<PAGE> 1
===========================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
----------------
FORM 8-K
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
------------------------
SEPTEMBER 30, 1998
Date of report (Date of earliest event reported)
------------------------
Commission File Number: 0-18108
------------------------
FINET HOLDINGS CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE
(State or jurisdiction of incorporation or organization)
505 SANSOME STREET, #1420
SAN FRANCISCO, CA 94111
(Address of principal executive office)
94-3115180
(IRS Employer Identification Number)
Telephone Number: (415) 263-5420
(Registrant's telephone number, including area code)
============================================================================
<PAGE> 2
ITEM 5. AGREEMENTS RELATING TO SALE OF SERIES A CONVERTIBLE PREFERRED STOCK
Effective September 30, 1998, the Registrant entered into a series of
agreements relating to the private placement of between 240 and 300 shares of
its Series A Convertible Preferred Stock. Pursuant to agreement, the
Registrant appointed a placement agent to assist in the private sale to
qualified purchasers of between $2.4 million and $3.0 million of Series A
Convertible Preferred Stock and a related five-year warrant to purchase
250,000 shares of the Company's common stock at $1.00 per share. The
Securities Purchase Agreement executed by each purchaser and related
agreements pursuant to which the stock is being sold contain additional
provisions and covenants on the part of the Registrant, including the
purchaser's right to convert the preferred shares into common stock
("Conversion Shares") at a conversion price calculated on an adjustable
discount from the trading price of the stock at the time of conversion; the
Company's commitment to reserve sufficient common shares to issue the
Conversion Shares and the shares issuable on exercise of the warrants
("Warrant Shares"); to register the Conversion Shares and Warrant Shares to
permit their sale into the public markets after a certain waiting period; and
to take action necessary to secure registration of the Conversion Shares and
Warrant Shares on a national securities exchange or automated quotation
market. To date, the Company has sold $2.5 million worth of Series A
Convertible Preferred Shares.
ITEM 7. EXHIBITS.
7.1 Form of Securities Purchase Agreement between the Company and
purchasers, with Schedules.
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.
FINET HOLDINGS CORPORATION
<TABLE>
<S> <C>
Date: October 8, 1998 /s/ L. DANIEL RAWITCH
------------------------------------
L. DANIEL RAWITCH
(CEO AND PRINCIPAL EXECUTIVE OFFICER)
Date: October 8, 1998 /s/ GEORGE P. WINKEL
------------------------------------
GEORGE P. WINKEL
(PRINCIPAL FINANCIAL OFFICER)
</TABLE>
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (the "Agreement"), dated as of September 29,
1998, by and among Finet Holdings Corporation, a Delaware corporation, with
headquarters located at 14th Floor, 505 Sansome Street, San Francisco,
California 94111 (the "Company"), and the investor listed on the Schedule of
Buyers attached hereto (individually, a "Buyer" or collectively "Buyers").
WHEREAS:
A. The Company and the Buyers are executing and delivering this Agreement in
reliance upon the exemption from securities registration pursuant to Section
4(2) and/or Regulation D of the Securities Act of 1933, as amended (the "1933
Act"),
B. The Company is offering for sale 300 shares of new series of its
Preferred Stock, $.01 par value per share (the "Preferred Stock"); the
Company's Series A Convertible Preferred Stock (the "Series A Preferred
Shares"), which shall be redeemable by the Company or convertible into shares
of the Company's Common Stock, $.01 par value per share (the "Common Stock")
(as converted, the "Conversion Shares"), in accordance with the terms of the
Company's Certificate of Designations, Preferences, and Rights of the Series A
Preferred Shares, substantially in the form attached hereto as Exhibit "A"
(the "Certificate of Designations") which shall be filed on or prior to the
date hereof and which will become effective upon filing with the Secretary of
State of Delaware;
C. The Buyer wishes to purchase, upon the terms and conditions stated in
this Agreement, an aggregate principal amount of up to $________________ of
Series A Preferred Shares in the respective amounts set forth opposite each
Buyer's name on the Schedule of Buyers;
D. Contemporaneously with the execution and delivery of this Agreement, the
parties hereto are executing and delivering a Registration Rights Agreement
substantially in the form attached hereto as Exhibit "B" (the "Registration
Rights Agreement") pursuant to which the Company has agreed to provide certain
registration rights under the 1933 Act and the rules and regulations
promulgated thereunder, and applicable state securities laws;
E. The Buyer shall receive purchase warrants to acquire shares of Common
Stock substantially in the form attached hereto as Exhibit "C" (the
"Warrants"); and
NOW THEREFORE, the Company and the Buyer hereby agree as follows:
1. PURCHASE AND SALE OF SERIES A PREFERRED SHARES.
(a) Purchase of Series A Preferred Shares. Subject to the satisfaction (or
waiver) of the conditions set forth in Sections 6 and 7 below, the Company
shall issue and sell to the Buyers and the Buyers shall purchase from the
Company an aggregate principal amount of $__________________ Series A
Preferred Shares in the respective amounts set forth opposite each Buyer's
name on the Schedule of Buyers (the "Closing").
(b) Closing Date. The date and time of the Closing (the "Closing Date")
shall be 10:00 a.m. Central Standard Time, within five (5) business days
following the date hereof, subject to notification of satisfaction (or waiver)
of the conditions to the Closing set forth in Sections 6 and 7 below (or such
later date as is mutually agreed to by the Company and the Buyer). The
Closing shall occur on the Closing Date at the offices of Sims Moss Kline &
Davis LLP, 400 Northpark Town Center, Suite 310, 1000 Abernathy Road, N.E.,
Atlanta, Georgia 30328.
(c) Form of Payment. On the Closing Date, (i) each Buyer shall pay the
Purchase Price to the Company for the Series A Preferred Shares to be issued
and sold to such Buyer at the Closing, by wire transfer of immediately
available funds in accordance with the Company's written wire instructions,
and (ii) the Company shall deliver to each Buyer, certificates representing
such Series A Preferred Shares which such Buyer is then purchasing (as
indicated opposite such Buyer's name on the Schedule of Buyers), duly executed
on behalf of the Company and registered in the name of such Buyer or its
designee (the "Certificates").
2. BUYER'S REPRESENTATIONS AND WARRANTIES.
Each Buyer represents and warrants with respect to only itself that:
(a) Investment Purpose. Such Buyer (i) is acquiring the Series A Preferred
Shares, (ii) upon conversion of the Series A Preferred Shares will acquire the
Conversion Shares then issuable, (iii) will acquire any Warrants, and (iv)
upon exercise of the Warrants will acquire the shares of Common Stock issuable
upon exercise thereof (the "Warrant Shares") for its own account for
investment only and not with a view towards, or for resale in connection with,
the public sale or distribution thereof, except pursuant to sales registered
or exempted under the 1933 Act; provided, however, that by making the
representations herein, such Buyer does not agree to hold any Series A
Preferred Shares, Conversion Shares, Warrants, or Warrant Shares for any
minimum or other specific term and reserves the right to dispose of Series A
Preferred Shares, Conversion Shares, Warrants, or Warrant Shares at any time
in accordance with or pursuant to a registration statement or an exemption
under the 1933 Act.
(b) Accredited Investor Status. Such Buyer is an "accredited investor" as
that term is defined in Rule 501(a)(3) of Regulation D ("Regulation D") as
promulgated by the United States Securities and Exchange Commission (the
"SEC").
(c) Reliance on Exemptions. Such Buyer understands that the Series A
Preferred Shares, Conversion Shares, Warrants, and Warrant Shares are being
offered and sold to it in reliance on specific exemptions from the
registration requirements of United States federal and state securities laws
and that the Company is relying in part upon the truth and accuracy of, and
such Buyer's compliance with, the representations, warranties, agreements,
acknowledgments and understandings of such Buyer set forth herein in order to
determine the availability of such exemptions and the eligibility of such
Buyer to acquire such securities.
(d) Information. Such Buyer and its advisors, if any, have been furnished
with all appropriate materials relating to the business, finances and
operations of the Company and materials relating to the offer and sale of the
Series A Preferred Shares, Conversion Shares, the Warrants, and the Warrant
Shares, which have been requested by such Buyer. Such Buyer and its advisors,
if any, have been afforded the opportunity to ask questions of the Company.
Neither such inquiries nor any other due diligence investigations conducted by
such Buyer or its advisors, if any, or its representatives shall modify, amend
or affect such Buyer's right to rely on the Company's representations and
warranties contained in Section 3 below. Such Buyer understands that its
investment in the Series A Preferred Shares, the Conversion Shares, the
Warrants, and the Warrant Shares involves a high degree of risk. Such Buyer
has sought such accounting, legal and tax advice as it has considered
necessary to make an informed investment decision with respect to its
acquisition of the Series A Preferred Shares, the Conversion Shares, the
Warrants, and the Warrant Shares.
(e) No Governmental Review. Such Buyer understands that no United States
federal or state agency or any other government or governmental agency has
passed on or made any recommendation or endorsement of the Series A Preferred
Shares, the Conversion Shares, the Warrants, and the Warrant Shares, or the
fairness or suitability of the investment in the Series A Preferred Shares and
the Conversion Shares, nor have such authorities passed upon or endorsed the
merits of the offering of the Series A Preferred Shares, the Conversion
Shares, the Warrants, and the Warrant Shares.
(f) Transfer or Resale. Such Buyer understands that except as provided in
the Registration Rights Agreement: (i) the Series A Preferred Shares, the
Conversion Shares, the Warrants, and the Warrant Shares have not been and are
not being registered under the 1933 Act or any state securities laws, and may
not be offered for sale, sold, assigned or transferred unless (a)
subsequently registered thereunder, (b) such Buyer shall have delivered to the
Company an opinion of counsel, in a generally acceptable form, to the effect
that such securities to be sold, assigned or transferred may be sold, assigned
or transferred pursuant to an exemption from such registration, or (c) such
Buyer provides the Company with reasonable assurance that such securities can
be sold, assigned or transferred pursuant to Rule 144 promulgated under the
1933 Act (or a successor rule thereto); (ii) any sale of such securities made
in reliance on Rule 144 promulgated under the 1933 Act (or a successor rule
thereto) ("Rule 144") may be made only in accordance with the terms of Rule
144 and further, if Rule 144 is not applicable, any resale of such securities
under circumstances in which the seller (or the person through whom the sale
is made) may be deemed to be an underwriter (as that term is defined in the
1933 Act) may require compliance with some other exemption under the 1933 Act
or the rules and regulations of the SEC thereunder; and (iii) neither the
Company nor any other person is under any obligation to register such
securities under the 1933 Act or any state securities laws or to comply with
the terms and conditions of any exemption thereunder.
(g) Legends. Such Buyer understands that the certificates or other
instruments representing the Series A Preferred Shares, the Warrants and,
until such time as the sale of the Conversion Shares have been registered
under the 1933 Act as contemplated by the Registration Rights Agreement, the
stock certificates representing the Conversion Shares and the Warrant Shares
shall bear a restrictive legend in substantially the following form (and a
stop-transfer order may be placed against transfer of such stock
certificates):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS.
THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR
SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL, IN A
GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR
APPLICABLE STATE SECURITIES LAWS OR UNLESS SOLD PURSUANT TO RULE 144 UNDER
SAID ACT.
The legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of the Series A Preferred
Shares, the Conversion Shares, the Warrants, or the Warrant Shares, upon which
it is stamped, if, unless otherwise required by state securities laws, (i) the
sale of the Conversion Shares or Warrant Shares are registered under the 1933
Act, (ii) in connection with a sale transaction, such holder provides the
Company with an opinion of counsel, reasonably satisfactory to the Company, to
the effect that a public sale, assignment or transfer of the Series A
Preferred Shares, the Conversion Shares, the Warrants, and the Warrant Shares
may be made without registration under the 1933 Act, or (iii) such holder
provides the Company with reasonable assurances that the Series A Preferred
Shares, the Conversion Shares, the Warrants, or the Warrant Shares can be sold
pursuant to Rule 144 without any restriction as to the number of securities
acquired as of a particular date that can then be immediately sold.
(h) Authorization, Enforcement. This Agreement has been duly and validly
authorized, executed and delivered on behalf of such Buyer and is a valid and
binding agreement of such Buyer enforceable in accordance with its terms,
subject as enforceability to general principles of equity and to applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation and other
similar laws relating to, or affecting generally, the enforcement of
applicable creditors' rights and remedies.
(i) Residency. Such Buyer is a resident of that state and country specified
in its address on the Schedule of Buyers.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to each of the Buyers that:
(a) Organization and Qualification. The Company and its subsidiaries are
corporations duly organized and validly existing in good standing under the
laws of the jurisdiction in which they are incorporated, and have the
requisite corporate power to own their properties and to carry on their
business as now being conducted. Each of the Company and its subsidiaries 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 by it
makes such qualification necessary, except to the extent that the failure to
be so qualified or be in good standing would not have a material adverse
effect on the Company and its subsidiaries taken as a whole.
(b) Authorization, Enforcement, Compliance with Other Instruments. (i) The
Company has the requisite corporate power and authority to enter into and
perform this Agreement, the Registration Rights Agreement and any related
agreements, and to issue the Series A Preferred Shares, the Conversion Shares,
the Warrants, and the Warrant Shares, in accordance with the terms hereof and
thereof, subject to the approval of the Company's shareholders of an amendment
to its Certificate of Incorporation to authorize an additional forty million
(40,000,000) shares of Common Stock (the "Share Increase") at its annual
meeting of shareholders to be held in November 1998 (the "Shareholders'
Meeting"), (ii) the execution and delivery of this Agreement, the Registration
Rights Agreement, the Warrants and any related agreements by the Company and
the consummation by it of the transactions contemplated hereby and thereby,
including without limitation the issuance of the Series A Preferred Shares and
the reservation for issuance and the issuance of the Conversion Shares
issuable upon conversion or exercise thereof, have been duly authorized by the
Company's Board of Directors and no further consent or authorization is
required by the Company, its Board of Directors or its stockholders, except
for the approval of the Share Increase and of additional listing of shares on
Nasdaq by the Company's shareholders at the Shareholders' Meeting, (iii) this
Agreement, the Registration Rights Agreement, the Warrants, and any related
agreements have been duly executed and delivered by the Company, and (iv) this
Agreement, the Registration Rights Agreement, the Warrants, and any related
agreements constitute the valid and binding obligations of the Company
enforceable against the Company in accordance with their terms, except as such
enforceability may be limited by general principles of equity or applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation or similar
laws relating to, or affecting generally, the enforcement of creditors' rights
and remedies.
(c) Capitalization. As of the date hereof, the authorized capital stock of
the Company consists of 60,000,000 shares of Common Stock, par value $0.01 per
share, and 100,000 shares of preferred stock, par value $0.01 per share, of
which as of the date hereof 32,475,862 shares of Common Stock and no shares of
preferred stock were issued and outstanding. All of such outstanding shares
have been validly issued and are fully paid and nonassessable. Except as
disclosed in Schedule 3(c), no shares of Common Stock or preferred stock are
subject to preemptive rights or any other similar rights or any liens or
encumbrances suffered or permitted by the Company. Except as disclosed in
Schedule 3(c), as of the effective date of this Agreement, (i) there are no
outstanding options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into, any shares of capital stock of the Company or any of its
subsidiaries, or contracts, commitments, understandings or arrangements by
which the Company or any of its subsidiaries is or may become bound to issue
additional shares of capital stock of the Company or any of its subsidiaries
or options, warrants, scrip, rights to subscribe to, calls or commitments of
any character whatsoever relating to, or securities or rights convertible
into, any shares of capital stock of the Company or any of its subsidiaries,
(ii) there are no outstanding debt securities and (iii) there are no
agreements or arrangements under which the Company or any of its subsidiaries
is obligated to register the sale of any of their securities under the 1933
Act (except the Registration Rights Agreement). There are no securities or
instruments containing anti-dilution or similar provisions that will be
triggered by the issuance of the Series A Preferred Shares or the Conversion
Shares as described in this Agreement. The Company has furnished to the Buyer
true and correct copies of the Company's Certificate of Incorporation, as
amended and 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"), and the terms of all securities convertible into or
exercisable for Common Stock and the material rights of the holders thereof in
respect thereto. Schedule 3(c) sets forth a schedule of all issuances of
Common Stock, convertible securities, options, warrants, and the like for the
past twelve (12) calendar months as well as those holders eligible to sell
securities pursuant to Rule 144 in the next twelve (12) calendar months.
(d) Issuance of Securities. Following the filing of the Certificate of
Designations with the Secretary of State of the State of Delaware, the Series
A Preferred Shares will be duly authorized and, upon issuance in accordance
with the terms hereof, shall be (i) validly issued, fully paid and non-
assessable, are free from all taxes, liens and charges with respect to the
issue thereof and are entitled to the rights and preferences set forth in the
Series A Preferred Shares. The Conversion Shares issuable upon conversion of
the Series A Preferred Shares will be duly authorized and reserved for
issuance following the approval of the Share Increase at the Shareholders'
Meeting. Upon conversion or exercise in accordance with the Series A
Preferred Shares, the Conversion Shares will be validly issued, fully paid and
nonassessable and free from all taxes, liens and charges with respect to the
issue thereof, with the holders being entitled to all rights accorded to a
holder of Common Stock.
(e) No Conflicts. Except as disclosed in Schedule 3(e), the execution,
delivery and performance of this Agreement by the Company and the consummation
by the Company of the transactions contemplated hereby will not (i) result in
a violation of the Certificate of Incorporation or By-laws or (ii) conflict
with or constitute a default (or an event which with notice or lapse of time
or both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, to its knowledge, any
material agreement, indenture or instrument to which the Company or, to its
knowledge, any of its subsidiaries is a party, or result in a violation of any
law, rule, regulation, order, judgment or decree (including federal and state
securities laws and regulations and the rules and regulations of the principal
market or exchange on which the Common Stock is traded or listed) applicable
to the Company or any of its subsidiaries or by which any property or asset of
the Company or any of its subsidiaries is bound or affected. Except as
disclosed in Schedule 3(e), neither the Company nor its subsidiaries is in
violation of any term of or in default under its Certificate of Incorporation
or By-laws or their organizational charter or by-laws, respectively, or any
material contract, agreement, mortgage, indebtedness, indenture, instrument,
judgment, decree or order or any statute, rule or regulation applicable to the
Company or its subsidiaries. The business of the Company and its subsidiaries
is not being conducted, and shall not be conducted in violation of any law,
ordinance, regulation of any governmental entity. Except as specifically
contemplated by this Agreement and as required under the 1933 Act and any
applicable state securities laws, to the best of the Company's knowledge, the
Company is not required to obtain any consent, authorization or order of, or
make any filing or registration with, any court or governmental agency in
order for it to execute, deliver or perform any of its obligations under or
contemplated by this Agreement, the Registration Rights Agreement, and the
Warrants in accordance with the terms hereof or thereof. Except as disclosed
in Schedule 3(e), all consents, authorizations, orders, filings and
registrations which the Company is required to obtain pursuant to the
preceding sentence have been obtained or effected on or prior to the date
hereof. The Company and its subsidiaries are unaware of any facts or
circumstances which might give rise to any of the foregoing.
(f) SEC Documents: Financial Statements. Since July 31, 1997, the Company
had filed all reports, schedules, forms, statements and other documents
required to be filed by it with the SEC pursuant to the reporting requirements
of the Securities Exchange Act of 1934, as amended except with regard to the
failure to include pro forma and audited financial statements for the
businesses acquired in April and May 1998 contained in the related Reports on
Form 8-K (the "1934 Act") (all of the foregoing filed prior to the date hereof
and all exhibits included therein and being hereinafter referred to as the
"SEC Documents"). As of their respective dates, the SEC Documents complied in
all material respects with the requirements of the 1934 Act and the rules and
regulations of the SEC promulgated thereunder applicable to the SEC Documents,
and none of the SEC Documents, at the time they were filed with the SEC,
contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. As of their respective dates, the financial statements of the
Company included in the SEC Documents complied as to form in all material
respects with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto. Such financial statements have
been prepared in accordance with generally accepted accounting principles,
consistently applied, during the periods involved (except (i) as may be
otherwise indicated in such financial statements or the notes thereto, or (ii)
in the case of unaudited interim statements, to the extent they may exclude
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 its operations and cash flows for the periods then
ended (subject, in the case of unaudited statements, to normal year-end audit
adjustments). No other information provided by or on behalf of the Company to
the Buyer which is not included in the SEC Documents, including, without
limitation information referred to in Section 2(d) of this Agreement, contains
any untrue statement of a material fact or omits to state any material fact
necessary in order to make the statements therein, in the light of the
circumstance under which they are or were made, not misleading.
(g) Absence of Certain Changes. Except as disclosed in Schedule 3(g) and in
the SEC documents, since July 31, 1998, 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 or its subsidiaries. The Company has not taken any steps, and does
not currently expect to take any steps, to seek protection pursuant to any
bankruptcy law nor does the Company or its subsidiaries have any knowledge or
reason to believe that its creditors intend to initiate involuntary bankruptcy
proceedings.
(h) Absence of Litigation. There is no action, suit, proceeding, inquiry or
investigation before or by any court, public board, government agency, self-
regulatory organization or body pending or, to the knowledge of the Company or
any of its subsidiaries, threatened against or affecting the Company, the
Common Stock or any of the Company's subsidiaries, wherein an unfavorable
decision, ruling or finding would (i) have a material adverse effect on the
transactions contemplated hereby (ii) adversely affect the validity or
enforceability of, or the authority or ability of the Company to perform its
obligations under, this Agreement or any of the documents contemplated herein
or (iii), except as expressly set forth in the SEC Documents or in Schedule
3(h), have a material adverse effect on the business, operations, properties,
financial condition or results of operation of the Company and its
subsidiaries taken as a whole.
(i) No Undisclosed Events, Liabilities, Developments or Circumstances. No
known event, liability, development or circumstance has occurred or exists, or
is contemplated to occur, with respect to the Company or its subsidiaries or
their respective business, properties, prospects, operations or financial
condition, which could be material but which has not been publicly announced
or disclosed in writing to the Buyer.
(j) No General Solicitation. Neither the Company, nor any of its affiliates,
nor any person acting on its or their behalf, has engaged in any form of
general solicitation or general advertising (within the meaning of Regulation
D under the 1933 Act) in connection with the offer or sale of the Series A
Preferred Shares or the Conversion Shares.
(k) [LEFT INTENTIONALLY BLANK]
(l) Employee Relations. Neither the Company nor any of its subsidiaries is
involved in any labor dispute nor, to the knowledge of the Company or any of
its subsidiaries, is any such dispute threatened. None of the Company's or
its subsidiaries' employees is a member of a union and the Company and its
subsidiaries believe that their relations with their employees are good.
(m) Intellectual Property Rights. To the best of the Company's knowledge,
the Company and its subsidiaries own or possess adequate rights or licenses to
use all trademarks, trade names, service marks, service mark registrations,
service names, patents, patent rights, copyrights, inventions, licenses,
approvals, governmental authorizations, trade secrets and rights necessary to
conduct their respective businesses as now conducted. Except as set forth on
Schedule 3(m), none of the Company's trademarks, trade names, service marks,
service mark registrations, service names, patents, patent rights, copyrights,
inventions, licenses, approvals, government authorizations, trade secrets or
other intellectual property rights have expired or terminated, or are expected
to expire or terminate in the near future. The Company and its subsidiaries
do not have any knowledge of any infringement by the Company or its
subsidiaries of trademark, trade name rights, patents, patent rights,
copyrights, inventions, licenses, service names, service marks, service mark
registrations, trade secret or other similar rights of others, or of any such
development of similar or identical trade secrets or technical information by
others and, except as set forth on Schedule 3(m), there is no claim, action or
proceeding being made or brought against, or to the Company's knowledge, being
threatened against, the Company or its subsidiaries regarding trademark, trade
name, patents, patent rights, invention, copyright, license, service names,
service marks, service mark registrations, trade secret or other infringement;
and the Company and its subsidiaries are unaware of any facts or circumstances
which might give rise to any of the foregoing. The Company and its
subsidiaries have taken reasonable security measures to protect the secrecy,
confidentiality and value of all of their intellectual properties.
(n) Environmental Laws. To the best of the Company's knowledge, the Company
and its subsidiaries are (i) in compliance with any and all applicable
foreign, federal, state and local laws and regulations relating to the
protection of human health and safety, the environment or hazardous or toxic
substances or wastes, pollutants or contaminants ("Environmental Laws"), (ii)
have received all permits, licenses or other approvals required of them under
applicable Environmental Laws to conduct their respective businesses and (iii)
are in compliance with all terms and conditions of any such permit, license or
approval.
(o) Title. The Company and its subsidiaries have good and marketable title
in fee simple to all real property and good and marketable title to all
personal property owned by them which is material to the business of the
Company and its subsidiaries, in each case free and clear of all liens,
encumbrances and defects except such as are described in Schedule 3(o) or such
as do not materially affect the value of such property and do not interfere
with the use made and proposed to be made of such property by the Company and
its subsidiaries.
(p) Insurance. The Company and each of its subsidiaries are insured by
insurers of recognized financial responsibility against such losses and risks
and in such amounts as management of the Company believes to be prudent and
customary in the businesses in which the Company and its subsidiaries are
engaged. Neither the Company nor any such subsidiary has been refused any
insurance coverage sought or applied for and neither the Company nor any such
subsidiary has any reason to believe that it will not be able to renew its
existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that would not materially and adversely affect the
condition, financial or otherwise, or the earnings, business or operations of
the Company and its subsidiaries, taken as a whole.
(q) Regulatory Permits. The Company and its subsidiaries possess all
certificates, authorizations and permits issued by the appropriate federal,
state or foreign regulatory authorities necessary to conduct their respective
businesses, and neither the Company nor any such subsidiary has received any
notice of proceedings relating to the revocation or modification of any such
certificate, authorization or permit.
(r) Internal Accounting Controls. The Company and each of its subsidiaries
maintain a system of internal accounting controls sufficient to provide
reasonable assurance that (i) transactions are executed in accordance with
management's general or specific authorizations, (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to maintain asset
accountability, (iii) access to assets is permitted only in accordance with
management's general or specific authorization and (iv) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
(s) No Materially Adverse Contracts, Etc. Neither the Company nor any of its
subsidiaries is subject to any charter, corporate or other legal restriction,
or any judgment, decree, order, rule or regulation which in the judgment of
the Company's officers has or is expected in the future to have a material
adverse effect on the business, properties, operations, financial condition,
results of operations or prospects of the Company or its subsidiaries. Except
as disclosed in the SEC Documents, neither the Company nor any of its
subsidiaries is a party to any contract or agreement which in the judgment of
the Company's officers has or is expected to have a material adverse effect on
the business, properties, operations, financial condition, results of
operations or prospects of the Company or its subsidiaries.
(t) Tax Status. Except as set forth on Schedule 3(t), the Company and each
of its subsidiaries has made or filed all federal and state income and all
other tax returns, reports and declarations required by any jurisdiction to
which it is subject (unless and only to the extent that the Company and each
of its subsidiaries has set aside on its books provisions reasonably adequate
for the payment of all unpaid and unreported taxes) and has paid all taxes and
other governmental assessments and charges that are material in amount, shown
or determined to be due on such returns, reports and declarations, except
those being contested in good faith and has set aside on its books provision
reasonably adequate for the payment of all taxes for periods subsequent to the
periods to which such returns, reports or declarations apply. There are no
unpaid taxes in any material amount claimed to be due by the taxing authority
of any jurisdiction, and the officers of the Company know of no basis for any
such claim.
(u) Certain Transactions. Except as set forth on Schedule 3(u) and in the
SEC Documents and except for arm's length transactions pursuant to which the
Company makes payments in the ordinary course of business upon terms no less
favorable than the Company could obtain from third parties and other than the
grant of stock options disclosed on Schedule 3(c), none of the officers,
directors, or employees of the Company is presently a party to any transaction
with the Company (other than for services as employees, officers and
directors), including any contract, agreement or other arrangement providing
for the furnishing of services to or by, providing for rental of real or
personal property to or from, or otherwise requiring payments to or from any
officer, director or such employee or, to the knowledge of the Company, any
corporation, partnership, trust or other entity in which any officer,
director, or any such employee has a substantial interest or is an officer,
director, trustee or partner.
(v) Dilutive Effect. The Company understands and acknowledges that the
number of Conversion Shares issuable upon conversion of the Series A Preferred
Shares will increase in certain circumstances. The Company further
acknowledges that its obligation to issue Conversion Shares and Warrants upon
conversion of the Series A Preferred Shares in accordance with this Agreement
and the Series A Preferred Shares and its obligation to issue the Warrant
Shares upon exercise of the Warrants is, in each case, absolute and
unconditional regardless of the dilutive effect that such issuance may have on
the ownership interests of other stockholders of the Company.
(w) Fees and Rights of First Refusal. The Company is not obligated to offer
the securities offered hereunder on a right of first refusal basis or
otherwise to any third parties including, but not limited to, current or
former shareholders of the Company, underwriters, brokers, agents, or other
third parties.
4. COVENANTS.
(a) Best Efforts. Each party shall use its best efforts timely to satisfy
each of the conditions to be satisfied by it as provided in Sections 6 and 7
of this Agreement.
(b) Form D. The Company agrees to file a Form D with respect to the Series A
Preferred Shares, the Conversion Shares, the Warrants, and the Warrant Shares
as required under Regulation D and to provide a copy thereof to each Buyer
promptly after such filing. The Company shall, on or before the Closing Date,
take such action as the Company shall reasonably determine is necessary to
qualify the Series A Preferred Shares, the Conversion Shares, the Warrants,
and the Warrant Shares for, or obtain exemption for the Series A Preferred
Shares, the Conversion Shares, the Warrants, and the Warrant Shares for, sale
to the Buyers at the Closing pursuant to this Agreement under applicable
securities or "Blue Sky" laws of the states of the United States, and shall
provide evidence of any such action so taken to the Buyers on or prior to the
Closing Date.
(c) Reporting Status. Until the earlier of (i) the date as of which the
Investors (as that term is defined in the Registration Rights Agreement) may
sell all of the Conversion Shares and the Warrant Shares without restriction
pursuant to Rule 144(k) promulgated under the 1933 Act (or successor thereto),
or (ii) the date on which (A) the Investors shall have sold all the Conversion
Shares and the Warrant Shares and (B) none of the Series A Preferred Shares
and the Warrants is outstanding (the "Registration Period"), the Company shall
file all reports required to be filed with the SEC pursuant to the 1934 Act,
and the Company shall not terminate its status as an issuer required to file
reports under the 1934 Act even if the 1934 Act or the rules and regulations
thereunder would otherwise permit such termination.
(d) Use of Proceeds. The Company will use the proceeds from the sale of the
Series A Preferred Shares for substantially the same purposes and in
substantially the same amounts as indicated in Schedule 4(d).
(e) Financial Information. The Company agrees to send the following to each
Buyer who still holds Series A Preferred Shares or Conversion Shares during
the Registration Period: (i) within five (5) days after the filing thereof
with the SEC, a copy of its Annual Reports on Form 10-K, its Quarterly Reports
on Form 10-Q, any Current Reports on Form 8-K and any registration statements
or amendments filed pursuant to the 1933 Act; (ii) within one (1) day after
release thereof, copies of all press releases issued by the Company or any of
its subsidiaries and (ii) copies of the same notices and other information
given to the stockholders of the Company generally, contemporaneously with the
giving thereof to the stockholders.
(f) Reservation of Shares. The Company shall take all action necessary to at
all times have authorized, and reserved for the purpose of issuance, no less
than 200% of the number of shares of Common Stock needed to provide for the
issuance of the Conversion Shares measured at the time of the Closing. The
parties acknowledge that the foregoing Reservation Ratio cannot be achieved
until approval of the Share Increase by the Company's shareholder's at the
Shareholders' Meeting (the "Reservation Ratio").
(g) Listings. The Company shall promptly secure the listing of the
Conversion Shares upon each national securities exchange or automated
quotation system, if any, upon which shares of Common Stock are then listed
(subject to official notice of issuance) and shall maintain, so long as any
other shares of Common Stock shall be so listed, such listing of all
Conversion Shares from time to time issuable under the terms of this Agreement
and the Registration Rights Agreement. The Company shall use its best efforts
to maintain the Common Stock's authorization for quotation in the Nasdaq
SmallCap Market. The Company shall promptly provide to each Buyer copies of
any notices it receives regarding the continued eligibility of the Common
Stock for trading in the over-the-counter market.
(h) Expenses. Each of the Company and the Buyer shall pay all costs and
expenses incurred by such party in connection with the negotiation,
investigation, preparation, execution and delivery of this Agreement and the
Registration Rights Agreement. The costs and expenses of J.P. Carey
Securities, Inc. and its counsel shall be paid for by the Company at Closing.
(i) LEFT INTENTIONALLY BLANK]
(j) Listing. The Company shall use its best efforts to cause all the
Registrable Securities (as defined in the Registration Rights Agreement)
covered by a Registration Statement to be listed on the Nasdaq SmallCap Market
on which securities of the same class or series issued by the Company are then
listed or quoted, if any, if the listing or quotation of such Registrable
Securities is then permitted under the rules of such exchange. The Company
shall (i) at such time as the Common Stock meets the eligibility requirements
of the Nasdaq National Market System, use its reasonable efforts to secure the
inclusion of shares of the Common Stock for quotation on the Nasdaq National
Market System. If, despite the Company's reasonable efforts to satisfy the
preceding sentences, the Company is unsuccessful in satisfying the preceding
sentences, the Company shall (i) maintain the inclusion of shares of the
Common Stock for quotation on the over-the-counter market and (ii) secure the
inclusion of such Registrable Securities for quotation on the over-the-counter
market. The Company shall promptly provide to each holder of Series A
Preferred Shares copies of any notices it receives regarding the continued
eligibility of the Common Stock for trading in the over-the-counter market or,
if applicable, any securities exchange (including the Nasdaq National Market
System or the Nasdaq SmallCap Market) on which securities of the same class or
series issued by the Company are then listed or quoted, if any. The Company
shall pay all fees and expenses in connection with satisfying its obligation
under this Section 4(j).
(k) Corporate Existence. So long as any Series A Preferred Shares remain
outstanding, the Company shall not directly or indirectly consummate any
merger, reorganization, restructuring, consolidation, sale of all or
substantially all of the Company's assets or any similar transaction or
related transactions (each such transaction, a "Sale of the Company") except
if the surviving or successor entity in such transaction (i) expressly
assumes, in writing, the Company's obligations hereunder and under the
Registration Rights Agreement, the Certificate of Designations, the Series A
Preferred Shares, and any other agreements and instruments entered into or
delivered by the Company in connection herewith and (ii) is a publicly traded
corporation whose Common Stock is listed for trading on the New York Stock
Exchange, Inc., the American Stock Exchange or the NASDAQ National Market,
NASDAQ SmallCap Market, or electric bulletin board.
(l) Transactions With Affiliates. So long as (i) any Series A Preferred
Shares are outstanding or (ii) any Buyer owns Conversion Shares and Warrant
Shares with a market value equal to or greater than $200,000, the Company
shall not, and shall cause each of its subsidiaries not to, enter into, amend,
modify or supplement, or permit any subsidiary to enter into, amend, modify or
supplement any agreement, transaction, commitment, or arrangement with any of
its or any subsidiary's officers, directors, person who were officers or
directors at any time during the previous two years, stockholders who
beneficially own 5% or more of the Common Stock, or affiliates or with any
individual related by blood, marriage, or adoption to any such individual or
with any entity in which any such entity or individual owns a 5% or more
beneficial interest (each a "Related Party"), except for (a) customary
employment arrangements and benefit programs on reasonable terms, (b) any
agreement, transaction, commitment, or arrangement on an arms-length basis on
terms no less favorable than terms which would have been obtainable from a
person other than such Related Party, (c) any agreement transaction,
commitment, or arrangement which is approved by a majority of the
disinterested directors of the Company, for purposes hereof, any director who
is also an officer of the Company or any subsidiary of the Company shall not
be a disinterested director with respect to any such agreement, transaction,
commitment, or arrangement. "Affiliate" for purposes hereof means, with
respect to any person or entity, another person or entity that, directly or
indirectly, (i) has a 5% or more equity interest in that person or entity,
(ii) has 5% or more common ownership with that person or entity, (iii)
controls that person or entity, or (iv) shares common control with that person
or entity. "Control" or "controls" for purposes hereof means that a person or
entity has the power, direct or indirect, to conduct or govern the policies of
another person or entity.
(m) Shareholder Approval. The Company covenants to promptly submit to its
shareholders at the Shareholders' Meeting the Share Increase, a proposal for
ratification of the issuance of the Series A Preferred Shares, the Conversion
Shares, the Warrants, and the Warrant Shares, and certain other matters listed
on Schedule 4(m). The Company represents and warrants that the Company's
officers and directors, have individually agreed, pursuant to irrevocable
written proxies, in their capacity as shareholders to vote their shares of
Common Stock in favor of such a proposal at such meeting and the Company will
use its best efforts to cause any and all Affiliates to vote in favor of such
proposals.
(n) Immediately following the approval of the Share Increase at the
Shareholders' Meeting, the Company will use its best efforts to cause the
Conversion Shares issuable upon conversion of the Series A Preferred Shares
shall to be approved for listing on the over-the-counter market, AMEX, the
NASDAQ SmallCap National Market, or The New York Stock Exchange, Inc.
5. TRANSFER AGENT INSTRUCTIONS.
The Company shall issue irrevocable instructions to its transfer agent to
issue certificates, registered in the name of the Buyer or its respective
nominee(s), for the Conversion Shares and Warrant Shares in such amounts as
specified from time to time by the Buyer to the Company upon conversion of the
Series A Preferred Shares or exercise of the Warrants (the "Irrevocable
Transfer Agent Instructions"). Prior to registration of the Conversion Shares
under the 1933 Act, all such certificates shall bear the restrictive legend
specified in Section 2(g) of this Agreement. The Company warrants that no
instruction other than the Irrevocable Transfer Agent Instructions referred to
in this Section 5, and stop transfer instructions to give effect to Section
2(f) hereof (in the case of the Conversion Shares or Warrant Shares, prior to
registration of such shares under the 1933 Act) will be given by the Company
to its transfer agent and that the Series A Preferred Shares, the Conversion
Shares, the Warrants, and the Warrant Shares shall otherwise be freely
transferable on the books and records of the Company as and to the extent
provided in this Agreement, the Registration Rights Agreement, or the Warrant.
Nothing in this Section 5 shall affect in any way the Buyer's obligations and
agreement to comply with all applicable securities laws upon resale of the
Series A Preferred Shares, the Conversion Shares, the Warrants, or the Warrant
Shares. If the Buyer provides the Company with an opinion of counsel,
reasonably satisfactory in form, and substance to the Company, that
registration of a resale by the Buyer of any of the Series A Preferred Shares,
the Conversion Shares, the Warrants, or the Warrant Shares is not required
under the 1933 Act, the Company shall permit the transfer, and, in the case of
the Conversion Shares or the Warrant Shares, promptly instruct its transfer
agent to issue one or more certificates in such name and in such denominations
as specified by the Buyer. The Company acknowledges that a breach by it of
its obligations hereunder will cause irreparable harm to the Buyer by
vitiating the intent and purpose of the transaction contemplated hereby.
Accordingly, the Company acknowledges that the remedy at law for a breach of
its obligations under this Section 5 will be inadequate and agrees, in the
event of a breach or threatened breach by the Company of the provisions of
this Section 5, that the Buyer shall be entitled, in addition to all other
available remedies, to an injunction restraining any breach and requiring
immediate issuance and transfer, without the necessity of showing economic
loss and without any bond or other security being required.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
The obligation of the Company hereunder to issue and sell the Series A
Preferred Shares to the Buyer at the Closing is subject to the satisfaction,
at or before the Closing Date, of each of the following conditions, provided
that these conditions are for the Company's sole benefit and may be waived by
the Company at any time in its sole discretion:
(a) The Buyer shall have executed this Agreement and the Registration Rights
Agreement and delivered the same to the Company.
(b) The Buyer shall have delivered to the Company the Purchase Price for the
Series A Preferred Shares being purchased by the Buyer at the Closing by wire
transfer of immediately available funds pursuant to the wire instructions
provided by the Company.
(c) The representations and warranties of the Buyer shall be true and correct
in all material respects as of the date when made and as of the Closing Date
as though made at that time (except for representations and warranties that
speak as of a specific date), and the Buyer shall have performed, satisfied
and complied in all material respects with the covenants, agreements and
conditions required by this Agreement to be performed, satisfied or complied
with by the Buyer at or prior to the Closing Date.
7. CONDITIONS TO THE BUYER'S OBLIGATION TO PURCHASE.
The obligation of the Buyer hereunder to purchase the Series A Preferred
Shares at the Closing is subject to the satisfaction, at or before the Closing
Date, of each of the following conditions, provided that these conditions are
for the Buyer's sole benefit and may be waived by the Buyer at any time in its
sole discretion:
(a) The Company shall have executed this Agreement, the Registration Rights
Agreement, and the Warrants, and delivered the same to the Buyer.
(b) The representations and warranties of the Company shall be true and
correct in all material respects (except to the extent that any of such
representations and warranties is already qualified as to materiality in
Section 3 above, in which case, such representations and warranties shall be
true and correct without further qualification) as of the date when made and
as of the Closing Date as though made at that time (except for representations
and warranties that speak as of a specific date) and the Company shall have
performed, satisfied and complied in all material respects with the covenants,
agreements and conditions required by this Agreement to be performed,
satisfied or complied with by the Company at or prior to the Closing Date.
The Buyer shall have received a certificate, executed by the Chief Executive
Officer of the Company, dated as of the Closing Date, to the foregoing effect
and as to such other matters as may be reasonably requested by the Buyer
including, without limitation an update as of the Closing Date regarding the
representation contained in Section 3(c) above.
(c) The Buyer shall have received the opinion of the Company's counsel dated
as of the Closing Date, in form, scope and substance reasonably satisfactory
to the Buyer and in substantially the form of Exhibit "D" attached hereto.
(d) The Company shall have executed and delivered to the Buyer the
Certificates (in such denominations as the Buyer shall request) for the Series
A Preferred Shares being purchased by the Buyer at the Closing.
(e) The Board of Directors of the Company shall have adopted the resolutions
in substantially the form of Exhibit "E" attached hereto.
(f) The Irrevocable Transfer Agent Instructions, in form and substance
satisfactory to the Buyer, shall have been delivered to and acknowledged in
writing by the Company's transfer agent.
8. INDEMNIFICATION.
In consideration of the Buyer's execution and delivery of this Agreement and
acquiring the Series A Preferred Shares, the Conversion Shares, the Warrants,
and the Warrant Shares hereunder and in addition to all of the Company's other
obligations under this Agreement, the Company shall defend, protect, indemnify
and hold harmless the Buyer and each other holder of the Series A Preferred
Shares, the Conversion Shares, the Warrants, and the Warrant Shares and all of
their officers, directors, employees and agents (including, without
limitation, those retained in connection with the transactions contemplated by
this Agreement) (collectively, the "Indemnitees") from and against any and all
actions, causes of action, suits, claims, losses, costs, penalties, fees,
liabilities and damages, and expenses in connection therewith (irrespective of
whether any such Indemnitee is a party to the action for which indemnification
hereunder is sought), and including reasonable attorneys' fees and
disbursements (the "Indemnified Liabilities"), incurred by the Indemnitees or
any of them as a result of, or arising out of, or relating to (a) any
misrepresentation or breach of any representation or warranty made by the
Company in this Agreement, the Series A Preferred Shares, the Registration
Rights Agreement, or the Warrants or any other certificate, instrument or
document contemplated hereby or thereby, (b) any breach of any covenant,
agreement or obligation of the Company contained in this Agreement, the Series
A Preferred Shares, the Registration Rights Agreement, or the Warrants or any
other certificate, instrument or document contemplated hereby or thereby, or
(c) any cause of action, suit or claim brought or made against such Indemnitee
by any third party and arising out of or resulting from the execution,
delivery, performance or enforcement of this Agreement or any other
instrument, document or agreement executed pursuant hereto by any of the
Indemnities, any transaction financed or to be financed in whole or in part,
directly or indirectly, with the proceeds of the issuance of the Series A
Preferred Shares or the status of the Buyer or holder of the Series A
Preferred Shares, the Conversion Shares, the Warrants, and the Warrant Shares,
as an investor in the Company. To the extent that the foregoing undertaking
by the Company may be unenforceable for any reason, the Company shall make the
maximum contribution to the payment and satisfaction of each of the
Indemnified Liabilities which is permissible under applicable law.
9. GOVERNING LAW: MISCELLANEOUS.
(a) Governing Law. This Agreement shall be governed by and interpreted in
accordance with the laws of the State of Delaware without regard to the
principles of conflict of laws. Company acknowledges that upon any breach of
Buyer's conversion rights hereunder, Buyer's resulting injury may not be
adequately compensated by a remedy at law. Accordingly, upon such breach,
Buyer, at its election and without limitation of its other remedies, shall be
entitled to pursue a claim for specific performance of this Agreement, and
Company hereby waives the right to assert any defense thereto that Purchaser
has an adequate remedy at law. The parties expressly consent to the
jurisdiction and venue of the Superior Court of Contra Costa County,
California, and the United States District Court for the Northern District of
California for the adjudication of any civil action asserted pursuant to this
Paragraph.
(b) Acknowledgment Regarding Buyer's Purchase of Series A Preferred Shares.
The parties acknowledge and agree that the Buyer is acting solely in the
capacity of an arm's length purchaser with respect to this Agreement and the
transactions contemplated hereby. The parties further acknowledge that the
Buyer is not acting as a financial advisor or fiduciary of the Company (or in
any similar capacity) with respect to this Agreement and the transactions
contemplated hereby and any advice given by the Buyer or any of their
respective representatives or agents in connection with this Agreement and the
transactions contemplated hereby is merely incidental to such Buyer's purchase
of the Series A Preferred Shares, the Conversion Shares, the Warrants, or the
Warrant Shares. The parties further acknowledge Buyer that the Company's
decision to enter into this Agreement has been based solely on the independent
evaluation by the Company and its representatives.
(c) Counterparts. This Agreement may be executed in two or more identical
counterparts, all of which shall be considered one and the same agreement and
shall become effective when counterparts have been signed by each party and
delivered to the other party. In the event any signature page is delivered by
facsimile transmission, the party using such means of delivery shall cause
four (4) additional original executed signature pages to be physically
delivered to the other party within five (5) days of the execution and
delivery hereof.
(d) Headings. The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Agreement.
(e) Severability. If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall
not affect the validity or enforceability of the remainder of this Agreement
in that jurisdiction or the validity or enforceability of any provision of
this Agreement in any other jurisdiction.
(f) Entire Agreement, Amendments. This Agreement supersedes all other prior
oral or written agreements between the Buyer, the Company, their affiliates
and persons acting on their behalf with respect to the matters discussed
herein, and this Agreement and the instruments referenced herein contain the
entire understanding of the parties with respect to the matters covered herein
and therein and, except as specifically set forth herein or therein, neither
the Company nor any Buyer makes any representation, warranty, covenant or
undertaking with respect to such matters. No provision of this Agreement may
be waived or amended other than by an instrument in writing signed by the
party to be charged with enforcement.
(g) Notices. Any notices consents, waivers or other communications required
or permitted to be given under the terms of this Agreement must be in writing
and will be deemed to have been delivered (i) upon receipt, when delivered
personally; (ii) upon receipt, when sent by facsimile, provided a copy is
mailed by U.S. certified mail, return receipt requested; (iii) three (3) days
after being sent by U.S. certified mail, return receipt requested, or (iv) one
(i) day after deposit with a nationally recognized overnight delivery service,
in each case properly addressed to the party to receive the same. The
addresses and facsimile numbers for such communications shall be:
If to the Company:
Finet Holdings Corporation
14th Floor
Sansome Street
San Francisco, California 94111
Attn: President
Telephone:(415) 263-5400
Facsimile:(415) 263-5440
With a copy to:
Roger S. Mertz, Esq.
Severson & Werson
Suite 2600
One Embarcadero Center
San Francisco, California 94111
Telephone:(415) 398-3344
Facsimile:(415) 956-0439
If to the Transfer Agent:
Continental Stock Transfer Trust Company
Broadway
New York, New York
Attn: Roger Bernhammer
Telephone: (212) 509-4000
Facsimile: (212) 509-5150
If to the Buyer, to its address and facsimile number on the Schedule of
Buyers, with copies to the Buyer's counsel as set forth on the Schedule of
Buyers. Each party shall provide five (5) days' prior written notice to the
other party of any change in address or facsimile number.
(h) Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the parties and their respective successors and assigns.
The Company shall not assign this Agreement or any rights or obligations
hereunder without the prior written consent of the Buyer. The Buyer may
assign its rights hereunder without the consent of the Company, provided,
however, that any such assignment shall not release the Buyer from its
obligations hereunder unless such obligations are assumed by such assignee and
the Company has consented to such assignment and assumption.
(i) No Third Party Beneficiaries. This Agreement is intended for the benefit
of the parties hereto and their respective permitted successors and assigns,
and is not for the benefit of, nor may any provision hereof be enforced by,
any other person.
(j) Survival. Unless this Agreement is terminated under Section 9(l), the
representations and warranties of the Company and the Buyer contained in
Sections 2 and 3, the agreements and covenants set forth in Sections 4, 5 and
9, the indemnification provisions set forth in Section 8, shall survive the
Closing. The Buyer shall be responsible only for its own representations,
warranties, agreements and covenants hereunder.
(k) Publicity. The Company and the Buyer shall have the right to approve
before issuance any press releases or any other public statements with respect
to the transactions contemplated hereby; provided, however, that the Company
shall be entitled, without the prior approval of the Buyer, to make any press
release or other public disclosure with respect to such transactions as is
required by applicable law and regulations (although the Buyer shall be
consulted by the Company in connection with any such press release or other
public disclosure prior to its release and shall be provided with a copy
thereof).
(l) Further Assurances. Each party shall do and perform, or cause to be done
and performed, all such further acts and things, and shall execute and deliver
all such other agreements, certificates, instruments and documents, as the
other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
(m) Termination. In the event that the Closing shall not have occurred with
respect to the Buyer on or before five (5) business days from the date hereof
due to the Company's or the Buyer's failure to satisfy the conditions set
forth in Sections 6 and 7 above (and the nonbreaching party's failure to waive
such unsatisfied condition(s)), the nonbreaching party shall have the option
to terminate this Agreement with respect to such breaching party at the close
of business on such date without liability of any party to any other party-
provided, however, that if this Agreement is terminated pursuant to this
Section 9(l), the Company shall remain obligated to reimburse the Buyer for
the expenses described in Section 4(h) above.
(n) Finder. The Company acknowledges that it has engaged J.P. Carey
Securities, Inc. as placement agent in connection with the sale of the Series
A Preferred Shares, which placement agent may have formally or informally
engaged other agents on its behalf. The Company shall be responsible for the
payment of any placement agent or brokers' fees (which includes cash and
warrants to purchase Common Stock) relating to or arising out of the
transactions contemplated hereby.
(o) No Strict Construction. The language used in this Agreement will be
deemed to be the language chosen by the parties to express their mutual
intent, and no rules of strict construction will be applied against any party.
IN WITNESS WHEREOF, the Buyer and the Company have caused this Securities
Purchase Agreement to be duly executed as of the date first written above.
"COMPANY"
FINET HOLDINGS CORPORATION
By:
Name:
Its:
"BUYER"
___________________________
By:
Name:
Title:
SCHEDULE OF BUYERS
Address and Number of Series A
Buyer's Name Facsimile Number of Preferred Shares
Buyer
SCHEDULE 3(c)
Capitalization
3 (c)(i) Options, Warrants, Stock Rights, etc.
As of September 28, 1998:
Common Stock Committed and Outstanding 33,536,817
Warrants Outstanding 12,362,196
Options:
1989 Stock Option Plan - Granted 1,316,156
(Reserve: 1,750,000)
1998 Stock Option Plan - Granted 260,000
(Reserve: 2,000,000)
1998 Non-Employee Directors Stock Option Plan - Granted 0
(Reserve: 500,000)
1998 Stock Bonus Plan - Granted 0
(Reserve: 875,000)
Schedule 3(c)(i)
Common Stock Issuance Summary
Number of
Shares
Issued
September,
1997 159,942
October,
1997 12,500
November,
1997 490,141
December, 0
1997
January,
1998 842,658
February, 0
1998
March, 1998
24,975
April, 1998
1,515,250
May, 1998
466,117
June, 1998
98,063
July, 1998
-
August,
1998 -
September,
1998 4,000
3,613,646
Schedule 3(c)(iii)
Option Summary
Post-Split
Date Shares ISO Non Term Expiratio
of Optio n on
n
GranPrice Granted ISO Terminati
t / on
Share
1989 Stock 1,750,000
Option Plan
10/2 $5.50 40,000 X 5 12 mo
0/97 years
1/27 $4.50 25,000 X 5 12 mo
/98 years
1/27 $4.50 25,000 X 5 12 mo
/98 years
1/27 $4.50 25,000 X 5 12 mo
/98 years
9/17 $0.75 975,523* X 10 3 mo
/98 years
1998 Stock 2,000,000
Option Plan
Reserve
$3.38 60,000
8/20 $1.69 200,000 X 5 12 mo
/98 years
1998 Stock 875,000
Plan Bonus
Reserve
1998 Non- 500,000
Employee
Directors
Option
Plan Reserve
* Grants to
100
employees.
Grant amounts
range from
625 to
150,000
options
Schedule 3(c)(iv)
Warrant Summary
Warran Expirat Expiratio Exercis
ts ion n e
Date Time(1) Price
(1) (2) (3) (1)
EST
10/1/02 $
2,000, 4.00
000
1,300, 10/31/0 5:00 PM $
000 2 5.00
131,16 11/9/03 5:00 PM $
7 4.50
80,000 3/18/03 5:00 PM $
5.71
100,00 3/16/01 5:00 PM $
0 5.71
37,500 4/20/01 5:00 PM $
4.88
30,000 4/20/03 5:00 PM $
4.88
30,000 3/18/03 5:00 PM $
5.25
37,500 3/16/01 5:00 PM $
5.25
1,700, 9/17/08 5:00 PM $
000 1.25
5,446,
167
An Asset Purchase Agreement dated August 30, 1997 between Finet Holdings
Corporation and The Real Estate Office Software Company provides for up to
200,000 shares of Finet Stock to be issued to The Real Estate Office Software
Company. As of this date, 150,000 shares have been issued, the remaining
shares are escrowed in a Retention Account pending the outcome of post closing
audit reports.
On April 30, 1998, the Company entered into a Stock Purchase Agreement with
Coastal Federal Mortgage, Company whereby the Company acquired 100% of the
issued and outstanding stock of Coastal for consideration of up to 1,250,000
shares of the Company's common stock, of which 125,000 shares are reserved for
potential adjustment for certain currently undetermined contingencies.
On May 19, 1998, the Company entered into a Stock Purchase Agreement with
MICAL Mortgage, Inc ("MICAL") whereby the Company acquired 100% of the issued
and outstanding stock of MICAL in exchange for up to 552,430 shares of the
Company's common stock, of which 120,460 shares are reserved for potential
adjustment for certain currently undetermined contingencies.
On March 18, 1998, the Company entered into a Securities Purchase Agreement to
sell $4,000,000 of a $7,000,000, 3% Convertible Debenture. In accordance with
the Agreement, the Company is reserving 2,098,361 shares.
On April 20, 1998, the Company entered into a Securities Purchase Agreement to
sell $1,500,000 of a $7,000,000, 3% Convertible Debenture. In accordance with
the Agreement, the Company is reserving 923,077 shares.
On May 26, 1998, the Company entered into a Securities Purchase Agreement to
sell $1,500,000 of a $7,000,000, 3% Convertible Debenture. In accordance with
the Agreement, the Company is reserving 923,077 shares.
3(c)(iii) Obligations to Register the Company's Securities
Form of Unit Purchase Agreement issued by the Registrant to each Selling
Security Holder in the July 1993 Unit Offering
Common Stock Purchase Agreement between the Registrant and Jose Maria Salema
Garcao dated December 16, 1996
Warrant Purchase Agreement between the Registrant and Jose Maria Salema Garcao
dated December 16, 1996
Common Stock Purchase Warrant issued to Jose Maria Salema Garcao for 1,000,000
shares dated December 16, 1996
Common Stock Purchase Agreement between the Registrant and purchasers in the
Regulation S private placement, dated December 30, 1996
Warrant Purchase Agreement between Finet and Jose Maria Salema Garcao to
purchase 2,500,000 shares, dated December 30, 1996
Common Stock Purchase Warrant issued to Jose Maria Salema Garcao for 2,500,000
shares dated December 30, 1996
Common Stock Purchase Agreement between the Registrant and Jose Maria Salema
Garcao dated March 21, 1997
Warrant Purchase Agreement between the Registrant and Jose Maria Salema
Garcao, dated March 21, 1997
Stock Purchase Agreement between the Registrant and Purchasers in the April
1997 Unit Offering, dated April 30, 1997
Stock Purchase Agreement between the Registrant and purchasers in the October,
1997 Private Placement, dated October 15, 1997
Stock Purchase Agreement between the Registrant and purchasers in the
$7,000,000 3% Subordinated Convertible Debenture Offering, dated March 18,
1998 (3 tranches)
Warrant Purchase Agreement between the Registrant and J.P. Carey Securities,
Inc., dated March 18, 1998 (3 tranches)
SCHEDULE 3(e)
Conflicts
None.
SCHEDULE 3(g)
Absence of Certain Changes
By letter dated September 24, 1998, the Company was notified by the
Nasdaq Stock Market, Inc. that its staff had determined that the Company no
longer meets the requirements for continued listing on the Nasdaq SmallCap
Market, more particularly Marketplace Rule 4310(c)(2) and requesting the
Company to submit a proposal for achieving compliance, including a plan to
meet all Nasdaq SamllCap Market listing requirements, the time frame necessary
for completion, and any relevant information to support its compliance plan.
The Company is currently preparing such a proposal.
SCHEDULE 3(h)
Litigation
None.
SCHEDULE 3(m)
Intellectual Property
None.
SCHEDULE 3(o)
Liens
The Company's wholly owned subsidiaries, Monument Mortgage, Inc., MICAL
Mortgage Inc., and Coastal Federal Mortgage Company, each fund the loans they
originate using a mortgage warehouse borrowing facility. The primary warehouse
line of credit, the revolving line of credit and the note payable have been
with the same lender for eight years. The collateral for these obligations is
a combination of mortgages held for sale, receivables from sales of mortgage
loans, servicing assets, other assets of the Company, and Finet's corporate
guarantee, as detailed in Notes to Financial Statements, Note 8. DEBT, in the
Company's report on Form 10-Q for the quarter ended July 31, 1998.
SCHEDULE 3(t)
Tax Status
None.
SCHEDULE 3(u)
Certain Transactions
None.
SCHEDULE 4(d)
Use of Proceeds
Working capital:
$2,500,000
Total: $2,500,000
SCHEDULE 4(m)
Shareholder Proposals at Annual Meeting of Shareholders
Among other items, the Company's shareholders will be asked to approve an
amendment to the Company's Certificate of Incorporation to increase the
authorized number of shares of the Company's Common Stock from 60,000,000 to
100,000,000 shares.
If the Series A Preferred Offering implicates Rule 4310 promulgated by the
National Association of Securities Dealers, Inc. (the "NASD") which requires
stockholder approval of an issuance that exceeds 20% of an issuer's Common
Stock then outstanding, the Company covenants to submit to the shareholders a
proposal to ratify and/or approve the issuance of the Series A Preferred
Shares, the Conversion Shares, the Warrants and the Warrant Shares.
