts
or otherwise materially affects the Holder from reselling
Registrable Securities without registration under the Securities
Act (a "Registration Trigger Event"). Notwithstanding the
foregoing, it will not be deemed a "Registration Trigger Event" to
the extent that Holder desires to engage in a distribution of the
Registrable Securities which otherwise requires registration under
the Securities Act or in activity which otherwise deems Holder to
be a statutory underwriter under Section 5 of the Securities Act.
In the event that a Registration Trigger Event has occurred, then
Holder shall be entitled to require the Company to register all of
Holder's Registrable Securities in accordance with this Agreement.
3. Request for Registration.
(a) Upon the occurrence of a Registration Trigger
Event, if the Company shall receive from a Holder (or, in the event
there is more than one Holder as a result of the issuance by the
Company of the Notes, the Company shall receive written notice from
such Holders acting with respect to their rights under this
Agreement according to a vote of a majority-in-interest of the
Holders) a written request that the Company effect any registration
with respect to any Registrable Securities, the Company shall use
its commercially reasonable efforts to effect such registration
(including, without limitation, the execution of an undertaking to
file post-effective amendments, appropriate qualification under
applicable state securities laws and appropriate compliance with
applicable regulations issued under the Securities Act) as may be
so requested and as would permit or facilitate the sale and
distribution of all or such portion of such Registrable Securities
as are specified in such request in the states specified in such
request. Notwithstanding the foregoing, the Company shall not be
obligated hereunder to effect such registration unless the proposed
public offering price of the securities to be included in such
registration shall be at least $250,000 (before deducting
underwriting discounts and commissions). If the registration
request pertains to any Registrable Securities not yet outstanding
because conversion rights have not been exercised, Company may
condition the registration of such securities on an irrevocable
undertaking to pay all expenses incident to such registration if
such conversion rights are not exercised prior to the effective
date of the registration statement.
Subject to the previous paragraph, the Company shall file
(i) a registration statement with the Commission pursuant to Rule
415 under the Securities Act on Form S-3 under the Securities Act
(or in the event that the Company in ineligible to use such form,
such other form as the Company is eligible to use under the
Securities Act) covering at lease 1,333,333 of the Registrable
Securities so requested to be registered ("Registration
Statement"); (ii) such state
2
<PAGE>
securities filings as shall have been requested by the Holder; and
(iii) any required filings with The Nasdaq Stock Market, Inc. or
exchange where the Shares are traded, as soon as practicable, after
receipt of the request of the Holder. Thereafter the Company shall
use its best efforts to have such Registration Statement and other
filings declared effective.
(b) (i) Subject to the conditions contained in
Section 3(a) above, if the Company fails to file a Registration
Statement complying with the requirements of this Agreement within
45 days from the date of receipt by the Company of the Holder's
written request (provided, however, that under the circumstances
described in 3(e)(i)(ii) or (iii) below the Company may have an
additional 45 days thereafter to file such Registration Statement
by providing written notice to the Holders requesting such
registration indicating that the Company is diligently pursuing the
filing of such Registration Statement) or if such Registration
Statement has not become effective within 90 days from the date of
filing thereof, the Holder shall have, in addition to and without
limiting any other rights it may have at law, in equity or under
the Notes, the Subscription Agreement, or this Agreement (including
the right to specific performance), the right to receive, as
liquidated damages, the payments as provided in subparagraph (ii)
of this section.
(ii) If after ninety (90) days from the date of
filing of the Registration Statement, the Registration Statement
has not been declared effective by the Commission, then the Company
shall pay to the Buyer an amount equal to 3% of the Initial
Principal Amount (as defined in the Note) in cash, for each 30-day
period after the ninety (90) day period that such Registration
Statement is not effective (which payment shall be pro rata for any
period of less than 30 days). In addition to the foregoing, if
after 180 days from the date hereof the Registration Statement has
not been declared effective by the Commission, then at the option
of such Holder, the Company shall be required to redeem all the
Notes held by such Holder at a redemption price equal to 140% of
the Initial Principal Amount of the Note plus accrued interest
thereon, together with all other payments due under this paragraph
and under the Note and the Agreement.
(iii) The Company acknowledges that its
failure to register the Registrable Securities in accordance with
this Agreement will cause the Holder to suffer damages in an amount
that will be difficult to ascertain. Accordingly, the parties
agree that it is appropriate to include in this Registration Rights
Agreement a provision for liquidated damages. The parties
acknowledge and agree that the liquidated damages provisions set
forth above represent the parties' good faith effort to quantify
such damages and, as such, agree that the form and amount of such
liquidated damages are reasonable and will not constitute a
penalty.
(iv) In computing the time periods provided in
this paragraph 3(b), any delays arising from the failure or refusal
of any Holder to provide information which the Company's counsel or
the Commission states in writing is required for inclusion on the
Registration Statement within ten (10) days of a written request by
the Company to provide such information, shall increase the number
of days for the Company to act by a corresponding number.
(c) If there is more than one Holder, such Holders
shall act with respect to their rights under this Agreement
according to the vote of a majority-in-interest of the Holders.
(d) The Company shall make available for inspection
by a representative or representatives of the Holder, and any
attorney or accountant retained by such Holder, all financial and
other records customary for such purposes, pertinent corporate
documents and properties of the Company, and cause the Company's
officers, directors and employees to supply all information
reasonably requested by any such representative, attorney or
accountant in connection with such Registration Statement. The
Holder will agree to keep all non-public information supplied to it
confidential until such information is included in a Registration
Statement which has been made publicly available.
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<PAGE>
(e) The Company shall not be obligated to keep such
Registration Statement continuously effective for a period of more
than two years from the date it is declared effective by the
Commission; provided, however, that if so requested by the holders
of a majority-in-interest of the Registrable Securities the Company
shall agree to extend the period for which the Registration
Statement remains effective to the same extent that "suspension
periods" are imposed pursuant to the next paragraph, but only so
long as the then unsold Registrable Securities covered by such
Registration are too numerous to be sold under the volume
limitations of Rule 144 in any applicable three-month period by any
holder.
Following the effectiveness of the Registration
Statement pursuant to this Agreement, the Company may, at any time,
suspend the effectiveness of such Registration Statement and sales
thereunder for up to twenty (20) days, as appropriate (a
"Suspension Period"), by giving notice to each holder (or
underwriter, if any) selling thereunder, if the Board of Directors
shall have determined in good faith that the Company may be
required to disclose any material corporate development which
disclosure (i) may have a material adverse effect on the Company,
(ii) may have a material adverse affect on the transaction or
matter to be disclosed, or (iii) would be detrimental to the
Company or its stockholders. Notwithstanding the foregoing, no
more than two Suspension Periods (i.e., forty (40) days) may occur
in any twelve (12) month period, and the Company shall use its best
efforts to limit the duration and number of any suspension periods.
Holder agrees (and shall require that any underwriter agree) that,
upon receipt of any notice from the Company of any Suspension
Period, Holder shall forthwith discontinue disposition of shares
covered by the Registration Statement and related prospectus or
other offering materials (the "Prospectus") until such Holder (i)
is advised in writing by the Company that the use of the applicable
Prospectus may be resumed, (ii) has received copies of a
supplemental or omitted Prospectus, if applicable, and (iii) has
received copies of any additional or supplemental filings which are
incorporated or deemed to be incorporated by reference in such
Prospectus.
4. Expenses of Registration. All Registration Expenses
incurred in connection with any registration, qualification or
compliance with registration pursuant to this Agreement shall be
borne by the Company, and all Selling Expenses shall be borne by
the Holder, except for a legal fee not to exceed $3,500 of Counsel
to the Holder for review of the Registration Statement.
5. Registration on Form S-3. Although the Company
shall use its commercially reasonable efforts to qualify for
registration on Form S-3 or any comparable or successor form or
forms, or in the event that the Company is ineligible to use such
form, such form as the Company is eligible to use under the
Securities Act, nothing in the Subscription Agreement or this
Agreement is intended to require the Company to pay dividends in
order to use Form S-3.
6. Registration Procedures. In the case of each
registration effected by the Company pursuant to this Agreement,
the Company will keep the Holder advised in writing as to the
initiation of each registration and as to the completion thereof.
At its expense, the Company will use its best efforts to:
(a) Keep such Registration Statement effective for
the period ending twenty-four (24) months after the registration
has been declared effective by the Commission or until the Holder
has completed the distribution described in the Registration
Statement relating thereto, whichever first occurs.
(b) Furnish such number of Prospectuses and other
documents incident thereto as the Holder from time to time may
reasonably request.
7. Indemnification.
(a) Company Indemnity. The Company will indemnify
the Holder,
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each of its officers, directors and partners, and each person
controlling Holder, within the meaning of Section 15 of the
Securities Act and the rules and regulations thereunder with
respect to which registration, qualification or compliance has been
effected pursuant to this Agreement, against all claims, losses,
damages and liabilities (or actions in respect thereof) arising out
of or based on any untrue statement (or alleged untrue statement)
of a material fact contained in any Prospectus, (including any
related Registration Statement, notification or the like) incident
to any such registration, qualification or compliance, or based on
any omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading, or any violation by the Company of the
Securities Act or any state securities law or in either case, any
rule or regulation thereunder applicable to the Company and
relating to action or inaction required of the Company in
connection with any such registration, qualification or compliance,
and will reimburse the Holder, each of its officers, directors and
partners, and each person controlling such Holder, for any legal
and any other expenses reasonably incurred in connection with
investigating and defending any such claim, loss, damage, liability
or action, provided that the Company will not be liable in any such
case to the extent that any such claim, loss, damage, liability or
expense arises out of or is based on any untrue statement or
omission based upon written information furnished to the Company by
Holder and stated to be specifically for use therein. The
indemnity agreement contained in this Section 7(a) shall not apply
to amounts paid in settlement of any such loss, claim, damage,
liability or action if such settlement is effected without the
consent of the Company (which consent will not be unreasonably
withheld).
(b) Holder Indemnity. The Holder will, if
Registrable Securities held by it are included in the securities as
to which such registration, qualification or compliance is being
effected, indemnify the Company, each of its directors, officers,
partners, and each underwriter, if any, of the Company's securities
covered by such a registration statement, each person who controls
the Company or such underwriter within the meaning of Section 15 of
the Securities Act and the rules and regulations thereunder, each
other Holder (if any), and each of their officers, directors and
partners, and each person controlling such other Holder against all
claims, losses, damages and liabilities (or actions in respect
thereof) arising out of or based on any untrue statement (or
alleged untrue statement) of a material fact contained in any such
registration statement, prospectus, offering circular or other
document, or any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make
the statement therein not misleading, and will reimburse the
Company and such other holders and their directors, officers and
partners, underwriters or control persons for any legal or any
other expenses reasonably incurred in connection with investigating
and defending any such claim, loss, damage, liability or action, in
each case to the extent, but only to the extent, that such untrue
statement (or alleged untrue statement) or omission (or alleged
omission) is made in such registration statement, prospectus,
offering circular or other document in reliance upon and in
conformity with written information furnished to the Company by
Holder and stated to be specifically for use therein, and provided
that the maximum amount for which the Holder shall be liable under
this indemnity shall not exceed the net proceeds received by the
Holder from the sale of the Registrable Securities. The indemnity
agreement contained in this Section 7(b) shall not apply to amounts
paid in settlement of any such claims, losses, damages or
liabilities if such settlement is effected without the consent of
Holder (which consent shall not be unreasonably withheld).
(c) Procedure. Each party entitled to
indemnification under this Section 7 (the "Indemnified Party")
shall give notice to the party required to provide indemnification
(the "Indemnifying Party") promptly after the Indemnified Party has
actual knowledge of any claim as to which indemnity may be sought,
and shall permit the Indemnifying Party to assume the defense of
any such claim in any litigation resulting therefrom, provided that
counsel for the Indemnifying Party, who shall conduct the defense
of such claim or any litigation resulting therefrom, shall be
approved by the Indemnified Party (whose approval shall not be
unreasonably withheld), and the Indemnified Party may participate
in such defense at such party's expense, and provided further that
the failure of any Indemnified Party to give notice as provided
herein shall not relieve the Indemnifying Party of its obligations
under this Section 7 except to the extent that the Indemnifying
Party is materially and adversely affected by such failure to
provide
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<PAGE>
notice. No Indemnifying Party, in the defense of any such claim or
litigation, shall, except with the consent of each Indemnified
Party, consent to entry of any judgment or enter into any
settlement which does not include as an unconditional term thereof
the giving by the claimant or plaintiff to such Indemnified Party
of a release from all liability in respect to such claim or
litigation. Each Indemnified Party shall furnish such information
regarding itself or the claim in question as an Indemnifying Party
may reasonably request in writing and as shall be reasonably
required in connection with the defense of such claim and
litigation resulting therefrom.
8. Contribution. If the indemnification provided for
in Section 7 herein is unavailable to the Indemnified Parties in
respect of any losses, claims, damages or liabilities referred to
herein (other than by reason of the exceptions provided therein),
then each such Indemnifying Party, in lieu of indemnifying the
Indemnified Party, shall contribute to the amount paid or payable
by the Indemnified Party as a result of such losses, claims,
damages or liabilities (i) as between the Company and the Holder on
the one hand and the underwriters on the other, in such proportion
as is appropriate to reflect the relative benefits received by the
Company and the Holder on the one hand or underwriters, as the case
may be, on the other from the offering of the Registrable
Securities, or if such allocation is not permitted by applicable
law, in such proportion as is appropriate to reflect not only such
relative benefits but also the relative fault of the Company on the
one hand and of the Holder or underwriters, as the case may be, on
the other in connection with the statements or omissions which
resulted in such losses, claims, damages or liabilities, as well as
any other relevant equitable considerations and (ii) as between the
Company on the one hand and the Holder on the other, in such
proportion as is appropriate to reflect the relative fault of the
Company and of the Holder in connection with the statements or
omissions which resulted in such losses, claims, damages or
liabilities, as well as any other relevant equitable
considerations.
The relative benefits received by the Company on the one
hand and the Holder or the underwriters, as the case may be, on the
other shall be deemed to be in the same proportion as the proceeds
from the offering (net of underwriting discounts and commissions
but before deducting expenses) received by the Company from the
initial sale of the Notes which can be converted into Registrable
Securities by the Company to the Holder pursuant to the
Subscription Agreement which corresponds to this Agreement bear to
the gain realized by such Holder or the total underwriting
discounts and commissions received by the underwriters as set forth
in the table on the cover page of the prospectus, as the case may
be. The relative fault of the Company on the one hand and of the
Holder or underwriters, as the case may be, on the other shall be
determined by reference to, among other things, whether the untrue
or alleged untrue statement of a material fact or omission or
alleged omission to state a material fact relates to information
supplied by the Company, by the Holder or by the underwriters.
In no event shall the obligation of any Indemnifying
Party to contribute under this Section 8 exceed the amount that the
Indemnifying Party would have been obligated to pay by way of
indemnification if the indemnification provided for under Section
7(a) or 7(b) hereof had been available under the circumstances.
The Company and the Holder agree that it would not be
just and equitable if contribution pursuant to this Section 8 were
determined by pro rata allocation (even if the Holder or the
underwriters were treated as one entity for such purpose) or by any
other method of allocation which does not take account of the
equitable considerations referred to in the immediately preceding
paragraphs. The amount paid or payable by an Indemnified Party as
a result of the losses, claims, damages and liabilities referred to
in the immediately preceding paragraphs shall be deemed to include,
subject to the limitations set forth above, any legal or other
expenses reasonably incurred by the Indemnified Party in connection
with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section, no Holder or
underwriter shall be required to contribute any amount in excess of
the amount by which (i) in the case of the Holder, the net proceeds
received by the Holder from the sale of Registrable Securities or
(ii) in the case of an underwriter, the total price at which the
Registrable Securities purchased by it and distributed to the
public were offered to the public exceeds, in any such case, the
amount of
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<PAGE>
any damages that the Holder or underwriter has otherwise been
required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. 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.
9. Survival. The indemnity and contribution agreements
contained in Sections 7 and 8 shall remain operative and in full
force and effect regardless of (i) any termination of the
Subscription Agreement or any underwriting agreement, (ii) any
investigation made by or on behalf of any Indemnified Party or by
or on behalf of the Company and (iii) the consummation of the sale
or successive resales of the Registrable Securities.
10. Information by Holder. The Holder shall furnish to
the Company such information regarding such Holder and the
distribution proposed by such Holder as the Company may reasonably
request in writing and as shall be reasonably required in
connection with any registration, qualification or compliance
referred to in this Agreement.
11. Transfer or Assignment of Registration Rights. The
rights, granted to Buyer by the Company under this Registration
Rights Agreement, to cause the Company to register Registrable
Securities, may be transferred or assigned to a transferee or
assignee of not less than $250,000 in principal amount of Notes,
provided that the Company is given written notice by Holder at the
time of or within a reasonable time after said transfer or
assignment, stating the name and address of said transferee or
assignee and identifying the securities with respect to which such
registration rights are being transferred or assigned, and provided
further that the transferee or assignee of such rights is not
deemed by the board of directors of the Company, in its reasonable
judgment, to be a competitor of the Company; and provided further
that the transferee or assignee of such rights agrees to be bound
by this Agreement.
Buyer is one of a group of holders of Registrable
Securities issued or issuable pursuant to a total aggregate amount
of up to $3,000,000 of Notes purchased by Buyer and others in a
transaction designed to qualify as an offering pursuant to
Regulation S. Any action to be taken under this Agreement or any
term of this Agreement may be amended or waived only with written
action by the Company and the holders of at least a majority-in-
interest of the total of the Registrable Securities. Any action,
amendment or waiver effected in accordance with this paragraph
shall be binding upon each of the other holders of Registrable
Securities at the time then outstanding.
12. Miscellaneous.
(a) Entire Agreement. This Agreement contains the
entire understanding and agreement of the parties, and may not be
modified or terminated except by a written agreement signed by both
parties.
(b) Notices. Any notice or other communication
given or permitted under this Agreement shall be in writing and
shall be deemed to have been duly given if personally delivered or
sent by registered or certified mail, return receipt requested,
postage prepaid or by air courier, (a) if to Buyer, at its address
hereinabove set forth, (b) if to the Company, at its address
hereinabove set forth, and (c) if to a holder other than Buyer, at
the address thereof furnished by like notice to the Company, or (d)
to any such addresses at such other address or addresses as shall
be so furnished to the other parties by like notice.
(c) Gender of Terms. All terms used herein shall
be deemed to include the feminine and the neuter, and the singular
and the plural, as the context requires.
(d) Governing Law; Consent of Jurisdiction. This
Agreement and the validity and performance of the terms hereof
shall be governed by and construed in accordance with the laws of
the State of Delaware. The parties hereto hereby consent to, and
waive any
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<PAGE>
objection to the exercise of, personal jurisdiction in the State of
Delaware with respect to any action or proceeding arising out of
this Agreement.
(e) Titles. The titles used in this Agreement are
used for convenience only and are not to be considered in
construing or interpreting this Agreement.
(f) Prospectus Delivery Requirements. Holder
agrees, on Holder's behalf, and shall require any transferee or
assignee pursuant to Section 11 above to agree, to comply with all
prospectus delivery requirements applicable to resales of the
securities pursuant to the Registration Statement.
(g) Termination. The rights of Holder to require
the Company to request a registration pursuant to this Agreement
shall terminate on the date which is five (5) years from the date
of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the date first above written.
____________________________ THE DIANA CORPORATION
a Delaware Corporation
By: By: /s/ James J. Fiedler
Name: Name: James J. Fiedler
Title: Authorized Signatory Title: Chairman & Chief Executive
Officer
8
OFFSHORE WARRANT SUBSCRIPTION AGREEMENT
This Warrant Subscription Agreement (the "Agreement"),
dated as of July 17, 1997, is entered into by and between The Diana
Corporation, a Delaware corporation (the "Issuer"), and First
Bermuda Securities Limited. (the "Purchaser").
The Issuer has offered to sell outside the United States
(as that term is defined in Regulation S ("Regulation S") under the
United States Securities Act of 1933, as amended (the "Act")) to
the Purchaser a warrant to purchase 37,037 shares of its common
stock ("Common Stock"), $1.00 par value, at a price of $6.75 per
share. Capitalized terms used herein and not defined herein shall
have the meanings given to them in Regulation S.
The parties hereto agree as follows:
1. Sale of Warrant. Upon the basis of the
representations and warranties, and subject to the terms and
conditions, set forth in this Agreement, the Issuer covenants and
agrees to sell to the Purchaser on the Closing Date (as hereinafter
defined), a warrant in the form of Exhibit A hereto (the "Warrant")
to purchase 37,037 shares of its Common Stock (such shares of
Common Stock and other securities issued and issuable upon any
exercise of the Warrant or a New Warrant (as defined below), the
"Warrant Shares"), at a price equal to $6.75 per share, in exchange
for services already rendered in full by the Purchaser in a
capital-raising transaction for the Issuer and upon the basis of
the representations and warranties, and subject to the terms and
conditions, set forth in this Agreement, the Purchaser covenants
and agrees to accept from the Issuer on the Closing Date the
Warrant as payment for said services.
2. Closing. The closing of the sale of the Warrant
pursuant to Section 1 hereof shall take place on or before July 17,
1997 (the "Closing Date"), at the offices of First Bermuda
Securities Limited, located at 11 Church Street, Chevron House,
Hamilton, Bermuda HM11. The Warrant shall be delivered by, or on
behalf of, the Issuer at the above-mentioned offices of First
Bermuda on the Closing Date. Delivery of the Warrant shall be in
accordance with the instructions of the Purchaser, and in such
names as the Purchaser shall instruct, subject to customary
settlement procedures.
3. Description of the Warrant
(a) Execution and Delivery. The Warrant shall be
executed by the Issuer and delivered to the Purchaser on the
Closing Date.
(b) Exercise. (i) The Issuer covenants that
procedures will be implemented ("Procedures") to ensure that the
Warrant and any new warrant issued pursuant to Section 2(a) or
Section 4 of the Warrant or otherwise (a "New Warrant") may not be
exercised within the United States and that no Warrant Share may be
delivered within the United States upon any such exercise, other
than in an offering that meets the definition of "offshore
transaction" pursuant to paragraph (i)(3) of Rule 902 of Regulation
S, unless registered under the Act or an exemption from such
registration is available. The Purchaser and any subsequent
transferee pursuant to the terms of this Agreement and the Warrant
or any New Warrant (the Purchaser and each such transferee, a
"Holder") covenant not to exercise the Warrant or any New Warrant
except in compliance with the Procedures and the terms of this
Agreement and the Warrant or such New Warrant.
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(ii) Each Holder agrees to deliver, prior to
any exercise of the Warrant or any New Warrant, a certificate in
the form of Schedule Two to Exhibit A hereto or a written opinion
of counsel that the Warrant, or New Warrant, as the case may be,
and the Warrant Shares delivered upon any exercise thereof have
been registered under the Act or are exempt from registration
thereunder.
(iii) The Issuer need not issue or deliver
Warrant Shares unless and until in the opinion of the Issuer's
counsel (such counsel's fees to be paid by the Issuer) all
applicable requirements of federal and state securities laws and
registration (or exemption from registration) of such shares under
the Act, and all applicable listing requirements of any national
securities exchange on which shares of the same class are then
listed, have been complied with.
(c) Transferability of Warrant. Each Holder will
not sell, assign, convey, pledge, hypothecate, grant security
interests in, encumber, give away or in any other manner dispose of
or transfer, whether voluntarily or by operation of law, any of the
Warrant, any New Warrant or the Warrant Shares to any person or
entity that, to the knowledge of such Holder, competes directly or
indirectly with the Issuer without the prior written consent of the
Issuer. Any attempted transfer of the Warrant, the Warrant Shares
or any New Warrant not in accordance with this Section 3(c) shall
be null and void, and the Issuer shall not in any way be required
to give effect to such transfer. No transfer of the Warrant or any
New Warrant shall be effective for any purpose hereunder unless and
until (i) written notice of such transfer and of the name and
address of the transferee has been received by the Issuer, (ii) the
transferee shall first agree in a writing deposited with the
Secretary of the Issuer to be bound by all the provisions of this
Agreement, and (iii) in the opinion of the Issuer's counsel (such
counsel's fees to be paid by the Issuer) all requirements of
applicable state securities laws and any requirement to register
such transfer under the Act have been complied with.
(d) Successors to the Issuer. This Agreement shall
be binding upon and inure to the benefit of any successor or
successors of the Issuer.
(e) Legends. The Warrant and each New Warrant
shall bear a legend stating:
This warrant and the shares of common stock of The Diana
Corporation to be issued upon any exercise of the Warrant
have not been registered under the Securities Act of
1933, as amended (the "Act") and this warrant may not be
exercised by or on behalf of any U.S. person (as defined
in Regulation S under the Act) unless registered under
the Act or an exemption from such registration is
available.
In addition, this Warrant is subject to restrictions on
sale, assignment, conveyance, pledge, hypothecation,
grant of security interest, encumbrance, gift or any
other manner of disposition or transfer, whether
voluntarily or by operation of law, as set forth in an
Offshore Warrant Subscription Agreement, dated as of July
17, 1997, by and between First Bermuda Securities
Limited, and The Diana Corporation, a copy of which is
available for inspection at the offices of The Diana
Corporation.
Further, unless the Warrant Shares have been registered under the
Act, upon any exercise of any part of the Warrant or any New
Warrant, all certificates representing Warrant Shares shall bear on
the face thereof substantially the following legend:
The shares of common stock represented hereby have not
been registered under the Federal Securities Act of 1933,
as amended (the "Act") or the securities laws of any
state, and may be offered or sold only if registered
under the Act and all other applicable securities laws
or if The Diana Corporation receives a satisfactory
opinion of counsel that an exemption from such
registration is available.
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4. Representations and Warranties of the Purchaser.
The Purchaser understands, and represents and warrants to, and
agrees with, the Issuer, that:
(a) The Purchaser understands that no federal or
state agency has passed on or made any recommendation or
endorsement of the Warrant.
(b) The Purchaser acknowledges that, in making the
decision to purchase the Warrant, it has relied solely upon
independent investigations made by it and not upon any
representations made by the Issuer with respect to the Issuer or
the Warrant.
(c) The Purchaser understands that the Warrant is
being offered and sold to it in reliance on specific exemptions or
non-application from the registration requirements of federal and
state securities laws and that the Issuer is relying upon the truth
and accuracy of the representations, warranties, agreements,
acknowledgments and understandings of the Purchaser set forth
herein in order to determine the applicability of such exemptions
and the suitability of the Purchaser to acquire the Warrant.
(d) The Purchaser is not a U.S. Person (as defined
in Regulation S) and is not an affiliate of the Issuer.
(e) No offer of the Warrant was made to the
Purchaser in the United States.
(f) At the time the buy order for the Warrant was
originated the Purchaser was located outside the United States.
(g) None of the Purchaser, its affiliates or any
person acting on behalf of the Purchaser or any such affiliate has
engaged, or will engage, in any Directed Selling Efforts with
respect to the Warrant, any New Warrant or the Warrant Shares; and
the Purchaser and its affiliates have complied, and will comply,
with the Offering Restrictions, and any other requirements, of
Regulation S.
(h) The Purchaser is aware that the Warrant, any
New Warrant and the Warrant Shares have not been and will not be
registered under the Act and may only be offered or sold pursuant
to registration under the Act or an available exemption therefrom,
and subject to the terms and conditions set forth herein.
(i) The Purchaser:
(i) will not, during the period commencing on
the Closing Date and ending on the day 40 days after the Closing
Date (the "Restricted Period"), offer or sell the Warrant, any New
Warrant or any Warrant Shares in the United States, to a U.S.
Person or for the account or benefit of a U.S. Person or other than
in accordance with Rule 903 or Rule 904 of Regulation S; and
(ii) will, after the expiration of the
Restricted Period, offer, sell, pledge or otherwise transfer the
Warrant, any New Warrant or any Warrant Shares only pursuant to
registration under the Act or an available exemption therefrom and,
in any case, in accordance with applicable state securities laws.
(j) If the Purchaser offers and sells the Warrant,
any New Warrant or any Warrant Shares during the Restricted Period,
then it will do so only in accordance with the provisions of
Regulation S or pursuant to registration under the Act.
(k) The transactions contemplated by this
Agreement:
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(i) have not been pre-arranged with a
purchaser located in the United States or is a U.S. Person; and
(ii) are not part of a plan or scheme to evade
the registration provisions of the Act.
(l) The Purchaser is purchasing the Warrant for its
own account for the purpose of investment and not (i) with a view
to, or for sale in connection with, any distribution thereof or of
any New Warrant or Warrant Shares or (ii) for the account or on
behalf of any U.S. Person.
(m) The Purchaser has consulted with the Issuer
with respect to the transactions pursuant to this Agreement, and no
objection has been raised by the Issuer.
(n) Neither the Purchaser nor any affiliate thereof
has entered, or will enter or has the intention of entering, into
any put option, short position or other similar instrument or
position with respect to the Warrant Shares or securities of the
same class as the Warrant Shares purchased in any transaction.
5. Representations and Warranties of the Issuer. The
Issuer represents and warrants to, and agrees with, the Purchaser
that:
(a) The Issuer has been duly incorporated and is
validly existing as a corporation in good standing under the laws
of Delaware.
(b) This Agreement has been duly authorized,
executed and delivered by the Issuer and is a valid and binding
agreement enforceable in accordance with its terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or
affecting creditors' rights generally and to general principles of
equity; and the Issuer has full corporate power and authority
necessary to enter into this Agreement and to perform its
obligations hereunder.
(c) No consent, approval, authorization or order of
any court, governmental agency or body or arbitrator having
jurisdiction over the Issuer or any of its affiliates is required
for execution of this Agreement, including, without limitation, the
issuance and sale of the Warrant or any exercise of the Warrant or
the issuance of shares upon any exercise of the Warrant, or the
performance of its obligations hereunder.
(d) Neither the sale of the Warrant or any exercise
of the Warrant, any New Warrant or the issuance of Warrant Shares
upon any exercise of the Warrant, pursuant to, nor the performance
of its obligations under, this Agreement by the Issuer will:
(i) violate, conflict with, result in a breach
of, or constitute a default (or an event which with the giving of
notice or the lapse of time or both would be reasonably likely to
constitute a default) under (A) the articles of incorporation,
charter or by-laws of the Issuer or any of its affiliates, (B) any
decree, judgment, order, law, treaty, rule, regulation or
determination applicable to the Issuer or any of its affiliates of
any court, governmental agency or body, or arbitrator having
jurisdiction over the Issuer or any of its affiliates or over the
properties or assets of the Issuer or any of its affiliates, (C)
the terms of any bond, debenture, note or any other evidence of
indebtedness, or any agreement, stock option or other similar plan,
indenture, lease, mortgage, deed of trust or other instrument to
which the Issuer or any of its affiliates is a party, by which the
Issuer or any of its affiliates is bound, or to which any of the
properties of the Issuer or any of its affiliates is subject, or
(D) the terms of any "lock-up" or similar provision of any
underwriting or similar agreement to which the Issuer or any of its
affiliates is a party; or
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(ii) result in the creation or imposition of
any lien, charge or encumbrance upon the Warrant, any New Warrant
or any Warrant Shares or any of the assets of the Issuer or any of
its affiliates.
(e) The Warrant (except for clauses iii and vi
below) and all Warrant Shares upon issuance:
(i) are, or will be, free and clear of any
security interests, liens, claims or other encumbrances;
(ii) have been, or will be, duly and validly
authorized and will be duly and validly issued;
(iii) shall be duly authorized, validly
issued, fully paid and nonassessable, and the Holder will have full
legal and equitable title thereto, free and clear of all liens,
encumbrances, claims and rights of others created by or through the
Issuer. The Issuer shall use its best efforts to list such Warrant
Shares prior to such delivery upon each securities exchange, if
any, upon which such class of security is listed at the time of
such delivery;
(iv) will not have been issued or sold in
violation of any preemptive or other similar rights of the holders
of any securities of the Issuer;
(v) will not subject the holders thereof to
personal liability by reason of being such holders; and
(vi) are quoted on, and will be, following the
completion of the Restricted Period (if sold in accordance with the
provisions of this Agreement), eligible for trading on, the
National Association of Securities Dealers Automated Quotations
system ("NASDAQ").
(f) The Issuer is a Reporting Issuer and has filed
all reports required to be filed by Section 13(a) or 15(d) of the
Securities and Exchange Act of 1934 (the "Exchange Act") during the
preceding 12 months and has been subject to such filing
requirements for the past 90 days.
(g) There is no pending or, to the best knowledge
of the Issuer, threatened action, suit, proceeding or investigation
before any court, governmental agency or body, or arbitrator having
jurisdiction over the Issuer or any of its affiliates that would
materially affect the execution by the Issuer of, or the
performance by the Issuer of its obligations under, this Agreement
other than as set forth in the Exchange Act Reports, public
announcements made by the Company prior to the Closing Date and
information submitted to the Purchaser in the letter dated June 30,
1997.
(h) The Issuer, any person representing the Issuer,
and, to the best knowledge of the Issuer, any other person selling
or offering to sell the Warrant in connection with the transaction
contemplated by this Agreement, have not made, at any time through
and including the date hereof, any oral communication in connection
with the offer or sale of the Warrant which contained any untrue
statement of a material fact or omitted to state any material fact
necessary in order to make the statements, in the light of the
circumstances under which they were made, not misleading.
(i) The sale of the Warrant pursuant to this
Agreement will be made in accordance with the provisions and
requirements of Regulation S and any applicable state law.
(j) No offer to buy the Warrant was made to the
Issuer by any person in the United States.
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<PAGE>
(k) None of the Issuer, any affiliate of the
Issuer, or any person acting on behalf of the Issuer or any such
affiliate has engaged, or will engage, in any Directed Selling
Efforts with respect to the Warrant, any New Warrant or the Warrant
Shares.
(l) The transactions contemplated by this
Agreement:
(i) have not been pre-arranged with a
purchaser who is in the United States or is a U.S. Person; and
(ii) are not part of a plan or scheme to evade
the registration provisions of the Act.
(m) The Issuer has not issued, and after the
Closing Date will not issue, any stop transfer order or other order
impeding the sale and delivery of the Warrant, any New Warrant or
any Warrant Shares except for a stop order restricting the sale of
the Warrant, any New Warrant or any such Warrant Shares into the
United States or to, or for the account or benefit of, U.S. Persons
during the Restricted Period, and a stop order restricting the sale
of the Warrant and any New Warrant pursuant to Section 3(c) hereof.
6. Covenants of the Issuer. The Issuer covenants and
agrees with the Purchaser to:
(a) continue to comply with all applicable
reporting requirements of the Exchange Act;
(b) refrain from publishing or disseminating any
material in connection with the offering of the Warrant, any New
Warrant or the Warrant Shares except as required by regulatory or
judicial order or request or as deemed by the Issuer to be
advisable in complying with SEC or Nasdaq reporting or listing
requirements.
(c) ensure that all Offering Restrictions
applicable to the sale of Warrant, any New Warrant and the Warrant
Shares pursuant to this Agreement are thoroughly complied with and
satisfied;
(d) refrain from engaging, and insure that none of
its affiliates will engage, in any Directed Selling Efforts with
respect to the Warrant, any New Warrant and the Warrant Shares; and
(e) notify the Purchaser promptly if at any time
during the period beginning on the date of this Agreement and
ending on the Closing Date (i) any event shall have occurred as a
result of which any oral communication made by the Issuer, any
person representing the Issuer, or, to the best knowledge of the
Issuer, by any other person in connection with the transactions
contemplated by this Agreement would include an untrue statement of
a material fact or omit to state any material fact necessary in
order to make the statements therein, in the light of the
circumstances under which they were made, not misleading, or (ii)
there is any public disclosure of material information regarding
the Issuer or its financial condition or results of operation.
7. Conditions Precedent to the Purchaser's Obligations.
The obligations of the Purchaser hereunder are subject to the
performance by the Issuer of its obligations hereunder and to the
satisfaction of the following additional conditions precedent:
(a) The representations and warranties made by the
Issuer in this Agreement shall, unless waived by the Purchaser, be
true and correct as of the date hereof and at the Closing Date,
with the same force and effect as if they had been made on and as
of the Closing Date.
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8. Conditions Precedent to the Issuer's Obligations.
The obligations of the Issuer hereunder are subject to the
performance by the Purchaser of its obligations hereunder and to
the satisfaction of the following additional conditions precedent:
(a) The representations and warranties made by the
Purchaser in this Agreement shall, unless waived by the Issuer, be
true and correct as of the date hereof and at the Closing Date,
with the same force and effect as if they had been made on and as
of the Closing Date.
(b) The Purchaser will execute and deliver to the
Issuer, and retain in the records of the Purchaser, a certificate
in the form attached hereto as Exhibit B.
9. Fees and Expenses. Each of the Purchaser and the
Issuer agrees to pay its own expenses incident to the performance
of its obligations hereunder, including, but not limited to, the
fees, expenses and disbursements of such party's counsel.
10. Indemnification.
(a) In the event the Purchaser becomes involved in
any capacity in any action, proceeding or investigation in
connection with any matter referred to in or relating to this
Agreement (except as expressly provided for in paragraph (c) of
this Section 10), the Issuer will reimburse the Purchaser for its
reasonable legal and other expenses (including the cost of any
investigation and preparation) incurred in connection therewith, as
such expenses are incurred, and will indemnify and hold the
Purchaser harmless from and against any losses, claims, damages or
liabilities to which it may become subject in connection with any
such action, proceeding, investigation or matter, unless such loss,
claim, damage or liability results primarily from the Purchaser's
gross negligence, recklessness or bad faith in performing the
services which are the subject of this Agreement.
(b) In the event that the Issuer becomes involved
in any capacity in any action, proceeding or investigation in
connection with any matter referred to in or relating to this
Agreement (except as expressly provided for in paragraph (c) of
this Section 10), the Purchaser will reimburse the Issuer for its
reasonable legal and other expenses (including the cost of any
investigation and preparation) incurred in connection therewith, as
such expenses are incurred, and will indemnify and hold the Issuer
harmless from and against any losses, claims, damages or
liabilities to which it may become subject in connection with any
such action, proceeding, investigation or matter, unless such loss,
claim, damage or liability results primarily from the Issuer's
gross negligence, recklessness or bad faith in performing the
services which are the subject of this Agreement.
(c) Promptly after receipt by an indemnified party
under this Section 10 of notice of the commencement of any action,
such indemnified party shall notify the indemnifying party in
writing of the commencement thereof; but the omission so to notify
the indemnifying party shall not relieve the indemnifying party
from any liability which it may have pursuant to this Section 10
unless, due to the failure to be so notified, the indemnifying
party is unable to contest the losses or claims indemnified
against, and such omission shall in no event relieve the
indemnifying party from any liability which it may have to any
indemnified party otherwise than under this Section 10. In case
any such action shall be brought against any indemnified party and
it shall notify the indemnifying party of the commencement thereof,
the indemnifying party shall be entitled to participate therein
and, to the extent that it may elect by written notice delivered to
such indemnified party promptly after receiving the aforesaid
notice from such indemnified party, to assume the defense thereof
with counsel reasonably satisfactory to such indemnified party,
(who shall not, except with the consent of the indemnified party,
which consent shall not be
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<PAGE>
unreasonably withheld, be counsel to the indemnifying party);
provided, however, that if the defendants in any such action
include both the indemnified party and the indemnifying party and
the indemnified party shall have reasonably concluded that there
may be legal defenses available to it and/or other indemnified
parties which are different from or additional to those available
to the indemnifying party, the indemnified party or parties shall
have the right to select separate counsel to assert such legal
defenses and otherwise to participate in the defense of such action
on behalf of such indemnified party or parties. Upon receipt of
notice from the indemnifying party to such indemnified party of its
election so to assume the defense of such action and approval by
the indemnified party of counsel, the indemnifying party will not
be liable to such indemnified party under this Section 10 for any
legal or other expenses subsequently incurred by such indemnified
party in connection with the defense thereof unless (i) the
indemnified party shall have employed separate counsel in
connection with the assertion of legal defenses in accordance with
the proviso to the next preceding sentence (it being understood,
however, that the indemnifying party shall be liable for only the
reasonable expenses of counsel and shall not be liable for the
expenses of more than one separate counsel for each indemnified
party), (ii) the indemnifying party shall not have employed counsel
reasonably satisfactory to the indemnified party to represent the
indemnified party within a reasonable time after notice of
commencement of the action or (iii) the indemnifying party has
authorized the employment of counsel for the indemnified party at
the expense of the indemnifying party; provided further, however,
that, if clause (i) or (iii) is applicable, such liability shall be
only in respect of the counsel referred to in such clauses (i) or
(iii).
11. Survival of the Representations, Warranties, etc.
The respective agreements, representations, warranties, indemnities
and other statements made by or on behalf of the Issuer and the
Purchaser, respectively, pursuant to this Agreement, shall remain
in full force and effect for the term of the Warrant, regardless of
any investigation made by or on behalf of the other party to this
Agreement or any officer, director or employee of, or person
controlling or under common control with, such party and will
survive delivery of any payment for the Warrant.
12. Notices. All communications hereunder shall be in
writing, and, if sent to the Purchaser shall be sufficient in all
respects if delivered, sent by registered mail, or by telecopy and
confirmed to the Purchaser at:
First Bermuda Securities Limited
11 Church Street, Chevron House
Hamilton, Bermuda HM11
Attention: Maxwell R. Roberts
Telephone: (441) 295-1330
Telecopy: (441) 292-9471
or, if sent to the Issuer, shall be delivered, sent by registered
mail or by telecopy and confirmed to the Issuer at:
The Diana Corporation
26025 Mureau Road
Calabasas, California 91302
Attention: James Fiedler
Telephone: (818) 878-7711
Telecopy: (818) 878-7633
13. Miscellaneous.
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<PAGE>
(a) This Agreement may be executed in one or more
counterparts and it is not necessary that signatures of all parties
appear on the same counterpart, but such counterparts together
shall constitute but one and the same agreement.
(b) This Agreement shall inure to the benefit of
and be binding upon the parties hereto, their respective successors
and, with respect to Section 10 hereof, the officers, directors and
controlling persons thereof and each person under common control
therewith, and no other person shall have any right or obligation
hereunder.
(c) This Agreement shall be governed by, and
construed in accordance with, the laws of the state of Delaware.
(d) The headings of the sections of this document
have been inserted for convenience of reference only and shall not
be deemed to be a part of this Agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed
and delivered this Agreement, all as of the day and year first
above written.
BY: THE DIANA CORPORATION
Signature: /s/ James J. Fiedler
Name: James Fiedler
Title: Chief Executive Officer
BY: FIRST BERMUDA SECURITIES LIMITED
Signature: /s/ Maxwell R. Roberts
Name: Maxwell R. Roberts, CPA
Title: Chief Operating Officer
9
<PAGE>
EXHIBIT A
THIS WARRANT AND THE SHARES OF COMMON STOCK OF
THE DIANA CORPORATION TO BE ISSUED UPON ITS
EXERCISE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT")
AND THIS WARRANT MAY NOT BE EXERCISED BY OR ON
BEHALF OF ANY U.S. PERSON (AS DEFINED IN
REGULATION S UNDER THE ACT) UNLESS REGISTERED
UNDER THE ACT OR ON EXEMPTION FROM SUCH
REGISTRATION IS AVAILABLE.
IN ADDITION, THIS WARRANT IS SUBJECT TO
RESTRICTIONS ON SALE, ASSIGNMENT, CONVEYANCE,
PLEDGE, HYPOTHECATION, GRANT OF SECURITY
INTEREST, ENCUMBRANCE, GIFT OR ANY OTHER
MANNER OF DISPOSITION OR TRANSFER, WHETHER
VOLUNTARILY OR BY OPERATION OF LAW, AS SET
FORTH IN AN OFFSHORE WARRANT SUBSCRIPTION
AGREEMENT, DATED AS OF JULY 17, 1997, BY AND
BETWEEN FIRST BERMUDA SECURITIES, LTD., AND
THE DIANA CORPORATION (THE "AGREEMENT"), A
COPY OF WHICH IS AVAILABLE FOR INSPECTION AT
THE OFFICES OF THE DIANA CORPORATION.
WARRANT
to Purchase 37,037 Shares
of
Common Stock ($1.00 par value)
of
THE DIANA CORPORATION
This certifies that, for value received, First Bermuda
Securities Limited and any subsequent transferee pursuant to the
terms of the Agreement and this Warrant (each, a "Holder") is
entitled to purchase, subject to the provisions of this Warrant,
from The Diana Corporation, a Delaware corporation (the "Issuer"),
at any time or from time to time on or after the date hereof and on
or before July 17, 2000 (the "Expiration Date"), 37,037 fully paid
and nonassessable shares of common stock, $1.00 par value (the
"Common Stock"), of the Issuer at a price equal to $6.75 per share
(the "Exercise Price")(such shares of Common Stock and other
securities issued and issuable upon exercise of this Warrant, the
"Warrant Shares").
Section 1. Definitions. Except as otherwise specified herein,
terms defined herein shall have the meanings assigned to them in
the Agreement.
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Section 2. Exercise of Warrant. (a) Subject to the
provisions hereof, this Warrant may be exercised, in whole or in
part, but not as to a fractional share, at any time or from time to
time on or after the date hereof and on or before the Expiration
Date, by presentation and surrender hereof to the Issuer at the
address which, in accordance with the provisions of Section 10
hereof, is then effective for notices to the Issuer, with the
Election to Purchase Form annexed hereto as Schedule One, duly
executed and accompanied by payment to the Issuer as further set
forth below in this Section 2, for the account of the Issuer, of
the Exercise Price for the number of Warrant Shares specified in
such form. If this Warrant should be exercised in part only, the
Issuer shall, upon surrender of this Warrant for the cancellation,
execute and deliver a new Warrant evidencing the rights of the
Holder hereof to purchase the balance of the Warrant Shares
purchasable hereunder. The Issuer shall maintain at its principal
place of business a register for the registration of this Warrant
and registration of transfer for this Warrant. The Exercise Price
for the number of Warrant Shares specified in the Election to
Purchase Form shall be payable in United States dollars by
certified or official bank check payable to the order of the Issuer
or by wire transfer of immediately available funds to an account by
the Issuer for that purpose.
(b) Prior to the delivery of any securities which the
Issuer shall be obligated to deliver upon exercise of this Warrant,
the Issuer shall use its best efforts to comply with all Federal
and state laws and regulations thereunder, including without
limitation, Regulation S under the Act, requiring the registration
of such securities with, or any approval of or consent to the
delivery thereof by, any governmental authority, provided, however,
that the Issuer shall have no obligation to register the Warrant
Shares beyond its obligation set forth in Section 9 below. The
Issuer need not issue or deliver such shares of Common Stock unless
and until in the opinion of the Issuer's counsel (such counsel's
fees to be paid by the Issuer) all applicable requirements of state
securities laws and registration of such shares under the Act, and
all applicable listing requirements of any national securities
exchange on which shares of the same class are then listed, have
been complied with.
(c) The Issuer covenants that procedures will be
implemented ("Procedures") to ensure that this Warrant may not be
exercised within the United States and that the Warrant Shares may
not be delivered within the United States upon such exercise, other
than in offerings that meet the definition of "offshore
transaction" pursuant to paragraph (i)(3) of Rule 902 of Regulation
S under the Act, unless registered under the Act or an exemption
from such registration is available. The Holder covenants not to
exercise this Warrant except in compliance with the Procedures and
the terms of the Agreement. The Purchaser or any other Holder of
this Warrant must deliver, prior to any exercise of this Warrant,
(i) a certificate in the form attached hereto as Schedule Two or
(ii) a written opinion of counsel that this Warrant and the
securities delivered upon any exercise thereof have been registered
under the Act or are exempt from registration thereunder.
(d) All Warrant Shares, when issued upon exercise of
this Warrant, shall be duly authorized, validly issued, fully paid
and nonassessable, and the Holder will have full legal and
equitable title thereto, free and clear of all liens, encumbrances,
claims and rights of others created by or through the Issuer. The
Issuer shall use its best efforts to list such Warrant Shares prior
to such delivery upon each securities exchange, if any, upon which
such class of security is listed at the time of such delivery.
(e) Unless the Warrant Shares have been registered under
the Act, upon any exercise of any part of this Warrant, all
certificates representing Warrant Shares shall bear on the face
thereof substantially the following legend:
The shares of common stock represented hereby have not been
registered under the Federal Securities Act of 1933, as
amended (the "Act") or the securities laws of any state,
and may be offered or sold only if registered under the Act
and all other applicable securities laws
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<PAGE>
or The Diana Corporation receives a satisfactory opinion of
counsel that an exemption from such registration is available.
(f) This Warrant may not be exercised to any extent by
anyone after the end of the Warrant term.
Section 3. Reservation of Shares; Preservation of Rights of
Investor. The Issuer hereby agrees that there shall be reserved
for issuance and/or delivery upon exercise of this Warrant, such
number of Warrant Shares as shall be required for issuance or
delivery upon exercise of this Warrant. The Warrant surrendered
upon exercise shall be cancelled by the Issuer. After the
Expiration Date, no shares of Common Stock shall be subject to
reservation in respect of this Warrant. The Issuer further agrees
(i) that it will not, by amendment of its Articles of Incorporation
or through reorganization, consolidation, merger, dissolution or
sale of assets, or by any other voluntary act, avoid or seek to
avoid the observation or performance of any of the covenants,
stipulations or conditions to be observed or performed hereunder by
the Issuer, (ii) promptly to take all action as may from time to
time be required in order to permit the Holder to exercise this
Warrant and the Issuer duly and effectively to issue shares of its
Common Stock or other securities as provided herein upon the
exercise hereof, and (iii) promptly to take all action required or
provided for herein to protect the rights of the Holder granted
hereunder against dilution other then issuances on conversion of
options, offerings or acquisitions. Without limiting the
generality of the foregoing, should the Warrant Shares at any time
consist in whole or in part of shares of capital stock having a par
value, the Issuer agrees that before taking any action which would
cause an adjustment of the Exercise Price so that the same would be
less than the then par value of such Warrant Shares, the Issuer
shall take any corporate action which may, in the opinion of its
counsel, be necessary in order that the Issuer may validly and
legally issue fully paid and nonassessable shares of such Common
Stock at the Exercise Price as so adjusted. The Issuer further
agrees that it will not establish a par value for its Common Stock
while this Warrant is outstanding in an amount greater than the
Exercise Price.
Section 4. Exchange, Transfer, Assignment or Loss of Warrant.
The Holder will not sell, assign, convey, pledge, hypothecate,
grant security interests in, encumber, give away or in any other
manner dispose of or transfer, whether voluntarily or by operation
of law, any of this Warrant, the Warrant Shares or any new Warrant
to any person or entity that, to the knowledge of such Holder,
competes directly or indirectly with the Issuer without the prior
written consent of the Issuer. Any attempted transfer of this
Warrant, the Warrant Shares or any new Warrant not in accordance
with this Section shall be null and void, and the Issuer shall not
in any way be required to give effect to such transfer. No
transfer of this Warrant shall be effective for any purpose
hereunder until (i) written notice of such transfer and of the name
and address of the transferee has been received by the Issuer, (ii)
the transferee shall first agree in a writing deposited with the
Secretary of the Issuer to be bound by all the provisions of this
Agreement and (iii) in the opinion of the Issuer's counsel (such
counsel's fees to be paid by the Issuer), all requirements of
applicable state securities laws and any requirement to register
such transfer under the Act have been complied with. Upon
surrender of this Warrant to the Issuer by any transferee
authorized under the provisions of this Section 4, and subject to
the terms and conditions of the Securities Act, the Issuer shall,
without charge, execute and deliver a new Warrant registered in the
name of such transferee at the address specified by such
transferee, and this Warrant shall promptly be cancelled. The
Issuer may deem and treat the registered holder of any Warrant as
the absolute owner thereof for all purposes, and the Issuer shall
not be affected by any notice to the contrary. Any Warrant, if
presented by an authorized transferee, may be exercised by such
transferee without prior delivery of a new Warrant issued in the
name of the transferee.
Upon receipt by the Issuer of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of
this Warrant, and (in the case of loss, theft or destruction) of
reasonably satisfactory indemnification, and upon surrender and
cancellation of this Warrant, if mutilated, the Issuer
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<PAGE>
will execute and deliver a new Warrant of like tenor and date. Any
such new Warrant executed and delivered shall constitute a separate
contractual obligation on the part of the Issuer, whether or not
the Warrant so lost, stolen, destroyed or mutilated shall be at any
time enforceable by anyone, provided, such indemnification
obligation may be used as an offset against this new Warrant.
Section 5. Rights of the Holder. Neither a Holder nor his
transferee by devise or the laws of descent and distribution or
otherwise shall be, or have any rights or privileges of, a
shareholder of the Issuer with respect to any Warrant Shares,
unless and until certificates representing such Warrant Shares
shall have been issued and delivered thereto.
Section 6. Adjustments in Exercise Price and Warrant Shares.
The Exercise Price and Warrant Shares shall be subject to
adjustment from time to time as provided in this Section 6.
(a) If the Issuer is recapitalized through the
subdivision or combination of its outstanding shares of Common
Stock into a larger or smaller number of shares, the number of
shares of Common Stock for which this Warrant may be exercised
shall be increased or reduced, as of the record date for such
recapitalization, in the same proportion as the increase or
decrease in the outstanding shares of Common Stock, and the
Exercise Price shall be adjusted so that the aggregate amount
payable for the purchase of all Warrant Shares issuable hereunder
immediately after the record date for such recapitalization shall
equal the aggregate amount so payable immediately before such
record date.
(b) If the Issuer declares a dividend on Common Stock,
or makes a distribution to holders of Common Stock, and such
dividend or distribution is payable or made in Common Stock or
securities convertible into or exchangeable for Common Stock, or
rights to purchase Common Stock or securities convertible into or
exchangeable for Common Stock, the number of shares of Common Stock
for which this Warrant may be exercised shall be increased, as of
the record date for determining which holders of Common Stock shall
be entitled to receive such dividend or distribution, in proportion
to the increase in the number of outstanding shares (and shares of
Common Stock issuable upon conversion of all such securities
convertible into Common Stock) of Common Stock as a result of such
dividend or distribution, and the Exercise Price shall be adjusted
so that the aggregate amount payable for the purchase of all the
Warrant Shares issuable hereunder immediately after the record date
for such dividend or distribution shall equal the aggregate amount
so payable immediately before such record date.
(c) If the Issuer declares a dividend on Common Stock
(other than a dividend covered by subsection (b) above) or
distributes to holders of its Common Stock, other than as part of
its dissolution or liquidation or the winding up or its affairs,
any shares of its stock, any evidence of indebtedness or any cash
or other of its assets (other than Common Stock or securities
convertible into or exchangeable for Common Stock), the Holder
shall receive notice of such event as set forth in Section 8 below.
(d) In case of any consolidation of the Issuer with, or
merger of the Issuer into, any other corporation (other than a
consolidation or merger in which the Issuer is the continuing
corporation and in which no change occurs in its outstanding Common
Stock), or in case of any sale or transfer of all or substantially
all of the assets of the Issuer, or in the case of any statutory
exchange of securities with another corporation (including any
exchange effected in connection with a merger of a third
corporation into the Issuer, except where the Issuer is the
surviving entity and no change occurs in its outstanding Common
Stock), the corporation formed by such consolidation or the
corporation resulting from such merger or the corporation which
shall have acquired such assets or securities of the Issuer, as the
case may be, shall execute and deliver to the Holder simultaneously
therewith a new Warrant, satisfactory in form and substance to the
Holder, together with such other documents as the Holder may
reasonably request, entitling the Holder thereof to receive upon
exercise of such Warrant the kind and amount of shares of
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<PAGE>
stock and other securities and property receivable upon such
consolidation, merger, sale, transfer or exchange of securities, or
upon the dissolution following such sale or other transfer, by a
holder of the number of shares of Common Stock purchasable upon
exercise of this Warrant immediately prior to such consolidation,
merger, sale, transfer, or exchange, provided that if the kind or
amount of securities, cash or other property receivable upon such
consolidation, merger, statutory exchange, sale or conveyance is
not the same for each share of Common Stock in respect of which
rights of election shall not have been exercised ("non-electing
share"), then for the purpose of this paragraph (d) the kind and
amount of securities, cash or other property receivable upon such
consolidation, merger, statutory exchange, sale or conveyance for
each non-electing share shall be deemed to be the kind and amount
so receivable per share by a plurality of the non-electing shares.
Such new Warrant shall contain the same basic other terms and
conditions as this Warrant and shall provide for adjustments which,
for events subsequent to the effective date of such written
instrument, shall be as nearly equivalent as may be practicable to
the adjustments provided for in this Section 6. The above
provisions of this paragraph (d) shall similarly apply to
successive consolidations, mergers, exchanges, sales or other
transfers covered hereby.
(e) If the Issuer shall, at any time before the
expiration of this Warrant, dissolve, liquidate or wind up its
affairs, the Holder shall, upon exercise of this Warrant have the
right to receive, in lieu of the shares of Common Stock of the
Issuer that the Holder otherwise would have been entitled to
receive, the same kind and amount of assets as would have been
issued, distributed or paid to the Holder upon any such
dissolution, liquidation or winding up with respect to such shares
of Common Stock of the Issuer had the Holder been the holder of
record of such shares of Common Stock receivable upon exercise of
this Warrant on the date for determining those entitled to receive
any such distribution. If any such dissolution, liquidation or
winding up results in any cash distribution in excess of the
Exercise Price provided by this Warrant for the shares of Common
Stock receivable upon exercise of this Warrant, the Holder may, at
the Holder's option, exercise this Warrant without making payment
of the Exercise Price and, in such case, the Issuer shall, upon
distribution to the Holder, consider the Exercise Price to have
been paid in full and, in making settlement to the Holder, shall
obtain receipt of the Exercise Price by deducting an amount equal
to the Exercise Price for the shares of Common Stock receivable
upon exercise of this Warrant from the amount payable to the
Holder. For purposes of this paragraph, the sale of all or
substantially all of the assets of the Issuer and distribution of
the proceeds thereof to the Issuer's shareholders shall be deemed
a liquidation.
(f) If an event occurs which is similar in nature to the
events described in this Section 6, but is not expressly covered
hereby, the Board of Directors of the Issuer shall make or arrange
for an equitable adjustment to the number of Warrant Shares and the
Exercise Price.
(g) The term "Common Stock" shall mean the Common Stock,
$1.00 par value, of the Issuer as the same exists at the Closing
Date or as such stock may be constituted from time to time, except
that for the purpose of this Section 6, the term "Common Stock"
shall include any stock of any class of the Issuer which has no
preference in respect of dividends or of amounts payable in the
event of any voluntary or involuntary liquidation, dissolution or
winding up of the Issuer and which is not subject to redemption by
the Issuer.
(h) The Issuer shall retain a firm of independent public
accountants of recognized standing (who may be any such firm
regularly employed by the Issuer) to make any computation required
under this Section 6, and a certificate signed by such firm shall
be conclusive evidence of the correctness of any computation made
under this Section 6.
(i) Whenever the number of Warrant Shares or the
Exercise Price shall be adjusted as required by the provisions of
this Section 6, the Issuer forthwith shall file in the custody of
its secretary or
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<PAGE>
an assistance secretary, at its principal office, and furnish to
each Holder hereof, a certificate prepared in accordance with
paragraph (h) above, showing the adjusted number of Warrant Shares
and the Exercise Price and setting forth in reasonable detail the
circumstances requiring the adjustment.
(j) Notwithstanding any other provision, this Warrant
shall be binding upon and inure to the benefit of any successor or
successors of the Issuer.
(k) No adjustment in the Exercise Price in accordance
with the provisions of this Section 6 need be made if such
adjustment would amount to a change in such Exercise Price of less
than $.01; provided, however, that the amount by which any
adjustment is not made by reason of the provisions of this
paragraph (k) shall be carried forward and taken into account at
the time of any subsequent adjustment in the Exercise Price.
(l) If an adjustment is made under this Section 6 and
the event to which the adjustment relates does not occur, then any
adjustments in accordance with this Section 6 shall be readjusted
to the Exercise Price and the number of Warrant Shares which would
be in effect had the earlier adjustment hot been made.
Section 7. Taxes on Issue or Transfer of Common Stock
and Warrant. The Issuer shall pay any and all documentary stamp or
similar issue or transfer taxes payable in respect of the issue or
delivery of shares of Common Stock or other securities on the
exercise of this Warrant. The Issuer shall not be required to pay
any tax which may be payable in respect of any transfer of this
Warrant or in respect of any transfers involved in the issue or
delivery of shares or the exercise of this Warrant in a name other
than that of the Holder and the person requesting such transfer,
issue or delivery shall be responsible for the payment of any such
tax (and the Issuer shall not be required to issue or deliver said
shares until such tax has been paid or provided for).
Section 8. Notice of Adjustment. So long as this
Warrant shall be outstanding, (a) if the Issuer shall propose to
pay any dividends or make any distribution upon the Common Stock,
or (b) if the Issuer shall offer generally to the holders of Common
Stock the right to subscribe to or purchase any shares of any class
of Common Stock or securities convertible into Common Stock or any
other similar rights, or (c) if there shall be any proposed capital
reorganization of the Issuer in which the Issuer is not the
surviving entity, recapitalization of the capital stock of the
Issuer, consolidation or merger of the Issuer with or into another
corporation, sale, lease or other transfer of all or substantially
all of the property and assets of the Issuer, or voluntary or
involuntary dissolution, liquidation or winding up of the Issuer,
or (d) if the Issuer shall give to its stockholders any notice,
report or other communication respecting any significant or special
action or event, then in such event, the Issuer shall give to the
Holder, at least thirty days prior to the relevant date described
below (or such shorter period as is reasonably possible if thirty
days is not reasonably possible), a notice containing a description
of the proposed action or event and stating the date or expected
date on which a record of the Issuer's stockholders is to be taken
for any of the foregoing purposes, and the date or expected date on
which any such dividend, distribution, subscription,
reclassification, reorganization, consolidation, combination,
merger, conveyance, sale, lease or transfer, dissolution,
liquidation or winding up is to take place and the date or expected
date, if any is to be fixed, as of which the holders of Common
Stock of record shall be entitled to exchange their shares of
Common Stock for securities or other property deliverable upon such
event.
Section 9. Registration Rights. (a) Right to
Piggyback. Whenever the Company proposes to register any of its
shares of Common Stock under the Securities Act of 1933, as amended
(the "Securities Act") and the registration form to be used is not
a Form S-8 or Form S-4 and otherwise may be
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<PAGE>
used for the registration of any Warrant Shares (a "Piggyback
Registration"), the Company will give prompt written notice to all
holders of the Warrant Shares for which the registration form may
be used of its intention to effect such a registration and will
include in such registration all Warrant Shares (in accordance with
the priorities set forth in Subsections 9(b) and 9(c) below) with
respect to which the Company has received written requests for
inclusion therein within fifteen (15) days after the receipt of the
Company's notice or such shorter time as the Company may deem
necessary or advisable due to the anticipated filing date of such
registration. Inclusion of Warrant Shares in any secondary
registration on behalf of holders of the Company's securities will
be subject to any rights of approval and other rights which such
holders may have and conditions which such holders may impose.
(b) Priority on Primary Registrations. If a Piggyback
Registration is an underwritten primary registration on behalf of
the Company and the managing underwriters advise the Company in
writing that in their opinion the number of securities requested to
be included in such registration exceeds the number which can be
sold in such offering, the Company will include in such
registration (i) first, the securities that the Company proposes to
sell and (ii) second, the Warrant Shares requested to be included
in such registration and other securities requested to be included
in such registration pro rata among the holders of the Warrant
Shares and the other securities on the basis of the number of
securities so requested to be included therein.
(c) Priority on Secondary Registrations. If a Piggyback
Registration is an underwritten secondary registration on behalf of
holders of the Company's securities and the managing underwriters
advise the Company in writing that in their opinion the number of
securities requested to be included in such registration exceeds
the number which can be sold in such offering, the Company will
include in such registration (i) first, the securities requested to
be included therein by the holders requesting such registration and
such other securities as may have the right to be included on a
priority with such securities, pro rata based on the number of such
securities requested to be included in such registration and (ii)
second, the Warrant Shares and other securities requested to be
included in such registration, pro rata based on the number of
Warrant Shares and other securities so requested to be included
therein.
(d) Selection of Underwriters. If any Piggyback
Registration is an underwritten offering, the selection of
investment banker(s) and manager(s) for the offering will be in the
sole discretion of the Company.
Section 10. Notices. All communications hereunder shall
be in writing, and, if sent to the Holder shall be sufficient in
all respects if delivered, sent by registered mail, or by telecopy
and confirmed to the Holder at:
First Bermuda Securities Limited
11 Church Street, Chevron House
Hamilton, Bermuda HM11
Attention: Maxwell R. Roberts
Telephone: (441) 295-1330
Telecopy: (441) 292-9471
or it to any other Holder, addressed to such Holder at such address
as it shall have specified to the Issuer in writing, or, if sent to
the Issuer, shall be delivered, sent by registered mail or by
telecopy and confirmed to the Issuer at:
The Diana Corporation
26025 Mureau Road
Calabasas, California 91302
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<PAGE>
Attention: James Fiedler
Telephone: (818) 878-7711
Telecopy: (818) 878-7633
Section 11. Governing Law. This Warrant shall be
governed by, and interpreted in accordance with, the laws of the
State of Delaware.
Dated: July 17, 1997
THE DIANA CORPORATION
BY: /s/ James J. Fiedler
Name: James J. Fiedler
Title: Chairman and Chief Executive Officer
ATTEST:
/s/ Brian A. Robson, Secretary
A-8
<PAGE>
Schedule One
ELECTION TO PURCHASE
The undersigned hereby irrevocably elects to exercise
this Warrant and to purchase ____________ shares of The Diana
Corporation Common Stock issuable upon the exercise of this
Warrant, and requests that certificates for such shares shall be
issued in the name of:
(Name)
(Address)
(United States Social Security or other taxpayer
identifying number, if applicable)
and, if different from above, be delivered to:
(Name)
(Address)
and, if the number of Warrant Shares so purchased are not all of
the Warrant Shares issuable upon exercise of this Warrant, that a
Warrant to purchase the balance of such Warrant Shares be
registered in the name of, and delivered to, the undersigned at the
address stated below.
Date: , 19__
Name of Registered Owner:
Address:
Signature:
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<PAGE>
Schedule Two
[Warrant Agent]
Dear Sir/Madam
In connection with the warrant of The Diana Corporation issued
to First Bermuda Securities Limited, on July 17, 1997, and attached
hereto, the undersigned certifies, represents and warrants as
follows:
1. I/We hereby exercise the warrants identified above.
[Give details of how payment is being made, in accordance
with terms of warrants.]
2. I/We hereby certify that I am/we are not a U.S. person
(as that term is defined in Regulation S under the
Securities Act); nor am I/we acting for or on behalf of
a U.S. person.
3. At the time of exercise of the warrants I am/we are and
any person for whom we are acting is located outside the
United States.
4. Please deliver the common stock of The Diana Corporation
as follows:
______________
______________
______________
[specify address outside the United States]
Very truly yours,
[WARRANTHOLDER]
By:________________
Name:
Title:
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<PAGE>
EXHIBIT B
The Diana Corporation
26025 Mureau Road
Calabasas, California 91302
U. S. A.
Attention: Mr. James Fiedler
Dear Sirs:
In connection with the Warrant of The Diana Corporation,
issued to First Bermuda Securities Limited, on July 17, 1997, and
attached hereto, the undersigned performed the functions of
managing underwriter in connection with the offering of such
warrants and certifies, represents and warrants as follows:
We hereby certify that the distribution of the warrants
identified above was completed on July 17, 1997.
Very truly yours,
FIRST BERMUDA SECURITIES LIMITED
By: /s/ Maxwell R. Roberts
Name: Maxwell R. Roberts, CPA
Title: Chief Operating Officer
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