<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): June 30, 1997
_______________________________________________________________________________
Borland International, Inc.
(Exact name of registrant as specified in charter)
_______________________________________________________________________________
Delaware 33-80946 94-2895440
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
_______________________________________________________________________________
100 Borland Way, Scotts Valley, California 95066-3249
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (408) 431-1000
--------------
Not applicable
(Former name or former address, if changed since last report)
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ITEM 5. OTHER EVENTS.
On June 30, 1997, the Registrant completed the initial closing (the
"Initial Closing") of a privately placed equity financing pursuant to a series
of subscription agreements (the "Financing Agreements") with 22 investors (the
"Investors"). The Financing Agreements contemplate several closings of sales of
Series B Preferred Stock (the "Series B Shares") and warrants to purchase Common
Stock (the "Warrants") which closings are subject to various conditions. At
the Initial Closing, the Registrant raised net proceeds of approximately $25
million through the sale of 495 Series B Shares and Warrants to purchase up to
198,000 shares of the Registrant's Common Stock. After the satisfaction of
certain holding periods, each Series B Share is convertible, at the option of
its holder, into shares of Common Stock of the Registrant based upon a
conversion price equal to the lower of the lowest closing market price of the
Registrant's Common Stock during the seven trading days before the conversion
date or $6.94. The Warrants have an exercise price of $8.67 per share. Subject
to various conditions, the Financing Agreements provide for the issuance of an
additional 55 Series B Shares and Warrants to purchase 22,000 shares of the
Registrant's Common Stock which is to be made at a second closing and on the
same terms applicable at the Initial Closing.
Subject to various additional conditions, including, but not limited to,
approval of the Registrant's stockholders, the Registrant has the option
("Company Put Option") to require the Investors to purchase additional Series B
Shares and Warrants, and the Investors have the right to require that the
Registrant sell to them additional Series B Shares and Warrants ("Investor Call
Options"). The maximum number of additional Series B Shares and Warrants which
the Registrant may require the Investors to purchase is 500 Series B Shares, for
an additional purchase price of approximately $25 million, and Warrants to
purchase 200,000 shares of the Registrant's Common Stock. If the Registrant
exercises its right to sell the maximum number of shares pursuant to the Company
Put Option, the Investors may require that the Registrant sell to them pursuant
to the Investor Call Options a maximum of 420 additional Series B Shares, for a
purchase price of approximately $21 million, (or 220 Series B Shares, for a
purchase price of approximately $11 million, if the Registrant does not exercise
the Company Put Option) and the number of shares subject to additional Warrants
would be 168,000 (or 88,000 if the Registrant does not exercise the Company Put
Option). The Series B Shares and Warrants issued upon exercise of the Company
Put Option or the Investor Call Options will have the same terms and rights as
the Series B Shares and Warrants issued at the Initial Closing except that the
maximum conversion price and exercise price, respectively, will be based upon
the market price of the Registrant's Common Stock at the time of each subsequent
issuance of such Series B Shares and Warrants.
Notwithstanding the above, in order to comply with the rules of the Nasdaq
Stock Market which require stockholder approval for issuances of 20% or more of
the Registrant's outstanding stock, the number of shares of the Registrant's
Common Stock issuable pursuant to this financing cannot exceed 20% of the
Registrant's outstanding Common Stock unless the Registrant obtains the approval
of the Registrant's stockholders.
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TERMS OF THE SERIES B SHARES
The following is a summary of the rights, preferences and privileges of the
Series B Shares and the rights granted pursuant to the Financing Agreements:
Dividends. The Series B Shares are not entitled to any preference with
respect to dividend payments.
Voting Rights. The holders of the Series B Shares are entitled to that
number of votes as shall be equal to the number of shares of Common Stock into
which each Series B Share is convertible on the record date for any meeting of
stockholders. In addition, the approval of the holders of at least 66 2/3% of
the outstanding Series B Shares, voting separately as a class, is required for
approval of any amendment to the Registrant's Certificate of Incorporation which
adversely affects the powers, preferences or rights of the Series B Shares or
any amendment to or waiver of the terms of the Series B Shares.
Liquidation Preference. Upon any liquidation, dissolution or winding up of
the affairs of the Registrant, the holder of each Series B Share shall be
entitled to be paid $50,000 per share (the amount initially paid for such
shares) out of the assets of the Registrant. If the assets of the Registrant
upon such event are insufficient to make such payment in full, then the holders
of Series B Shares shall be entitled to pro rata distribution of all the assets
of the Registrant. After payment in full of the liquidation preference to the
holders of Series B Shares, such holders are entitled to no further
distributions.
Conversion. The Series B Shares are convertible into shares, of Common
Stock, at the election of the holder of such Series B Shares, at a price (the
"Conversion Rate") equal to the lower of the market price at the original date
of issuance of such share (the "Initial Price") or the market price when a
holder of Series B Shares delivers notice of his election to convert such shares
("Notification Date"). "Market price" is generally determined by the closing
price for the Registrant's Common Stock on the applicable date.
Subject to conditions specified below, the Investor(s) may convert, in
aggregate, up to a maximum of a specified percentage of the Series B Shares
according to the following schedule:
<TABLE>
<CAPTION>
Days from Closing % of Shares Convertible
----------------- -----------------------
<S> <C>
1 through 45 0
46 through 90 20
91 through 135 40
136 through 180 60
181 through 225 80
greater than 225 100
</TABLE>
The above limitations on conversion would be eliminated (i) during any Forced
Conversion Period (as hereinafter defined) and/or (ii) for any conversions at an
effective Conversion Rate which is greater than Conversion Rate applicable when
the shares are originally issued, as adjusted in accordance with the Certificate
of Determination filed for the Series B Shares.
3
<PAGE>
Any Series B Shares outstanding five years after the date such shares were
initially issued would automatically convert into shares of the Registrant's
Common Stock at the then applicable Conversion Rate.
Adjustments to Conversion Rate. The Conversion Rate is subject to
proportional adjustment upon any stock split, stock dividend or other similar
change to the capital stock of the Registrant. Upon an acquisition of the
Registrant involving a sale of all or substantially all of the assets of the
Registrant and upon a merger, consolidation or other corporate reorganization of
the Registrant which results in the transfer of more than 50% of the voting
power of the Registrant, the holders of the Series B Shares are treated as if
they had converted such shares immediately prior to the consummation of such
transaction.
Mandatory Conversion. Following at least (i) 90 calendar days of
effectiveness of a registration statement to be filed by the Registrant with the
Securities and Exchange Commission (as described below) and (ii) 20 consecutive
trading days during which the closing market price of the Registrant's Common
Stock is no less than twice the Initial Price, the Registrant may elect to
deliver a mandatory conversion notice to all holders of Series B Shares ("Forced
Conversion Notice"). Upon receipt of a Forced Conversion Notice, each Investor
would be required to convert any and all Series B Shares held by such Investor
within the 30 calendar days immediately following receipt of such Forced
Conversion Notice ("Forced Conversion Period").
A Forced Conversion Notice would be deemed null and void, however, if any
time during the Forced Conversion Period, (i) the Registrant's Common Stock
trades at a market price which is less than 85% of the closing market price on
the day such Forced Conversion Notice is delivered, (ii) the Registrant's Common
Stock is suspended from trading, (iii) the effectiveness of the Registration
Statement is suspended, and/or (iv) the Registrant is in material breach of the
Financing Agreements.
Redemption. Upon at least 20 trading days' written notice, the Registrant
may elect to redeem, on the date which is the second, third or fourth
anniversary of effectiveness of the Registration Statement, all of the Series B
Shares which remain outstanding on the date which is the second anniversary of
effectiveness of the Registration Statement, at 110% of par. Subject to certain
conditions, the Registrant also has a right to call for redemption if the
Conversion Rate is less than $6 per share.
Registration Rights. The Registrant is obligated to promptly (and in any
event prior to September 30, 1997) file a registration statement (the
"Registration Statement") with the Securities and Exchange Commission (the
"SEC") to cover the Registrant's Common Stock issuable upon the conversion of
the Series B Shares and exercise of the Warrants and/or the resale of such
shares. The Registrant is obligated to use its reasonable best efforts to have
the Registration Statement declared effective by the SEC and remain effective
until the Registrant's Common Stock subject to the Registration Statement may
otherwise be freely traded without registration. The Registrant is also
obligated to list such shares on the Nasdaq National Market and to take certain
actions to comply with applicable state securities laws and regulations.
4
<PAGE>
TERMS OF THE WARRANTS
For each Series B Share purchased by an Investor, the Registrant is
obligated to grant to such Investor Warrants to purchase 400 shares of the
Registrant's Common Stock. The Warrants have a four year term and an exercise
price equal to 125% of the market price for the Registrant's Common Stock at the
original date of issuance of such Warrants. The terms of exercise of the
Warrant are subject to customary adjustments on stock splits, stock dividends,
any merger or acquisition involving the Registrant and similar transactions,
such as to permit the Investors to receive upon exercise of the Warrants that
which they would have received had they exercised the Warrants immediately prior
to any such transaction.
CLOSINGS AND OPTIONS.
The first closing of the sale of Series B Shares and Warrants took place on
June 30, 1997. At the Initial Closing, 495 Series B Shares and Warrants for the
purchase of 198,000 shares of Common Stock were issued for aggregate net
proceeds of approximately $25 million. A second closing (the "Second Closing")
is to occur pursuant to the Financing Agreements within three (3) business days
following the earlier of (i) the date of effectiveness of the Registration
Statement and (ii) the date on which the Investors may, as a group, elect. At
such closing the Investors are obligated to purchase for an additional payment
of approximately $2.5 million, an additional 55 Series B Shares and Warrants to
purchase 22,000 shares of Common Stock. If the Second Closing does not occur
before June 30, 1998, each Investor would not be required to deliver any
additional funds to the Registrant, but the Registrant would nonetheless be
obligated to deliver the 55 Series B Shares and related Warrants.
Company Put Option. Beginning September 30, 1997 and ending March 31,
1998, the Registrant may require that the Investors purchase up to 500
additional Series B Shares, for a purchase price of approximately $25 million,
and related Warrants (pro rata per Investor) under the same terms and conditions
as the initial issuance of Series B Shares, except that the initial conversion
price for the Series B Shares and the Warrant exercise price will be based upon
the market price at the time of such investment. The Registrant's ability to
exercise such option is subject to a number of conditions, including, among
others: (i) the Registrant has obtained stockholder approval; (ii) the
Registrant's representations and warranties set forth in the Financing
Agreements continue to be accurate; (iii) the Registrant's revenues from the
period beginning April 1, 1997 and ending September 30, 1997 are at least
$50,000,000; (iv) the Registration Statement has been effective for at least 30
consecutive calendar days; (v) the Registrant's Common Stock has not been
delisted from the Nasdaq National Market and/or suspended from trading; (vi)
there has been no change of control involving the Registrant; (vii) the market
price for the Registrant's Common Stock has been not less than $5.00 per share
during the 20 trading days immediately preceding such put; and (viii) certain
tests are met regarding minimum average daily trading volume in the Registrant's
Common Stock.
Investor Call Options. At any time from June 30, 1998 through June 30,
2000, each Investor has the right to require that the Registrant issue for every
five (5) unconverted Series B Shares held by such Investor at June 30, 1998 (or
such earlier date as there has been a mandatory conversion), up to an additional
two (2) Series B Shares along with a pro-rata share of Warrants. Such right may
be exercised only at such time(s) that the closing market price of the
Registrant's
5
<PAGE>
Common Stock is greater than $8.00 per share and is otherwise subject to the
same terms and conditions as apply to the Second Closing.
LIMITATIONS ON CONVERSION AND EXERCISE
The Financing Agreements provide that the number of shares of the
Registrant's Common Stock issuable upon conversion of the Series B Shares or
exercise of the Warrants cannot exceed 20% of the outstanding shares of the
Registrant's Common Stock without approval of the stockholders of the
Registrant. Likewise, the number of shares of Registrant Common Stock issuable
from to time to any single Investor cannot exceed 5% or more of the Registrant's
outstanding Common Stock.
EFFECT ON RIGHTS OF EXISTING SECURITY HOLDERS
There is no change to the rights, preferences or privileges of the holders
of the Registrant's Common Stock as a result of the transactions which are the
subject of the Financing Agreements. However, in addition to the dilutive
impact of the issuance of additional shares of capital stock, the Series B
Shares have a liquidation preference which entitles the holders thereof to
receive payment upon any dissolution or liquidation of the Registrant in
preference to the holders of Common Stock. The amount of such preference is
equal to $50,000 per share, the original purchase price for such shares.
Based upon closing trading price of the Registrant's Common Stock on June
30, 1997, approximately 3,765,000 shares of Common Stock would be issuable upon
conversion of all 495 Series B Shares and exercise of all 198,000 Warrants
issued at the Initial Closing. This represents approximately 9.2% of the number
of outstanding shares of the Registrant's Common Stock as of such date including
such new issuance. If the Registrant does not exercise the Company Put Option
and the Investors exercise the Investors Call Options in full, the maximum
number of shares of Common Stock issuable based upon the closing trading price
of the Registrant's Common Stock as of June 30, 1997 would be 5,857,000,
representing approximately 13.6% of the Registrant's outstanding Common Stock on
June 30, 1997 including such new issuance. If the stockholders of the Registrant
approve the issuance of additional Common Stock pursuant to the Financing
Agreements and on the assumption that there is a full exercise by the Registrant
of the Company Put Option and a full exercise by the Investors of the Investor
Call Options, based upon the closing trading of the Registrant's Common Stock on
June 30, 1997, approximately 11,182,000 shares of Common Stock would be issuable
upon conversion of all 1,470 Series B Shares and exercise of all 588,000
Warrants, representing approximately 23.1% of the number of shares of the
Registrant's Common Stock outstanding as of June 30, 1997 including such new
issuance. The conversion ratio for the Series B Shares is determined by the
market price of the Registrant's Common Stock at the time of future issuance
and/or conversion; therefore it is not possible at this time to determine the
maximum number of common shares issuable.
ITEM 7. EXHIBITS.
(a) Financial statements of business acquired.
Not applicable.
6
<PAGE>
(b) Pro forma financial information.
Not applicable.
(c) Exhibits.
Exhibit No. Description
----------- -----------
3.1 Certificate of Designation for Series B Preferred Stock
10.1 Form of Convertible Securities Subscription Agreement
for Series B Preferred Stock
10.2 Form of Registration Rights Agreement for Series B
Preferred Stock
99.1 Press Release of Borland dated June 30, 1997.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
BORLAND INTERNATIONAL, INC.
Date: July 11, 1997 By: /s/ Hobart McK. Birmingham
----------------------------
Hobart McK. Birmingham,
Secretary
7
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description Sequentially
----------- ----------- Numbered Page
-------------
<S> <C> <C>
3.1 Certificate of Designation for Series B Preferred Stock
10.1 Form of Convertible Securities Subscription Agreement for
Series B Preferred Stock
10.2 Form of Registration Rights Agreement for Series B Preferred
Stock
99.1 Press Release of Borland dated June 30, 1997.
.
</TABLE>
<PAGE>
EXHIBIT 3.1
CERTIFICATE OF DESIGNATION, PREFERENCE AND RIGHTS
OF SERIES B CONVERTIBLE PREFERRED STOCK
BORLAND INTERNATIONAL, INC.
We, Delbert W. Yocam and Hobart McK. Birmingham, being the President and
Secretary, respectively, of Borland International, Inc., a corporation organized
and existing under the laws of the State of Delaware (the "Corporation"), being
duly authorized to execute and file this Certificate, do hereby certify and
attest that pursuant to authority conferred upon the Board of Directors by the
Certificate of Incorporation of the Corporation and Section 151 of the General
Corporation Law of the State of Delaware, the Board of Directors of the
Corporation duly adopted the following resolutions providing for the
establishment and designation of a series of preferred stock:
RESOLVED: That, pursuant to authority vested in the Board of Directors by the
- --------
Third Article of the Certificate of Incorporation of the Corporation,
as amended, a new series of preferred stock, $0.01 par value, be and
hereby is established and designated as Series B Convertible Preferred
Stock, consisting of 1,470 shares, the powers, preferences and
relative, participating, optional or other special rights of which,
and the qualifications, limitations or restrictions of which, in
addition to any set forth in the Corporation's Certificate of
Incorporation, shall be as set forth in Exhibit A attached hereto.
---------
IN WITNESS WHEREOF, we have hereunto set our hands and seals as President
and Secretary, respectively, of this Corporation on this 26th day of June, 1997,
and we hereby affirm that the foregoing Certificate is our act and deed and the
act and deed of the Corporation and that the facts stated therein are true.
--------------------------------
Delbert W. Yocam, President
Attest:
- ------------------------------------
Hobart McK. Birmingham, Secretary
<PAGE>
EXHIBIT A
---------
BORLAND INTERNATIONAL, INC.
TERMS, RIGHTS, PREFERENCES AND PRIVILEGES
OF
SERIES B CONVERTIBLE PREFERRED STOCK, $.001 PAR VALUE
-----------------------------------------------------
Section 1. Voting. The holders of the Series B Convertible Preferred
------- - ------
Stock shall have such voting rights as are set forth below except as otherwise
required by law from time to time.
The affirmative approval (by vote or written consent as permitted by
applicable law) of the holders of at least 66-2/3% of the outstanding shares of
the Series B Convertible Preferred Stock, voting separately as a class, will be
required for (i) any amendment, alteration or repeal of the Corporation's
Certificate of Incorporation, as amended from time to time, (including any
Certificate of Determination, Rights and Preferences) if such amendment,
alteration or repeal adversely affects the powers, preferences or rights of the
Series B Convertible Preferred Stock (including, without limitation, by creating
any class or series of equity securities having a preference over the Series B
Convertible Preferred Stock with respect to dividends, redemption, distribution
upon liquidation or in any other respect), or (ii) any amendment to or waiver of
the terms of the Series B Convertible Preferred Stock or this Certificate.
Except as provided in the preceding paragraph, to the extent that under
applicable law or under the Corporation's Certificate of Incorporation or By-
Laws, each as amended from time to time, the approval of the holders of the
Series B Convertible Preferred Stock, voting separately as a class, is required
to authorize a given action of the Corporation, the affirmative approval (by
vote or written consent as permitted by applicable law) of the holders of a
majority of the outstanding shares of the Series B Convertible Preferred Stock
shall constitute the approval of such action by the class. To the extent that
under applicable law or under the Corporation's Certificate of Incorporation or
By-Laws, each as amended from time to time, the holders of the Series B
Convertible Preferred Stock are entitled to vote on a matter with holders of the
Common Stock, voting together as one class, each share of Series B Convertible
Preferred Stock shall
<PAGE>
be entitled to that number of votes as shall be equal to the number of shares of
the Corporation's Stock (the "Common Stock") into which each share of Series B
Convertible Preferred Stock is convertible on the record date for any meeting of
stockholders or on the date of any written consent of stockholders, as
applicable (without regard to any conversion restrictions hereunder). Holders of
the Series B Convertible Preferred Stock shall be entitled to notice of all
shareholder meetings or written consents (whether or not they are entitled to
vote thereat), which notice will be provided pursuant to the Corporation's By
Laws, as amended from time to time, and applicable statutes.
Section 2. Dividends. No dividends shall accrue with respect to the
------- - ---------
Series B Convertible Preferred Stock.
Section 3. Liquidation Preference.
------- - ----------- ----------
(a) Preference. In the event of any liquidation, dissolution or winding up
----------
of the affairs of the Corporation, voluntarily or involuntarily, the holders of
each share of Series B Convertible Preferred Stock shall be entitled to be paid
pro rata out of the assets of the Corporation available for distribution to its
stockholders, whether such assets are capital, surplus, or earnings, before any
payment or declaration and setting apart for payment of any amount shall be made
in respect of any shares of the Corporation's Common Stock or shares of any
other capital stock of the Corporation ranking junior to the Series B
Convertible Preferred Stock (collectively, "Junior Stock"), a preferential
amount equal to Fifty Thousand Dollars ($50,000.00) per share of Series B
Convertible Preferred Stock held by them (such preferential amount, as adjusted
to reflect any stock split, stock dividend, combination, recapitalization or
reorganization, being hereinafter referred to as the "Series B Preferred Stock
Liquidation Preference"). Upon the holder's receipt of the full Preferred Stock
Liquidation Preference on any share of Series B Convertible Preferred Stock,
such share shall be deemed to be canceled, and the holder of such share of
Series B Convertible Preferred Stock shall return the certificate representing
such share to the Corporation for cancellation. Except as otherwise provided
herein, upon payment of the Series B Preferred Stock Liquidation Preference upon
each share of Series B Convertible Preferred Stock, the Corporation shall have
no further obligation to make any other payments or distributions out of the
assets of the Corporation on any shares of Series B Convertible Preferred Stock
in connection with such liquidation, dissolution or winding up of the
Corporation. If upon such liquidation, dissolution or winding up, the assets of
the Corporation are insufficient (after payment of the liquidation preference of
any class of preferred stock ranking senior on liquidation to the Series B
Convertible Preferred Stock) to provide for the payment in full of the Series B
Preferred Stock Liquidation Preference for each share of Series B Convertible
Preferred Stock outstanding, such assets as are available shall be paid out pro
rata (determined in accordance with the liquidation preferences of the relevant
series of preferred stock) to the outstanding shares of Series B Convertible
Preferred Stock and to any holders of any series of preferred stock that ranks
pari passu with the Series B Convertible Preferred Stock.
- ---- -----
(b) Remaining Assets. After the payment or distribution to the holders of
----------------
the Series B Convertible Preferred Stock of the full Series B Preferred Stock
<PAGE>
Liquidation Preference, the holders of the Junior Stock then outstanding shall
be entitled to receive all remaining assets of the Corporation to be
distributed.
Section 4. Conversion.
--------- ----------
The holders of the Series B Convertible Preferred Stock shall have
conversion rights in accordance with the following provisions:
(a) Voluntary Conversion. Each holder of one or more shares of Series B
--------------------
Convertible Preferred Stock shall be entitled, at any time and from time to time
and at such holder's option, to convert into fully paid and nonassessable shares
of Common Stock (as such shares of Common Stock may be constituted on the
conversion date) at the rate specified in Section 4(d) hereof, subject to
adjustment in accordance with Section 5 hereof, up to that number of shares of
Series B Convertible Preferred Stock equal to the Convertible Percentage (as
determined in accordance with the following table) of the number of shares of
Series B Convertible Preferred Stock then held by such holder; provided that, in
--------
determining the number of shares of Series B Convertible Preferred Stock then
held by such holder for purposes of this Section 4(a), such holder shall be
deemed to then hold that number of shares of Series B Convertible Preferred
Stock actually then held by such holder plus that number of shares of Series B
Convertible Preferred Stock previously converted by such holder in accordance
with this Section 4(a).
<TABLE>
<CAPTION>
Date of Conversion
(number of days after issuance of the Series B
Convertible Preferred Stock being converted) Convertible Percentage
- ------------------------------------------------- ------------------------
<S> <C>
1 to 45 0%
46 to 90 20%
91 to 135 40%
136 to 180 60%
181 to 225 80%
greater than 225 100%
</TABLE>
Anything in this Section 4(a) to the contrary notwithstanding, a
holder of shares of Series B Convertible Preferred Stock shall be permitted to
voluntarily convert any number of such holder's shares of Series B Convertible
Preferred Stock in accordance with this Section 4(a) in the event that the
applicable rate of conversion specified in Section 4(d) hereof, subject to
adjustment in accordance with Section 5 hereof, is no less than the Market Price
on the Original Issuance Date (as defined below) for such shares of Series B
Preferred Stock, subject to adjustment in accordance with Section 5 hereof. The
Original Issuance Date shall mean (i) with respect to any shares of Series B
Preferred Stock issued at the First Closing and the Second Closing, the First
Closing Date, (ii) with respect to any shares of Series B
<PAGE>
Preferred Stock issued at the Put Closing, the Put Closing Date (as defined in
the Subscription Agreements for the Series B Preferred Stock), and (iii) with
respect to any shares of Series B Preferred Stock issued pursuant to an
Additional Purchase Notice (as defined in the Subscription Agreements for the
Series B Preferred Stock), the closing date of any purchase of shares of Series
B Preferred Stock pursuant to such notice. The term "Fixed Price," as used
herein, shall mean (i) with respect to the shares of Series B Preferred Stock
issued on the First Closing Date or the Second Closing Date (as defined in the
Subscription Agreements for the Series B Preferred Stock), the Market Price as
of the First Closing Date, (ii) with respect to the shares of Series B Preferred
Stock issued as of the Put Closing Date (as defined in the Subscription
Agreements for the Series B Preferred Stock) the Market Price as of the Put
Closing Date, and (iii) with respect to the shares of Series B Preferred Stock
issued pursuant to an Additional Purchase Notice (as defined in the Subscription
Agreements for the Series B Preferred Stock), the Market Price as of the closing
date of any such issuance, subject in each case to adjustment as provided
herein.
(b) Forced Conversion. On any day for which both (i) the registration
-----------------
statement (the "Registration Statement") filed by the Corporation pursuant to
the Registration Rights Agreement among the Corporation and the initial
purchasers of shares of Series B Convertible Preferred Stock shall have been
effective on each of the preceding ninety (90) trading days, and during which
time no stop order suspending the qualification of the Common Stock for sale in
any jurisdiction has been issued and no other transfer restrictions have been
imposed, and (ii) the Market Price of the Common Stock for each of the preceding
twenty (20) trading days shall not have been less than 200% of the Fixed Price
on the Original Issuance Date (subject to appropriate adjustment in the event of
any stock split, combination, recapitalization, reclassification or other
capital reorganization as contemplated by Section 5 hereof), the Corporation
may, at its option, deliver to each of the holders of record of shares of Series
B Convertible Preferred Stock a notice (the "Forced Conversion Notice") of the
Corporation's election to cause the conversion of all, but not less than all,
shares of Series B Convertible Preferred Stock then outstanding. The date on
which the Forced Conversion Notice is received (as defined in Section 15) by the
holders shall be referred to as the "Forced Conversion Notice Date." The term
"Market Price" shall mean, with respect to the Common Stock on any day, the last
reported per share sales price of Common Stock reported on such business day
or, in case no sales take place on such day, the average of the closing bid and
asked prices on such prior day, in either case, as reported on the Bloomberg
Financial Markets for such day, or, if not reported on the Bloomberg Financial
Markets, the last quoted price on such prior day (or, if not so quoted, the
average of the last quoted high bid and low asked prices) in the over the
counter market, as reported by NASDAQ or such other system then in use, or, if
on any such prior day no bids are quoted by any such organization, the average
of the closing bid and asked prices on such prior day furnished by a
professional market maker making a market in Common Stock selected by the Board
of
<PAGE>
Directors of the Company, and, if on any such prior day, no market maker is
making a market in the Common Stock, the fair market value of the Common Stock
as of such prior day determined reasonably and in good faith by the Board of
Directors of the Company.
Upon receipt of the Forced Conversion Notice and notwithstanding any
limitations upon conversion set forth in Section 4(a) hereof, each holder of one
or more shares of Series B Convertible Preferred Stock shall be entitled, at any
time or times within the period of thirty (30) calendar days following the
Forced Conversion Notice Date (the "Forced Conversion Period"), to convert any
or all of such holder's shares of Series B Convertible Preferred Stock into
fully paid and nonassessable shares of Common Stock (as such shares of Common
Stock may be constituted on the conversion date) at the rate specified in
Section 4(d) hereof, subject to adjustment in accordance with Section 5 hereof
(without regard to the conversion restrictions in (S)4(a)). Subject to the
provisions of the following paragraph, on the last day of the Forced Conversion
Period, each share of Series B Convertible Preferred Stock then outstanding
shall be converted automatically and without further action into fully paid and
nonassessable shares of Common Stock (as such shares of Common Stock may be
constituted on the conversion date) at the rate specified in Section 4(d)
hereof, subject to adjustment in accordance with Section 5 hereof, all as if
Conversion Notices had been delivered with respect to all such shares of Series
B Convertible Preferred Stock on the last day of the Forced Conversion Period.
Anything in this Section 4(b) to the contrary notwithstanding, any
Forced Conversion Notice delivered in accordance with this Section 4(b) shall be
deemed null, void and of no effect upon the occurrence, at any time during the
Forced Conversion Period, of any one or more of the following events: (i) the
Market Price of the Common Stock is less than 85% of the Market Price of the
Common Stock on the Forced Conversion Notice Date, (ii) the issuance of any stop
order suspending the qualification of the Common Stock for sale in any
jurisdiction, (iii) the issuance of any stop order suspending the effectiveness
of the Registration Statement, (iv) the suspension of trading of the Common
Stock by the Securities and Exchange Commission, the NASDAQ or the NASD, or the
delisting of the Common Stock from the NASDAQ, or (v) the occurrence of any
material breach by the Corporation of any of its obligations in respect of the
Series B Convertible Preferred Stock hereunder.
(c) Mandatory Conversion. On the fifth anniversary of the Original
--------------------
Issuance Date, each outstanding share of Series B Convertible Preferred Stock
shall be converted automatically and without further action into fully paid and
nonassessable shares of Common Stock (as such shares of Common Stock may be
constituted on the conversion date) at the rate specified in Section 4(d)
hereof, subject to adjustment in accordance with Section 5 hereof, and a
conversion notice
<PAGE>
shall be deemed to have been given by the holder of each such outstanding share
of Series B Convertible Preferred Stock on such date.
(d) Conversion Rate.
---------------
(i) Each share of Series B Convertible Preferred Stock that is
converted into shares of Common Stock in accordance with Sections 4(a), (b) and
(c) hereof shall convert into such number of shares of Common Stock as may be
purchased with $50,000.00 at a price equal to the lower of (i) the lowest
Market Price of the Common Stock during the seven (7) trading days immediately
preceding the Holder Conversion Date (as defined in Section 4(e) hereof) or (ii)
the Fixed Price, subject to adjustment in accordance with Section 5 hereof.
(ii) The number of shares of Common Stock into which each share of
Series B Convertible Preferred Stock may be converted pursuant to this Section
4(d), as such may be adjusted from time to time in accordance with Section 5
hereof, is hereafter referred to as the "Conversion Rate."
(e) Mechanics of Conversion. Unless conversion is (i) mandatory in
-----------------------
accordance with Section 4(c) hereof or (ii) forced in accordance with Section
4(b) hereof and the applicable Forced Conversion Period has expired, any or all
shares of Series B Convertible Preferred Stock may be converted by the holder
thereof by giving written notice (the "Conversion Notice") by facsimile by 11:00
p.m. Eastern Standard Time, together with the holder's calculation of the
Conversion Rate to the Corporation, that the holder elects to convert the number
of shares specified therein, which notice and election shall be irrevocable by
the holder; and by delivering the certificate or certificates representing the
Series B Convertible Preferred Stock to be converted, duly endorsed, by either
overnight courier or two-day courier, to the principal office of the Corporation
or of any transfer agent for the Series B Convertible Preferred Stock, provided,
--------
however, in the event that such certificate or certificates have been lost,
- -------
stolen or destroyed, in lieu of delivering such certificate or certificates the
holder may notify the Corporation of such loss, theft or destruction and deliver
to the Corporation an instrument reasonably satisfactory to the Corporation
indemnifying the Corporation from any loss incurred by it in connection with
such lost, stolen or destroyed certificate or certificates.
The Corporation shall, as soon as possible and in any event within
three business days, verify the holder's calculation of the Conversion Rate as
calculated by the holder, or if the Corporation disagrees with the holder's
calculation of the Conversion Rate, deliver to the holder the Corporation's
calculation of the Conversion Rate. The Corporation shall use its best efforts
to issue and deliver as soon as possible, and in any event within five business
days after delivery to the Corporation of a Conversion Notice, to the holder of
Series B Convertible Preferred Stock requesting conversion of shares thereunder,
or to its designee, one or more certificates representing that number of shares
of Common
<PAGE>
Stock to which such holder shall be entitled, together with one or more
certificates representing any shares of Series B Convertible Preferred Stock
represented by the certificate or certificates delivered by such holder but not
submitted for conversion. The Corporation shall be deemed to have received the
Conversion Notice on the date of dispatch by the holder to the Corporation (the
"Holder Conversion Date") and the person or persons entitled to receive the
shares of Common Stock issuable upon the conversion specified therein shall be
treated for all purposes as the record holder or holders of such shares of
Common Stock on such date, provided that the certificate or certificates
representing the shares of Series B Convertible Preferred Stock to be converted
(or a notice of loss, theft or destruction and an indemnification instrument in
lieu thereof), are received by the Corporation or any transfer agent for the
Series B Convertible Preferred Stock within five (5) business days thereafter.
If such certificate or certificates (or such notice and indemnification
instrument) are not received by the Corporation or any transfer agent for the
Series B Convertible Preferred Stock within five (5) business days after the
Holder Conversion Date, the Conversion Notice shall, at the election of the
Corporation by written notice to the holder requesting such conversion, become
null and void unless the holder delivers such certificate or certificates (or
such notice and instrument of indemnification) within three (3) business days
after receipt by the holder of such election by the Corporation.
(f) Limitation on Conversion. Notwithstanding anything to the contrary
------------------------
herein, in no event shall any holder be entitled to or required to convert
Series B Convertible Preferred Stock in excess of that number of shares which,
upon giving effect to such conversion, would cause the aggregate number of
shares of Common Stock beneficially owned by the holder and its affiliates to
exceed 4.9% of the outstanding shares of the Common Stock following such
conversion. For purposes of the foregoing proviso, the aggregate number of
shares of Common Stock beneficially owned by the holder and its affiliates shall
include the number of shares of Common Stock issuable upon conversion of the
shares of Series B Convertible Preferred Stock with respect to which the
determination of such proviso is being made, but shall exclude the number of
shares of Common Stock which would be issuable upon (i) conversion of the
remaining, nonconverted shares of Series B Convertible Preferred Stock
beneficially owned by the holder and its affiliates and (ii) exercise or
conversion of the unexercised or unconverted portion of any other securities of
the Company (including, without limitation, any warrants) subject to a
limitation on conversion or exercise analogous to the limitation contained
herein beneficially owned by the holder and its affiliates. Except as set forth
in the preceding sentence, for purposes of this paragraph, beneficial ownership
shall be calculated in accordance with Section 13(d) of the Securities Exchange
Act of 1934, as amended. The provisions of this paragraph shall automatically
terminate upon the last day of the Forced Conversion Period or upon the fifth
anniversary of the Original Issuance Date for the initial shares of Series B
Convertible Preferred Stock.
<PAGE>
Section 5. Adjustments; Reorganizations.
------- - ----------- ---------------
(a) Adjustment for Stock Splits and Combinations. If, at any time or times
--------------------------------------------
after the Original Issuance Date, the Corporation effects a subdivision (by any
stock split, stock dividend, recapitalization or otherwise) of the Common Stock
into a greater number of shares or combination (by reverse stock split or
otherwise), of the outstanding Common Stock into a smaller number of shares, the
Conversion Rate and/or the Fixed Price, as applicable, in effect immediately
before such subdivision shall be proportionately increased or decreased, as
appropriate.
(b) Adjustment for Certain Dividends and Distributions. If the Corporation
--------------------------------------------------
at any time or from time to time after the Original Issuance Date makes, or
fixes 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 or in other securities of the Corporation, then and in each such event
provision shall be made so that the holders of Series B Convertible Preferred
Stock shall receive that number of shares of Common Stock or other securities of
the Corporation, as the case may be, to which such holders would be entitled to
receive had such holders converted each share of Series B Convertible Preferred
Stock then outstanding into Common Stock immediately prior to the record date
for the determination of holders of Common Stock entitled to receive such
dividend or other distribution (without regard to any restrictions on
conversion).
(c) Adjustment for Other Dividends and Distributions. In the event that
------------------------------------------------
the Corporation, at any time or from time to time after the Original Issuance
Date, makes or fixes a record date for the determination of holders of Common
Stock entitled to receive a dividend or other distribution payable other than in
securities of the Corporation, then and in each such event provision shall be
made so that the holders of Series B Convertible Preferred Stock shall receive
the amount of such dividend or other distribution, payable in the form in which
such dividend or other distribution is to be paid to holders of Common Stock, to
which such holders would be entitled to receive had such holders converted each
share of Series B Convertible Preferred Stock then outstanding into Common Stock
immediately prior to the record date for the determination of holders of Common
Stock entitled to receive such dividend or other distribution (and without
regard to any restrictions on conversion).
(d) Adjustment for Reclassification, Exchange and Substitution. In the
----------------------------------------------------------
event that at any time or from time to time after the Original Issuance Date,
the Common Stock issuable upon the conversion of the Series B Convertible
Preferred Stock is changed into the same or a different number of shares of any
class or classes of stock, whether by recapitalization, reclassification or
otherwise (other than a subdivision or combination of shares or stock dividend
or reorganization provided for elsewhere in this Section 5), then and in each
such event each holder of shares of Series B Convertible Preferred Stock shall
have the right thereafter to
<PAGE>
convert such stock into the kind of stock receivable upon such recapitalization,
reclassification or other change by holders of shares of Common Stock, all
subject to further adjustment as provided herein. In such event, the formula set
forth herein for conversion and the Fixed Price 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.
(e) Reorganization. If at any time or from time to time after the Original
--------------
Issuance Date there is a capital reorganization of the Common Stock (other than
a recapitalization, subdivision, combination, reclassification, or exchange of
shares provided for elsewhere in this Section 5), then as a part of such
reorganization, provision shall be made so that the holders of the Series B
Convertible Preferred Stock shall thereafter be entitled to receive upon
conversion of shares of Series B Convertible Preferred Stock the number of
shares of stock or other securities or property to which a holder of the number
of shares of Common Stock 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 Section 5 with respect to
the rights of the holders of the Series B Convertible Preferred Stock after the
reorganization to the end that the provisions of this Section 5 (including
adjustment of the Conversion Rate and the Fixed Price then in effect and the
number of shares issuable upon conversion of shares of the Series B Convertible
Preferred Stock) 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 formula set forth herein for conversion
to reflect the market price of the securities or property issued in connection
with the above described transaction.
(f) Acquisition. In the event of (i) a sale or other disposition of all or
-----------
substantially all of the assets of the Corporation or (ii) any merger,
consolidation or other corporate reorganization or transaction or series of
related transactions in which in excess of 50% of the Corporation's voting power
is transferred, the holders of the Series B Convertible Preferred Stock shall
vote with respect to the approval of such transaction together with the holders
of the Common Stock as one class (assuming conversion of all Series B
Convertible Preferred Stock). The holders of the Series B Convertible Preferred
Stock shall be entitled to receive on consummation of any such transaction the
consideration which they would have received had all Series B Convertible
Preferred Stock been converted to Common Stock immediately prior to the
consummation of such transaction (without regard to any then applicable
restrictions on conversion).
Section 6. Fractional Shares. No fractional shares of Common Stock or
------- - ---------- ------
scrip representing fractional shares of Common Stock shall be issuable
hereunder. The number of shares of Common Stock that are issuable upon any
conversion of one or
<PAGE>
more shares of Series B Convertible Preferred Stock shall be rounded up or down
to the nearest whole share.
Section 7. Reservation of Stock Issuable Upon Conversion.
------- - ---------------------------------------------
(a) Reservation Requirement. The Corporation has reserved and the
-----------------------
Corporation shall continue to reserve and keep available at all times, free of
preemptive rights, shares of Common Stock for the purpose of enabling the
Corporation to satisfy any obligation to issue shares of its Common Stock upon
conversion of the authorized shares of Series B Convertible Preferred Stock;
provided, however, that the number of shares so reserved shall at all times be
at least 6,000,000 shares. The number of shares so reserved may be reduced by
the number of shares actually delivered pursuant to conversion of shares of
Series B Convertible Preferred Stock; provided that in no event shall the number
of shares so reserved be less than 125% of the maximum number required to
satisfy remaining conversion rights on the unconverted shares of Series B
Convertible Preferred Stock (and without regard to any restrictions on
conversion hereunder) and the number of shares so reserved shall be increased to
reflect stock splits and stock dividends and distributions.
(b) Default. If the Corporation does not have a sufficient number of
-------
shares of Common Stock available to satisfy the Corporation's obligations to a
holder of one or more shares of Series B Convertible Preferred Stock upon
receipt of a Conversion Notice, or if the Corporation is otherwise prohibited by
applicable law, regulation, or stock exchange or trading market rule from
issuing shares of Common Stock upon receipt of a Conversion Notice because the
aggregate number of shares of Common Stock for which shares of Series B
Convertible Preferred Stock have been converted since the Original Issuance Date
exceeds 7,400,000 (each, a "Conversion Default"), or if the Corporation fails
for any other reason (other than due to the failure of any holder of Series B
Convertible Preferred Stock to timely deliver the stock certificate for the
shares of Series B Convertible Preferred Stock to be converted or reasonably
satisfactory indemnification instruments) to issue shares of Common Stock upon
receipt of any Conversion Notice for a period of 30 days, the holder of one or
more shares of Series B Convertible Preferred Stock requesting conversion shall
have the right, upon notice to the Corporation, to require the Corporation to
redeem such shares of Series B Convertible Preferred Stock, as soon as possible
and in any event within 30 days of such notice, at a price per share which shall
be the greater of (i) 110% of the Series B Preferred Stock Liquidation
Preference or (ii) the product of the Conversion Rate and the Market Price of
the Common Stock on the Holder Conversion Date, such redemption amount to be
payable in cash, in readily marketable securities (the marketability and value
of which shall be mutually agreed upon by the Corporation and the holder or
shall be determined by a nationally recognized investment banking firm), or in a
combination thereof.
<PAGE>
Section 8. No Reissuance of Shares of Series B Preferred Stock. No share
------- - ---------------------------------------------------
or shares of Series B Convertible Preferred Stock acquired by the Corporation by
reason of redemption, purchase, conversion or otherwise shall be reissued as
Series B Convertible Preferred Stock, and all such shares shall be retired and
shall return to the status of authorized, unissued and retired and undesignated
shares of preferred stock of the Corporation. Except as provided in the
Subscription Agreements entered into by the Corporation and the initial holders
of shares of Series B Convertible Preferred Stock on or about the Original
Issuance Date, no additional shares of Series B Convertible Preferred Stock
shall be authorized or issued without the consent of at least 66-2/3% in
interest of the holders of shares of Series B Convertible Preferred Stock
outstanding immediately prior thereto.
Section 9. No Impairment. The Corporation shall not intentionally take
------- - -- ----------
any action which would impair the rights and privileges of the shares of Series
B Convertible Preferred Stock set forth herein.
Section 10. Holder's Rights if Shares are Delisted or if Trading in Common
------- -- --------------------------------------------------------------
Stock is Suspended. In the event that at any time on or after the date hereof
- ------------------
and prior to the fifth anniversary of the Original Issuance Date, trading in the
shares of the Common Stock is suspended on the principal quotation system,
market or exchange for such shares, for a period of five (5) consecutive trading
days, other than as a result of the suspension of trading in securities in
general, or if the Common Stock is delisted, then, at the option of any holder
of one or more shares of Series B Convertible Preferred Stock, the Corporation
shall redeem the number of such holder's shares of Series B Convertible
Preferred Stock as such holder shall designate, on such date as such holder
shall designate (which date shall be within five (5) days thereof), and at the
price per share which is the greater of (i) 110% of the Series B Preferred Stock
Liquidation Preference for all such shares of Series B Convertible Preferred
Stock or (ii) the product of the Conversion Rate and the Market Price of the
Common Stock on the date of suspension or delisting, such redemption amount to
be payable in cash, in readily marketable securities (the marketability and
value of which shall be mutually agreed upon by the Corporation and the holder
or shall be determined by a nationally recognized investment banking firm), or
in a combination thereof.
Section 11. Anti-Dilution Redemption. At any time or from time to time
------- -- ------------- ----------
(subject to the limitations set forth in this Section 11), the Corporation, at
its option, may deliver to each of the holders of record of shares of Series B
Convertible Preferred Stock a notice (the "Anti-Dilution Redemption Notice")
stating the Corporation's intention to redeem all shares of Series B Convertible
Preferred Stock (or such lesser number of shares the aggregate redemption price
for which shall not exceed the maximum stated in the Anti-Dilution Redemption
Notice) (such shares to be redeemed on a first-surrendered, first-redeemed
basis, with any shares the redemption of which would exceed such aggregate
maximum dollar amount to be converted in accordance with Section 4 hereof)
surrendered for conversion during
<PAGE>
the thirty (30) day period (an "Anti-Dilution Redemption Period") beginning on
the fifth (5th) business day following the Receipt Date (as defined below) at a
Conversion Rate greater than 8,333(1/3) shares of Common Stock per share of
Series B Convertible Preferred Stock, subject to adjustment in accordance with
Section 5 hereof. For purposes of this Section 11, the "Receipt Date", as to any
holder of shares of Series B Convertible Preferred Stock, shall mean the
business day following the date on which the Anti-Dilution Redemption Notice is
received by such holder. Each share of Series B Convertible Preferred Stock
surrendered for conversion by the holder thereof on the date of, or on either of
the two (2) business days immediately following, the Receipt Date shall be
converted by the Corporation (and not redeemed), unless such holder consents in
writing to redemption in lieu of conversion. The Corporation may terminate
redemptions pursuant to an Anti-Dilution Redemption Notice at any time by
delivering to each of the holders of record of shares of Series B Convertible
Preferred Stock a notice (the "Termination Notice") stating the Corporation's
intention to terminate such redemptions, such termination to take effect on the
date on which such Termination Notice is delivered by the Corporation, which
date shall be written on the face of such Termination Notice.
Each share of Series B Convertible Preferred Stock to redeemed by the
Corporation during an Anti-Dilution Redemption Period shall be redeemed at a
price (the "Anti-Dilution Redemption Price") equal to the product of (i) the
number of shares of Common Stock into which such share of Series B Convertible
Preferred Stock would otherwise convert pursuant to Section 4(d) hereof and (ii)
the Market Price of the Common Stock on the date on which such share of Series B
Convertible Preferred Stock is submitted for redemption. The Corporation shall
redeem each surrendered share of Series B Convertible Preferred Stock (subject
to the limitation contained in the preceding paragraph) by delivering to the
holder that surrendered each such share a check or wire transfer representing
the Anti-Dilution Redemption Price thereof, within the number of days after the
date 30 days following the date of the Anti-Dilution Redemption Notice
determined in accordance with the following table, but only if the Corporation
shall have funds legally available for such payment.
<TABLE>
<CAPTION>
Number of shares of Series B Convertible
Preferred Stock presented for conversion Number of Days
---------------------------------------- --------------
<S> <C>
up to 100 5
101 to 200 10
201 to 300 15
301 to 400 25
greater than 400 35
</TABLE>
<PAGE>
If the Corporation, for any reason, is unable to complete or terminates a
redemption pursuant to an Anti-Dilution Redemption Notice, then each holder of
one or more shares of Series B Convertible Preferred Stock which were to be
redeemed during the Anti-Dilution Redemption Period shall be entitled, at such
holder's option, (i) to convert any such shares at a rate equal to the greater
of (A) the Conversion Rate in effect on the date of the Conversion Notice
relating to such shares or (B) the Conversion Rate in effect on the first
business day immediately following the last day on which such shares were
required to be redeemed (as determined in accordance with the preceding table)
or (ii) to rescind such Conversion Notice. Once the Corporation, for any
reason, has failed to complete or has terminated a redemption (other than by
delivery of a Termination Notice) pursuant to an Anti-Dilution Redemption
Notice, then the Corporation shall not be permitted to deliver any additional
Anti-Dilution Redemption Notice unless the Corporation has first obtained the
consent of a majority in interest of the holders of the shares of Series B
Convertible Preferred Stock then outstanding.
Section 12. Full Redemption. On any one (but only one) of the dates which
------- -- ---- ----------
are the second, third and fourth anniversary of the effectiveness of the
Registration Statement, the Corporation, at its option, may redeem all, but not
less than all, shares of the Series B Convertible Preferred Stock then
outstanding at a redemption price per share equal to 110% of the Series B
Preferred Stock Liquidation Preference for all such shares of Series B
Convertible Preferred Stock, but only if the Corporation shall have funds
legally available for such payment.
Upon any redemption of shares of Series B Convertible Preferred Stock
pursuant to this Section 12, written notice (the "Redemption Notice") shall be
given by the Corporation to each holder of one or more shares of Series B
Convertible Preferred Stock for shares to be redeemed at least twenty (20) days
prior to the date fixed for redemption (the "Redemption Date"). Such Redemption
Notice shall specify the Redemption Date, shall state that all shares of Series
B Convertible Preferred Stock outstanding are to be redeemed and the number of
shares of Series B Convertible Preferred Stock to be so redeemed, and shall call
upon each such holder to surrender on or prior to the Redemption Date, at the
place designated in the Redemption Notice, such holder's certificate or
certificates representing the shares of Series B Convertible Preferred Stock to
be redeemed. Unless a holder shall elect to convert one or more of such
holder's shares of Series B Convertible Preferred Stock into Common Stock in
accordance with Section 4 hereof, such holder shall surrender the certificate or
certificates evidencing such holder's shares of Series B Convertible Preferred
Stock (or a notice of loss, theft or destruction and an indemnification
instrument in lieu thereof) at the place designated in such Redemption Notice
and shall thereupon be entitled to receive payment of the redemption price on
the date fixed for redemption. Anything in this Section 12 to the contrary
notwithstanding, any Redemption Notice delivered in accordance with this Section
12 shall be deemed null, void and of no effect upon the occurrence, at any time
during the twenty day period prior to the Redemption Date,
<PAGE>
of any one or more of the following events: (i) the issuance of any stop order
suspending the qualification of the Common Stock for sale in any jurisdiction,
(ii) the issuance of any stop order suspending the effectiveness of the
Registration Statement, (iii) the suspension of trading of the Common Stock by
the Securities and Exchange Commission, the NASDAQ or the NASD, or the delisting
of the Common Stock from the NASDAQ, or (iv) the occurrence of any material
breach by the Corporation of any of its obligations in respect of the Series B
Convertible Preferred Stock hereunder.
At least fifteen (15) days prior to the Redemption Date, the Corporation
shall deposit with any bank or trust company, as a trust fund, a sum sufficient
to redeem all shares of Series B Convertible Preferred Stock called for
redemption which have not therefore been surrendered for conversion, with
irrevocable instructions and authority to the bank or trust company to pay, on
or after the date fixed for redemption, the redemption price of such shares to
their respective holders upon the surrender of such holder's share certificates
at the place designated in the Redemption Notice. From and after the Redemption
Date, provided that the deposit referred to in the immediately preceding
sentence has been made by the Corporation, the shares of Series B Convertible
Preferred Stock shall no longer be outstanding, and the holders thereof shall
cease to be shareholders with respect to such shares, and shall have no rights
with respect thereto except the right to receive from the bank or trust company
payment of the redemption price of such shares without interest upon surrender
of their certificates therefor. Any interest accrued on any fund so deposited
shall be the property of, and paid to, the Corporation .
Section 13. Notice of Adjustment. Upon the occurrence of any of the
------- -- ------ -- ----------
events specified in Section 5, then and in each such case, the Corporation shall
give written notice to each holder of such shares subject to conversion under
Section 4 hereof, which notice shall describe in reasonable detail such event
and the resulting adjustment and shall set forth in reasonable detail the method
by which such adjustment was determined.
Section 14. Other Notices. In case at any time:
------- -- ----- -------
(i) the Corporation shall declare any dividend upon its Common Stock
payable in cash, stock or convertible securities or make any other
distribution to the holders of its Common Stock;
(ii) the Corporation shall offer for subscription pro rata to the
--- ----
holders of its Common Stock any additional shares of stock of any class,
any convertible securities, or other rights;
(iii) there shall be any capital reorganization or reclassification
of the capital stock of the Corporation, or a consolidation or merger of
the
<PAGE>
Corporation with or into, or a sale of all or substantially all its
assets to, another entity or entities; or
(iv) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Corporation;
then, in any one or more of said cases, the Corporation shall give to each
holder of any shares of Series B Convertible Preferred Stock (a) at least ten
(10) days' prior written notice of the date on which the books of the
Corporation shall close or a record shall be taken for such dividend,
distribution or subscription rights or for determining rights to vote in respect
of any such reorganization, reclassification, consolidation, merger, sale,
dissolution, liquidation or winding up and (b) in the case of any such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding up, at least twenty (20) days' prior written notice of
the date when the same shall take place. Such notice in accordance with the
foregoing clause (a) shall also specify, in the case of any such dividend,
distribution or subscription rights, the date on which the holders of Common
Stock shall be entitled thereto and such notice in accordance with the foregoing
clause (b) shall also specify the date on which the holders of Common Stock
shall be entitled to exchange their Common Stock for securities or other
property deliverable upon such reorganization, reclassification, consolidation,
merger, sale, dissolution, liquidation or winding up, as the case may be. The
Corporation shall simultaneously make public disclosure of all such information
delivered to the holders of Series B Convertible Preferred Stock.
Section 15. Notice Requirements. Unless otherwise provided herein,
------- -- ------ ------------
notices and other deliveries to be made hereunder shall be made by hand or
registered or certified mail, postage and charges prepaid, or by express
overnight delivery, or by telecopy or telex (in which cases, the original notice
shall be sent by means reasonably intended to result in delivery of the original
notice to the recipient thereof on the next business day). Such notices and
other deliveries shall be addressed, in the case of the Corporation, to the
Corporation at its principal place of business, and in the case of any holder of
one or more shares of Series B Convertible Preferred Stock, to such holder at
the address of such holder appearing on the books of the Corporation or given by
such holder to the Corporation for the purpose of notice, or, if no such address
appears or is so given, at the last known address of such holder. Notices are
deemed delivered upon receipt in accordance with any of the foregoing methods.
<PAGE>
EXHIBIT 10.1
CONVERTIBLE SECURITIES
----------------------
SUBSCRIPTION AGREEMENT
----------------------
This Convertible Securities Subscription Agreement (this "Agreement"),
---------
dated as of June 26, 1997, has been executed by the undersigned (the
"Subscriber") in connection with (a) the sale of certain shares of Series B
----------
Convertible Preferred Stock, $.01 par value (the "Preferred Stock"), of Borland
--------- -----
International, Inc., a Delaware corporation, having an address at 100 Borland
Way, P.O. Box 660001, Scotts Valley, California 95066-3249 (the "Company"),
-------
convertible into shares of Common Stock, par value $.01 per share (the "Common
------
Stock"), of the Company, and (b) the issuance by the Company of its warrants to
- -----
purchase up to 220,000 shares of Common Stock (the "Warrants"). For each share
--------
of Preferred Stock purchased hereunder, each Subscriber shall receive Warrants
to purchase 400 shares of Common Stock. The Company is offering an aggregate
amount of up to 550 shares of Preferred Stock together with Warrants at a
purchase price of $50,000 per share (the "Initial Issuance"). The Company may
----------------
require the Subscriber, at a purchase price of $50,000 per share, to purchase
additional shares of Preferred Stock and Warrants during the Put Period
(hereinafter defined) as described herein (the "Additional Issuance", and
-------------------
together with the Initial Issuance, the "Offering"). In addition, Subscribers
--------
may be entitled to purchase additional Preferred Stock and Warrants under
certain circumstances. The rights and preferences of the Preferred Stock,
including the terms on which the Preferred Stock may be converted into Common
Stock, are set forth in the Certificate of Designation, Preference and Rights of
the Series B Convertible Preferred Stock, attached hereto as Exhibit A (the
---------
"Certificate of Designation"), which shall have been executed, acknowledged,
- ---------------------------
filed, recorded and become effective in accordance with the General Corporation
Law of the State of Delaware prior to the acceptance by the Company of this
Agreement. The form of the Warrants, including the terms upon which the
Warrants may be exercised, is attached hereto as Exhibit B. The solicitation of
---------
this Agreement and, if accepted by the Company, the offer and sale of the
Preferred Stock and the Warrants, and of the Common Stock issuable upon
conversion or exercise of the Preferred Stock and Warrants, are being made in
reliance upon the provisions of Regulation D ("Regulation D") promulgated by the
------------
Securities and Exchange Commission ("SEC") under the Securities Act of 1933, as
---
amended (the "Securities Act"), or under the exemption from registration set
--------------
forth in Section 4(2) of the Securities Act. The Preferred Stock, the Put
Shares (hereinafter defined), the Warrants and the Common Stock issuable upon
conversion or exercise thereof are sometimes collectively referred to in this
Agreement as the "Securities." The shares of Common Stock issuable upon
----------
conversion of the Preferred Stock and the Put Shares is sometimes referred to as
the "Underlying Stock", and the Common Stock issuable upon the exercise of the
---------- -----
Warrants is sometimes referred to as the "Warrant Stock." This Agreement is one
-------------
of a series of subscription agreements, dated as of the date hereof, entered
into between the Company and the subscriber thereof. The subscribers, together
with the Subscriber, are sometimes collectively referred to as the "Subscribers"
-----------
and individually as "Subscriber."
----------
The Subscriber wishes to subscribe for, and the Company wishes to issue,
the number of shares of Preferred Stock and Warrants at the aggregate purchase
price set forth in Section 13 and in accordance with the other terms and
conditions of this Agreement. In consideration of the
<PAGE>
mutual promises, representations, warranties and conditions set forth herein,
and intending to be legally bound hereby, the Company and the Subscriber agree
as follows:
1. PURCHASE AND SALE OF SECURITIES; CLOSING CONDITIONS.
------------------------------- -------------------
1.1. Initial Purchase and Sale of Securities.
---------------------------------------
(a) Initial Issuance. The Company shall issue and sell to the
----------------
Subscriber and the Subscriber shall purchase from the Company such number of
shares of Preferred Stock and Warrants as is set forth in Section 13 hereof for
an aggregate purchase price equal to $___________ (the "Initial Purchase
----------------
Price"). The initial issuance, sale and purchase of the Preferred Stock and
- -----
Warrants shall take place in two (2) separate closings, the first of which is
hereinafter referred to as the "First Closing", and the second of which is
-------------
hereinafter referred to as the "Second Closing". Subject to the satisfaction
--------------
(or waiver) of the conditions thereto set forth in Section 1.3 and Section 1.4
below: (i) at the First Closing, the Company shall issue and sell to the
Subscriber, and the Subscriber shall purchase from the Company, ninety percent
(90%) of the Preferred Stock and the Warrants which the Subscriber is purchasing
hereunder for consideration equal to 90% of the Initial Purchase Price, and (ii)
at the Second Closing, the Company shall issue and sell to the Subscriber and
the Subscriber shall purchase from the Company the remainder of the Preferred
Stock and the Warrants (sometimes referred to as the "Second Closing
--------------
Securities") which the Subscriber is purchasing hereunder for a price equal to
the remainder of the Initial Purchase Price (the "Second Closing Purchase
-----------------------
Price"), subject to Section 1.5 hereof.
- -----
(b) Form of Payment. On each Closing Date (as defined below), (i) the
---------------
Subscriber shall pay the portion of the Initial Purchase Price for the Preferred
Stock and the Warrants to be issued and sold to the Subscriber at the applicable
Closing by wire transfer to the Company, in accordance with the Company's
written wiring instructions, against delivery of the duly executed share
certificates representing the Preferred Stock and the Warrants which the
Subscriber is then purchasing, and (ii) the Company shall deliver to the
Subscriber such Preferred Stock certificates and Warrants against delivery of
such Initial Purchase Price.
(c) Closing Dates. Subject to the satisfaction (or waiver) of the
-------------
conditions thereto set forth in Section 1.3 and Section 1.4 below, the date and
time of the issuance and sale of the Preferred Stock and Warrants pursuant to
this Agreement shall be (i) in the case of the First Closing, 12:00 noon Eastern
Standard Time on June 26, 1997 ("First Closing Date") (subject to a two (2)
------------------
business day grace period at either party's option), and (ii) in the case of the
Second Closing, 12:00 noon Eastern Standard Time, within three business days of
the earlier of (i) the date of effectiveness of the Registration Statement and
(ii) the date specified by all the Subscribers in a written notice to the
Company ("Second Closing Date"). The Closings shall occur on the applicable
-------------------
Closing Dates at such places and times as the parties shall determine.
1.2. Additional Securities.
---------------------
(a) Additional Issuance. At any time and from time to time during the
-------------------
period beginning on September 30, 1997 and ending on March 31, 1998 (the "Put
---
Period"), the
- ------
<PAGE>
Company may deliver written notices to the Subscriber (each such notice
hereinafter referred to as a "Put Notice") stating the number of additional
----------
shares of Preferred Stock (the "Put Shares") and Warrants which the Company
----------
intends to sell to the Subscriber within the 10 business days (the "Purchase
--------
Period") following the date (the "Put Notice Date") on which the Put Notice is
- ------ ---------------
given to the Subscriber by the Company in accordance with this Agreement.
Subject to the satisfaction (or waiver) of the conditions set forth in Section
1.3 and Section 1.4 below, the Put Shares shall be no more than 500 in the
aggregate during the Put Period and shall be sold to the Subscribers, pro rata
according to the number of initial shares of Preferred Stock and Warrants
purchased by such Subscriber in accordance with the terms and conditions of the
Initial Issuance.
(b) Form of Payment. On the date the Company sells to the Subscriber
---------------
the Put Shares and Warrants (the "Put Closing Date" and together with the First
----------------
Closing Date and the Second Closing Date, the "Closing Dates"), the Subscriber
-------------
shall pay $50,000 per Put Share (and related Warrants) (the "Put Purchase
------------
Price") for the Put Shares and the Warrants to be issued and sold at the closing
- -----
(the "Put Closing") by wire transfer to the Company, in accordance with the
-----------
Company's written wiring instructions, against delivery of the duly executed
share certificates representing the Put Shares and the Warrants which Subscriber
is then purchasing, and (ii) the Company shall deliver to the Subscriber such
Put Share certificates and Warrants against delivery of such purchase price.
1.3. Conditions Precedent to the Obligation of the Company to Issue and
------------------------------------------------------------------
Sell the Preferred Stock and Warrants at the First Closing Date and Second
- ------------------------------------- -- --- ----- ------- ---- --- ------
Closing Date. The obligation hereunder of the Company to issue and/or sell the
- ------- ----
Preferred Stock and Warrants to the Subscriber at the First Closing and Second
Closing, as applicable, is subject to the satisfaction, at or before such
Closing, of each of the conditions set forth below. These conditions are for
the Company's sole benefit and may be waived by the Company at any time in its
sole discretion.
(a) Payment of Purchase Price. The Subscriber shall have delivered to
-------------------------
the Company that portion of the Initial Purchase Price payable by the Subscriber
at the applicable Closing Date.
(b) Accuracy of the Subscriber's Representation and Warranties. The
----------------------------------------------------------
representations and warranties of the Subscriber contained herein shall be true
and correct as of the date when made and as of the applicable Closing Date as
though made at each such time.
(c) Performance by the Subscriber. The Subscriber shall have
-----------------------------
performed, satisfied and complied in all respects with all covenants, agreements
and conditions required by this Agreement to be performed, satisfied or complied
with by the Subscriber at or prior to the applicable Closing Date.
(d) No Injunction. No statute, rule, regulation, executive order,
-------------
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction which
prohibits or adversely affects any of the transactions contemplated by this
Agreement, and no proceeding shall have been commenced
<PAGE>
which may have the effect of prohibiting or adversely affecting any of the
transactions contemplated by this Agreement.
1.4. Conditions Precedent to the Obligation of the Subscriber to Acquire
-------------------------------------------------------------------
the Preferred Stock and Warrants. The obligation of Subscriber hereunder to
- --------------------------------
acquire and pay for the Preferred Stock, the Put Shares and Warrants at each of
the First Closing, the Second Closing and the Put Closing, as applicable, is
subject to the satisfaction, at or before the Closing Date in respect of such
Closing, of each of the following conditions. Each of these conditions is for
Subscriber's sole benefit and may be waived in writing by Subscriber at any time
in its sole discretion.
(a) As to the First Closing:
(i) Accuracy of the Company's Representations and Warranties.
--------------------------------------------------------
The representations and warranties of the Company contained herein shall be
true and correct as of the date when made and as of the First Closing Date
as though made at each such time.
(ii) Performance by the Company. The Company shall have
--------------------------
performed, satisfied and complied in all respects with all covenants,
agreements and conditions required by this Agreement to be performed,
satisfied or complied with by the Company including, without limitation,
Section 4.2, at or prior to the First Closing.
(iii) No Injunction. No statute, rule, regulation, executive
-------------
order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of competent
jurisdiction which prohibits or adversely effects any of the transactions
contemplated by this Agreement, and no proceeding shall have been commenced
which may have the effect of prohibiting or adversely affecting any of the
transactions contemplated by this Agreement.
(iv) Adverse Changes. Since December 31, 1996, except as set
---------------
forth in the Disclosure Schedule (as hereinafter defined), no event shall
have occurred which has had or is likely to have a material adverse effect
on the financial condition, earnings, operations or business of the
Company.
(v) No Suspension of Trading In or Delisting of Common Stock.
--------------------------------------------------------
From the date hereof to and including the First Closing Date, the trading
of the Common Stock shall not have been suspended by the SEC, the Nasdaq
National Market System (the "Exchange") or the National Association of
--------
Securities Dealers, Inc. (the "NASD"), and the Common Stock shall not have
----
been delisted from the Exchange.
(vi) The Legal Opinion. The Company shall have delivered to the
-----------------
Subscriber the opinion of Gray Cary Ware & Freidenrich, independent counsel
to the Company, dated as of the First Closing Date and in the form of
Exhibit C annexed hereto or in such other form and substance reasonably
---------
satisfactory to the Subscribers.
<PAGE>
(vii) Officer's Certificate. The Company shall have delivered
---------------------
to the Subscriber a certificate in form and substance reasonably
satisfactory to the Subscribers, executed by an executive officer of the
Company as of the First Closing Date, to the effect that all the conditions
to the First Closing set forth in this Section 1.4(a) shall have been
satisfied.
(viii) Agreements. The Company shall have duly and validly
----------
executed each of this Agreement and the Registration Rights Agreement, in
the form of Exhibit D annexed hereto (the "Registration Rights Agreement"),
--------- -----------------------------
to which the Subscriber is a party.
(ix) Filing of the Certificate of Designation. The Certificate
----------------------------------------
of Designation, conforming to the terms of this Agreement, shall have been
duly filed with the Secretary of State of the State of Delaware and a
certified copy thereof shall have been returned to the Company and a copy
shall have been delivered by facsimile to the Subscriber or its designated
representative.
(x) Transfer Agent Irrevocable Instruction. The Company shall
--------------------------------------
have delivered to the transfer agent for its Common Stock the Transfer
Agent Irrevocable Instruction, in the form of Exhibit E annexed hereto (the
---------
"Transfer Agent Irrevocable Instruction") and the Transfer Agent
--------------------------------------
Irrevocable Instruction shall have been acknowledged and accepted by the
transfer agent.
(xi) Copies of Securities. The Company shall have delivered to
------ -- ----------
the Subscriber the Preferred Stock certificates and Warrants purchased by
the Subscriber at the First Closing.
(xii) Authorization on The Exchange. The Company shall have
------------- -- --- --------
submitted for filing with the Exchange a completed and signed notification
form for listing on the Exchange the Underlying Stock and the Warrant Stock
for the shares of Preferred Stock and Warrants acquired by the Subscriber
on the First Closing Date.
(xiii) Secretary's Certificate. The Company shall have
----------- -----------
delivered to the Subscriber a certificate in form and substance reasonably
satisfactory to the Subscribers, executed by the Secretary of the Company
as of the First Closing Date, as to (i) the Company's Certificate of
Incorporation as in effect on the First Closing Date, (ii) the Company's
By-Laws as in effect on the First Closing Date and (iii) the resolutions of
the Company's Board of Directors authorizing the transactions contemplated
by this Agreement.
(xiv) Subscription of Preferred Stock. Not less than 550 shares
------------ -- --------- -----
of Preferred Stock shall have been subscribed for on the First Closing Date
by the Subscribers.
(b) As to the Second Closing:
<PAGE>
(i) Accuracy of the Company's Representations and Warranties.
--------------------------------------------------------
The representations and warranties of the Company contained herein shall be
true and correct as of the date when made and as of the Second Closing Date
as though made at each such time.
(ii) Performance by the Company. The Company shall have
--------------------------
performed, satisfied and complied in all respects with all covenants,
agreements and conditions required by this Agreement, the Registration
Rights Agreement, the Warrants and the Certificate of Designation to be
performed, satisfied or complied with by the Company including, without
limitation, Section 4.2 hereof, at or prior to the Second Closing.
(iii) No Injunction. No statute, rule, regulation, executive
-------------
order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of competent
jurisdiction which prohibits or adversely effects any of the transactions
contemplated by this Agreement, and no proceeding shall have been commenced
which may have the effect of prohibiting or adversely affecting any of the
transactions contemplated by this Agreement.
(iv) No Suspension of Trading In or Delisting of Common Stock.
--------------------------------------------------------
From the date hereof to and including the Second Closing Date, the trading
of the Common Stock shall not have been suspended by the SEC, the Exchange
or the NASD, all the Underlying Stock and Warrant Stock for all Preferred
Stock and Warrants sold at the First Closing or to be sold at the Second
Closing shall be listed on the Exchange and the Common Stock shall not have
been delisted from the Exchange.
(v) Effective Registration Statement. The registration statement
--------------------------------
filed by the Company pursuant to Section 2 of the Registration Rights
Agreement covering the resale of the Registrable Securities (as defined in
the Registration Rights Agreement) underlying the Preferred Stock and
Warrants issued at the First Closing and to be issued at the Second Closing
(the "Registration Statement") shall be effective, and not subject to any
----------------------
stop orders or other prohibitions on sale of Registrable Securities
thereunder.
(vi) The Legal Opinion. The Company shall have delivered to the
-----------------
Subscriber the opinion of Gray Cary Ware & Freidenrich, independent counsel
to the Company, dated as of the Second Closing Date and in the form of
Exhibit C annexed hereto with the appropriate and necessary changes to
---------
reflect the Second Closing, or in such other form and substance reasonably
satisfactory to the Subscribers.
(vii) Officer's Certificate. The Company shall have delivered
---------------------
to the Subscriber a certificate in form and substance reasonably
satisfactory to the Subscribers, executed by an executive officer of the
Company as of the Second Closing Date, to the effect that all the
conditions to the Second Closing set forth in this Section 1.4(b) shall
have been satisfied.
<PAGE>
(viii) Copies of Securities. The Company shall have delivered
------ -- ----------
to the Subscriber the Preferred Stock certificates and Warrants purchased
by the Subscriber at the Second Closing.
(ix) Authorization on The Exchange. The Underlying Stock and the
------------- -- --- --------
Warrant Stock for the shares of Preferred Stock and Warrants acquired by
the Subscriber on the Second Closing Date shall have been authorized for
quotation on the Exchange at or prior to the Second Closing.
(x) Secretary's Certificate. The Company shall have delivered to
-----------------------
the Subscriber a certificate in form and substance reasonably satisfactory
to the Subscriber executed by the Secretary of the Company as of the Second
Closing Date, as to (i) the Company's Certificate of Incorporation as in
effect on the Second Closing Date, (ii) the Company's By-Laws as in effect
on the Second Closing Date and (iii) resolutions of the Company's Board of
Directors authorizing the transactions contemplated by this Agreement.
(c) As to the Put Closing:
(i) Accuracy of the Company's Representations and Warranties.
--------------------------------------------------------
The representations and warranties of the Company contained herein shall be
true and correct as of the date when made and as of the Put Closing Date as
though made at each such time.
(ii) Performance by the Company. The Company shall have
--------------------------
performed, satisfied and complied in all respects with all covenants,
agreements and conditions required by this Agreement, the Registration
Rights Agreement, the Warrants and the Certificate of Designation to be
performed, satisfied or complied with by the Company including, without
limitation, Section 4.2, at or prior to the Put Closing.
(iii) No Injunction. No statute, rule, regulation, executive
-------------
order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of competent
jurisdiction which prohibits or adversely effects any of the transactions
contemplated by this Agreement, and no proceeding shall have been commenced
which may have the effect of prohibiting or adversely affecting any of the
transactions contemplated by this Agreement.
(iv) No Suspension of Trading In or Delisting of Common Stock.
--------------------------------------------------------
From the date hereof to and including the Put Closing Date, the trading of
the Common Stock shall not have been suspended by the SEC, the Exchange or
the NASD, all the Underlying Stock and Warrant Stock for all Preferred
Stock, Put Shares and Warrants sold at the First Closing and Second Closing
and to be sold at the Put Closing shall be listed on the Exchange and the
Common Stock shall not have been delisted from the Exchange.
<PAGE>
(v) The Legal Opinion. The Company shall have delivered to the
-----------------
Subscriber the opinion of Gray Cary Ware & Freidenrich, independent counsel
to the Company, dated as of the Put Closing Date and in the form of Exhibit
-------
C annexed hereto with the appropriate and necessary changes to reflect the
-
Put Closing, or in such other form and substance reasonably satisfactory to
the Subscribers.
(vi) Officer's Certificate. The Company shall have delivered to
---------------------
the Subscriber a certificate in form and substance reasonably satisfactory
to the Subscribers, executed by an executive officer of the Company as of
the Put Closing Date, to the effect that all the conditions to the Put
Closing set forth in this Section 1.4(c) shall have been satisfied.
(vii) Shareholder Approval. The Company shall have obtained
--------------------
shareholder approval for the issuance of the Underlying Stock and Warrant
Stock, even if the aggregate amount of such Underlying Stock and Warrant
Stock issuable under the Preferred Stock and Warrants issued hereunder
exceeds 20% of the outstanding shares of Common Stock on the First Closing
Date.
(viii) Minimum Revenue. The consolidated revenue of the Company
---------------
and its subsidiaries, determined in accordance with generally accepted
accounting principles, for the period beginning on April 1, 1997 and ending
on September 30, 1997, shall be not less than $50,000,000.
(ix) Effective Registration Statement. The Registration
--------------------------------
Statement shall be effective (and not subject to any stop orders or other
prohibitions on sale of Common Stock thereunder) for at least thirty (30)
consecutive calendar days prior to delivery by the Company of a Put Notice
and for each calendar day commencing on the date of delivery of the Put
Notice and ending on the Put Closing Date.
(x) No Change of Control. From the date hereof through and
--------------------
including the Put Closing Date, there shall have been no event or series of
events (including a merger or consolidation) as a result of which (a) any
"person" or "group" within the meaning of Sections 13(d) and 14(d)(2) of
the Exchange Act, together with their affiliates, (i) shall hold or
acquire, directly or indirectly, outstanding voting shares of the Company
such that such person or group, together with such affiliates thereof, is
or becomes the "beneficial owner" (within the meaning of Rules 13d-3 and
13d-5 under the Exchange Act) of outstanding voting shares of the Company
entitling such person or group, together with such affiliates, to exercise
more than 50% of the total voting power of all classes of outstanding
voting shares of the Company, or (ii) shall have a sufficient number of its
or their nominees elected to the Company's Board of Directors such that
such nominees so elected (whether new or continuing as directors) shall
constitute a majority of the Company's Board of Directors, or (b)
individuals who are directors of the Company on the date hereof (and any
new director whose election by the directors of the Company or nomination
for election by the stockholders of the Company was approved by a vote of
at least 75% of the directors then still in office who either were
directors on the date hereof
<PAGE>
or whose election or nomination for election was previously so approved)
shall cease to constitute a majority of the directors of the Company.
(xi) Minimum Market Price. The Market Price (as defined in the
--------------------
Certificate of Designation) for shares of Common Stock shall be no less
than $5.00 per share (as adjusted for stock splits, combinations,
recapitalizations and reorganizations) during the twenty (20) trading days
immediately prior to delivery of a Put Notice or at any time from the date
of delivery of the Put Notice through the Put Closing Date.
(xii) Adequate Liquidity; Average Daily Trading Dollar Volume.
------------------ -----------------------------------
On each trading day during the twenty (20) trading days prior to delivery
of a Put Notice and on each subsequent trading day prior to the Put Closing
Date, the average of the number of shares of Common Stock traded on each
such trading day multiplied by the weighted-average trading price of Common
Stock for such trading day shall be no less than $750,000.
(xiii) Copies of Securities. The Company shall have delivered
------ -- ----------
to the Subscriber the Put Shares certificates and Warrants purchased by the
Subscriber at the Put Closing.
(xiv) Authorization on the Exchange. The Underlying Stock and
------------- -- --- --------
the Warrant Stock for the shares of Preferred Stock and Warrants acquired
by the Subscriber on the Put Closing Date shall have been authorized for
quotation on the Exchange at or prior to the Put Closing.
(xv) Secretary's Certificate. The Company shall have delivered
-----------------------
to the Subscriber a certificate in form and substance reasonably
satisfactory to the Subscriber executed by the Secretary of the Company as
of the Put Closing Date, as to (i) the Company's Certificate of
Incorporation as in effect on the Put Closing Date, (ii) the Company's By-
Laws as in effect on the Put Closing Date and (iii) resolutions of the
Company's Board of Directors authorizing the transactions contemplated by
this Agreement.
1.5. Second Closing Securities. In the event that the Second Closing has
-------------------------
not occurred on or prior to the first anniversary of the First Closing Date, the
Company shall issue and deliver to the Subscribers on a pro rata basis, within
--------
three business days after the first anniversary of the First Closing Date, the
Second Closing Securities. The Subscribers shall not be required to pay to the
Company any additional consideration, including without limitation, the Second
Closing Purchase Price, for the Second Closing Securities.
1.6. Right to Purchase Additional Securities. In the event that the
---------------------------------------
Company receives written notice from the Subscriber (the "Additional Purchase
-------------------
Notice") at any time during the period commencing with the first anniversary of
- ------
the First Closing Date and ending on the third anniversary of the First Closing
Date, the Subscriber may subscribe for, and the Company agrees to issue, sell
and deliver to the Subscriber, up to the number of shares of Preferred Stock
(and
<PAGE>
accompanying Warrants) that shall be equal to two shares of Preferred Stock (and
accompanying Warrants) for each five shares of Preferred Stock held by the
Subscriber on the earlier of (i) the first anniversary of the First Closing Date
and (ii) the Forced Conversion Notice Date (as such term is defined in the
Certificate of Designation). The Subscriber shall only be entitled to subscribe
for such additional shares of Preferred Stock (and accompanying Warrants) if, on
the date of delivery of such notice, the last reported sales price per share of
Common Stock is greater than $8.00 per share (as adjusted for any stock splits,
combinations, recapitalizations or reorganizations). The Additional Purchase
Notice delivered by the Subscriber shall specify the closing date of the
issuance (which shall be no less than 10 days and no more than 30 days after the
delivery of such Additional Purchase Notice), sale and purchase of the
additional Preferred Stock and related Warrants, and on such closing date the
Company shall issue and deliver such Preferred Stock and Warrants to the
Subscriber and the Subscriber shall deliver to the Company the purchase price
therefor, determined in accordance with the per share purchase price applicable
to the Initial Issuance. The Subscriber may make an election to purchase
additional shares of Preferred Stock pursuant to this Section 1.6 on only one
occasion. As of the closing date for the purchase of additional Preferred Stock
and related Warrants, the obligation of the Subscriber to acquire and pay for
such Preferred Stock and Warrants shall be subject to the satisfaction by the
Company of the conditions set forth in Section 1.4(b), mutatis mutandis, as if
----------------
the closing of the issuance and sale of the additional shares of Preferred Stock
pursuant to the Additional Purchase Notice were the Second Closing, and the
Company shall use its reasonable best efforts to cause such conditions to be
satisfied.
2. REPRESENTATIONS AND WARRANTIES OF SUBSCRIBER.
--------------------------------------------
The Subscriber represents and warrants to the Company that:
2.1. No Government Recommendation or Approval. The Subscriber understands
----------------------------------------
that no United States federal or state agency or similar agency of any other
country has passed upon or made any recommendation or endorsement of the Company
or the offering of the Securities.
2.2. Intent. The Subscriber is purchasing the Securities for its own
------
account and not with a view towards distribution thereof and the Subscriber has
no present arrangement (whether or not legally binding) at any time to sell the
Securities to or through any person or entity; provided, however, that by making
-------- -------
the representations herein, the Subscriber does not agree to hold the Securities
for any minimum or other specific term and reserves the right to dispose of the
Securities at any time in accordance with federal and state securities laws
applicable to such disposition. The Subscriber understands that the Securities
must be held indefinitely unless such Securities are subsequently registered
under the Securities Act or an exemption from registration is available. The
Subscriber has been advised or is aware of the provisions of Rule 144 under the
Securities Act.
2.3. Sophisticated Investor. The Subscriber is an accredited investor (as
----------------------
defined in Rule 501 of Regulation D) and the Subscriber has such experience in
business and financial matters that it is capable of evaluating the merits and
risks of an investment in the Securities. The Subscriber acknowledges that the
Securities are speculative and involve a high degree of risk.
<PAGE>
The Subscriber acknowledges that there exists no public market for the Preferred
Stock, the Put Shares and the Warrants.
2.4. Independent Investigation. The Subscriber, in making its decision to
-------------------------
purchase the Securities subscribed for hereunder, has relied upon an independent
investigation made by it and/or its representatives and has not relied on any
information or representations made by third parties or on any oral or written
representations or assurances from the Company or any representative or agent of
the Company, other than as set forth in this Agreement and the Registration
Rights Agreement, in the public filings of the Company and in the documents
described below. Prior to the date hereof, the Subscriber has been furnished
with and has reviewed the Company's latest proxy statement and Annual Report on
Form 10-K sent to the Company's shareholders and all documents filed by the
Company with the SEC since December 31, 1996 pursuant to sections 13(a), 13(c),
14 or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange
--------
Act") (excluding preliminary proxy statement filings) (such documents are
- ---
collectively referred to in this Agreement as the "Exchange Act Reports"). The
-------- --- -------
Subscriber has had a reasonable opportunity to ask questions of and receive
answers from the Company concerning the Company and the Offering. The
Subscriber acknowledges that the price and terms of the Securities offered
hereby has been determined by negotiation based, in part, on the market price
for the Common Stock, and does not necessarily bear any relationship to the
assets, book value or potential performance of the Company or any other
recognized criteria of value.
2.5. Authority. This Agreement has been duly authorized and validly
---------
executed and delivered by the Subscriber and is a valid and binding agreement of
the Subscriber enforceable against the Subscriber in accordance with its terms,
subject to general principles of equity and to bankruptcy or other laws
affecting the enforcement of creditors' rights generally.
2.6. No Legal Advice From Company. The Subscriber acknowledges that it has
----------------------------
had the opportunity to review this Agreement and the transactions contemplated
by this Agreement with his or its own legal counsel and tax advisors. Except
for any statements or representations of the Company made in this Agreement, in
the Registration Rights Agreement, in the Exchange Act Reports, and in the
opinion of counsel for the Company issued pursuant to Section 1.4(a)(vi),
1.4(b)(vi), 1.4(c)(v) and 1.6, the Subscriber is relying solely on its counsel
and advisors and not on any statements or representations of the Company or any
of its representative or agents for legal, tax or investment advice with respect
to this investment, the transactions contemplated by this Agreement or the
securities laws of any jurisdiction.
2.7. No Brokers. The Subscriber 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 Company relating to this Agreement, the Certificate of
Designation, the Registration Rights Agreement or the Warrants, or the
transactions contemplated hereby and thereby.
2.8 Not an Affiliate. The Subscriber is not an officer, director or
----------------
"affiliate" (as that term is defined in Rule 405 of the Securities Act) of the
Company.
<PAGE>
2.9. Reliance on Representations and Warranties. The Subscriber
------------------------------------------
understands that the Securities are being offered and sold to it in reliance on
specific provisions of United States federal and state securities laws and that
the Company is relying upon the truth and accuracy of the representations,
warranties, agreements, acknowledgments and understandings of the Subscriber set
forth in this Agreement in order to determine the applicability of such
provisions.
2.10. Residency. The Subscriber is a resident of the jurisdiction
---------
identified on the signature page of this Agreement.
2.11. Compliance With Laws. No governmental notifications, orders,
--------------------
permissions, consents, approvals or authorizations are required to be made or
obtained by Subscriber and no registrations or declarations are required to be
filed by Subscriber in connection with the execution and delivery of this
Agreement or the acquisition of the Securities.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
---------------------------------------------
The Company represents and warrants to the Subscriber that, except as
disclosed in the Schedule of Exceptions delivered by the Company concurrently
with the execution hereof (the "Disclosure Schedule"):
3.1. Company Status. The Company has registered its Common Stock pursuant
--------------
to Section 12(b) or 12(g) of the Exchange Act, is in full compliance with all
reporting requirements of the Exchange Act, and the Company has maintained all
requirements for the continued listing of its Common Stock, and such Common
Stock is currently listed on the Exchange.
3.2. Current Public Information. The Exchange Act Reports listed in
--------------------------
Section 3.2 of the Disclosure Schedule are the only filings made by the Company
since December 31, 1996 pursuant to Sections 13(a), 13(c), 14 and 15(d) of the
Exchange Act.
3.3. No Directed Selling Efforts or General Solicitation in Regard to this
---------------------------------------------------------------------
Transaction. Neither the Company nor any of its affiliates nor any distributor
- -----------
or any person acting on its or their behalf has conducted any "directed selling
efforts" with respect to the Preferred Stock, the Put Shares or the Warrants nor
has the Company conducted any general solicitation (as that term is used in
Regulation D) with respect to any of the Securities, nor has any such person
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.
3.4. Capitalization; Valid Issuance of Securities and Capital Stock. The
--------------------------------------------------------------
Company has an authorized capitalization consisting of 100,000,000 shares of
Common Stock, par value $0.01 per share, of which, as of June 26, 1997,
37,219,252 shares are issued and outstanding, and 1,000,000 shares of Preferred
Stock, par value $0.01 per share, of which 100,000 shares are designated as
Series A Junior Participating Preferred Stock, par value $0.01 per share, none
of which are issued or outstanding, and stock options granted to employees as
described in the Exchange Act Reports. There are no other outstanding options,
warrants, scrip, rights to subscribe to, or securities or rights convertible
into or exchangeable for, any shares of capital
<PAGE>
stock of the Company or arrangements by which the Company is or may become bound
to issue additional shares of its capital stock. All of the issued and
outstanding shares of capital stock of the Company have been duly and validly
authorized and issued and are fully paid and non-assessable; upon issuance of
the Securities, the Securities will be duly and validly issued, fully paid and
non-assessable; the shares of Common Stock issuable upon conversion of the
Preferred Stock and the Put Shares and exercise of the Warrants, when issued and
delivered in accordance with the terms of the Certificate of Designation and the
Warrants, respectively, will be duly and validly issued, fully paid and non-
assessable; and the holders of outstanding capital stock of the Company are not
and shall not be entitled to preemptive or other rights afforded by the Company
to subscribe for the capital stock or other securities of the Company as a
result of the sale of the Securities or the issuance of Common Stock upon the
conversion or exercise thereof. The Company has not granted any holders of
outstanding capital stock of the Company registration rights, except as
disclosed in the Exchange Act Reports. The issuance of the Preferred Stock, the
Put Shares or the Warrants will not cause any antidilution or similar adjustment
to the conversion or exchange rate of outstanding options or convertible
securities exercisable for or convertible into Common Stock. As of the First
Closing Date, the Company shall have filed the Certificate of Designation, and
all of the rights, preferences and privileges of the Preferred Stock shall be as
set forth in the Certificate of Designation.
3.5. Organization and Qualification. The Company and each of its
------------------------------
subsidiaries, if any, is a corporation duly incorporated and validly existing in
good standing under the laws of the jurisdiction of its incorporation and has
the requisite corporate power to own its properties and to carry on its business
as now being conducted. The Company does not have any active subsidiaries,
except for those listed in the Exchange Act Reports. The Company and each such
subsidiary, if any, 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 effect on the business,
-----------------------
operations, properties or prospects, or financial condition of the entity and
its subsidiaries, with respect to which such term is used and which is material
and adverse to such entity, its subsidiaries and any other entity controlling or
controlled by such entity, on a consolidated basis, and/or any condition or
situation which would prohibit or otherwise interfere with the ability of the
entity and its subsidiaries, on a consolidated basis, with respect to which said
term is used to enter into and perform its obligations under this Agreement.
3.6. Authorization; Enforcement. (i) The Company has the requisite
--------------------------
corporate power and authority to enter into and perform this Agreement and to
issue the Securities in accordance with the terms hereof and thereof; (ii) the
execution, delivery and performance of this Agreement, the Certificate of
Designation, the Registration Rights Agreement and the Warrants by the Company
and the consummation by it of the transactions contemplated hereby and thereby,
including without limitation the issuance of Common Stock upon the conversion or
exercise thereof, have been duly authorized by all necessary corporate action,
and no further consent or authorization of the Company or its Board of Directors
or stockholders is required (except shareholder approval for the issuance of
Underlying Stock and Warrant Stock to the extent that the aggregate amount of
such Underlying Stock and Warrant Stock exceeds 20%
<PAGE>
of the outstanding shares of Common Stock on the Initial Closing Date); (iii)
this Agreement, the Certificate of Designation, the Registration Rights
Agreement and the Warrants have been duly executed and delivered by the Company,
and (iv) this Agreement, the Certificate of Designation, the Registration Rights
Agreement and Warrants constitute, and upon issuance and delivery thereof the
Certificate of Designation and Warrants shall be, valid and binding obligations
of the Company enforceable against the Company in accordance with their terms,
except as such enforceability may be limited by applicable bankruptcy,
insolvency, or similar laws relating to, or affecting generally the enforcement
of, creditors' rights and remedies or by other equitable principles of general
application.
3.7. Corporate Documents. The Company has furnished or made available to
-------------------
the Subscriber true and correct copies of the Company's Certificate of
Incorporation as amended and in effect on the date hereof (the "Certificate"),
-----------
and the Company's By-Laws as amended and in effect on the date hereof (the
"By-Laws").
-------
3.8. No Conflicts. The execution, delivery and performance by the Company
------------
of this Agreement, the Certificate of Designation, the Registration Rights
Agreement and the Warrants and the consummation by the Company of the
transactions contemplated hereby and thereby, including without limitation the
issuance of Common Stock upon the conversion or exercise thereof, do not and
will not (i) result in a violation of the Certificate 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, any agreement,
indenture or instrument to which the Company or any of its subsidiaries is a
party, or result in a violation of any federal, state, local or foreign law,
rule, regulation, order, judgment or decree (including federal and state
securities laws and regulations) applicable to the Company or any of its
subsidiaries or by which any property or asset of the Company or any of its
subsidiaries is bound or affected (except for such conflicts, defaults,
terminations, amendments, accelerations, cancellations and violations as would
not, individually or in the aggregate, have a Material Adverse Effect);
provided, that, for purposes of such representation as to federal, state, local
- -------- ----
or foreign law, rule or regulation, no representation is made herein with
respect to any of the same applicable solely to the Subscriber and not to the
Company. The business of the Company is not being conducted in violation of any
law, ordinance or regulation of any governmental entity, in any manner that is
inconsistent with or in violation of the Certificate or By-laws, or in violation
of any contract or agreement to which the Company is a party, except for
possible violations which either singly or in the aggregate do not and will not
have a Material Adverse Effect. The Company is not required under federal,
state or local law, rule or regulation in the United States to obtain any
consent, authorization or order of, or make any filing or registration with, any
court or governmental agency in order for it to execute, deliver or perform any
of its obligations under this Agreement, the Certificate of Designation, the
Registration Rights Agreement or any of the Securities or to issue and sell the
Securities in accordance with the terms hereof and thereof (other than any SEC,
NASD, Exchange or state securities filings which may be required to be made by
the Company from time to time, and any registration statement which may be filed
pursuant hereto); provided, that, for purposes of the representation made in
-------- ----
this sentence, the Company is assuming and relying upon the accuracy of the
relevant representations and agreements of the Subscriber herein.
<PAGE>
3.9. Exchange Act Reports. The Company has delivered or made available to
--------------------
the Subscriber true and complete copies of the Exchange Act Reports (including,
without limitation, proxy information and solicitation materials). The Company
has not provided to the Subscriber any information which, according to
applicable law, rule or regulation, should have been disclosed publicly prior to
the date hereof 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 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 statements, to normal year-end audit
adjustments). As of the First Closing Date, the Company has filed all reports
required to be filed by it pursuant to the Exchange Act and is otherwise
eligible to effect registration of its Common Stock on Form S-3.
3.10. No Material Adverse Change. Since March 31, 1997, except as set
--------------------------
forth on the Disclosure Schedule, no event or circumstance has occurred or
arisen which has had or is reasonably likely to have a Material Adverse Effect
on the Company or its subsidiaries. Since March 31, 1997, neither the Company
nor any of its subsidiaries has (i) incurred or become subject to any material
liabilities (absolute or contingent) except liabilities incurred in the ordinary
course of business consistent with past practices; (ii) discharged or satisfied
any material lien or encumbrance or paid any material obligation or liability
(absolute or contingent), other than current liabilities paid in the ordinary
course of business consistent with past practices; (iii) declared or made any
payment or distribution of cash or other property to stockholders with respect
to its capital stock, or purchased or redeemed, or made agreements to purchase
or redeem, any shares of its capital stock; (iv) sold, assigned or transferred
any other tangible assets with a value greater than $5,000,000 in the aggregate,
or canceled any debts or claims, except in the ordinary course of business
consistent with past practices; (v) suffered any substantial losses or waived
any rights of material value, whether or not in the ordinary course of business,
or suffered the loss of any material amount of existing business; (vi) made any
changes in employee compensation except in the ordinary course of business
consistent with past practices; or (vii) experienced any material problems with
labor or management in connection with the terms and conditions of their
employment.
<PAGE>
3.11. No Undisclosed Liabilities. The Company and its subsidiaries have
--------------------------
no liabilities or obligations which are material, individually or in the
aggregate, and are not disclosed in the Exchange Act Reports, other than those
incurred in the ordinary course of the Company's or its subsidiaries' respective
businesses since December 31, 1996 and which, individually or in the aggregate,
do not or would not have a Material Adverse Effect on the Company or any of its
subsidiaries.
3.12. No Undisclosed Events or Circumstances. No event or circumstance
--------------------------------------
has occurred or exists with respect to the Company or its subsidiaries or their
respective businesses, properties, prospects, operations or financial condition,
which, under applicable law, rule or regulation, requires public disclosure or
announcement prior to the date hereof by the Company but which has not been so
publicly announced or disclosed.
3.13. No Integrated Offering. Neither the Company, nor any of its
----------------------
affiliates, nor any person acting on its or their behalf has, directly or
indirectly, at any time since September 30, 1996, made any offers or sales of
any security or solicited any offers to buy any security under circumstances
that would eliminate the availability of the exemption from registration under
Regulation D promulgated under the Securities Act in connection with the offer
and sale of the Securities as contemplated hereby.
3.14. No Brokers. The Company has taken no action which would give rise
-- -------
to any claim by any person for brokerage commissions, finder's fees or similar
payments by the Subscriber relating to this Agreement, the Certificate of
Designation, the Registration Rights Agreement or the Warrants, for the
transactions contemplated hereby and thereby.
3.15. Absence of Litigation. Except as disclosed in the Exchange Act
------- -- ----------
Reports, there is no action, suit, proceeding, inquiry or 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, wherein
an unfavorable decision, ruling or finding would have a Material Adverse Effect.
3.16. Intellectual Property Rights. Except as set forth on Schedule 3.16,
------------ -------- ------
there is no claim, action or proceeding being made or brought against, or to the
Company's knowledge, being threatened against, the Company or any of its
subsidiaries, with respect to the infringement by the Company or any of its
subsidiaries of any trademarks, 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. The Company and its subsidiaries have taken reasonable security
measures to protect the secrecy, confidentiality and value of all of their
intellectual properties.
3.17. Title to Properties and Assets, Liens, etc. The Company has good
----- -- ---------- --- ------- ------ ---
and marketable title to its tangible properties and assets (including the
Company's real property described in Section 3.17 of the Disclosure Schedule),
subject to no mortgage, pledge, lien, encumbrance or charge, other than liens
resulting from taxes which have not yet become delinquent and liens and
<PAGE>
encumbrances which do not in any case materially detract from the value of the
property subject thereto or materially impair the operations of the Company.
3.18. Tax Status. Except as set forth in the Disclosure Schedule, 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 provisions reasonably adequate for the payment of all taxes for
periods subsequently 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.
4. COVENANTS OF THE COMPANY.
------------------------
4.1. Registration Rights. The Company agrees that, at the First Closing,
-------------------
it will enter into the Registration Rights Agreement with the Subscriber.
4.2. Reservation of Common Stock. 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, a sufficient number of shares of Common Stock
for the purpose of enabling the Company to satisfy any obligation to issue
shares of its Common Stock upon conversion of the Preferred Stock and the Put
Shares or exercise of the Warrants. Notwithstanding the foregoing, the Company
initially reserved 6,000,000 shares. The number of shares so reserved may be
reduced by the number of shares actually delivered pursuant to conversion of
Preferred Stock and Put Shares or exercise of the Warrants (provided that in no
event shall the number of shares so reserved be less than 125% of the maximum
number required to satisfy the remaining conversion rights on the unconverted
Preferred Stock and Put Shares and the remaining exercise rights under
unexercised Warrants, without regard to any conversion restrictions under the
Certificate of Designation) and the number of shares so reserved shall be
increased to reflect stock splits, stock dividends and other distributions. If
the Company does not have a sufficient number of shares of Common Stock
available to satisfy the Company's obligations to issue shares of its Common
Stock upon conversion of the Preferred Stock and Put Shares (without regard to
any conversion restrictions under the Certification of Designation) or exercise
of the Warrants, each holder thereof shall have certain redemption rights
described in Section 7 of the Certificate of Designation.
4.3 Shareholder Approval. The Company shall use its reasonable best
--------------------
efforts to obtain shareholder approval for the issuance of the Underlying Stock
and Warrant Stock.
4.4. Listing of Underlying Shares. The Company hereby agrees, promptly
----------------------------
following the First Closing, to use its reasonable best efforts to cause the
Underlying Stock and the Warrant
<PAGE>
Stock to be listed on the Exchange as promptly as possible. 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
Underlying Stock and the Warrant Stock and will take such other action as is
necessary or desirable to cause the Underlying Stock and the Warrant Stock to be
listed on such other exchange or market as promptly as possible.
4.5. Exchange Act Registration. The Company will cause its Common Stock to
-------------------------
continue to be registered under Section 12(g) or 12(b) of the Exchange Act, will
comply in all respects with its reporting and filing obligations under the
Exchange Act, and will not take any action or file any document (whether or not
permitted by 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 under its control to continue
the listing and trading of its Common Stock on the Exchange and will comply in
all respects with the Company's reporting, filing and other obligations under
the bylaws or rules of the NASD and the Exchange.
4.6. Legends. The shares of Underlying Stock and Warrant Stock and
-------
certificates evidencing the same shall, promptly upon the effectiveness of the
Registration Statement, be free of legends, "stop transfers," "stock transfer
restrictions," or other restrictions, provided, that customary stock transfer
----------
restriction legends may appear on any certificate evidencing any of such shares
if the SEC or other governmental authority with appropriate jurisdiction has
issued an active stop order, injunction or other order or requirement suspending
the effectiveness of the Registration Statement.
4.7. Corporate Existence. The Company will take all steps necessary to
-------------------
preserve and continue its corporate existence.
5. LEGENDS.
-------
5.1. Legends. The Company will issue one or more Warrants and certificates
-------
representing the Preferred Stock, the Put Shares and the additional shares of
Preferred Stock issued pursuant to an Additional Purchase Notice in the name of
the Subscriber and, in the case of the Warrants, in such denominations (but not
less than 10,000 shares each) to be specified by the Subscriber prior to (or
from time to time subsequent to) the Closings. The Preferred Stock (including
the additional shares of Preferred Stock), the Put Shares, the Warrants and
certificates evidencing any shares of Common Stock issued upon conversion or
exercise thereof prior to the effectiveness of the Registration Statement will
bear the following legend (the "Legend"):
------
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD OR OFFERED FOR SALE
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT AND
ANY APPLICABLE STATE SECURITIES LAWS OR AN APPLICABLE EXEMPTION FROM SUCH
REGISTRATION REQUIREMENTS.
<PAGE>
Prior to the First Closing, the Company will deliver to the transfer
agent for its Common Stock (and to any substitute or replacement transfer agent
for its Common Stock concurrently with the Company's appointment of any such
substitute or replacement transfer agent) instructions in substantially the form
and substance of the Transfer Agent Irrevocable Instruction. Such instructions
shall be irrevocable by the Company from and after the First Closing Date or
from and after the issuance thereof to any such substitute or replacement
transfer agent, as the case may be. It is the intent and purpose of such
instructions, as provided therein, to require the transfer agent for the Common
Stock from time to time to issue certificates evidencing Underlying Stock or
Warrant Stock free of the Legend at any time from and after the effectiveness of
the Registration Statement, and so long as no stop order, injunction or other
order of the SEC or other applicable governmental authority with appropriate
jurisdiction is then in effect suspending effectiveness of the Registration
Statement upon any surrender of one or more Warrants or certificates
representing the Preferred Stock or the Put Shares, as the case may be, for
conversion or exercise into Warrant Stock or Underlying Stock, as the case may
be without consultation by the transfer agent with the Company or its counsel
and without the need for any further advice or instruction to the transfer agent
by or from the Company or its counsel.
In addition, and if applicable, the Company shall reissue the Warrants and
certificates representing the Preferred Stock, the Put Shares, the Warrant Stock
or the Underlying Stock, as the case may be, without the Legend set forth above
at such time as the Holder thereof is permitted to dispose thereof pursuant to
Rule 144(k) under the Act.
5.2. No Other Legend or Stock Transfer Restrictions. No Legend has been or
----------------------------------------------
shall be placed on the share certificates representing the Securities and no
instructions or "stop transfers," "stock transfer restrictions," or other
restrictions have been or shall be given to the Company's transfer agent with
respect thereto other than as set forth in this Section 5.
5.3. Subscriber's Compliance. Nothing in this section shall affect in any
------------ ----------
way the Subscriber's obligations under and agreement to comply with all
applicable securities laws upon resale of the Securities.
6. CHOICE OF LAW AND VENUE.
-----------------------
THIS AGREEMENT SHALL BE CONSTRUED UNDER THE LAWS OF THE STATE OF NEW YORK,
WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW OR CHOICE OF LAW THEREOF. The
parties hereby (i) irrevocably submits to the exclusive jurisdiction of the
United States District Court for the Southern District of New York for the
purposes of any suit, action or proceeding arising out of or relating to this
Agreement, the Certificate of Designation, the Registration Rights Agreement or
the Warrants and (ii) waives, and agrees not to assert in any such suit, action
or proceeding, any claim that it is not personally subject to the jurisdiction
of such court, that the suit, action or proceeding is brought in an inconvenient
forum or that the venue of the suit, action or proceeding is improper. Each of
the parties consents to process being served in any such suit, action or
proceeding by sending a copy thereof to such party by following the provision
for notices to it under this Agreement and agrees
<PAGE>
that such service shall constitute good and sufficient service of process and
notice thereof. Nothing in this paragraph shall affect or limit any right to
serve process in any other manner permitted by law.
7. ASSIGNMENT; ENTIRE AGREEMENT; AMENDMENT.
---------- ---------------------------
7.1. Assignment. Neither this Agreement nor any rights of the Subscriber
----------
hereunder may be assigned by either party to any other person, except that the
Subscriber may transfer rights under this Agreement to its affiliates.
Notwithstanding the foregoing, the provisions of this Agreement shall inure to
the benefit of, and be enforceable by, any transferee of any of the Securities
purchased or acquired by the Subscriber hereunder with respect to the Securities
held by such person.
7.2. Entire Agreement; Amendment. This Agreement, the Certificate of
---------------- ----------
Designation, the Warrants, the Registration Rights Agreement, and the other
documents delivered pursuant hereto constitute the full and entire understanding
and agreement between the parties with regard to the subject matter hereof and
thereof, and no party shall be liable or bound to any other party in any manner
by any warranties, representations or covenants except as specifically set forth
in this Agreement or therein. Except as expressly provided in this Agreement,
neither this Agreement nor any term hereof may be amended, waived, discharged or
terminated other than by a written instrument signed by the party against whom
enforcement of any such amendment, waiver, discharge or termination is sought.
8. PUBLICITY.
---------
The Company agrees that it will not disclose, and will not include in
any public announcement, the name of the Subscriber without its consent, unless
and until such disclosure is required by law or applicable regulation, and then
only to the extent of such requirement and with the prior approval of the
Subscriber which the Subscriber agrees will not be unreasonably withheld or
delayed.
9. NOTICES, ETC.; EXPENSES; INDEMNITY.
------------- -------------------
9.1. Notices. Any notice, demand or request required or permitted to be
-------
given by either the Company or the Subscriber pursuant to the terms of this
Agreement shall be in writing and shall be deemed given when delivered
personally or by facsimile, with a hard copy to follow by two day courier
addressed to the parties at the addresses of the parties set forth at the end of
this Agreement or such other address as a party may request by notifying the
other in writing. Copies of all notices to the Subscriber shall be sent to its
designee or representative.
9.2. Cost and Expenses. The Company shall be responsible for the
-----------------
Subscribers' reasonable costs and expenses (including legal fees) incurred in
entering into this Agreement, but not to exceed $50,000 in the aggregate. In
connection with any suit or other proceeding arising out of any breach by any
party to this Agreement of any of the representations, covenants or agreements
of such party hereunder, or in connection with the exercise by any party of any
of its
<PAGE>
rights or remedies hereunder or under applicable law upon any breach by the
other party of any of its representations, covenants or agreements under this
Agreement, the Registration Rights Agreement, the Warrants, or with respect to
the Company, the Certificate of Designation, the prevailing party in such suit
or proceeding shall be entitled to receive from the non-prevailing party all of
such prevailing party's reasonable costs and expenses (including legal fees)
incurred in connection therewith.
10. COUNTERPARTS.
------------
This Agreement may be executed in any number of counterparts, each of
which shall be enforceable against the parties actually executing such
counterparts, and all of which together shall constitute one instrument.
11. SURVIVAL; SEVERABILITY.
----------------------
The representations, warranties, covenants and agreements of the parties
hereto shall survive the First Closing, the Second Closing, and the Put Closing,
provided that the representations and warranties shall survive only until the
- --------
third anniversary of the First Closing. In the event that any provision of this
Agreement becomes or is declared by a court of competent jurisdiction to be
illegal, unenforceable or void, this Agreement shall continue in full force and
effect without said provision.
12. TITLE AND SUBTITLES.
-------------------
The titles and subtitles used in this Agreement are used for convenience
only and are not to be considered in construing or interpreting this Agreement.
[THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK.]
<PAGE>
13. AMOUNT.
------
The undersigned Subscriber hereby subscribes for [_______] shares of
Preferred Stock and Warrants to purchase _________ shares of Common Stock and
agrees to pay therefor funds in the amount of _______ Million Dollars (U.S.
$___________).
The undersigned acknowledges that this subscription shall not be effective
unless accepted by the Company as indicated below.
Subscriber's Representative: Name of Subscriber:
________________________________ _________________________________
Attn:
By_______________________________
Name:
Title:
Date of Subscription:____________
Address:
Place of Execution:______________
Telephone: Place of Organization or Citizenship:
_________________________________
Fax: Place of Residency and/or Principal Place
of Business:
Registration Instructions:
_______________________________ ______________________________________
(Name)
(Please Print)_____________
THIS SUBSCRIPTION IS ACCEPTED BY THE COMPANY ON THE 26TH DAY OF JUNE, 1997.
BORLAND INTERNATIONAL, INC.
By:________________________
Name:______________________
Title:_____________________
<PAGE>
Exhibit 10.2
REGISTRATION RIGHTS AGREEMENT
-----------------------------
THIS REGISTRATION RIGHTS AGREEMENT ("Registration Rights Agreement"),
-----------------------------
entered into as of __________ 1997, between [________________], with offices at
[_______________________________] (the "Purchaser"), and Borland International,
---------
Inc., a Delaware corporation, with offices at 100 Borland Way, P.O. Box 660001,
Scotts Valley, California 95066-3249 (the "Company").
-------
W I T N E S S E T H:
WHEREAS, pursuant to a Convertible Securities Subscription Agreement, dated
as of June 26, 1997 (the "Agreement"), by and between the Company and the
---------
Purchaser, the Company has agreed to sell and the Purchaser has agreed to
purchase certain shares of the Company's Series B Convertible Preferred Stock,
$.01 par value (the "Preferred Stock") convertible into shares of the Company's
---------------
Common Stock, $.01 par value (the "Common Stock"). The rights and preferences
------------
of the Preferred Stock, including the terms on which the Preferred Stock may be
converted into Common Stock, are set forth in the Certificate of Designation,
Preference and Rights of the Series B Convertible Preferred Stock (the
"Certificate of Designation"). The Company has further agreed, pursuant to the
- ------------ -- -----------
Agreement and under the circumstances provided therein, to issue Warrants to
purchase additional shares of Common Stock ("Warrants"). The shares of Common
--------
Stock issuable upon conversion of the Preferred Stock and the Put Shares (as
defined in the Agreement) and exercise of the Warrants are collectively referred
to herein as the "Shares".
------
WHEREAS, pursuant to the terms of, and in partial consideration for, the
Purchaser's agreement to enter into the Agreement, the Company has agreed to
provide the Purchaser with certain registration rights with respect to the
Shares;
NOW, THEREFORE, in consideration of the mutual promises, representations,
warranties, covenants and conditions set forth herein, the Company and the
Purchaser agree as follows:
1. Certain Definitions. As used in this Registration Rights Agreement,
-------------------
the following terms shall have the following respective meanings. Other terms
used herein which are defined in the Agreement shall have the same meanings
herein as are set forth for such terms in the Agreement or in the Certificate of
Designation.
"Commission" or "SEC" shall mean the Securities and Exchange Commission or
---------- ---
any other federal agency at the time administering the Securities Act.
"Registrable Securities" shall mean: (i) Shares issued to the Purchaser or
----------------------
its designee upon conversion of the Preferred Stock, Put Shares or upon exercise
of the Warrants (including the Preferred Stock, the Put Shares and the Warrants
to be sold to the Purchaser on each Closing Date pursuant to the Agreement and
upon conversion of the additional Preferred Stock and
<PAGE>
related Warrants to be sold to the Purchaser in connection with delivery of an
"Additional Purchase Notice" pursuant to the Agreement); (ii) any securities
into which or for which any such Shares shall have been converted or exchanged
pursuant to any recapitalization, reorganization or merger; and (iii) any
securities issued with respect to the foregoing pursuant to a stock split or
stock dividend; provided however, that Registrable Securities do not include
shares which are not "restricted securities" as such term is defined in Rule
144(a)(iii) promulgated under the Securities Act or are freely tradeable without
registration under Rule 144(k) promulgated under the Securities Act without
volume or manner of sale restrictions.
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 the Purchaser's exercise of its registration rights
under this Registration Rights Agreement, including, without limitation, all
registration and filing fees, printing expenses, fees and disbursements of
counsel for the Company, blue sky fees and expenses 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, if any, applicable to the sale of such Holder's Registrable
Securities and all fees and disbursements of counsel for such Holder.
"Holder" shall include the Purchaser and any transferee of the Preferred
------
Stock, Warrants, Shares or Registrable Securities which have not been sold to
the public to whom the registration rights conferred by this Registration Rights
Agreement have been transferred in compliance with Section 10 of this
Registration Rights Agreement.
"Holders" shall include each Holder of Registrable Securities under a
-------
series of registration rights agreements, dated as of the date hereof, entered
into between the Company and the Holder thereof.
"Registration Statement" shall have the meaning set forth in Section 2(a)
----------------------
herein.
"Regulation D" shall mean Regulation D promulgated under the Securities
------------
Act, as amended from time to time.
"Securities Act" shall mean the Securities Act of 1933, as amended from
--------------
time to time.
2. Registration Requirements. The Company shall file, as promptly as
------------ ------------
possible and in any event by the ninetieth (90th) calendar day after the First
Closing Date, and use its reasonable best efforts to cause to become effective
as promptly as possible, a registration statement on Form S-3 under the
Securities Act or, if Form S-3 is not then available, on another appropriate
form
<PAGE>
covering the issuance or the resale of the Registrable Securities, and shall
take all action necessary to qualify the Registrable Securities under state
"blue sky" laws as hereinafter provided. The Company shall use its reasonable
best efforts to effect the registrations contemplated by the foregoing
(including, without limitation, the execution of an undertaking to file
amendments and post-effective amendments, appropriate qualification under and
compliance with applicable blue sky or other state securities laws and
appropriate compliance with applicable regulations issued under the Securities
Act) and as would permit or facilitate the sale and distribution of all the
Registrable Securities in all states reasonably requested by the Holder for
purposes of maximizing the proceeds realizable by the Holder, except that the
Company shall not be required in connection therewith or as a condition thereof
to qualify as a foreign corporation in any jurisdiction in which it is not
otherwise required to be so qualified, except the State of New York (if required
in order to satisfy New York blue sky laws), from such sale and distribution.
Such best efforts by the Company shall include, without limitation, the
following:
(a) The Company shall file (i) registration statements with the
Commission pursuant to Rule 415 under the Securities Act on Form S-3 under the
Securities Act and the Company shall use its reasonable best efforts to qualify
for the use of such Form (or in the event that the Company is ineligible to use
such form, such other form as the Company is eligible to use under the
Securities Act) covering all of the Registrable Securities so to be registered
(each, a "Registration Statement"); (ii) such blue sky filings as shall be
----------------------
reasonably requested to permit such sales, provided, however, that the Company
-------- -------
shall not be required to register the Registrable Securities in any jurisdiction
that would subject it to general service of process in any such jurisdiction
where it is not then so subject or subject the Company to any tax in any such
jurisdiction where it is not then so subject or require the Company to qualify
to do business in any jurisdiction where it is not then so qualified; and (iii)
required filings with the National Association of Securities Dealers, Inc.
("NASD") or exchange where the Shares are traded; all as soon as practicable
- ------
after the date hereof. The Company shall use its best efforts to have the
Registration Statement and other filings declared effective as soon thereafter
as may be practicable.
(b) The Company shall enter into such customary agreements (including
a customary underwriting agreement with the underwriter or underwriters, if any)
and take all such other reasonable actions in connection therewith in order to
expedite or facilitate the disposition of such Registrable Securities and in
such connection, if the Registrable Securities are to be sold in an underwritten
offering, the Company shall:
(i) make such representations and warranties to the underwriter
or underwriters, if any, in form and substance and scope as are customarily
made by issuers to underwriters in secondary underwritten offerings;
(ii) cause to be delivered to the sellers of Registrable
Securities and the underwriter or underwriters, if any, opinions of counsel
to the Company, dated the effective date (or in the case of an underwritten
offering, dated the date of delivery of any Registrable Securities sold
pursuant thereto) of the applicable registration statement (which counsel,
and opinions (in form, scope and substance), shall be reasonably
satisfactory to the managing underwriter or underwriters, if any, and the
appointed
<PAGE>
representative or counsel of the Holder), addressed to the Holder and each
underwriter, if any, covering the matters customarily covered in opinions
requested in underwritten secondary offerings and, in the case of any
underwritten offering, such other matters as may be reasonably requested by
the Holder;
(iii) cause to be delivered, immediately prior to the
effectiveness of the applicable Registration Statement (and, in the case of
an underwritten offering, at the time of delivery of any Registrable
Securities sold pursuant thereto), letters from the Company's independent
certified public accountants addressed to the Holder and each underwriter,
if any, stating that such accountants are independent public accountants
within the meaning of the Securities Act and the applicable published rules
and regulations thereunder, and otherwise in customary form and covering
such financial and accounting matters as are customarily covered by letters
of the independent certified public accountants delivered in connection
with underwritten secondary public offerings;
(iv) if an underwriting agreement is entered into, cause the same
to set forth indemnification and contribution provisions and procedures
which are no less favorable to the Holder and the Company than those
contemplated by Sections 7 and 8 hereof with respect to all parties to be
indemnified pursuant to such sections;
(v) deliver such documents and certificates as may be reasonably
requested by the Holder of the Registrable Securities being sold or the
managing underwriter or underwriters, if any, to evidence compliance with
clause (i) above and with any customary conditions contained in the
underwriting agreement, if any, or other agreement entered into by the
Company;
the foregoing in this paragraph 2(b) shall be done at each closing under any
such underwriting or similar agreement or as and to the extent required
thereunder; provided, however, that the Company shall not be required to effect
-------- -------
an underwritten offering of the Registrable Securities on more than one (1)
occasion.
(c) At least ten (10) business days prior to the anticipated filing
thereof with the SEC, the Company shall make available for inspection and review
by a representative designated by a majority in interest of the Holders, any
underwriter participating in any disposition pursuant to a Registration
Statement, and any attorney or accountant retained by such Holder or
underwriter, any such registration statement or amendment or supplement or any
blue sky, NASD or other filing, all financial and other records, pertinent
corporate documents and properties of the Company as they may reasonably request
for the purpose, and cause the Company's officers, directors and employees to
supply all information reasonably requested by any such representative,
underwriter, attorney or accountant in connection with such Registration
Statement; provided, however, that the Holder shall first agree in writing with
-------- -------
the Company that any information that is reasonably and in good faith designated
by the Company in writing as confidential at the time of delivery of such
information shall be kept confidential by the Holder and that the Holder will
use reasonable efforts to cause its representatives and such other persons so to
keep such information confidential, unless (i) disclosure of such information is
required by
<PAGE>
court or administrative order or is necessary to respond to inquiries of
regulatory authorities, (ii) disclosure of such information is required by law
(including any disclosure requirements pursuant to Federal securities laws in
connection with the filing of any Registration Statement or the use of any
prospectus referred to in this Registration Rights Agreement), (iii) such
information becomes generally available to the public other than as a result of
a disclosure or failure to safeguard by any such person, (iv) such information
becomes available to any such person from a source other than the Company and
such source, to the best knowledge of such persons, is not bound by a
confidentiality agreement with the Company, or (v) such information was known to
or is developed by such persons without reference to such confidential
information of the Company. No Registration Statement or amendment thereto will
be filed without the prior consent of the Holders of a majority of the
outstanding Registrable Securities or their designated representative, which
consent shall not be unreasonably withheld.
(d) The Company shall prepare and file with the SEC such amendments
(including post-effective amendments) and supplements to the Registration
Statement(s) and the prospectus(es) used in connection with the Registration
Statement(s), which prospectus(es) are to be filed pursuant to Rule 424
promulgated under the Securities Act, as may be necessary to keep the
Registration Statement(s) effective at all times during the Registration Period,
and, during such period, comply with the provisions of the Securities Act with
respect to the disposition of all Registrable Securities of the Company covered
by the Registration Statement(s) until such time as all of such Registrable
Securities shall have been disposed of in accordance with the intended methods
of disposition by the seller or sellers thereof as set forth in the Registration
Statement(s). In the event the number of shares available under a Registration
Statement filed pursuant to this Agreement is insufficient to cover all of the
Registrable Securities, the Company shall amend the Registration Statement, or
file a new Registration Statement (on the short form available therefor, if
applicable), or both, so as to cover all of the Registrable Securities, in each
case, as soon as practicable, but in any event within fifteen (15) days after
the necessity therefor arises (based on the market price of the Common Stock and
other relevant factors on which the Company reasonably elects to rely). The
Company shall use its reasonable best efforts to cause such amendment and/or new
Registration Statement to become effective as soon as practicable following the
filing thereof. For purposes of the foregoing provision, the number of shares
available under a Registration Statement shall be deemed "insufficient to cover
all of the Registrable Securities" if at any time the number of Registrable
Securities issued or issuable upon conversion of the Preferred Stock is greater
than the quotient determined by dividing (i) the number of shares of Common
Stock available for resale under such Registration Statement by (ii) 1.10. For
purposes of the calculation set forth in the foregoing sentence, any
restrictions on the convertibility of the Preferred Stock shall be disregarded
and such calculations shall assume that the Preferred Stock is then convertible
into shares of Common Stock at the then prevailing Conversion Rate (as defined
in the Certificate of Designation).
3. Underwritten Distribution. If the Holder intends to distribute the
-------------------------
Registrable Securities covered by a Registration Statement by means of an
underwriting, the Holder shall so advise the Company and, within 30 days of the
date thereof and without limiting the generality of other provisions hereof, the
Company will prepare and file such amendment or amendments to the
<PAGE>
Registration Statement and make such other filings as may be necessary or
appropriate to effect any such underwritten distribution.
4. Multiple Holders. If there is more than one Holder, such Holders
----------------
shall act with respect to their rights under this Registration Rights Agreement
according to the vote of a majority-in-interest.
5. Expenses of Registration. All Registration Expenses incurred in
------------------------
connection with any registration, qualification or compliance pursuant to this
Registration Rights Agreement shall be borne by the Company, and all Selling
Expenses shall be borne by the Holder.
6. Registration Procedures. In the case of each registration effected by
-----------------------
the Company pursuant to this Registration Rights Agreement, the Company will
keep the Holder advised in writing as to 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 effective for the period (herein referred
to as the "Registration Period") ending (i) when the Holder has completed the
------------ ------
distribution of the Registrable Securities described in the registration
statement relating thereto, or (ii) the date on which the Registrable Securities
are salable pursuant to Rule 144(k) promulgated under the Securities Act,
whichever first occurs.
(b) Furnish such number of prospectuses and other documents incident
thereto as the Holder from time to time may reasonably request.
(c) As promptly as practicable after becoming aware of such event, the
Company shall notify each Holder of Registrable Securities in writing of the
happening of any event, of which the Company has knowledge, as a result of which
the prospectus included in a Registration Statement, as then in effect, includes
an untrue statement of a material fact or omission to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading, and
promptly prepare a supplement or amendment to the Registration Statement to
correct such untrue statement or omission, and deliver ten (10) copies of such
supplement or amendment to each such Holder (or such other number of copies as
such Holder may reasonably request). The Company shall also promptly notify
each such Holder in writing (i) when a prospectus or any prospectus supplement
or post-effective amendment has been filed, and when a Registration Statement or
any post-effective amendment has been filed, and when a Registration Statement
or any post-effective amendment has become effective (notification of such
effectiveness shall be delivered to each Holder by facsimile on the same day of
such effectiveness and by overnight mail), (ii) of any request by the SEC for
amendments or supplements to a Registration Statement or related prospectus or
related information, and (iii) of the Company's reasonable determination that a
post-effective amendment to a Registration Statement would be appropriate.
(d) The Company shall use its reasonable best efforts to prevent the
issuance of any stop order or other suspension of effectiveness of a
Registration Statement, or the suspension
<PAGE>
of the qualification of any of the Registrable Securities for sale in any
jurisdiction and, if such an order or suspension is issued, to obtain the
withdrawal of such order or suspension at the earliest possible moment and to
notify each Holder who holds Registrable Securities being sold (and, in the
event of an underwritten offering, the managing underwriters) of the issuance of
such order and the resolution thereof or its receipt of actual notice of the
initiation or threat of any proceeding for such purpose.
7. Indemnification.
---------------
(a) Company Indemnity. To the fullest extent permitted by law, the
-----------------
Company will indemnify, hold harmless and defend the Holder, each of its
officers, directors, partners, employees and agents and each person controlling
the Holder within the meaning of Section 15 of the Securities Act and the rules
and regulations thereunder, and each underwriter, if any, and each person who
controls, within the meaning of Section 15 of the Securities Act and the rules
and regulations thereunder, any underwriter, against all claims, losses,
damages, penalties, costs 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, offering circular or other document
(including any related registration statement, notification or the like)
incident to any registration effected pursuant to this Registration Rights
Agreement, 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, in light of the circumstances in which they were made, not misleading,
or any violation by the Company of the Securities Act, the Securities Exchange
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, and will reimburse the
Holder, each of its officers, directors, partners, employees and agents and each
person controlling such Holder, each such underwriter and each person who
controls any such underwriter, 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 (or alleged untrue
statement or omission) based upon written information furnished to the Company
by the 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 a registration statement effected pursuant to this
Registration Rights Agreement, indemnify the Company, each of its directors,
officers, partners, each person who controls the Company 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 registration statement, prospectus, offering circular or other document
incident to any registration of Registrable Securities pursuant to this
Registration
<PAGE>
Rights Agreement, or 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, and will reimburse the Company and such other Holders
and their directors, officers and partners or control persons for any legal or
any other expenses reasonably incurred in connection with investigating or
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 the Holder
and stated to be specifically for use therein; provided, however, that the
-------- -------
obligations of the Holder 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 the Holder (which consent shall not be unreasonably
withheld). Notwithstanding anything to the contrary in this Section 7, the
Holder's liability under this paragraph 7(b) with respect to any particular
registration shall be limited to an amount equal to the net proceeds received by
the Holder from the Registrable Securities sold by the Holder in such
registration. Such indemnity shall remain in full force and effect regardless of
any investigation by or on behalf of the Holder and shall survive the transfer
of the Registrable Securities by the Holder pursuant to Section 11.
(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 such
------------------
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 Parties
(whose approval shall not be unreasonably withheld), and the Indemnified Party
may participate in such defense at its own 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 except to
the extent that the Indemnifying Party is actually prejudiced by such failure to
provide notice. No Indemnifying Party, in the defense of any such claim or
litigation, shall, except with the consent of the Indemnified Parties, 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 all
Indemnified Parties of a release from all liability in respect of such claim or
litigation. Each Indemnified Party shall furnish such information regarding
itself or the claim in question as any Indemnifying Party may reasonably request
in writing.
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, then each such Indemnifying Party, in
lieu of indemnifying the Indemnified Parties, shall contribute to the amount
paid or payable by such Indemnified Parties as a result of such losses, claims,
damages or liabilities (i) as between the Company on the one hand and the
Indemnified Parties on the other, in such proportion as is appropriate to
reflect the relative benefits received by the Company on the one hand and the
Indemnified Parties on the other hand from the registration of the Registrable
Securities, or (ii) 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
<PAGE>
the Company on the one hand and of the Indemnified Parties, on the other hand 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
Indemnified Parties on the other hand 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 sale
of the Preferred Stock and Warrants by the Company pursuant to the Agreement
bear to the gain realized by the Holder in connection with the sale of
Registrable Securities by the Holder pursuant to the registration. The relative
fault of the Company on the one hand and of the Holder, on the other hand shall
be determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or omission to state a material fact relates
to information supplied by the Company by the Holder.
In no event shall the obligation of any Indemnifying Party to contribute
under this Section 8 exceed the amount that such 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 Indemnified Parties 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 such Indemnified Party in
connection with investigating or defending any such action or claim. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation.
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 Agreement, (ii) any investigation made by or on
behalf of any Indemnified Party or by or on behalf of the Company or (iii) the
consummation of the sale or successive resales of the Registrable Securities.
10. Information By Holder and Any Underwriters. The Holder shall furnish
------------------------------------------
to the Company, within 10 business days of the Company's request therefor, such
information regarding the Holder or underwriters, as the case may be, and the
distribution proposed by such Holder or underwriters 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
Registration Rights Agreement.
<PAGE>
11. Transfer of Assignment of Registration Rights. The rights granted to
---------------------------------------------
the Holder 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 any of not less than $250,000 in principal amount of
Preferred Stock and/or Warrants (or such lesser principal amount then held by
the Holder), provided that the Company is given written notice by the 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 Registration
Rights Agreement.
12. Miscellaneous.
-------------
(a) Entire Agreement; Counterparts. This Registration Rights
------ --------- ------------
Agreement contains the entire understanding and agreement of the parties with
respect to the subject matter hereof, and may not be modified or terminated
except by a written agreement signed by both parties. This Registration Rights
Agreement may be executed in any number of counterparts.
(b) Notices. Any notice or other communication given or permitted
-------
under this Registration Rights 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 with a copy in each
case sent on the same day to the addressee by facsimile, Federal Express or
other such expedited means, (a) if to Purchaser, at its address herein above set
forth, (b) if to the Company, at its address herein above set forth, (c) if, to
a Holder other than the Purchaser, at the address thereof furnished by like
notice to the Company, or (d) to any such addressee at such other address or
addresses as shall be so furnished to the other parties hereto 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 Registration Rights
--------------------------------------
Agreement shall be governed by and construed in accordance with the laws of the
State of New York, without regard to the principles of conflicts of laws
thereof. Each of the Company and the Purchaser (i) hereby irrevocably submits
to the exclusive jurisdiction of the United States District Court for the
Southern District of New York for the purposes of any suit, action or proceeding
arising out of or relating to this Registration Rights Agreement and (ii) hereby
waives, and agrees not to assert in any such suit, action or proceeding, any
claim that it is not personally subject to the jurisdiction of such court, that
the suit, action or proceeding is brought in an inconvenient forum or that the
venue of the suit, action or proceeding is improper. Each of the Company and
the Purchaser consents to process being served in any such suit, action or
proceeding by mailing a copy thereof to such party at the address in effect for
notices to it under this Registration Rights Agreement and agrees that such
service shall constitute good and sufficient service of process and
<PAGE>
notice thereof. Nothing in this paragraph shall affect or limit any right to
serve process in any other manner permitted by law.
(e) Title. The titles used in this Registration Rights Agreement are
-----
used for convenience only and are not to be considered in construing or
interpreting this Registration Rights Agreement.
(f) Amendments. Neither this Registration Rights Agreement nor any
----------
term hereof may be amended, waived, discharged or terminated other than by a
written instrument signed by the Company and a majority of the Holders. Any
amendment to this Registration Rights Agreement signed by a majority of the
Holders shall be binding on all the Holders.
[The remainder of this page has intentionally been left blank.]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Registration Rights
Agreement to be duly executed as of the date first above written.
INVESTOR:
[________________________________]
By:__________________________
Name:________________________
Title:_______________________
BORLAND INTERNATIONAL, INC.
By:__________________________
Name:________________________
Title:_______________________
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Exhibit 99.1
FOR IMMEDIATE RELEASE:
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Contact:
Public Relations
Vallee Hubbard
Borland International, Inc.
(408) 431-4705
Investor Relations
Denise Franklin
Borland International, Inc.
(408) 431-1525
BORLAND INTERNATIONAL, INC. ANNOUNCES COMPLETION OF
$25 MILLION EQUITY FINANCING
SCOTTS VALLEY, Calif., -- June 30, 1997 -- Borland International, Inc.
(NASDAQ: BORL) today reported the closing of the first round of a privately
placed equity financing arranged by the Promethean Investment Group, LLC of New
York City. The Company raised an aggregate of approximately $25 million, net of
issuance costs, through the sale of a newly created class of Series B
Convertible Preferred Stock ("Series B Shares") and warrants. The Company,
subject to certain conditions, may call for a second round of financing for up
to an additional $25 million.
"This equity financing is integral to our turnaround plans and future
growth," said Delbert W. Yocam, chairman and chief executive officer. "This
additional capital enables Borland to invest in developing and acquiring new
technologies and allows Borland to take advantage of market opportunities."
In the initial closing of $25 million, Borland issued 495 Series B Shares
and warrants to purchase up to 198,000 shares of the Company's common stock.
The Company is obligated to issue an additional 55 Series B Shares and warrants
for the purchase of an additional 22,000 shares of common stock. Subject to
certain conditions, including registration of the underlying shares of the
common stock, the Company will receive an additional $2.5 million from such
additional issuance. After the satisfaction of certain holding periods, each of
the newly issued Series B Shares is convertible, at the option of its holder,
into shares of Common Stock of the Company based upon a conversion price equal
to $6.94 or if lower, the lowest closing market price of the Company's Common
Stock during the 7 trading days prior to the conversion date. The warrants have
an exercise price of $ 8.67 per share.
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BORLAND INTERNATIONAL, INC. ANNOUNCES COMPLETION OF $25 MILLION EQUITY FINANCING
Page 2 of 2
Subject to certain additional conditions, the Company has the right,
subject to its election, to call for a second round of financing up to an
aggregate amount of $25 million, beginning September 30, 1997 and ending March
31, 1998. This round would involve the issuance of up to an additional 500
Series B Shares and warrants for the purchase of 200,000 shares of common stock.
Additionally, purchasers of the Series B Shares are entitled to purchase up
to 40% of the number of Series B Shares held by each investor on or about June
30, 1998 or the date on which such Series B Shares were subject to mandatory
conversion, if earlier.
MAKING DEVELOPMENT EASIER
Borland International, Inc. is a leading provider of high-quality software
products for software application developers worldwide. Borland is
distinguished for its award-winning family of rapid application development
tools and scalable middleware technology for desktop, client/server,
Internet/intranet, and enterprise systems. The Company's products are supported
through comprehensive corporate and independent developer programs, value added
resellers, and systems integrators. Founded in 1983, Borland is headquartered
in Scotts Valley, California. For more information on Borland, customers can
visit Borland Online at http://www.borland.com .
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Note: Forward-looking statements in this release, including but not limited to,
those concerning Borland's future financial performance, product availability
dates, and the potential features of or benefits to be derived from the
Company's products, involve a number of uncertainties and risks, and actual
events or results may differ materially. Factors that could cause actual events
or results to differ materially include, among others, the following: possible
disruptive effects of organizational or personnel changes, shifts in customer
demand, market acceptance of the Company's new or enhanced products, delays in
scheduled product availability dates, actions or announcements by competitors,
software errors, general business conditions and market growth rates in the
client/server and Internet software markets, and other factors described in the
Company's S.E.C. reports on forms 10-K, 10-Q, 8-K, and the Borland prospectus
relating to the acquisition of Open Environment Corporation.
