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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) October 12, 1999
DATA SYSTEMS & SOFTWARE INC.
(Exact name of Registrant as Specified in its Charter)
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Delaware 0-19771 22-2786081
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(State or Other Jurisdiction (Commission file Number) (IRS Employer
of Incorporation) Identification No.)
200 Route 17, Mahwah, New Jersey 07430
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (201) 529-2026
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Item 5. Other Events.
On October 12, 1999, the Registrant completed a private placement of $2
million of 0% Convertible Subordinated Debentures and 100,000 Warrants to
purchase Common Stock of the Registrant. The Debentures, which are payable in
October 2001, do not bear interest. The Debentures are convertible into Common
Stock of the Company at a conversion price equal to the lower of (i) $3.06625
and (ii) 85% of the average of the closing bid prices for the Common Stock for
the five trading days preceding delivery of a notice of conversion. The Warrants
are exercisable at an exercise price of $ 3.06625 per share. The warrants expire
in October 2002. The Debentures and Warrants were purchased by an investment
fund managed by WEC Asset Management, a New York-based money manager.
The Registrant has agreed to file with the Securities and Exchange
Commission and bring effective a registration statement registering the resale
of the shares of Common Stock issuable upon conversion of the Debentures and
exercise of the Warrants.
The Registrant intends to use the proceeds of the placement to fund its
operations, particularly particularly the data communication solutions for
utilities activities conducted by the Registrant's Comverge Technologies
subsidiary.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(c) Exhibits
Exhibit 1--Securities Purchase Agreement relating to the purchase and sale
of the Registrant's 0% Convertible Subordinated Debentures and Warrants,
including forms of the Debentures, Warrants and Registration Rights Agreement
annexed as exhibits thereto.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, in the Township of
Mahwah, State of New Jersey, on October 12, 1999.
DATA SYSTEMS & SOFTWARE INC.
BY: /s/ George Morgenstern
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CHAIRMAN OF THE BOARD, PRESIDENT
AND CHIEF EXECUTIVE OFFICER
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT, dated as of October 12, 1999, is
entered into by and between Data Systems & Software Inc., a Delaware corporation
(the "Company"), and Bounty Investors LLC, a Delaware limited liability company
(the "Purchaser").
W I T N E S S E T H:
WHEREAS, the Company and the Purchaser are executing and delivering this
Agreement in reliance upon the exemptions from registration provided by
Regulation D ("Regulation D") promulgated by the Securities and Exchange
Commission (the "Commission") under the Securities Act of 1933, as amended (the
"Securities Act"), and/or Section 4(2) of the Securities Act; and
WHEREAS, the Purchaser wishes to purchase, and the Company wishes to issue,
upon the terms and subject to the conditions of this Agreement, two million
dollars ($2,000,000) principal amount of the Company's 0% Convertible
Subordinated Debentures (the "Debentures") and warrants (the "Warrants") to
purchase one hundred thousand (100,000) shares of common stock of the Company's
common stock, par value $.01 per share (the "Common Stock"). The Debentures are
convertible, at the holder's option, into the Company's Common Stock, on the
terms set forth therein, and the Warrants may be exercised for the purchase of
Common Stock, on the terms set forth therein.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. AGREEMENT TO PURCHASE; PURCHASE PRICE
a. Purchase of Securities. On the Closing Date (as defined herein) the
Purchaser hereby agrees to purchase from the Company (i) Debentures in the
principal amount of two million dollars ($2,000,000), which shall be issued in
substantially the form attached hereto as Exhibit A, for a purchase price of one
million nine hundred ninety-one thousand dollars ($1,991,000) and (ii) Warrants
to purchase one hundred thousand (100,000) shares of Common Stock, which shall
be issued in substantially the form attached hereto as Exhibit B, for a purchase
price of nine thousand dollars ($9,000). The aggregate purchase price for such
Debentures and Warrants (collectively, the "Securities") shall be two million
dollars ($2,000,000), and shall be payable in same day funds.
b. Closings. The Debentures and the Warrants to be purchased by the
Purchaser hereunder, in definitive form, and in such denominations and
registered in such names as the Purchaser or its representative, if any, may
request upon notice to the Company, shall be delivered by or on behalf of the
Company for the account of the Purchaser, against payment by
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the Purchaser or on its behalf of the purchase price therefor by wire transfer
to an account of the Company, all at the offices of Pryor Cashman Sherman &
Flynn LLP, 410 Park Avenue, New York, New York 10022, at 9:30 a.m., New York
time on October 12, 1999, or at such other time and date as the Purchaser or its
representative, if any, and the Company may agree upon in writing, such date
being referred to herein as the "Closing Date."
2. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER; ACCESS TO INFORMATION;
INDEPENDENT INVESTIGATION.
The Purchaser represents and warrants to, and covenants and agrees with,
the Company as follows:
a. The Purchaser and each of its equity owners is (i) experienced in making
investments of the kind described in this Agreement and the related documents,
(ii) able, by reason of the business and financial experience of its management,
to protect its own interests in connection with the transactions described in
this Agreement and the related documents, and (iii) able to afford the entire
loss of its investment in the Securities.
b. All subsequent offers and sales of the Debentures, the Warrants, and the
Common Stock issuable upon conversion or exercise of, or in lieu of interest
payments on the Debentures or the Warrants, shall be made pursuant to an
effective registration statement under the Securities Act or pursuant to an
applicable exemption from such registration.
c. The Purchaser understands that the Securities are being offered and sold
to it in reliance upon exemptions from the registration requirements of the
United States federal securities laws, and that the Company is relying upon the
truth and accuracy of the Purchaser's representations and warranties, and the
Purchaser's compliance with its agreements, each as set forth herein, in order
to determine the availability of such exemptions and the eligibility of the
Purchaser to acquire the Securities.
d. The Purchaser: (A) has been provided with sufficient information with
respect to the business of the Company and such documents relating to the
Company as the Purchaser has requested and Purchaser has carefully reviewed the
same including, without limitation, the Company's Form 10-K for the fiscal year
ended December 31, 1998 filed with the Securities and Exchange Commission ("the
Commission"), (B) has been provided with such additional information with
respect to the Company and its business and financial condition as the
Purchaser, or the Purchaser's agent or attorney, has requested, and (C) has had
access to management of the Company and the opportunity to discuss the
information provided by management of the Company and any questions that the
Purchaser had with respect thereto have been answered to the full satisfaction
of the Purchaser.
e. The Purchaser has the requisite corporate power and authority to enter
into this Agreement and this Agreement has been duly and validly authorized,
executed and delivered on behalf of the Purchaser and is a valid and binding
agreement of the Purchaser, enforceable in accordance with its terms, except to
the extent that enforcement of this Agreement may be limited by bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance or other
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similar laws now or hereafter in effect relating to creditors' rights generally
and to general principles of equity.
f. This Agreement and the registration rights agreement, dated the date
hereof, between the Company and the Purchaser (the "Registration Rights
Agreement"), and the transactions contemplated hereby and thereby, have been
duly and validly authorized by the Purchaser; and such agreements, when executed
and delivered by each of the Purchaser and the Company will each be a valid and
binding agreement of the Purchaser, enforceable in accordance with their
respective terms, except to the extent that enforcement of each such agreement
may be limited by bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance or other similar laws now or hereafter in effect relating to
creditors' rights generally and to general principles of equity.
3. REPRESENTATIONS OF THE COMPANY
The Company represents and warrants to the Purchaser that:
a. Organization. The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware. Each of
the Company's subsidiaries is a corporation duly organized, validly existing and
in good standing under the laws of its respective jurisdiction. Each of the
Company and its subsidiaries is duly qualified as a foreign corporation in all
jurisdictions in which the failure to so qualify would have a material adverse
effect on the Company and its subsidiaries taken as a whole. Schedule 3(a) lists
all subsidiaries of the Company which have any material liabilities, assets or
activities and, except as noted therein, all of the outstanding capital stock of
such subsidiaries is owned of record and beneficially by the Company.
b. Capitalization. On the date hereof, the authorized capital of the
Company consists of 20,000,000 shares of Common Stock, par value $.01 per share,
of which 7,433,278 are issued and outstanding. Schedule 3(b) sets forth all of
the options, warrants and convertible securities of the Company, and any other
rights to acquire securities of the Company (collectively, the "Derivative
Securities") which are outstanding on the date hereof, including in each case
(i) the name and class of such Derivative Securities, (ii) the issue date of
such Derivative Securities, (iii) the number of shares of Common Stock of the
Company into which such Derivative Securities are convertible as of the date
hereof, (iv) the conversion or exercise price or prices of such Derivative
Securities as of the date hereof, (v) the expiration date of any conversion or
exercise rights held by the owners of such Derivative Securities and (vi) any
registration rights associated with such Derivative Securities or outstanding
Common Stock.
c. Concerning the Debentures, the Warrants and Common Stock. The Common
Stock issuable upon conversion of, or in lieu of interest payments on, the
Debentures, and upon exercise of the Warrants, when issued, shall be duly and
validly issued, fully paid and non-assessable, and will not subject the holder
thereof to personal liability by reason of being such a holder. There are no
preemptive rights of any stockholder of the Company, as such, to acquire any of
the Securities, or the Common Stock issuable to the Purchaser pursuant to the
terms of the Debentures and the Warrants.
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d. Reporting Company Status. The Common Stock is registered under Section
12 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The
Company has duly filed all materials and documents required to be filed pursuant
to all reporting obligations under either Section 13(a) or 15(d) of the Exchange
Act, if any, prior to the offer and sale of the Securities. The Common Stock is
listed and traded on the Nasdaq National Market ("Nasdaq"), and the Company is
not aware of any pending or contemplated action or proceeding of any kind to
suspend the trading of the Common Stock.
e. Authorized Shares. The Company has legally available a sufficient number
of authorized and unissued shares of Common Stock as may be necessary to effect
the conversion of the Debentures and the exercise of the Warrants. The Company
understands and acknowledges the potentially dilutive effect to the Common Stock
of the issuance of shares of Common Stock upon conversion of the Debentures and
the exercise of the Warrants. The Company further acknowledges that its
obligation to issue shares of Common Stock upon conversion of the Debentures and
upon exercise of the Warrants is absolute and unconditional regardless of the
dilutive effect that such issuance may have on the ownership interests of other
stockholders of the Company and notwithstanding the commencement of any case
under 11 U.S.C. ss. 101 et seq. (the "Bankruptcy Code"). In the event the
Company becomes a debtor under the Bankruptcy Code, the Company hereby waives to
the fullest extent permitted any rights to relief it may have under 11 U.S.C.
ss. 362 in respect of the conversion of the Debentures and the exercise of the
Warrants. The Company agrees, without cost or expense to the Purchaser, to take
or consent to any and all action necessary to effectuate relief under 11 U.S.C.
ss. 362.
f. Legality. The Company has the requisite corporate power and authority to
enter into this Agreement and to issue and deliver the Debentures, the Warrants,
and the Common Stock issuable upon conversion of, or in lieu of interest
payments on, the Debentures and the exercise of the Warrants.
g. Transaction Agreements. This Agreement, the Registration Rights
Agreement, the Debentures and the Warrants (collectively, the "Primary
Documents"), and the transactions contemplated hereby and thereby, have been
duly and validly authorized by the Company; this Agreement has been duly
executed and delivered by the Company and this Agreement is, and the Primary
Documents, when executed and delivered by the Company, will each be, a legal,
valid and binding agreement of the Company, enforceable in accordance with their
respective terms, except to the extent that enforcement of each of the Primary
Documents may be limited by bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance or other similar laws now or hereafter in effect relating
to creditors' rights generally and to general principles of equity.
h. Non-contravention. The execution and delivery of this Agreement and each
of the other Primary Documents, and the consummation by the Company of the other
transactions contemplated by this Agreement and each of the other Primary
Documents, does not and will not conflict with or result in a breach by the
Company of any of the terms or provisions of, or constitute a default under, the
Articles of Incorporation or By-laws of the Company, or any material indenture,
mortgage, deed of trust or other agreement or instrument to which the
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Company or any of its subsidiaries is a party or by which they or any of their
properties or assets are bound, or any existing applicable law, rule, or
regulation or any applicable decree, judgment or order of any court or United
States federal or state regulatory body, administrative agency, or any other
governmental body having jurisdiction over the Company, its subsidiaries, or any
of their properties or assets. Except as set forth on Schedule 3(h), neither the
filing of the registration statement required to be filed by the Company
pursuant to the Registration Rights Agreement nor the offering or sale of the
Debentures or the Warrants as contemplated by this Agreement gives rise to any
rights, other than those which have been waived or satisfied on or prior to the
Closing Date, for or relating to the registration of any shares of the Common
Stock.
i. Approvals. No authorization, approval or consent of any court,
governmental body, regulatory agency, self-regulatory organization, stock
exchange or market or the stockholders of the Company is required to be obtained
by the Company for the entry into or the performance of this Agreement and the
other Primary Documents.
j. SEC Filings. Except as set forth in Schedule 3(j), none of the reports
or documents filed by the Company with the Commission contained, at the time
they were filed, any untrue statement of a material fact or omitted to state any
material fact required to be stated therein, or necessary to make the statements
made therein, in light of the circumstances under which they were made, not
misleading.
k. Stabilization. Neither the Company, nor any of its affiliates, has taken
or may take, directly or indirectly, any action designed to cause or result in,
or which has constituted or which might reasonably be expected to constitute,
the stabilization or manipulation of the price of the shares of Common Stock.
l. Absence of Certain Changes. Except as disclosed in Schedule 3(l) or the
Company's public filings with the Commission, since December 31, 1998 there has
been no material adverse change nor any material adverse development in the
business, properties, operations, financial condition, prospects, outstanding
securities or results of operations of the Company.
m. Full Disclosure. There is no fact known to the Company (other than
general economic conditions known to the public generally) that has not been
disclosed in writing to the Purchaser (i) that could reasonably be expected to
have a material adverse effect upon the condition (financial or otherwise) or
the earnings, business affairs, properties or assets of the Company or (ii) that
could reasonably be expected to materially and adversely affect the ability of
the Company to perform the obligations set forth in the Primary Documents. The
representations and warranties of the Company set forth in this Agreement do not
contain any untrue statement of a material fact or omit any material fact
necessary to make the statements contained herein, in light of the circumstances
under which they were made, not misleading.
n. Title to Properties; Liens and Encumbrances. Except as disclosed in
Schedule 3 (n) or in the Company's 1998 Form 10-K or Form 10-Q for the six
months ended June 30, 1999, the Company has good and marketable title to all of
its material properties and assets, both real and personal, and has good title
to all its leasehold interests, in each case subject
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only to mortgages, pledges, liens, security interests, conditional sale
agreements, encumbrances or charges created in the ordinary course of business.
o. Patents and Other Proprietary Rights. The Company has sufficient title
and ownership of all patents, trademarks, service marks, trade names,
copyrights, trade secrets, information, proprietary rights and processes
necessary for the conduct of its business as now conducted and as proposed to be
conducted, and such business does not and would not conflict with or constitute
an infringement on the rights of others.
p. Permits. The Company has all franchises, permits, licenses and any
similar authority necessary for the conduct of its business as now conducted,
the lack of which would materially and adversely affect the business or
financial condition of the Company. The Company is not in default in any respect
under any of such franchises, permits, licenses or similar authority.
q. Absence of Litigation. Except as disclosed in the Company's public
filings with the Commission, there is no action, suit, proceeding, inquiry or
investigation before or by any court, public board or body pending or, to the
knowledge of the Company or any of its subsidiaries, threatened against or
affecting the Company or any of its subsidiaries, in which an unfavorable
decision, ruling or finding would have a material adverse effect on the
properties, business, condition (financial or other) or results of operations of
the Company and its subsidiaries, taken as a whole, or the transactions
contemplated by the Primary Documents, or which would adversely affect the
validity or enforceability of, or the authority or ability of the Company to
perform its obligations under, the Primary Documents.
r. No Default. Each of the Company and its subsidiaries is not in default
in the performance or observance of any obligation, covenant or condition
contained in any indenture, mortgage, deed of trust or other instrument or
agreement to which it is a party or by which it or its property may be bound.
s. Transactions with Affiliates. Except as disclosed in the Company's
public filings with the Commission, there are no agreements, understandings or
proposed transactions between the Company and any of its officers, directors or
affiliates that, had they existed on December 31, 1998, would have been required
to be disclosed in the Company's 1998 Annual Report on Form 10-K.
t. Employment Matters. The Company is in compliance in all material
respects with all presently applicable provisions of the Employee Retirement
Income Security Act of 1974, as amended, including the regulations and published
interpretations thereunder ("ERISA"); no "reportable event" (as defined in
ERISA) has occurred with respect to any "pension plan" (as defined in ERISA) for
which the Company would have any liability; the Company has not incurred and
does not expect to incur liability under (i) Title IV of ERISA with respect to
termination of, or withdrawal from, any "pension plan" or (ii) Sections 412 or
4971 of the Internal Revenue Code of 1986, as amended, including the regulations
and published interpretations thereunder (the "Code"); and each "pension plan"
for which the Company would have any liability that is intended to be qualified
under Section 401(a) of the Code is so qualified in
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all material respects and nothing has occurred, whether by action or by failure
to act, which would cause the loss of such qualification.
u. Insurance. The Company maintains property and casualty, general
liability, personal injury and other similar types of insurance with financially
sound and reputable insurers that is adequate, consistent with industry
standards and the Company's historical claims experience. The Company has not
received notice from, and has no knowledge of any threat by, any insurer (that
has issued any insurance policy to the Company) that such insurer intends to
deny coverage under or cancel, discontinue or not renew any insurance policy
presently in force.
v. Taxes. All applicable tax returns required to be filed by the Company
and each of its subsidiaries have been prepared and filed in compliance with all
applicable laws, or if not yet filed have been granted extensions of the filing
dates which extensions have not expired, and all taxes, assessments, fees and
other governmental charges upon the Company, its subsidiaries, or upon any of
their respective properties, income or franchises, shown in such returns and on
assessments received by the Company or its subsidiaries to be due and payable
have been paid, or adequate reserves therefor have been set up if any of such
taxes are being contested in good faith; or if any of such tax returns have not
been filed or if any such taxes have not been paid or so reserved for, the
failure to so file or to pay would not in the aggregate have a material adverse
effect on the business or financial condition of the Company and its
subsidiaries, taken as a whole.
w. Foreign Corrupt Practices Act. Neither the Company nor any of its
directors, officers or other employees has (i) used any Company funds for any
unlawful contribution, endorsement, gift, entertainment or other unlawful
expense relating to any political activity; (ii) made any direct or indirect
unlawful payment of Company funds to any foreign or domestic government official
or employee; (iii) violated or is in violation of any provision of the Foreign
Corrupt Practices Act of 1977, as amended; or (iv) made any bribe, rebate,
payoff, influence payment, kickback or other similar payment to any person. The
Company maintains a system of internal accounting controls sufficient to provide
reasonable assurances that (i) transactions are executed in accordance with
management's general or specific authorization; (ii) transactions are recorded
as necessary to permit preparation of financial statements in conformity with
generally accepted accounting principles and to maintain accountability for
assets; (iii) access to assets is permitted only in accordance with management's
general or specific authorization; and (iv) the recorded accountability for
assets is compared with existing assets at reasonable intervals and appropriate
action is taken with respect to any differences.
x. Investment Company Act. The Company is not conducting, and does not
intend to conduct its business in a manner which would cause it to become, an
"investment company," as defined in Section 3(a) of the Investment Company Act
of 1940, as amended.
y. Agent Fees. Except for such compensation as is set forth in that certain
letter, dated October 12, 1999, from the Company to the sole finder (the
"Finder") for the transaction described in this Agreement (a copy of which has
been provided to the Purchaser), which compensation shall be paid by the Company
in accordance therewith, the Company has not
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incurred any liability for any finder's or brokerage fees or agent's commissions
in connection with the offer and sale of the transactions contemplated by this
Agreement.
z. Private Offering. Subject to the accuracy of the Purchaser's representations
and warranties set forth in Section 2 hereof, the offer, sale and issuance of
the Securities and the other securities as contemplated by this Agreement are
exempt from the registration requirements of the Securities Act. The Company
agrees that neither the Company nor anyone acting on its behalf will offer any
of the Debentures, the Warrants, or any similar securities for issuance or sale,
or solicit any offer to acquire any of the same from anyone so as to render the
issuance and sale of such securities subject to the registration requirements of
the Securities Act. The Company has not offered or sold the Securities by any
form of general solicitation or general advertising, as such terms are used in
Rule 502(c) under the Securities Act.
aa. Year 2000 Processing. The computer systems used by the Company and its
subsidiaries (the "Systems"), both hardware and software, are in good working
order. The Company has taken steps that are reasonable to ensure that the
occurrence of the year 2000 will not materially and adversely affect the Systems
of the Company, its subsidiaries, or their business, and no material
expenditures in excess of currently budgeted items will be required in order to
cause such Systems to operate properly following the change of the year 1999 to
2000. The Company and its subsidiaries have resolved or are in the process of
resolving any issues discovered as a result of year 2000 inquires or compliance
testing or otherwise known to the Company, and the Company is not aware of any
fact that would lead one reasonably to conclude that the Company will be unable
to resolve any of such issues prior to December 31, 1999.
4. CERTAIN COVENANTS AND ACKNOWLEDGMENTS.
a. Transfer Restrictions. The Purchaser acknowledges that, except as
provided in the Registration Rights Agreement, (1) neither the Debentures, the
Warrants, nor the Common Stock issuable upon conversion of, or in lieu of
interest payments on, the Debentures or upon exercise of the Warrants, have
been, and are not being, registered under the Securities Act, and may not be
transferred unless (A) subsequently registered thereunder or (B) they are
transferred pursuant to an exemption from such registration; and (2) any sale of
the Debentures, the Warrants or the Common Stock issuable upon conversion or
exchange thereof made in reliance upon Rule 144 under the Securities Act may be
made only in accordance with the terms of said Rule and further, if said Rule is
not applicable, any resale of the Securities under circumstances in which the
seller, or the person through whom the sale is made, may be deemed to be an
underwriter, as that term is used in the Securities Act, may require compliance
with another exemption under the Securities Act and the rules and regulations of
the Commission thereunder. The provisions of Section 4(a) and 4(b) hereof,
together with the rights of the Purchaser under this Agreement and the other
Primary Documents, shall be binding upon any subsequent transferee of the
Debentures and the Warrants.
b. Restrictive Legend. The Purchaser acknowledges and agrees that, until
such time as the Securities or the Common Stock issuable upon conversion or
exchange thereof shall have been registered under the Securities Act or the
Purchaser demonstrates to the reasonable
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satisfaction of the Company and its counsel that such registration shall no
longer be required, such Securities or the Common Stock issuable upon conversion
or exchange thereof may be subject to a stop-transfer order placed against the
transfer of such Securities, and such Securities shall bear a restrictive legend
in substantially the following form:
THESE SECURITIES (INCLUDING ANY UNDERLYING SECURITIES) HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED,
HYPOTHECATED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER
SAID ACT OR AN OPINION OF COUNSEL OR OTHER EVIDENCE
REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION SHALL NO LONGER BE REQUIRED.
c. Filings. The Company undertakes and agrees that it will make all
required filings in connection with the sale of the Securities or the Common
Stock issuable upon conversion or exchange thereof to the Purchaser as required
by United States laws and regulations, or by any domestic securities exchange or
trading market, including, the filing of a listing application with NASDAQ to
list all of the shares of Common Stock issuable upon conversion of the
Debentures and upon the exercise of the Warrants, and if applicable, the filing
of a notice on Form D (at such time and in such manner as required by the Rules
and Regulations of the Commission), and to provide copies thereof to the
Purchaser promptly after such filing or filings.
d. Nasdaq Listing. The Company agrees and covenants that it will not seek
to have the trading of its Common Stock through Nasdaq suspended or terminated,
will use its best efforts to maintain its eligibility for trading on Nasdaq and,
if such trading of its Common Stock is suspended or terminated, will use its
best efforts to requalify its Common Stock or otherwise cause such trading to
resume.
e. Reporting Status. So long as the Purchaser beneficially owns any of the
Securities, the Company shall timely file all reports required to be filed with
the Commission pursuant to Section 13 or 15(d) of the Exchange Act and shall not
terminate its status as an issuer required to file reports under the Exchange
Act even if the Exchange Act or the rules and regulations thereunder would
permit such termination.
f. State Securities Filings. The Company shall from time to time promptly
take such action as the Purchaser or any of its representatives, if applicable,
may reasonably request to qualify the Securities or the Common Stock issuable
upon conversion or exchange thereof for offering and sale under the securities
laws (other than United States federal securities laws) of the jurisdictions in
the United States as shall be so identified to the Company, and to comply with
such laws so as to permit the continuance of sales therein, provided that in
connection therewith,
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the Company shall not be required to qualify as a foreign corporation or to file
a general consent to the service of process in any jurisdiction.
g. Use of Proceeds. The Company will use all of the net proceeds from the
issuance of the Securities for working capital.
h. Reservation of Common Stock. The Company will at all times have
authorized and reserved for the purpose of issuance a sufficient number of
shares of Common Stock to provide for the conversion of the Debentures and the
exercise of the Warrants. The Company will use its best efforts at all times to
maintain a number of shares of Common Stock so reserved for issuance that is no
less than two (2) times the number that is then actually issuable upon the
conversion of the Debentures and the exercise in full of the Warrants.
i. Sales of Additional Shares. For so long as the Debenture remains
outstanding, the Company shall not, directly or indirectly, without the prior
written consent of the Purchaser, offer, sell, offer to sell, contract to sell
or otherwise dispose of any of its securities or any security or other
instrument convertible into or exchangeable for shares of its capital stock at a
discount to the Market Price for a Share of the Common Stock (as defined in the
Debenture) or with a floating conversion or exercise price, in each case, for a
period ending on the later of two hundred seventy (270) days after the date of
this Agreement or the date that is one hundred eighty (180) days after the
Registration Statement (as defined in the Registration Rights Agreement) is
declared effective by the Commission (the "Lock-Up Period"), except that the
Company may (i) issue securities for the aggregate consideration of at least $15
million in connection with a bona fide, firm commitment, underwritten public
offering under the Securities Act; (ii) may issue shares of Common Stock which
are issued in connection with a bona fide transaction involving the acquisition
of another business entity or segment of any such entity by the Company by
merger, asset purchase, stock purchase or otherwise; (iii) may issue shares of
common stock to directors, officers, employees or consultants of the Company for
the primary purpose of soliciting or retaining their services in an aggregate
amount, together with any New Options (as defined below) vesting or becoming
exercisable during the Lock-Up Period, not to exceed 250,000 shares; (iv) may
issue shares of Common Stock upon the exercise or conversion of currently
outstanding options, warrants and other convertible securities and up to 250,000
shares of Common Stock underlying New Options as provided in clause (v) below;
(v) may issue options to purchase shares of its Common Stock to its directors,
officers, employees and consultants in connection with its existing stock option
plans ("New Options"); provided, that, during the Lock-Up Period, New Options to
purchase not more than 250,000 shares of Common Stock shall vest or become
exercisable; and (vi) may issue Common Stock in connection with a stock split,
stock dividend or similar recapitalization of the Company which affects all
holders of the Company's Common Stock on an equivalent basis, in each case,
without the prior written consent of the Purchaser. In addition, the Company
agrees that it will not cause any shares of its capital stock that are issued in
connection with a transaction of the type contemplated by clause (ii) (or upon
the conversion or exercise of other securities that are issued in connection
with such transaction) or that were issued in connection with any financing,
acquisition or other transaction that occurred prior or subsequent to the date
of this Agreement to be covered by a registration statement that is filed with
the Commission or declared effective by the Commission prior to the
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time that the Debentures and the Warrants and Common Stock issuable upon
conversion or exercise thereof are covered by a registration statement filed by
the Company pursuant to its obligations under the Registration Rights Agreement
has been effective under the Securities Act for a period of at least one hundred
eighty (180) days, during which one hundred eighty (180) day period the Company
shall not have notified the Purchaser that such registration statement or the
prospectus included in such registration statement includes an untrue statement
of a material fact or omits to state a material fact required to be stated
therein in order to make the statements therein, in light of the circumstances
under which they were made, not misleading.
j. Stockholder Approval. Unless the Company shall elect to redeem the
Debenture pursuant to Section 7(b) thereof, the Company agrees to use its best
efforts (including obtaining any vote of its stockholders required by applicable
law or Nasdaq rules) to authorize and approve the issuance of the Common Stock
issuable upon conversion of the Debentures and exercise of Warrants, to the
extent that such conversion or issuance results in the issuance of 20% or more
of the Company's outstanding Common Stock.
k. Ownership. At no time shall the Purchaser (including its officers,
directors and affiliates) maintain in the aggregate beneficial ownership (as
defined for purposes of Section 16 of the Securities Exchange Act of 1934, as
amended) of shares of Common Stock in excess of 9.9% of the Company's
outstanding Common Stock.
l. Tax Treatment. For all tax purposes, the parties hereto hereby
acknowledge, covenant and agree that the Debentures have not been issued with,
and shall not be treated as having been issued with, original issue discount for
purposes of Section 305(e) and/or Sections 1271 through 1275 of the Internal
Revenue Code of 1986, as amended.
5. TRANSFER AGENT INSTRUCTIONS.
a. The Company warrants that no instruction, other than the instructions
referred to in this Section 5 and stop transfer instructions to give effect to
Sections 4(a) and 4(b) hereof prior to the registration and sale of the
Securities in the manner contemplated by the Registration Rights Agreement, will
be given by the Company to the transfer agent and that the shares of Common
Stock issuable upon conversion of, or in lieu of interest payments on the
Debentures or upon exercise of the Warrants shall otherwise be freely
transferable on the books and records of the Company as and to the extent
provided in this Agreement, the Registration Rights Agreement and applicable
law. Nothing in this Section shall affect in any way the Purchaser's obligations
and agreement to comply with all applicable securities laws upon resale of the
Securities. If the Purchaser provides the Company with an opinion of counsel
reasonably satisfactory (as to both the identity of such counsel and the content
of such opinion) to the Company and its counsel that registration of a resale by
the Purchaser of any of the Securities in accordance with clause (1)(B) of
Section 4(a) of this Agreement is not required under the Securities Act, the
Company shall permit the transfer of the Securities and, in the case of the
Common Stock, promptly instruct the Company's transfer agent to issue one or
more certificates for Common Stock without legend in such names and in such
denominations as specified by the Purchaser.
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b. The Company will permit the Purchaser to exercise its right to convert
the Debentures or to exercise the Warrants by faxing an executed and completed
Notice of Conversion or Form of Election to Purchase, as applicable, to the
Company, and delivering within three (3) business days thereafter, the original
Notice of Conversion (and the related original Debentures) or Form of Election
to Purchase (and the related original Warrants) to the Company by hand delivery
or by express courier, duly endorsed. Each date on which a Notice of Conversion
or Form of Election to Purchase is faxed to the Company in accordance with the
provisions hereof shall be deemed a "Conversion Date." The Company will transmit
the certificates representing the Common Stock issuable upon conversion of any
Debenture or upon exercise of any Warrants (together with the Debentures not so
converted, or the Warrants not so exercised) or upon conversion of the
Debentures and exercise of the Warrants to the Purchaser via express courier as
soon as practicable, but in all events no later than three (3) business days in
the case of conversion of the Debentures, or five (5) business days in the case
of the exercise of any Warrant after the Conversion Date (the "Delivery Date").
For purposes of this Agreement, such conversion of the Debentures or the
exercise of the Warrants shall be deemed to have been made immediately prior to
the close of business on the Conversion Date.
c. In lieu of delivering physical certificates representing the Common
Stock issuable upon the conversion of the Debentures or the exercise of the
Warrants, provided the Company's transfer agent is participating in the
Depositary Trust Company ("DTC") Fast Automated Securities Transfer program, on
the written request of the Purchaser, who shall have previously instructed the
Purchaser's prime broker to confirm such request to the Company's transfer
agent, the Company shall cause its transfer agent to electronically transmit
such Common Stock to the Purchaser by crediting the account of the Purchaser's
prime broker with DTC through its Deposit Withdrawal Agent Commission ("DWAC")
system no later than the applicable Delivery Date.
d. The Company understands that a delay in the issuance of Common Stock
beyond the applicable Delivery Date could result in an economic loss to the
Purchaser. As compensation to the Purchaser for such loss, the Company agrees to
pay to the Purchaser for late issuance of Common Stock upon conversion of the
Debentures or upon exercise of the Warrants the sum of $2,500 per day for each
$100,000 in aggregate principal amount of Debentures that are being converted or
for any or all shares of Common Stock being purchased upon the exercise of the
Warrants. The Company shall pay any payments that are payable to the Purchaser
pursuant to this Section 5 in immediately available funds upon demand. Nothing
herein shall limit the Purchaser's right to pursue actual damages for the
Company's failure to so issue and deliver Common Stock to the Purchaser.
Furthermore, in addition to any other remedies which may be available to the
Purchaser, in the event that the Company fails for any reason to effect delivery
of such Common Stock within five (5) business days after the relevant Delivery
Date, the Purchaser will be entitled to revoke the relevant Notice of Conversion
or Form of Election to Purchase by delivering a notice to such effect to the
Company, whereupon the Company and the Purchaser shall each be restored to their
respective positions immediately prior to delivery of such Notice of Conversion
or Form of Election to Purchase. For purposes of this Section 5, "business day"
shall mean any day in which the financial markets of New York are officially
open for the conduct of business therein.
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6. CONDITIONS TO THE COMPANY'S OBLIGATION TO ISSUE THE SECURITIES.
Purchaser understands that the Company's obligation to issue the Securities
on the Closing Date to Purchaser pursuant to this Agreement is conditioned upon:
a. The accuracy on the Closing Date of the representations and warranties
of Purchaser contained in this Agreement as if made on the Closing Date and the
performance by Purchaser on or before the Closing Date of all covenants and
agreements of Purchaser required to be performed on or before the Closing Date;
b. The absence or inapplicability of any and all laws, rules or regulations
prohibiting or restricting the transactions contemplated hereby, or requiring
any consent or approval which shall not have been obtained.
7. CONDITIONS TO THE PURCHASER'S OBLIGATION TO PURCHASE THE SECURITIES.
The Company understands that Purchaser's obligation to purchase the
Debentures and the Warrants on the Closing Date is conditioned upon:
a. The accuracy on the Closing Date of the representations and warranties
of the Company contained in this Agreement as if made on the Closing Date, and
the performance by the Company on or before the Closing Date of all covenants
and agreements of the Company required to be performed on or before the Closing
Date;
b. On the Closing Date, the Purchaser shall have received an opinion of
counsel for the Company, dated the Closing Date, in form, scope and substance
reasonably satisfactory to Purchaser, to the effect set forth in Exhibit C
attached hereto;
d. On the Closing Date the Company shall have executed and delivered a
signed counterpart to the Registration Rights Agreement, in form, scope and
substance reasonably satisfactory to Purchaser, to the effect set forth in
Exhibit D attached hereto;
e. On Closing Date, the Purchaser shall have received a certificate
executed by (i) the President or the Chairman of the Company and (ii) the Chief
Financial Officer of the Company, stating that all of the representations and
warranties of the Company set forth in this Agreement are accurate as of the
Closing Date and that the Company has performed all of its covenants and
agreements required to be performed under this Agreement on or before the
Closing Date;
f. On the Closing Date, the Purchaser shall have received from the Company
such other certificates and documents as it or its representative, if
applicable, shall reasonably request, and all proceedings taken by the Company
in connection with the Primary Documents contemplated by this Agreement and the
other Primary Documents and all documents and papers relating to such Primary
Documents shall be satisfactory to the Purchaser;
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<PAGE>
g. On or prior to the Closing Date, there shall not have occurred any of
the following: (i) a suspension or material limitation in the trading of
securities generally on the New York Stock Exchange or Nasdaq; (ii) a general
moratorium on commercial banking activities in New York declared by the
applicable banking authorities; (iii) the outbreak or escalation of hostilities
involving the United States, or the declaration by the United States of a
national emergency or war; or (iv) a change in international, political,
financial or economic conditions, if the effect of any such event, in the
reasonable judgment of the Purchaser, makes it impracticable or inadvisable to
proceed with the purchase of the Securities on the terms and in the manner
contemplated in this Agreement and in the other Primary Documents.
8. EXPENSES.
The Company covenants and agrees with the Purchaser that the Company will
pay or cause to be paid the following: (a) the fees, disbursements and expenses
of the Purchaser's counsel in connection with the issuance of the Securities
payable on the Closing Date, up to a maximum of twenty thousand dollars
($20,000), (b) all expenses in connection with registration or qualification of
the Securities for offering and sale under state securities laws as provided in
Section 4(f) hereof, and (c) all other costs and expenses incident to the
performance of its obligations hereunder which are not otherwise specifically
provided for in this Section, including the fees and disbursements of the
Company's counsel, accountants and other professional advisors, if any. If the
Company fails to satisfy its obligations or to satisfy any condition set forth
in this Agreement, as a result of which the Securities are not delivered to the
Purchaser on the terms and conditions set forth herein, the Company shall
reimburse the Purchaser for any out-of-pocket expenses reasonably incurred in
making preparations for the purchase, sale and delivery of the Securities not so
delivered.
9. SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
The representations and warranties of the Company and the Purchaser shall
survive the execution and delivery of this Agreement and the delivery of the
Debentures and the Warrants.
10. GOVERNING LAW; MISCELLANEOUS
This Agreement shall be governed by and interpreted in accordance with the
laws of the State of New York, without regard to principles of conflict of laws.
Each of the parties consents to the jurisdiction of the federal courts whose
districts encompass any part of the City of New York or the state courts of the
State of New York sitting in the City of New York in connection with any dispute
arising under this Agreement or any of the transactions contemplated hereby, and
hereby waives, to the maximum extent permitted by law, any objection, including
any objections based on forum non conveniens, to the bringing of any such
proceeding in such jurisdictions. This Agreement may be signed in one or more
counterparts, each of which shall be deemed an original. The headings of this
Agreement are for convenience of reference only and shall not form part of, or
affect the interpretation of this Agreement. This Agreement and each of the
Primary Documents have been entered into freely by each of the parties,
following consultation with their respective counsel, and shall be interpreted
fairly in accordance with its respective terms, without any construction in
favor of or against either party.
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<PAGE>
If any provision of this Agreement shall be invalid or unenforceable in any
jurisdiction, such invalidity or unenforceability shall not affect the validity
or enforceability of the remainder of this Agreement or the validity or
unenforceability of this Agreement in any other jurisdiction. This Agreement
shall inure to the benefit of, and be binding upon the successors and assigns of
each of the parties hereto, including any transferees of the Securities. This
Agreement may be amended only by an instrument in writing signed by the party to
be charged with enforcement. This Agreement supersedes all prior agreements and
understandings among the parties hereto with respect to the subject matter
hereof.
11. NOTICES.
Any notice required or permitted hereunder shall be given in writing
(unless otherwise specified herein) and shall be effective upon personal
delivery, via facsimile (upon receipt of confirmation of error-free
transmission) or two business days following deposit of such notice with an
internationally recognized courier service, with postage prepaid and addressed
to each of the other parties thereunto entitled at the following addresses, or
at such other addresses as a party may designate by five days advance written
notice to each of the other parties hereto.
Company: Data Systems & Software Inc.
200 Route 17
Mahwah, New Jersey 07430
Attention: George Morgenstern, President
Tel: (201) 529-2026
Fax: (201) 529-3163
With a copy to:
Ehrenreich Eilenberg Krause & Zivian, LLP
11 East 44th Street
New York, New York 10017
Attention: Sheldon Krause, Esq.
Tel: (212) 986-9700
Fax: (212) 986-2399
Purchaser: Bounty Investors LLC
c\o WEC Asset Management LLC
One World Trade Center, Suite #4563
New York, New York 10048
Attention: Daniel J. Saks
Tel: (212) 775-9299
Fax: (212) 775-9311
15
<PAGE>
With a copy to:
Pryor Cashman Sherman & Flynn LLP
410 Park Avenue
New York, New York 10022
Attention: Mark Saks, Esq.
Tel: (212) 326-0140
Fax: (212) 326-0806
[REMAINDER OF PAGE LEFT INTENTIONALLY BLANK, SIGNATURE PAGE TO FOLLOW]
16
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IN WITNESS WHEREOF, this Securities Purchase Agreement has been duly
executed by each of the undersigned.
DATA SYSTEMS & SOFTWARE INC.
By: /s/ GEORGE MORGENSTERN
----------------------------------
Name: George Morgenstern
Title: President
BOUNTY INVESTORS LLC
By: WEC Asset Management LLC,
Manager
By: /s/ DANIEL J. SAKS
----------------------------------
Name: Daniel J. Saks
Title: Managing Director
17
<PAGE>
EXHIBIT INDEX
EXHIBIT A FORM OF DEBENTURE
EXHIBIT B FORM OF WARRANT
EXHIBIT C FORM OF OPINION OF COUNSEL TO COMPANY
EXHIBIT D FORM OF REGISTRATION RIGHTS AGREEMENT
<PAGE>
Exhibit A
FORM OF DEBENTURE
No.:
THESE SECURITIES (INCLUDING ANY UNDERLYING SECURITIES) HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR
SALE, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER SAID ACT OR AN
OPINION OF COUNSEL OR OTHER EVIDENCE REASONABLY SATISFACTORY TO THE COMPANY THAT
SUCH REGISTRATION SHALL NO LONGER BE REQUIRED.
DATA SYSTEMS & SOFTWARE INC.
0% CONVERTIBLE SUBORDINATED DEBENTURE
October 12, 1999
New York, New York
1. Consideration. FOR VALUE RECEIVED, DATA SYSTEMS & SOFTWARE INC. a
Delaware corporation (the "undersigned" or the "Company"), hereby promises to
pay to the order of Bounty Investors LLC, its offices located at One World Trade
Center, Suite #4563, New York, New York 10048 or at such other place as the
holder hereof (the "holder" or the "Registered Holder") shall designate to the
undersigned in writing, in lawful money of the United States of America or in
New York Clearing House Funds, the principal amount of ______________________
Dollars ($_______) on the Maturity Date (as defined below). This Debenture is
one of a series of Debentures issued to the Registered Holder on the date hereof
in the aggregate amount of Two Million Dollars ($2,000,000). The undersigned
promises to pay the said principal sum in accordance with the terms of this
Debenture (as defined below). In the event that the Company repays the principal
amount on the Maturity Date no interest shall be due or payable on this
Debenture.
2. Payment. On October 12, 2001 (the "Maturity Date") the undersigned shall
pay the holder all unpaid principal and interest, if any, on this Debenture. At
the Company's option, any interest payment required to be paid on this Debenture
may be made in the form of the issuance to the holder of the Company's common
stock, par value $.01 per share (the "Common Stock"), with the number of shares
of such Common Stock to be payable in lieu of such interest payments to be
determined in accordance with the provisions of Section 6, as if such interest
payment were a portion of the principal amount of the Debenture to be converted
into Common Stock.
Principal and interest, if any, shall be payable at the most recent address
as the Registered Holder shall have designated to the Company in writing. No
payment of the principal
<PAGE>
of this Debenture may be made prior to the Maturity Date by the Company without
the consent of the Registered Holder, except as otherwise provided herein.
3. Overdue Interest Payments. Interest on the indebtedness evidenced by
this Debenture after default or maturity accelerated or otherwise shall be due
and payable at the rate of ten (10%) percent per annum, subject to the
limitations of applicable law.
4. Holidays. If this Debenture or any installment hereof becomes due and
payable on a Saturday, Sunday or public holiday under the laws of the State of
New York, the due date hereof shall be extended to the next succeeding business
day and interest shall be payable at the rate of six (6%) percent per annum
during such extension. All payments received by the holder shall be applied
first to the payment of all accrued interest payable hereunder.
5. Issuance of Debentures. This Debenture has been issued by the Company
pursuant to the authorization of the Board of Directors of the Company (the
"Board") and issued pursuant to a Securities Purchase Agreement, dated as of
October 12, 1999, by and between the Company and the Purchaser identified
therein (the "Securities Purchase Agreement"). Pursuant to the Securities
Purchase Agreement, the Company issued $2,000,000 principal amount of the
Debentures and warrants to purchase (the "Warrants") 100,000 shares of the
Company's Common Stock. The Securities Purchase Agreement contains certain
additional terms that are binding upon the Company and each Registered Holder of
the Debentures. A copy of the Securities Purchase Agreement may be obtained by
any registered holder of the Debentures from the Company upon written request.
Capitalized terms used but not defined herein shall have the meanings set forth
in the Securities Purchase Agreement, including the Exhibits thereto. This
Debenture and the other 0% Convertible Debentures due 2001 issued by the Company
pursuant to the terms of the Securities Purchase Agreement, together with any
debentures from time to time issued in replacement thereof, whether pursuant to
transfer and assignment, partial conversion thereof or otherwise, are
collectively referred to herein as the "Debentures."
6. Conversion. (a) Subject to and in compliance with the provisions hereof,
the holder shall have the right to convert all or a portion of the outstanding
principal amount of this Debenture into such number of shares of Common Stock
(the shares of Common Stock issuable upon conversion of, and issuable in lieu of
interest payments on, this Debenture, if any, are hereinafter referred to as the
"Conversion Shares") as shall equal the quotient obtained by dividing (x) the
principal amount of this Debenture to be converted by (y) the Applicable
Conversion Price (as hereinafter defined) and by surrender of this Debenture,
such surrender to be made in the manner provided herein.
(b) For purposes hereof the term "Applicable Conversion Price" shall mean
the lesser of (i) $3.06625 (the "Fixed Price") and (ii) the product obtained by
multiplying (x) the Average Closing Price (as hereinafter defined) by (y) .85.
For purposes hereof the "Average Closing Price" with respect to any
conversion elected to be made by the holder shall be the average of the five (5)
daily closing bid prices (each such price is referred to individually as a
"Floating Reference Price" and,
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<PAGE>
collectively, as the "Floating Reference Prices") during the five (5) trading
days immediately preceding the date on which the holder gives the Company a
written notice of the holder's election to convert outstanding principal of this
Debenture. The closing bid price on any trading day shall be (a) if the Common
Stock is then listed or quoted on either the NASD Bulletin Board, the NASDAQ
SmallCap Market or the NASDAQ National Market, the reported closing bid price
for the Common Stock as reported by Bloomberg, L.P. ("Bloomberg") or The Wall
Street Journal (the "Journal") on such day (or, if not so reported, as otherwise
reported by The NASDAQ Small Cap Market, NASDAQ National Market or the NASD
Bulletin Board, as the case may be), (b) if the Common Stock is listed on either
the American Stock Exchange or New York Stock Exchange, the closing bid price
for the Common Stock on such exchange on such day as reported by Bloomberg or
the Journal or (c) if neither (a) nor (b) apply but the Common Stock is quoted
in the over-the-counter market, another recognized exchange, or on the pink
sheets, the last reported bid price thereof on such date. If the prices of the
Common Stock cannot be calculated on such date on any of the foregoing bases,
such prices on such date shall be the fair market value as mutually determined
by the Company and the Registered Holder for which the calculation is required
in order to determine the Applicable Conversion Price; provided, however, that
if the Company and the Registered Holder are unable to mutually determine the
fair market value, such fair market value shall be determined by a nationally
recognized investment banking firm or firm of independent chartered accountants
of recognized standing (which firm may be the firm that regularly examines the
financial statements of the Company) (an "Appraiser") selected in good faith by
the Board and holders of a majority in interest of the Debentures. "Trading day"
shall mean any day on which the Company's Common Stock is traded for any period
on the principal securities exchange or other securities market on which the
Common Stock is then being traded.
(c) If, during any period following October 12, 1999 (the "Original Issue
Date"), as a result of the occurrence of any of the events set forth in Section
3(f) or 3(g) of the Registration Rights Agreement, dated as of October 12, 1999,
by and between the Company and the Purchasers set forth therein (the
"Registration Rights Agreement"), the Purchasers set forth therein are not able
to sell shares of Common Stock issuable upon conversion of, or in lieu of
interest payments on, this Debenture pursuant to a registration statement filed
pursuant to such agreement, the Registered Holder shall have the right, for any
purpose under this Debenture during such period and thereafter, to designate as
the Applicable Conversion Price any Conversion Price that would have been
applicable during such period had the Registered Holder delivered a Notice of
Conversion with respect to any portion of this Debenture. "Conversion Date"
shall have the meaning given such term in Section 5(b) of the Securities
Purchase Agreement.
(d) The Registered Holder shall convert this Debenture in accordance with
Section 5(b) of the Securities Purchase Agreement. If the Company fails to
deliver to the holder a certificate or certificates for shares of Common Stock
in the period set forth in the Securities Purchase Agreement, the Company shall
make certain payments to the holder in accordance with Section 5(d) of the
Securities Purchase Agreement.
(e) If the entire outstanding principal amount of this Debenture is not
converted, the Company shall also issue and deliver to such holder a new
Debenture of like tenor
3
<PAGE>
in the principal amount equal to the principal which was not converted and dated
the Original Issue Date. Each conversion shall be deemed to have been effected
immediately prior to the close of business on the date on which a Notice of
Conversion shall have been delivered as aforesaid, and the person or persons in
whose name or names any certificate of certificates for shares of Common Stock
shall be issuable upon such conversion shall be deemed to have become the holder
or holders of record of the shares represented thereby at such time on such
date.
(f) All shares of Common Stock delivered upon conversion of, or in lieu of
interest payments on, this Debenture will, upon delivery, be duly authorized,
validly issued and fully paid and nonassessable.
(g) No fractional shares of Common Stock shall be issued upon conversion
of, or in lieu of interest payments on, this Debenture. Instead of any
fractional share of Common Stock which would otherwise be deliverable upon the
conversion of, or in lieu of interest payments on, the principal of this
Debenture, the Company shall pay to the holder an amount in cash (computed to
the nearest cent) equal to the Average Closing Price multiplied by the fraction
of a share of Common Stock represented by such fractional interest.
(h) The issuance of certificates for shares of Common Stock upon any
conversion of, or in lieu of interest payments on, this Debenture shall be made
without charge to the payee hereof for any tax or other expense in respect to
the issuance of such certificates, all of which taxes and expenses shall be paid
by the Company, and such certificates shall be issued only in the name of the
registered holder of this Debenture.
(i) Notwithstanding anything herein to the contrary, at no time shall the
Registered Holder (including its officers, directors and affiliates) maintain in
the aggregate beneficial ownership (as defined for purposes of Section 16 of the
Securities Exchange Act of 1934, as amended) of shares of Common Stock in excess
of 9.9% of the Company's outstanding Common Stock and accordingly, the
Registered Holder may only convert this Debenture up to the point where its
aggregate beneficial ownership (as defined for purposes of Section 16 of the
Securities Exchange Act of 1934, as amended) of shares of Common Stock is equal
or less than 9.9% of the Company's outstanding Common Stock.
7. Redemption by Company. (a) If, after the Original Issue Date, there
shall occur a Change in Control of the Company (as defined below), then, at the
option of the Registered Holder, the Company shall, on the effective date of and
subject to the consummation of such Change in Control, redeem this Debenture for
cash from the Registered Holder at a redemption price equal to 125% of the
aggregate principal and accrued interest outstanding under this Debenture.
Nothing in this subsection shall limit the Registered Holder's right to convert
this Debenture on or prior to such Change in Control. For purposes hereof, a
"Change in Control" shall be deemed to have occurred if (A) any person or group
(as defined for purposes of Regulation 13D of the Securities Exchange Act of
1934, as amended (the "Exchange Act")) shall have become the beneficial owner or
owners of more than 50% of the outstanding voting stock of the Company; (B)
there shall have occurred a merger or consolidation in which the Company or an
affiliate of the Company is not the survivor or in which holders of the Common
Stock of the Company shall have become entitled to receive cash, securities of
the Company other than voting
4
<PAGE>
common stock or securities of any other person; (C) at any time persons
constituting the Existing Board of Directors cease for any reason whatsoever to
constitute at least a majority of the members of the Board of Directors of the
Company; or (D) there shall have occurred a sale of all or substantially all the
assets of the Company. For purposes hereof, the term "Existing Board of
Directors" shall mean the persons constituting the Board of Directors of the
Company on the date hereof, together with each new director whose election, or
nomination for election by the Company's stockholders is approved by a vote of
the majority of the members of the Existing Board of Directors who are in office
immediately prior to the election or nomination of such director.
(b) If prior to the time the stockholders of the Company shall have
approved the transactions contemplated by the Securities Purchase Agreement as
provided in clause (B) below, the number of shares of Common Stock issued (i)
upon conversion of the Debentures and (ii) in lieu of interest payments on the
Debentures, if any, (collectively, the "Conversion Shares"), shall be equal to
or more than 19.9% of the number of the shares of capital stock outstanding on
the Closing Date (a "Redemption Event"), the Company shall have the option to
(A) redeem the outstanding principal amount of this Debenture at the redemption
price of one hundred twenty-five percent (125%) of the principal amount hereof
plus accrued interest on this Debenture, if any, or (B) call a special meeting
of its stockholders for the purpose of approving the transactions contemplated
by the Securities Purchase Agreement, including the issuance of the Debentures
and Warrants on the terms set forth therein, together with any other approvals
that shall be required so as to cause the transactions contemplated by the
Securities Purchase Agreement to remain in compliance with the Rules and
Regulations of Nasdaq (including Rule 4460 of Nasdaq's Non-Qualitative
Designation Criteria on the occurrence of a Redemption Event; such approvals are
referred to herein as the "Required Approvals"). The Company shall determine
within five (5) business days following the occurrence of any Redemption Event
which of such actions it shall take, and shall promptly furnish notice to the
Purchaser as to such determination, including, if applicable, a notice of
redemption. If the Company does not make a determination within such five (5)
day period, this Debenture shall be redeemed the first business day following
the end of such five (5) day period, if any, at the redemption price of one
hundred twenty-five percent (125%) of the principal amount hereof plus accrued
interest on the Debenture, if any.
(c) If the Company elects to call a special meeting of its stockholders
pursuant to Section 6(b) to obtain the Required Approvals, the Company shall
obtain such Required Approvals within thirty (30) days of the distribution of
the notice described in such Section (such thirty (30) day period is referred to
herein as an "Approval Period"). If such approval is not obtained within the
Approval Period, this Debenture shall be redeemed on the first business day
following the Approval Period at the redemption price of one hundred twenty-five
percent (125%) of the principal amount hereof plus accrued interest on the
Debenture, if any.
(d) If the Company fails to have a registration statement effective within
one hundred fifty (150) days of the date of the Stock Purchase Agreement, at the
option of the Purchaser, the Company shall redeem these Debentures at a
redemption price of one hundred twenty-five percent (125%) of the principal
amount hereof plus accrued and unpaid interest thereon, if any.
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(e) If the Company shall be required to redeem the Debentures pursuant to
any of the terms or conditions set forth in this Section 7, the Company shall
remit the redemption price to the Registered Holder thereof immediately upon
such redemption.
8. Covenants.
(a) The Company will pay all taxes, assessments and governmental charges
lawfully levied or assessed upon it, its property and any part thereof, and upon
its income for profits, and any part thereof, before the same shall become
delinquent; and will duly observe, and conform to, all lawful requirements of
any governmental authority relative to any of its property, and all covenants,
terms and conditions upon or under which any of its property is held; provided
that nothing in this Section shall require the Company to observe or conform to
any requirement of governmental authority so long as the validity thereof shall
be contested in good faith by appropriate proceedings or to pay any such tax,
assessment or governmental charges so long as the validity thereof shall be
contested in good faith by appropriate proceedings and adequate reserves with
respect thereto shall have been set aside on the books of the Company.
(b) Subject to the other provisions of this Debenture, the Company at all
times will maintain its corporate existence and right to carry on its business
and will duly procure all necessary renewals and extensions thereof and use its
best efforts to maintain, preserve and renew all of its rights, powers,
privileges and franchises; provided, however, that nothing herein contained
shall be construed to prevent the Company from ceasing or omitting to exercise
any rights, powers, privileges or franchises which, in the judgment of the
Board, can no longer be profitably exercised, nor to prevent the consolidation,
merger or liquidation of any subsidiary or subsidiaries of the Company with or
into the Company.
(c) The Company will at no time close its stock transfer books against the
transfer of any shares of Common Stock issued or issuable upon the conversion
of, or in lieu of interest payments on, the Debentures, in any manner which
interferes with the timely conversion of such Debentures.
(d) As used in this Debenture, the term "Common Stock" shall include all
stock of any class or classes (however designated) of the Company, authorized on
or after the date hereof, the holders of which shall have the right, without
limitation as to amount, either to all or to a share of the balance of current
dividends and liquidating dividends after the payment of dividends and
distributions on any shares entitled to preference, and the holders of which
shall ordinarily be entitled to vote for the election of the directors of the
Company. The Company shall not, without the prior written consent of the
Registered Holder of this Debenture, issue any shares of its capital stock,
other than as permitted by Section 4(i) of the Securities Purchase Agreement, in
exchange for Debentures as provided hereunder or upon exercise of the Warrants
in accordance with the terms thereof.
(e) The Company will not, by amendment of its Articles of Incorporation or
By-laws or through any reorganization, recapitalization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid
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or seek to avoid the observance or performance of any of the terms to be
observed or performed hereunder or pursuant to the Securities Purchase Agreement
by the Company, and will at all times assist in good faith in the carrying out
of all the provisions of this Debenture and the Securities Purchase Agreement
and in the taking of all such action as may be necessary or appropriate in order
to protect the conversion rights of the Registered Holders of the Debentures
against impairment.
(f) In the event of any taking by the Company of a record of the holders of
any class of securities for the purpose of determining the holders thereof who
are entitled to receive any dividend (other than a cash dividend) or other
distribution, any right to subscribe for, purchase or otherwise acquire any
shares of stock of any class or any other securities or property, or to receive
any other right, the Company shall mail to each Registered Holder of the
Debentures, at least ten (10) days prior to the date specified therein, a notice
specifying the date on which any such record is to be taken for the purpose of
such dividend, distribution or right, and the amount and character of such
dividend, distribution or right.
(g) In the event that the Market Price for a Share of Common Stock is less
than three dollars ($3.00), the holder agrees that neither it nor any person or
entity for whom it is holding this Debenture will, directly or indirectly,
engage in any sales of the Common Stock (including short sales) during the five
(5) trading days immediately preceding the date on which the holder gives the
Company a written notice of the holder's election to convert outstanding
principal of this Debenture.
9. Limitation on Certain Corporate Acts. The Company hereby covenants and
agrees that upon any consolidation or merger or upon the transfer of all or
substantially all of the property or assets of the Company, the due and punctual
payment of the principal and interest on all the Debentures according to their
tenor and the due and punctual performance and observance of all the terms,
covenants and conditions of the Debentures and the Securities Purchase Agreement
to be kept and performed by the Company shall be expressly assumed by the
corporation formed by such consolidation, or into which the Company shall have
merged or by the purchaser of such property or assets; and such assumption shall
be an express condition of such merger or consolidation agreement or agreement
for the transfer of property or assets.
10. Events of Default. In case one or more of the following events of
default shall have occurred:
(a) default in the due and punctual payment of interest upon or principal
of any of the Debentures as and when the same becomes due and payable either at
maturity or otherwise; or
(b) failure to deliver the shares of Common Stock required to be delivered
upon conversion of, or in lieu of interest payments on, the Debentures in the
manner and at the time required by Section 5 of the Securities Purchase
Agreement; or
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<PAGE>
(c) failure of the Company to have authorized the number of shares of
Common Stock issuable upon conversion of, or in lieu of interest payments on,
the Debentures, or exercise of the Warrants; or
(d) failure on the part of the Company to duly observe or perform any of
its other covenants or agreements contained in, or to cure any material breach
in a material representation or covenant contained in the Securities Purchase
Agreement, the Debentures or the Registration Rights Agreement for a period of
ten (10) days after the date on which written notice of such failure or breach
requiring the same to be remedied has been given by a Registered Holder to the
Company; or
(e) a decree or order by a court having jurisdiction has been entered
adjudging the Company (or any Material Subsidiary (as herein after defined))
bankrupt or insolvent, or approving a petition seeking reorganization of the
Company (or any Material Subsidiary) under any applicable bankruptcy law and
such decree or order has continued undischarged or unstayed for a period of
thirty (30) days; or a decree or order of a court having jurisdiction for the
appointment of a receiver or liquidator or trustee or assignee in bankruptcy or
insolvency of the Company (or any Material Subsidiary) or of all or
substantially all of its property, or for the winding-up or liquidation of its
affairs, has been entered, and has remained in force undischarged or unstayed
for a period of thirty (30) days; or
(f) the Company (or any Material Subsidiary) institutes proceedings to be
adjudicated a voluntary bankrupt, or consents to the filing of a bankruptcy
proceeding against it, or files a petition or answer or consent seeking
reorganization under applicable law, or consents to the filing of any such
petition or to the appointment of a receiver or liquidator or trustee or
assignee in bankruptcy or insolvency of it or of all or substantially all of its
property, or makes an assignment for the benefit of creditors, or admits in
writing its inability to pay its debts generally as they become due; or if the
Company (or any Material Subsidiary) shall suffer any writ of attachment or
execution or any similar process to be issued or levied against it or any
significant part of its property which is not released, stayed, bonded or
vacated within thirty (30) days after its issue or levy; or if the Company (or
any Material Subsidiary) takes corporate action in furtherance of any of the
aforesaid purposes or conditions; or
(g) if any event of default shall occur under any indenture, mortgage,
agreement, instrument or commitment evidencing or under which there is at the
time outstanding any indebtedness of the Company (or a Material Subsidiary), in
excess of $50,000, or which results in such indebtedness, in an aggregate amount
(with other defaulted indebtedness) in excess of $50,000 becoming due and
payable prior to its due date and if such indenture or instrument so requires,
the holder or holders thereof (or a trustee on their behalf) shall have declared
such indebtedness due and payable; or
(h) if a final judgment which, either alone or together with other
outstanding final judgments against the Company and its subsidiaries, exceeds an
aggregate of $50,000 shall be rendered against the Company (or any Material
Subsidiary) and such judgment shall have continued undischarged or unstayed for
thirty (30) days after entry thereof;
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<PAGE>
then, in each and every such case other than those specified in clauses (e) and
(f) above, so long as such event of default has not been remedied and unless the
principal of all the Debentures has already become due and payable, the holder
of this Debenture, by notice in writing to the Company, may declare the
principal of this Debenture and any interest accrued thereon, if not already due
and payable, to be due and payable immediately, and upon any such declaration
the same shall become and shall be immediately due and payable, anything herein
contained to the contrary notwithstanding and, upon the occurrence of the events
specified in clauses (e) and (f) above, such principal and interest shall
automatically become and shall be due and payable immediately without any action
on the part of any holder of Debentures, anything herein contained to the
contrary notwithstanding.
For purposes of this Section 10, "Material Subsidiary" means any subsidiary
with respect to which the Company has directly or indirectly invested, loaned,
advanced or guaranteed the obligations of, an aggregate amount exceeding fifteen
percent (15%) of the Company's gross assets, or the Company's proportionate
share of the assets or net income of which (based on the subsidiary's most
recent financial statements) exceed fifteen percent (15%) of the Company's gross
assets or net income, respectively, or the gross revenues of which exceed
fifteen percent (15%) of the gross revenues of the Company based upon the most
recent financial statements of such subsidiary and the Company.
11. Transferability. This Debenture is transferable, in whole or in part,
only in accordance with the terms of Section 5 of the Securities Purchase
Agreement. The Registered Holder may submit a written request, in person or by
his duly authorized attorney, for a transfer of this Debenture on the register
of the Company maintained at its principal offices. The Company may deem and
treat the person in whose name this Debenture is registered as the absolute
owner hereof, for the purpose of receiving payment of the principal thereof and
interest hereon, whether or not the same shall be overdue, and for all other
purposes whatsoever, including but without limitation, the giving of any written
notices required hereunder, and the Company shall not be affected by any notice
to the contrary.
12. Stock Splits; Dividends; Adjustments; Reorganizations.
(a) If the Company, at any time after the Original Issue Date, (i) shall
pay a stock dividend or otherwise make a distribution or distributions on any
equity securities (including investments or securities convertible into or
exchangeable for such equity securities) in shares of Common Stock, (ii) issue
any securities payable in shares of Common Stock, (iii) subdivide the
outstanding shares of Common Stock into a larger number of shares, (iv) combine
outstanding shares of Common Stock into a smaller number of shares, the Fixed
Price and each Floating Reference Price prior to the date of any such occurrence
(collectively, the "Reference Prices") shall be multiplied by a fraction of
which the numerator shall be the number of shares of Common Stock outstanding
before such event and of which the denominator shall be the number of shares of
Common Stock outstanding after such event. Any adjustment made pursuant to this
Section 12(a) shall become effective immediately after the record date for the
determination of shareholders entitled to receive such dividend or distribution
and shall become effective immediately after the effective date in the case of
an issuance, a subdivision or a combination.
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<PAGE>
(b) Intentionally deleted.
(c) If the Company, at any time after the Original Issue Date, shall
distribute to all holders of Shares of Common Stock evidences of its
indebtedness or assets or rights or warrants to subscribe for or purchase any
security (excluding those referred to in Section 12(b) above) then in each such
case the Fixed Price thereafter shall be determined by multiplying the Fixed
Price in effect immediately prior to the record date fixed for determination of
shareholders entitled to receive such distribution by a fraction of which the
denominator shall be the Market Price for Shares of Common Stock (as defined
below) determined as of the record date mentioned above, and of which the
numerator shall be such Market Price for Shares of Common Stock on such record
date less the then fair market value at such record date of the portion of such
assets or evidences of indebtedness so distributed applicable to one outstanding
share of Common Stock as determined by the Board in good faith; provided,
however that in the event of a distribution exceeding 25% of the net assets of
the Company, such fair market value shall be determined by an Appraiser selected
in good faith by the Board and holders of a majority in interest of the
Debentures. In either case the adjustments shall be described in a statement
provided to all holders of Debentures of the portion of assets or evidences of
indebtedness so distributed or such subscription rights applicable to one
outstanding share of Common Stock. Such adjustment shall be made whenever any
such distribution is made and shall become effective immediately after the
record date mentioned above.
"Market Price for Shares of Common Stock" shall mean the price of one share
of Common Stock determined as follows:
(i) If the Common Stock is then listed or quoted on either the NASD
Bulletin Board, the NASDAQ SmallCap Market or the NASDAQ National Market, the
reported closing bid price for the Common Stock as reported by Bloomberg or the
Journal on such day (or, if not so reported, as otherwise reported by The NASDAQ
Small Cap Market, NASDAQ National Market or the NASD Bulletin Board, as the case
may be);
(ii) If the Common Stock is listed on the New York Stock Exchange or the
American Stock Exchange, the closing bid price for the Common Stock on such
exchange on such day as reported by Bloomberg or the Journal;
(iii) If neither (i) nor (ii) apply but the Common Stock is quoted in the
over-the-counter market, another recognized exchange or on the pink sheets, the
last reported bid price thereof on such date; and
(iv) If neither clause (i), (ii) or (iii) above applies, the market value
as determined by a nationally recognized investment banking firm or other
nationally recognized financial advisor retained by the Company for such
purpose, taking into consideration, among other factors, the earnings history,
book value and prospects for the Company, and the prices at which shares of
Common Stock recently have been traded. Such determination shall be conclusive
and binding on all persons.
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(d) (1) In the event that at any time or from time to time after the
Original Issue Date, the Common Stock issuable upon the conversion of, or in
lieu of interest payments on, the Debentures is changed into the same or a
different number of shares of any class or classes of stock, whether by merger,
consolidation, recapitalization, reclassification or otherwise (other than a
subdivision or combination of shares or stock dividend or reorganization
provided for elsewhere in this Paragraph 12), then and as a condition to each
such event provision shall be made in a manner reasonably acceptable to the
holders of Debentures so that each holder of Debentures shall have the right
thereafter to convert such Debenture into, and to receive in lieu of interest
payments, 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 formulae
set forth herein for conversion and redemption shall be equitably adjusted to
reflect such change in number of shares or, if shares of a new class of stock
are issued, to reflect the market price of the class or classes of stock
(applying the same factors used in determining the Fixed Price) issued in
connection with the above described transaction.
(2) If at any time or from time to time after the Closing Date there is a
capital reorganization of the Common Stock, including by way of a sale of all or
substantially all of the assets of the Company (other than a recapitalization,
subdivision, combination, reclassification or exchange of shares provided for
elsewhere in this Paragraph 12), then, as a part of and a condition to such
reorganization, provision shall be made in a manner reasonably acceptable to the
holders of the Debentures so that the holders of the Debentures shall thereafter
be entitled to receive upon conversion of, or in lieu of interest payments on,
the Debentures 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, or in lieu of interest payments on, the Debentures 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 Paragraph
12 with respect to the rights of the holders of the Debentures after the
reorganization to the end that the provisions of this Paragraph 12 shall be
applicable after that event and be as nearly equivalent as may be practicable,
including, by way of illustration and not limitation, by equitably adjusting the
formulae set forth herein for conversion and redemption to reflect the market
price of the securities or property (applying the same factors used in
determining the Market Price for Shares of Common Stock) issued in connection
with the above described transaction.
(e) Intentionally deleted.
(f) Whenever any element of the Applicable Conversion Price is adjusted
pursuant to this Section 12, the Company shall promptly mail to each holder of
the Debentures, a notice setting forth the Applicable Conversion Price after
such adjustment and setting forth a brief statement of the facts requiring such
adjustment.
(g) In the event of any taking by the Company of a record date of the
holders of any class of securities for the purpose of determining the holders
thereof who are entitled to receive any dividend or other distribution, any
security or right convertible or exchangeable into or entitling the holder
thereof to receive additional shares of Common Stock, or any right to subscribe
for, purchase or otherwise acquire any shares of stock of any class or
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<PAGE>
any other securities or property, or to receive any other right, the Company,
shall deliver to each holder of Debentures at least thirty (30) days prior to
the date specified therein, a notice specifying the date on which any such
record is to be taken for the purpose of such dividend, distribution, security
or right and the amount and character of such dividend, distribution, security
or right.
13. Remedies Cumulative. The rights, powers and remedies given to the payee
under this Debenture shall be in addition to all rights, powers and remedies
given to it by virtue of the Securities Purchase Agreement, any document or
instrument executed in connection therewith, or any statute or rule of law.
14. Non-Waiver. Any forbearance, failure or delay by the payee in
exercising any right, power or remedy under this Debenture, the Securities
Purchase Agreement, any documents or instruments executed in connection
therewith or otherwise available to the payee shall not be deemed to be a waiver
of such right, power or remedy, nor shall any single or partial exercise of any
right, power or remedy preclude the further exercise thereof.
15. Modifications and Waivers. No modification or waiver of any provision
of this Debenture, the Securities Purchase Agreement or any documents or
instruments executed in connection therewith shall be effective unless it shall
be in writing and signed by the payee, and any such modification or waiver shall
apply only in the specific instance for which given.
16. Attorney's Fees. If this Debenture shall not be paid when due and shall
be placed by the Registered Holder hereof in the hands of an attorney for
collection, through legal proceedings or otherwise, or if this Debenture shall
not be converted into shares of Common Stock on the Conversion Date, subject to
the provisions of Section 6 hereof, and an action is brought by the Registered
Holder with respect thereto, the Company shall pay attorney's fees to the
Registered Holder hereof, together with reasonable costs and expenses of
collection or enforcement incurred in connection with any such action.
17. Enforcement; Specific Performance. (a) In case any one or more Events
of Default shall occur and be continuing, a Registered Holder of a Debenture
then outstanding may proceed to protect and enforce the rights of such holder by
an action at law, suit in equity or other appropriate proceeding, whether for
the specific performance of any agreement contained herein or for an injunction
against a violation of any of the terms hereof or thereof, or in aid of the
exercise of any power granted hereby or thereby or by law. Each holder agrees
that it will give written notice to the other holders prior to instituting any
such action.
(b) The Company expressly agrees that each Registered Holder may not have
adequate remedies at law if the Company does not perform its obligations under
this Debenture. Upon a breach of the terms or covenants of this Debenture by the
Company, the Registered Holder shall, each in addition to all other remedies, be
entitled to obtain injunctive relief, and an order for specific performance of
the Company's obligations hereunder.
18. Governing Law. This Debenture and the rights and obligations of the
parties hereto, shall be governed, construed and interpreted according to the
laws of the State of
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New York. The Company agrees that any final judgment after exhaustion of all
appeals or the expiration of time to appeal in any such action or proceeding
shall be conclusive and binding, and may be enforced in any federal or state
court in the United States by suit on the judgment or in any other manner
provided by law. Nothing contained in this Debenture shall affect or limit the
right of the Registered Holder to serve any process or notice or motion or other
application in any other manner permitted by law, or limit or affect the right
of the Registered Holder to bring any action or proceeding against the Company
or any of its property in the courts of any other jurisdiction. The Company
hereby consents to the jurisdiction of the federal courts whose districts
encompass any part of the City of New York or the state courts of the State of
New York sitting in the City of New York in connection with any dispute arising
under this Debenture, and hereby waives, to the maximum extent permitted by law,
any objection, including any objections based on forum non conveniens, to the
bringing of any such proceeding in such jurisdictions.
19. Payee Defined. The term "payee" as used herein shall be deemed to
include the payee and its successors, endorsees and assigns.
20. Waiver of Presentment, etc. The undersigned hereby waives presentment,
demand for payment, protest, notice of protest and notice of non-payment hereof.
21. Headings. The headings contained in this Debenture are for reference
purposes only and shall not affect the meaning of interpretation of this
Debenture.
22. Notices. Any notice to any party required or permitted hereunder shall
be given in writing (unless otherwise specified herein) and shall be effective
upon personal delivery, via facsimile (upon receipt of confirmation of
error-free transmission) or two business days following deposit of such notice
with an internationally recognized courier service, with postage prepaid and
addressed to such party at the address set forth in the first paragraph of this
Agreement with a copy to the Company at the address set forth below, and to the
other parties thereunto entitled at the following addresses, or at such other
addresses as a party may designate by five days advance written notice to each
of the other parties hereto.
Company: Data Systems & Software Inc.
200 Route 17
Mahwah, New Jersey 07430
Attention: George Morgenstern, President
Tel: (201) 529-2026
Fax: (201) 529-3163
With a copy to:
Ehrenreich Eilenberg Krause & Zivian, LLP
11 East 44th Street
New York, New York 10017
Attention: Sheldon Krause, Esq.
Tel: (212) 986-9700
Fax: (212) 986-2399
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Registered Holder: Bounty Investors LLC
c\o WEC Asset Management LLC
One World Trade Center, Suite #4563
New York, New York 10048
Attention: Daniel J. Saks
Tel: (212) 775-9299
Fax: (212) 775-9311
With a copy to:
Pryor Cashman Sherman & Flynn LLP
410 Park Avenue
New York, New York 10022
Attention: Mark Saks, Esq.
Tel: (212) 326-0140
Fax: (212) 326-0806
23. Amendments and Modification. Changes in or additions to this Debenture
may be made, and compliance with any covenant or condition herein set forth may
be omitted only if the Company shall obtain the written consent from the
Registered Holder of this Debenture.
24. Optional Redemption.
(a) The Company shall have the right, exercisable at any time upon delivery
of ten (10) days' prior written notice (a "Redemption Notice") to the Registered
Holder, to redeem all or any portion of the Debentures, at a price equal to the
Optional Redemption Price (as defined below) on the date specified in the
Redemption Notice (the "Redemption Date"). The entire Optional Redemption Price
shall be paid in currently available funds. Notwithstanding anything herein
contained to the contrary, the Registered Holder may convert the Debentures,
including Debentures subject to a Redemption Notice given pursuant to this
Section 24(a), during the period from the date of such Redemption Notice through
the Redemption Date.
(b) If any portion of the Optional Redemption Price shall not be paid by
the Company within two (2) days after the Redemption Date, interest shall accrue
thereon at the rate of eighteen percent (18%) per annum until the Optional
Redemption Price plus all such interest is paid in full. In addition, if any
portion of the Optional Redemption Price remains unpaid after the date due, the
Registered Holder subject to such redemption may elect, by written notice to the
Company given at any time thereafter, to either (i) demand conversion of all or
any portion of the Debentures for which such Optional Redemption Price, plus
interest thereof, has not been paid in full (the "Unpaid Principal"), in which
event the Applicable Conversion Price for such shares shall be the lower of the
Applicable Conversion Price calculated on the date the Optional Redemption Price
was originally due and the Applicable Conversion Price as of the Registered
Holder's written demand for conversion which shall be applied to the increased
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amount of Unpaid Principal for such conversion, or (ii) invalidate ab initio
such redemption, notwithstanding anything herein contained to the contrary. If
the Registered Holder elects option (i) above, notwithstanding anything herein
contained to the contrary, the Company shall within three (3) days of its
receipt of such election deliver to the Registered Holder the shares of Common
Stock issuable upon conversion of the Unpaid Principal subject to such
Registered Holder conversion demand and otherwise perform its obligations
hereunder with respect thereto; or, if the Registered Holder elects option (ii)
above, the Company shall promptly, and in any event not later than three (3)
days from receipt of Registered Holder's notice of such election, return to the
Registered Holder the original Debenture.
(c) The "Optional Redemption Price" shall equal the sum of (i) 115% of the
principal amount of Debentures to be redeemed, and (ii) all other amounts,
costs, expenses and liquidated damages due in respect of such Debentures.
25. No Usury; Holder Not "Acquiring Person"
(a) Notwithstanding anything set forth herein, in the Securities Purchase
Agreement or the Warrants to the contrary, in no event shall the total amount of
all charges payable under this Debenture, the Securities Purchase Agreement or
the Warrants which are or could be held to be in the nature of interest exceed
the maximum rate permitted to be charged under applicable law. Should Registered
Holder receive any payment which is or would be in excess of that permitted to
be charged under any such applicable law, such payment shall have been, and
shall be deemed to have been, made in error and shall be automatically retained
by Registered Holder and used to reduce the principal of this Debenture, and to
the extent that such payment exceeds the principal of this Debenture then
outstanding, such payment shall be refunded to the Company.
(b) It is the intention of the Registered Holder and the Company that in no
event shall the Registered Holder or any holder of the Debentures or the
Warrants be deemed to "beneficially own" 15% or more of the shares of Common
Stock then outstanding so as to become an "Acquiring Person" as defined in the
Rights Agreement dated as of March 19, 1996, between the Company and American
Stock Transfer & Trust Company . Therefore, notwithstanding anything set forth
in the Securities Purchase Agreement, any Debenture or the Warrants to the
contrary, at no time shall any Registered Holder of the Debentures or the
Warrants be deemed to be the "Beneficial Owner" of 15% or more of the Common
Stock then outstanding. If at any time any holder of the Debentures would, by
giving effect to the conversion and exercise provisions of the Debentures and
Warrants, be the "Beneficial Owner" of 15% or more of the Common Stock then
outstanding, then to such extent the Debentures held by such Registered Holder
shall be deemed not to be convertible and shall be subject to mandatory
redemption at a redemption price of 115%.
26. Subordination. (a) Payment of the principal of and premium and
interest, if any, on this Debenture and any other Debentures shall be
subordinate and junior in right of payment, to the extent and in the manner
hereinafter set forth, to all indebtedness and liabilities of the Company,
whether now or hereafter outstanding (all such indebtedness to which the
indebtedness under the Debentures is hereby subordinated being referred to as
"Senior Debt").
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(b) The term "subordinate and junior" as used herein shall mean:
(i) In the event of any insolvency or bankruptcy proceedings, or any
receivership, liquidation, reorganization, arrangement, readjustment,
composition or other similar proceedings in connection therewith, relative to
the Company or to its creditors, as such, or to its property, or dissolution or
other winding-up of the Company, whether or not involving insolvency or
bankruptcy, or in the event of any assignment by the Company for the benefit of
creditors or in the event of any other marshalling of the assets of the Company,
then the holders of Senior Debt shall be entitled to receive payment in full of
all principal of and premium and interest on all Senior Debt and all liabilities
constituting Senior Debt (including interest thereon accruing after the
commencement of any such proceedings) before any holder of the Debentures shall
be entitled to receive any payment on account of principal of or premium or
interest, if any, on the Debentures. Any payment or distribution of any kind or
character, whether in cash or property or securities (excluding any Common Stock
issuable upon conversion of any Debenture) , which may be payable or deliverable
in any such proceedings in respect of the Debentures, to which any holder of the
Debentures would be entitled, shall be paid by the Company or by any receiver,
trustee in bankruptcy, liquidating trustee, agent or other person making such
payment or distribution, or if received by any holder of the Debentures shall be
held for the benefit of and forthwith paid over or delivered to, the holders of
Senior Debt (pro rata to each thereof on the basis of the respective amounts of
Senior Debt held by each, or as the terms of the Senior Debt shall otherwise
provide) or their representatives, to the extent necessary to pay all such
Senior Debt in full after giving effect to any concurrent payment or
distribution to or for the benefit of the holders of Senior Debt.
(ii) If any Debenture is declared due and payable before its express
maturity because of the occurrence of an event of default with respect thereto,
the holders of the Senior Debt shall be entitled to receive payment in full of
all principal of and premium and interest on all Senior Debt and of all
liabilities constituting Senior Debt before the holders of the Debentures are
entitled to receive any payment on account of principal of and premium or
interest, if any, on any Debentures.
(iii) No payment on account of the principal of or premium or interest, if
any, on the Debentures or any other payment in respect of the Debentures shall
be, and no holder of the Debentures shall be entitled to demand or receive any
such payment, other than in the form of Common Stock, if at the time of such
payment or immediately after giving effect thereto, there shall have occurred
any event of default under any Senior Debt or under any agreement pursuant to
which any Senior Debt is issued or if at the time of such payment any payment of
principal of or premium or interest due on Senior Debt shall not have been made.
(iv) Upon any bankruptcy or insolvency of the Company, the holder of the
Debenture may receive any Common Stock in lieu of cash payments of principal or
interest under this Debentures in such amounts as the court of jurisdiction or
relevant plan may determine.
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(c) If any payment or distribution is made in contravention of subsection
(b), whether in cash or property or securities, then the recipient thereof will
hold the same for the benefit of, and forthwith pay or deliver the same to, the
holders of Senior Debt (pro rata to each thereof on the basis of the respective
amounts of Senior Debt held by each, or as the terms of the Senior Debt shall
otherwise provide).
(d) The foregoing subordination is not intended in any way to effect or
limit the convertibility of the Debentures. This Debenture shall be convertible
on its terms notwithstanding the occurrence of any event in subsection (b)
above.
(e) The foregoing restrictions on payment of the Debentures are solely for
the purpose of defining the relative rights of the holders of Senior Debt on the
one hand, and the holders of the Debentures on the other hand, and nothing
therein shall impair, as between the Company and the holders of the Debentures
the obligation of the Company with respect to the Debentures.
[REMAINDER OF PAGE LEFT INTENTIONALLY BLANK, SIGNATURE PAGE TO FOLLOW]
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IN WITNESS WHEREOF, the Company has caused this Debenture to be executed as
of the date first written above.
DATA SYSTEMS & SOFTWARE INC.
By:
-------------------------------
Name: George Morgenstern
Title: President
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NOTICE OF CONVERSION
The conversion form appearing below should only be executed by the
Registered Holder desiring to convert all or part of the principal amount of the
Debenture attached hereto.
CONVERSION FORM
Date: ____________________________________________
TO: DATA SYSTEMS & SOFTWARE INC.
The undersigned hereby exercises the conversion privilege upon the terms
and conditions set forth in the attached Debenture, to the extent of the maximum
number of shares of Common Stock issuable pursuant to the terms of Section 6 of
the Debenture, and accordingly, authorizes the Company to apply $__________
principal amount of the attached Debenture to payment in full for such shares of
Common Stock. Please register such shares and make delivery thereof as follows:
Registered in the Name of (Giving First or Middle Name in Full)
Name
-----------------------------------------------------------
(Please Print)
Address
--------------------------------------------------------
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DELIVERY INSTRUCTIONS
To be completed ONLY if Certificates are to be mailed to persons other than
the Registered Holder.
Name
-----------------------------------------------------------
(Please Print)
Address
--------------------------------------------------------
Signature
------------------------------------------------------
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ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfer unto
_______________________________________________________ the within Debenture and
all rights thereunder, hereby irrevocably authorizing the Company to transfer
said Debenture on the books of the Company, with full power of substitution in
the premises.
Dated:
---------------------------------------------------------
Signature:
-----------------------------------------------------
Print Name:
----------------------------------------------------
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EXHIBIT B
THIS WARRANT AND THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY
STATE, AND MAY NOT BE TRANSFERRED IN VIOLATION OF SUCH ACT, THE RULES AND
REGULATIONS THEREUNDER OR ANY STATE SECURITIES LAWS OR THE PROVISIONS OF THIS
WARRANT.
No. of Shares of Common Stock: 100,000
WARRANT
To Purchase Common Stock of
DATA SYSTEMS & SOFTWARE INC.
THIS IS TO CERTIFY THAT Bounty Investors LLC, a Delaware limited liability
company, or its registered assigns, is entitled, at any time from the Warrant
Issuance Date (as hereinafter defined) to the Expiration Date (as hereinafter
defined), to purchase from Data Systems & Software Inc., a Delaware corporation
(the "Company"), one hundred thousand (100,000) shares of Common Stock (as
hereinafter defined and subject to adjustment as provided herein), in whole or
in part, including fractional parts, at a purchase price per share equal to
$3.06625 (subject to any adjustments made to such amount pursuant to Section 4
hereto) on the terms and conditions and pursuant to the provisions hereinafter
set forth.
1. DEFINITIONS
As used in this Warrant, the following terms have the respective meanings
set forth below:
"Business Day" shall mean any day that is not a Saturday or Sunday or a day
on which banks are required or permitted to be closed in the State of New York.
"Closing Date" shall have the meaning set forth in the Securities Purchase
Agreement.
"Commission" shall mean the Securities and Exchange Commission or any other
federal agency then administering the Securities Act and other federal
securities laws.
"Common Stock" shall mean (except where the context otherwise indicates)
the Common Stock, par value $.01 per share, of the Company as constituted on the
Closing Date, and any capital stock into which such Common Stock may thereafter
be changed, and shall also include (i) capital stock of the Company of any other
class (regardless of how denominated) issued to the holders of shares of Common
Stock upon any reclassification thereof which is also not preferred as to
dividends or assets over any other class of stock of the Company and which is
not subject to redemption and (ii) shares of common stock of any successor or
acquiring
<PAGE>
corporation received by or distributed to the holders of Common Stock of the
Company in the circumstances contemplated by Section 4.4.
"Current Warrant Price" shall mean, $3.06625 subject to any adjustments to
such amount made in accordance with Section 4 hereof.
"Debentures" shall has the meaning set forth in the Securities Purchase
Agreement.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended,
or any successor federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect from time to time.
"Exercise Period" shall mean the period during which this Warrant is
exercisable pursuant to Section 2.1.
"Expiration Date" shall mean October 12, 2002.
"Holder" shall mean the Person in whose name the Warrant or Warrant Stock
set forth herein is registered on the books of the Company maintained for such
purpose. "Other Property" shall have the meaning set forth in Section 4.4.
"Outstanding" shall mean, when used with reference to Common Stock, at any
date as of which the number of shares thereof is to be determined, all issued
shares of Common Stock, except shares then owned or held by or for the account
of the Company or any subsidiary thereof, and shall include all shares issuable
in respect of outstanding scrip or any certificates representing fractional
interests in shares of Common Stock.
"Person" shall mean any individual, sole proprietorship, partnership, joint
venture, trust, incorporated organization, association, corporation,
institution, public benefit corporation, entity or government (whether federal,
state, county, city, municipal or otherwise, including, without limitation, any
instrumentality, division, agency, body or department thereof).
"Registration Rights Agreement" shall mean the Registration Rights
Agreement dated a date even herewith by and between the Company and Bounty
Investors LLC, as it may be amended from time to time.
"Restricted Common Stock" shall mean shares of Common Stock which are, or
which upon their issuance on the exercise of this Warrant would be, evidenced by
a certificate bearing the restrictive legend set forth in Section 9.1(a).
"Securities Act" shall mean the Securities Act of 1933, as amended, or any
successor federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Securities Purchase Agreement" shall mean the Securities Purchase
Agreement dated as of a date even herewith by and between the Company and Bounty
Investors LLC, as it may be amended from time to time.
"Transfer" shall mean any disposition of any Warrant or Warrant Stock or of
any interest in either thereof, which would constitute an offer or sale thereof
within the meaning of the Securities Act.
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"Transfer Notice" shall have the meaning set forth in Section 9.2.
"Warrant Issuance Date" shall mean any date on which Warrants are issued
pursuant to the Securities Purchase Agreement.
"Warrants" shall mean this Warrant and all warrants issued upon transfer,
division or combination of, or in substitution for, any thereof. All Warrants
shall at all times be identical as to terms and conditions and date, except as
to the number of shares of Common Stock for which they may be exercised.
"Warrant Price" shall mean an amount equal to (i) the number of shares of
Common Stock being purchased upon exercise of this Warrant pursuant to Section
2.1, multiplied by (ii) the Current Warrant Price as of the date of such
exercise.
"Warrant Stock" shall mean the shares of Common Stock purchased by the
holders of the Warrants upon the exercise thereof.
2. EXERCISE OF WARRANT
2.1. Manner of Exercise. From and after the Warrant Issuance Date and until
5:00 P.M., New York City time, on the Expiration Date, Holder may exercise this
Warrant, on any Business Day, for all or any part of the number of shares of
Common Stock purchasable hereunder.
In order to exercise this Warrant, in whole or in part, Holder shall
deliver to the Company at the office or agency designated by the Company
pursuant to Section 12, (i) a written notice of Holder's election to exercise
this Warrant, which notice shall specify the number of shares of Common Stock to
be purchased, (ii) payment by cash, check or bank draft payable to the Company
of the Warrant Price in cash or by wire transfer or cashier's check drawn on a
United States bank or by the Holder's surrender of Warrant Stock (or the right
to receive such number of shares) having an aggregate Market Price equal to the
Warrant Price for all shares then being purchased and (iii) this Warrant. Such
notice shall be substantially in the form of the subscription form appearing at
the end of this Warrant as Exhibit A, duly executed by Holder or its agent or
attorney. Upon receipt of the items referred to in clauses (i), (ii) and (iii)
above, the Company shall, as promptly as practicable, and in any event within
three (3) Business Days thereafter, execute or cause to be executed and deliver
or cause to be delivered to Holder a certificate or certificates representing
the aggregate number of full shares of Common Stock issuable upon such exercise,
together with cash in lieu of any fraction of a share, as hereinafter provided.
The stock certificate or certificates so delivered shall be, to the extent
possible, in such denomination or denominations as Holder shall request in the
notice and shall be registered in the name of Holder or, subject to Section 9,
such other name as shall be designated in the notice. This Warrant shall be
deemed to have been exercised and such certificate or certificates shall be
deemed to have been issued, and Holder or any other Person so designated to be
named therein shall be deemed to have become a holder of record of such shares
for all purposes, as of the date the Warrant has been exercised by payment to
the Company of the Warrant Price. If this Warrant shall have been exercised in
part, the Company shall, at the time of delivery of the certificate or
certificates representing Warrant Stock, deliver to Holder a new Warrant
evidencing
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<PAGE>
the rights of Holder to purchase the unpurchased shares of Common Stock called
for by this Warrant, which new Warrant shall in all other respects be identical
with this Warrant.
The Holder shall be entitled to exercise the Warrant notwithstanding the
commencement of any case under 11 U.S.C. ss. 101 et seq. (the "Bankruptcy
Code"). In the event the Company is a debtor under the Bankruptcy Code, the
Company hereby waives to the fullest extent permitted any rights to relief it
may have under 11 U.S.C. ss. 362 in respect of the Holder's exercise right. The
Company hereby waives to the fullest extent permitted any rights to relief it
may have under 11 U.S.C. ss. 362 in respect of the exercise of the Warrant. The
Company agrees, without cost or expense to the Holder, to take or consent to any
and all action necessary to effectuate relief under 11 U.S.C. ss. 362.
2.2. Payment of Taxes and Charges. All shares of Common Stock issuable upon
the exercise of this Warrant pursuant to the terms hereof shall be validly
issued, fully paid and nonassessable, and without any preemptive rights. The
Company shall pay all expenses in connection with, and all taxes and other
governmental charges that may be imposed with respect to, the issue or delivery
thereof.
2.3. Fractional Shares. The Company shall not be required to issue a
fractional share of Common Stock upon exercise of any Warrant. As to any
fraction of a share which Holder would otherwise be entitled to purchase upon
such exercise, the Company shall pay a cash adjustment in respect of such final
fraction in an amount equal to the same fraction of the Market Price per share
of Common Stock on the relevant exercise date.
2.4. Continued Validity. A holder of shares of Common Stock issued upon the
exercise of this Warrant, in whole or in part (other than a holder who acquires
such shares after the same have been publicly sold pursuant to a Registration
Statement under the Securities Act or sold pursuant to Rule 144 thereunder),
shall continue to be entitled with respect to such shares to all rights to which
it would have been entitled as Holder under Sections 9, 10 and 14 of this
Warrant. The Company will, at the time of exercise of this Warrant, in whole or
in part, upon the request of Holder, acknowledge in writing, in form reasonably
satisfactory to Holder, its continuing obligation to afford Holder all such
rights; provided, however, that if Holder shall fail to make any such request,
such failure shall not affect the continuing obligation of the Company to afford
to Holder all such rights.
2.5. Right to Convert Warrant. The Holder shall have the right to convert,
in whole or in part, this Warrant (the "Conversion Right") at any time prior to
the expiration of the Exercise Period, into shares of Common Stock in accordance
with this Section 2.5. Upon exercise of the Conversion Right, the Company shall
deliver to the Holder (without payment by the Holder of the Warrant Price) that
number of shares of Common Stock equal to the quotient obtained by dividing (x)
the value of the portion of this Warrant being converted at the time the
Conversion Right is exercised (determined by subtracting the Warrant Price for
the portion of this Warrant being converted (in effect immediately prior to the
exercise of the Conversion Right) from the amount obtained by multiplying the
number of shares of Common Stock issuable upon the whole or partial exercise of
this Warrant, as the case may be, by the Market Price immediately prior to the
exercise of the Conversion Right) by (y) the Market Price of one share of Common
Stock immediately prior to the exercise of the Conversion Right.
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<PAGE>
The Conversion Right may be exercised by the Holder, at any time or from
time to time, prior to its expiration, on any business day by delivering a
written notice (the "Conversion Notice") to the Company at the offices of the
Company, exercising the Conversion Right and specifying (i) the total number of
shares of Common Stock the Holder will purchase pursuant to the conversion and
(ii) a place and date not less than two (2) nor more than twenty (20) Business
Days from the date of the Subscription Notice for the closing of such purchase.
At any closing under this Section 2.5, (i) the Holder will surrender this
Warrant and (ii) the Company will deliver to the Holder a certificate or
certificates for the number of shares of Common Stock issuable upon such
conversion. If this Warrant shall have been converted only in part, the Company
shall, at the time of delivery of said stock certificate or certificates,
deliver to the Holder a new Warrant evidencing the rights of the Holder to
purchase the remaining shares of Common Stock called for by this Warrant, which
new Warrant shall in all other respects be identical to this Warrant, or, at the
request of the Holder, appropriate notation may be made on this Warrant and the
same returned to the Holder. The Company shall pay all expenses, taxes and other
charges payable in connection with the preparation, issue and delivery of such
stock certificates and new Warrants, except that, in case such stock
certificates and/or new Warrants shall be registered in a name or names other
than the name of the Holder, funds sufficient to pay all stock transfer taxes
that are payable upon the issuance of such stock certificates or new Warrants
shall be paid by the Holder at the time of delivering the notice of exercise
mentioned above.
2.6. Exercise Limitation. Notwithstanding anything herein to the contrary,
at no time shall the Holder (including its officers, directors and affiliates)
maintain in the aggregate beneficial ownership (as defined for purposes of
Section 16 of the Securities Exchange Act of 1934, as amended) of shares of
Common Stock in excess of 9.9% of the Company's outstanding Common Stock and
accordingly, the Holder may only exercise this Warrant up to the point where its
aggregate beneficial ownership (as defined for purposes of Section 16 of the
Securities Exchange Act of 1934, as amended) of shares of Common Stock is equal
or less than 9.9% of the Company's outstanding Common Stock.
3. TRANSFER, DIVISION AND COMBINATION
3.1. Transfer. Subject to compliance with Sections 9, transfer of this
Warrant and all rights hereunder, in whole or in part, shall be registered on
the books of the Company to be maintained for such purpose, upon surrender of
this Warrant at the principal office of the Company referred to in Section 2.1
or the office or agency designated by the Company pursuant to Section 12,
together with a written assignment of this Warrant substantially in the form of
Exhibit B hereto duly executed by Holder or its agent or attorney. Upon such
surrender, the Company shall, subject to Section 9, execute and deliver a new
Warrant or Warrants in the name of the assignee or assignees and in the
denomination specified in such instrument of assignment, and shall issue to the
assignor a new Warrant evidencing the portion of this Warrant not so assigned,
and this Warrant shall promptly be cancelled. A Warrant, if properly assigned in
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<PAGE>
compliance with Section 9, may be exercised by a new Holder for the purchase of
shares of Common Stock without having a new Warrant issued.
3.2. Division and Combination. Subject to Section 9, this Warrant may be
divided or combined with other Warrants upon presentation hereof at the
aforesaid office or agency of the Company, together with a written notice
specifying the names and denominations in which new Warrants are to be issued,
signed by Holder or its agent or attorney. Subject to compliance with Section
3.1 and with Section 9, as to any transfer which may be involved in such
division or combination, the Company shall execute and deliver a new Warrant or
Warrants in exchange for the Warrant or Warrants to be divided or combined in
accordance with such notice.
3.3. Expenses. The Company shall prepare, issue and deliver at its own
expense the new Warrant or Warrants under this Section 3.
3.4. Maintenance of Books. The Company agrees to maintain, at its aforesaid
office or agency, books for the registration and the registration of transfer of
the Warrants.
4. ADJUSTMENTS
The number of shares of Common Stock for which this Warrant is exercisable,
or the price at which such shares may be purchased upon exercise of this
Warrant, shall be subject to adjustment from time to time as set forth in this
Section 4. The Company shall give Holder notice of any event described below
which requires an adjustment pursuant to this Section 4 at the time of such
event.
4.1. Stock Dividends, Subdivisions and Combinations. If at any time the
Company shall:
(a) take a record of the holders of its Common Stock for the purpose of
entitling them to receive a dividend payable in, or other distribution of,
Additional Shares of Common Stock,
(b) subdivide its outstanding shares of Common Stock into a larger number
of shares of Common Stock, or
(c) combine its outstanding shares of Common Stock into a smaller number of
shares of Common Stock,
then (i) the number of shares of Common Stock for which this Warrant is
exercisable immediately after the occurrence of any such event shall be adjusted
to equal the number of shares of Common Stock which a record holder of the same
number of shares of Common Stock for which this Warrant is exercisable
immediately prior to the occurrence of such event would own or be entitled to
receive after the happening of such event, and (ii) the Current Warrant Price
shall be adjusted to equal (A) the Current Warrant Price multiplied by the
number of shares of Common Stock for which this Warrant is exercisable
immediately prior to the adjustment
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divided by (B) the number of shares for which this Warrant is exercisable
immediately after such adjustment.
4.2. No Cash or Stock Dividends; Certain Other Distributions. The Holder of
this Warrant shall not (in such capacity) be entitled to receive dividends
payable in cash or shares of the Common Stock; provided that an adjustment
pursuant to Section 4.1 shall be made in the event of a stock dividend. In case
the Company shall distribute to all holders of record of its Common Stock any
rights, options or warrants entitling all holders to subscribe for or purchase
shares of Common Stock, the Holder shall be entitled to receive such
distribution as if the Holder had exercised the Warrant.
4.3. Other Provisions Applicable to Adjustments under this Section. The
following provisions shall be applicable to the making of adjustments of the
number of shares of Common Stock for which this Warrant is exercisable and the
Current Warrant Price provided for in this Section 4:
(a) When Adjustments to Be Made. The adjustments required by this Section 4
shall be made whenever and as often as any specified event requiring an
adjustment shall occur. For the purpose of any adjustment, any specified event
shall be deemed to have occurred at the close of business on the date of its
occurrence.
(b) Fractional Interests. In computing adjustments under this Section 4,
fractional interests in Common Stock shall be taken into account to the nearest
1/10th of a share.
(c) When Adjustment Not Required. If the Company shall take a record of the
holders of its Common Stock for the purpose of entitling them to receive a
dividend or distribution or subscription or purchase rights and shall,
thereafter and before the distribution to stockholders thereof, legally abandon
its plan to pay or deliver such dividend, distribution, subscription or purchase
rights, then thereafter no adjustment shall be required by reason of the taking
of such record and any such adjustment previously made in respect thereof shall
be rescinded and annulled.
(d) Challenge to Good Faith Determination. Whenever the Board of Directors
of the Company shall be required to make a determination in good faith of the
fair value of any item under this Section 4, such determination may be
challenged in good faith by the Holder, and any dispute shall be resolved by an
investment banking firm of recognized national standing selected by the Holder
and reasonably acceptable to the Company.
4.4. Reorganization, Reclassification, Merger, Consolidation or Disposition
of Assets. In case the Company shall reorganize its capital, reclassify its
capital stock, consolidate or merge with or into another corporation (where the
Company is not the surviving corporation or where there is a change in or
distribution with respect to the Common Stock of the Company), or sell, transfer
or otherwise dispose of all or substantially all its property, assets or
business to another corporation and, pursuant to the terms of such
reorganization, reclassification, merger, consolidation or disposition of
assets, shares of common stock of the successor or acquiring
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corporation, or any cash, shares of stock or other securities or property of any
nature whatsoever (including warrants or other subscription or purchase rights)
in addition to or in lieu of common stock of the successor or acquiring
corporation ("Other Property"), are to be received by or distributed to the
holders of Common Stock of the Company, then Holder shall have the right
thereafter to receive, upon exercise of the Warrant, the number of shares of
common stock of the successor or acquiring corporation or of the Company, if it
is the surviving corporation, and Other Property receivable upon or as a result
of such reorganization, reclassification, merger, consolidation or disposition
of assets by a holder of the number of shares of Common Stock for which this
Warrant is exercisable immediately prior to such event. In case of any such
reorganization, reclassification, merger, consolidation or disposition of
assets, the successor or acquiring corporation (if other than the Company) shall
expressly assume the due and punctual observance and performance of each and
every covenant and condition of this Warrant to be performed and observed by the
Company and all the obligations and liabilities hereunder, subject to such
modifications as may be deemed appropriate, subject to the Holder's consent, in
order to provide for adjustments of shares of Common Stock for which this
Warrant is exercisable which shall be as nearly equivalent as practicable to the
adjustments provided for in this Section 4. For purposes of this Section 4.4,
"common stock of the successor or acquiring corporation" shall include stock of
such corporation of any class which is not preferred as to dividends or assets
over any other class of stock of such corporation and which is not subject to
redemption and shall also include any evidences of indebtedness, shares of stock
or other securities which are convertible into or exchangeable for any such
stock, either immediately or upon the arrival of a specified date or the
happening of a specified event and any warrants or other rights to subscribe for
or purchase any such stock. The foregoing provisions of this Section 4.4 shall
similarly apply to successive reorganizations, reclassifications, mergers,
consolidations or disposition of assets.
4.5. Other Action Affecting Common Stock. In case at any time or from time
to time the Company shall take any action in respect of its Common Stock, other
than any action taken in the ordinary course of the Company's business or any
action described in this Section 4, which would have a material adverse effect
upon the rights of the Holder, the number of shares of Common Stock and/or the
purchase price thereof shall be adjusted in such manner as may be equitable in
the circumstances, as determined in good faith by an investment bank selected by
Holder.
4.6. Certain Limitations. Notwithstanding anything herein to the contrary,
the Company agrees not to enter into any transaction which, by reason of any
adjustment hereunder, would cause the Current Warrant Price to be less than the
par value per share of Common Stock.
4.7. No Voting Rights. This Warrant shall not entitle its Holder to any
voting rights or other rights as a shareholder of the Company.
5. NOTICES TO HOLDER
5.1. Notice of Adjustments. Whenever the number of shares of Common Stock
for which this Warrant is exercisable, or whenever the price at which a share of
such Common Stock may be purchased upon exercise of the Warrants, shall be
adjusted pursuant to Section 4, the Company shall forthwith prepare a
certificate to be executed by an executive
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officer of the Company setting forth, in reasonable detail, the event requiring
the adjustment and the method by which such adjustment was calculated,
specifying the number of shares of Common Stock for which this Warrant is
exercisable and (if such adjustment was made pursuant to Section 4.4 or 4.5)
describing the number and kind of any other shares of stock or Other Property
for which this Warrant is exercisable, and any change in the purchase price or
prices thereof, after giving effect to such adjustment or change. The Company
shall promptly cause a signed copy of such certificate to be delivered to the
Holder in accordance with Section 14.2. The Company shall keep at its office or
agency designated pursuant to Section 12 copies of all such certificates and
cause the same to be available for inspection at said office during normal
business hours by the Holder, its representatives, or any prospective purchaser
of a Warrant designated by the Holder.
5.2. Notice of Corporate Action. If at any time
(a) the Company shall take a record of the holders of its Common Stock for
the purpose of entitling them to receive a dividend or other distribution, or
any right to subscribe for or purchase any evidences of its indebtedness, any
shares of stock of any class or any other securities or property, or to receive
any other right, or
(b) there shall be any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the Company or any
consolidation or merger of the Company with, or any sale, transfer or other
disposition of all or substantially all the property, assets or business of the
Company to, another corporation, or
(c) there shall be a voluntary or involuntary dissolution, liquidation or
winding up of the Company;
then, in any one or more of such cases, the Company shall give to Holder (i) at
least thirty (30) Business Days' prior written notice of the date on which a
record date shall be selected for such dividend, distribution or right or for
determining rights to vote in respect of any such reorganization,
reclassification, merger, consolidation, sale, transfer, disposition,
dissolution, liquidation or winding up, and (ii) in the case of any such
reorganization, reclassification, merger, consolidation, sale, transfer,
disposition, dissolution, liquidation or winding up, at least thirty (30)
Business Days' prior written notice of the date when the same shall take place.
Such notice in accordance with the foregoing clause also shall specify (i) the
date on which any such record is to be taken for the purpose of such dividend,
distribution or right, the date on which the holders of Common Stock shall be
entitled to any such dividend, distribution or right, and the amount and
character thereof, and (ii) the date on which any such reorganization,
reclassification, merger, consolidation, sale, transfer, disposition,
dissolution, liquidation or winding up is to take place and the time, if any
such time is to be fixed, as of which the holders of Common Stock shall be
entitled to exchange their shares of Common Stock for securities or other
property deliverable upon such reorganization, reclassification, merger,
consolidation, sale, transfer, disposition, dissolution, liquidation or winding
up. Each such written notice shall be sufficiently given if addressed to Holder
at the last address of Holder appearing on the books of the Company and
delivered in accordance with Section 14.2.
9
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6. NO IMPAIRMENT
The Company shall not by any action, including, without limitation,
amending its certificate of incorporation or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms of this Warrant, but will at all times in
good faith assist in the carrying out of all such terms and in the taking of all
such actions as may be necessary or appropriate to protect the rights of Holder
against impairment. Without limiting the generality of the foregoing, the
Company will (a) not increase the par value of any shares of Common Stock
receivable upon the exercise of this Warrant above the amount payable therefor
upon such exercise immediately prior to such increase in par value, (b) take all
such action as may be necessary or appropriate in order that the Company may
validly and legally issue fully paid and nonassessable shares of Common Stock
upon the exercise of this Warrant, and (c) use its best efforts to obtain all
such authorizations, exemptions or consents from any public regulatory body
having jurisdiction thereof as may be necessary to enable the Company to perform
its obligations under this Warrant.
Upon the request of Holder, the Company will at any time during the period
this Warrant is outstanding acknowledge in writing, in form reasonably
satisfactory to Holder, the continuing validity of this Warrant and the
obligations of the Company hereunder.
7. RESERVATION AND AUTHORIZATION OF COMMON STOCK
From and after the Closing Date, the Company shall at all times reserve and
keep available for issue upon the exercise of Warrants such number of its
authorized but unissued shares of Common Stock as will be sufficient to permit
the exercise in full of all outstanding Warrants. All shares of Common Stock
which shall be so issuable, when issued upon exercise of any Warrant and payment
therefor in accordance with the terms of such Warrant, shall be duly and validly
issued and fully paid and nonassessable, and not subject to preemptive rights.
Before taking any action which would cause an adjustment reducing the
Current Warrant Price below the then par value, if any, of the shares of Common
Stock issuable upon exercise of the Warrants, the Company shall take any
corporate action which may be necessary in order that the Company may validly
and legally issue fully paid and non-assessable shares of such Common Stock at
such adjusted Current Warrant Price.
Before taking any action which would result in an adjustment in the number
of shares of Common Stock for which this Warrant is exercisable or in the
Current Warrant Price, the Company shall obtain all such authorizations or
exemptions thereof, or consents thereto, as may be necessary from any public
regulatory body or bodies having jurisdiction thereof.
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8. TAKING OF RECORD; STOCK AND WARRANT TRANSFER BOOKS
In the case of all dividends or other distributions by the Company to the
holders of its Common Stock with respect to which any provision of Section 4
refers to the taking of a record of such holders, the Company will in each such
case take such a record as of the close of business on a Business Day. The
Company will not at any time close its stock transfer books or Warrant transfer
books so as to result in preventing or delaying the exercise or transfer of any
Warrant.
9. RESTRICTIONS ON TRANSFERABILITY
The Warrants and the Warrant Stock shall not be transferred, hypothecated
or assigned before satisfaction of the conditions specified in this Section 9,
which conditions are intended to ensure compliance with the provisions of the
Securities Act with respect to the Transfer of any Warrant or any Warrant Stock.
Holder, by acceptance of this Warrant, agrees to be bound by the provisions of
this Section 9.
9.1. Restrictive Legend. The Holder by accepting this Warrant and any
Warrant Stock agrees that this Warrant and the Warrant Stock issuable upon
exercise hereof may not be assigned or otherwise transferred unless and until
(i) the Company has received an opinion of counsel for the Holder that such
securities may be sold pursuant to an exemption from registration under the
Securities Act or (ii) a registration statement relating to such securities has
been filed by the Company and declared effective by the Commission.
(a) Each certificate for Warrant Stock issuable hereunder shall bear a
legend substantially worded as follows unless such securities have been sold
pursuant to an effective registration statement under the Securities Act:
"The securities represented by this certificate have
not been registered under the Securities Act of 1933, as
amended (the "Act") or any state securities laws. The
securities may not be offered for sale, sold, assigned,
offered, transferred or otherwise distributed for value
except (i) pursuant to an effective registration statement
under the Act or any state securities laws or (ii) pursuant
to an exemption from registration or prospectus delivery
requirements under the Act or any state securities laws in
respect of which the Company has received an opinion of
counsel satisfactory to the Company to such effect. Copies
of the agreement covering both the purchase of the
securities and restricting their transfer may be obtained at
no cost by written request made by the holder of record of
this certificate to the Secretary of the Company at the
principal executive offices of the Company."
11
<PAGE>
(b) Except as otherwise provided in this Section 9, the Warrant shall be
stamped or otherwise imprinted with a legend in substantially the following
form:
"This Warrant and the securities represented hereby
have not been registered under the Securities Act of 1933,
as amended, or any state securities laws and may not be
transferred in violation of such Act, the rules and
regulations thereunder or any state securities laws or the
provisions of this Warrant."
9.2. Notice of Proposed Transfers. Prior to any Transfer or attempted
Transfer of any Warrants or any shares of Restricted Common Stock, the Holder
shall give five (5) days' prior written notice (a "Transfer Notice") to the
Company of Holder's intention to effect such Transfer, describing the manner and
circumstances of the proposed Transfer, and obtain from counsel to Holder an
opinion that the proposed Transfer of such Warrants or such Restricted Common
Stock may be effected without registration under the Securities Act or state
securities laws. After the Company's receipt of the Transfer Notice and opinion,
such Holder shall thereupon be entitled to Transfer such Warrants or such
Restricted Common Stock, in accordance with the terms of the Transfer Notice.
Each certificate, if any, evidencing such shares of Restricted Common Stock
issued upon such Transfer and the Warrant issued upon such Transfer shall bear
the restrictive legends set forth in Section 9.1, unless in the opinion of such
counsel such legend is not required in order to ensure compliance with the
Securities Act.
9.3. Required Registration. Pursuant to the terms and conditions set forth
in the Registration Rights Agreement, the Company shall prepare and file with
the Commission not later than the thirtieth (30th) day after the Closing Date, a
Registration Statement relating to the offer and sale of the Common Stock
issuable upon exercise of the Warrants and shall use its best efforts to cause
the Commission to declare such Registration Statement effective in accordance
with the terms set forth in Section 2(a) of the Registration Rights Agreement.
9.4. Termination of Restrictions. Notwithstanding the foregoing provisions
of Section 9, the restrictions imposed by this Section upon the transferability
of the Warrants, the Warrant Stock and the Restricted Common Stock (or Common
Stock issuable upon the exercise of the Warrants) and the legend requirements of
Section 9.1 shall terminate as to any particular Warrant or share of Warrant
Stock or Restricted Common Stock (or Common Stock issuable upon the exercise of
the Warrants) (i) when and so long as such security shall have been effectively
registered under the Securities Act and applicable state securities laws and
disposed of pursuant thereto or (ii) when the Company shall have received an
opinion of counsel that such shares may be transferred without registration
thereof under the Securities Act and applicable state securities laws. Whenever
the restrictions imposed by Section 9 shall terminate as to this Warrant, as
hereinabove provided, the Holder hereof shall be entitled to receive from the
Company upon written request of the Holder, at the expense of the Company, a new
Warrant bearing the following legend in place of the restrictive legend set
forth hereon:
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<PAGE>
"THE RESTRICTIONS ON
TRANSFERABILITY OF THE WITHIN
WARRANT CONTAINED IN SECTION 9
HEREOF TERMINATED ON ________,
19__, AND ARE OF NO FURTHER FORCE
AND EFFECT."
All Warrants issued upon registration of transfer, division or combination of,
or in substitution for, any Warrant or Warrants entitled to bear such legend
shall have a similar legend endorsed thereon. Whenever the restrictions imposed
by this Section shall terminate as to any share of Restricted Common Stock, as
hereinabove provided, the holder thereof shall be entitled to receive from the
Company, at the Company's expense, a new certificate representing such Common
Stock not bearing the restrictive legends set forth in Section 9.1. The Holder
acknowledges that the Registration Statement referred to in Section 9.3 above
relates to the resale of the Warrant Shares only and that the Company may take
appropriate steps, including stop transfer orders and restrictive legends to
insure that the Warrant Shares are sold in compliance with the Registration
Statement (including the prospectus delivery requirement) and any applicable
laws and rules, until such resale has been effected.
9.5. Listing on Securities Exchange. If the Company shall list any shares
of Common Stock on any securities exchange, it will, at its expense, list
thereon, maintain and, when necessary, increase such listing of, all shares of
Common Stock issued or, to the extent permissible under the applicable
securities exchange rules, issuable upon the exercise of this Warrant so long as
any shares of Common Stock shall be so listed during the Exercise Period.
10. SUPPLYING INFORMATION
The Company shall cooperate with Holder in supplying such information as
may be reasonably necessary for Holder to complete and file any information
reporting forms presently or hereafter required by the Commission as a condition
to the availability of an exemption from the Securities Act for the sale of any
Warrant or Restricted Common Stock.
11. LOSS OR MUTILATION
Upon receipt by the Company from Holder of evidence reasonably satisfactory
to it of the ownership of and the loss, theft, destruction or mutilation of this
Warrant and indemnity reasonably satisfactory to it (it being understood that
the written agreement of the Holder shall be sufficient indemnity), and in case
of mutilation upon surrender and cancellation hereof, the Company will execute
and deliver in lieu hereof a new Warrant of like tenor to Holder; provided, in
the case of mutilation, no indemnity shall be required if this Warrant in
identifiable form is surrendered to the Company for cancellation.
13
<PAGE>
12. OFFICE OF THE COMPANY
As long as any of the Warrants remain outstanding, the Company shall
maintain an office or agency (which may be the principal executive offices of
the Company) where the Warrants may be presented for exercise, registration of
transfer, division or combination as provided in this Warrant, such office to be
initially located at 200 Route 17, Mahwah, New Jersey 07430, fax: (201)
529-3163, provided, however, that the Company shall provide prior written notice
to Holder of a change in address no less than 30 days prior to such change.
13. LIMITATION OF LIABILITY
No provision hereof, in the absence of affirmative action by Holder to
purchase shares of Common Stock, and no enumeration herein of the rights or
privileges of Holder hereof, shall give rise to any liability of Holder for the
purchase price of any Common Stock or as a stockholder of the Company, whether
such liability is asserted by the Company or by creditors of the Company.
14. MISCELLANEOUS
14.1. Nonwaiver and Expenses. No course of dealing or any delay or failure
to exercise any right hereunder on the part of Holder shall operate as a waiver
of such right or otherwise prejudice Holder's rights, powers or remedies,
notwithstanding all rights hereunder terminate on the Expiration Date.
14.2. Notice Generally. Except as may be otherwise provided herein, any
notice or other communication or delivery required or permitted hereunder shall
be in writing and shall be delivered personally or sent by certified mail,
postage prepaid, or by a nationally recognized overnight courier service, and
shall be deemed given when so delivered personally or by overnight courier
service, or, if mailed, three (3) days after the date of deposit in the United
States mails, as follows:
If to the Company, to: Data Systems & Software Inc.
200 Route 17
Mahwah, New Jersey 07430
Attention: George Morgenstern, President
Tel: (201) 529-2026
Fax: (201) 529-3163
with a copy to: Ehrenreich Eilenberg Krause & Zivian, LLP
11 East 44th Street
New York, New York 10017
Tel: (212) 986-9700
Fax: (212) 986-2399
14
<PAGE>
if to the Purchaser to: Bounty Investors LLC
WEC Asset Management LLC
One World Trade Center, Suite 4563
New York, New York 10048
Attention: Daniel J. Saks
Tel: (212) 775-9299
Fax: (212) 775-9311
with a copy to: Pryor Cashman Sherman & Flynn LLP
410 Park Avenue
New York, New York 10022
Attention: Mark Saks, Esq.
Tel: (212) 326-0140
Fax: (212) 326-0806
The Company or the Holder may change the foregoing address by notice given
pursuant to this Section 14.2.
14.3. Indemnification. The Company agrees to indemnify and hold harmless
Holder from and against any liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, claims, costs, attorneys' fees, expenses
and disbursements of any kind which may be imposed upon, incurred by or asserted
against Holder in any manner relating to or arising out of any failure by the
Company to perform or observe in any respect any of its covenants, agreements,
undertakings or obligations set forth in this Warrant.
14.4. Remedies. Holder in addition to being entitled to exercise all rights
granted by law, including recovery of damages, will be entitled to specific
performance of its rights under this Warrant. The Company agrees that monetary
damages would not be adequate compensation for any loss incurred by reason of a
breach by it of the provisions of this Warrant and hereby agrees to waive the
defense in any action for specific performance that a remedy at law would be
adequate.
14.5. Successors and Assigns. Subject to the provisions of Sections 3.1 and
9, this Warrant and the rights evidenced hereby shall inure to the benefit of
and be binding upon the successors of the Company and the successors and assigns
of Holder. The provisions of this Warrant are intended to be for the benefit of
all Holders from time to time of this Warrant and, with respect to Section 9
hereof, holders of Warrant Stock, and shall be enforceable by any such Holder or
holder of Warrant Stock.
14.6. Amendment. This Warrant and all other Warrants may be modified or
amended or the provisions hereof waived only with the prior written consent of
the Company and the Holder.
14.7. Severability. Wherever possible, each provision of this Warrant shall
be interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Warrant shall be prohibited by or invalid under
applicable law, such provision shall be
15
<PAGE>
ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Warrant.
14.8. Headings. The headings used in this Warrant are for the convenience
of reference only and shall not, for any purpose, be deemed a part of this
Warrant.
14.9. Governing Law. This Warrant shall be governed by the laws of the
State of New York, without regard to the provisions thereof relating to conflict
of laws. The Company consents to the jurisdiction of the federal courts whose
districts encompass any part of the City of New York or the state courts of the
State of New York sitting in the City of New York in connection with any dispute
arising under this Warrant or any of the transactions contemplated hereby, and
hereby waives, to the maximum extent permitted by law, any objection, including
any objections based on forum non conveniens, to the bringing of any such
proceeding in such jurisdictions.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
16
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed
and its corporate seal to be impressed hereon and attested by its Secretary or
an Assistant Secretary.
Dated: October 12, 1999
DATA SYSTEMS & SOFTWARE INC.
By:
------------------------------
Name: George Morgenstern
Title: President
Attest:
By:
-----------------------
Name:
Title:
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<PAGE>
EXHIBIT A
SUBSCRIPTION FORM
[To be executed only upon exercise of Warrant]
The undersigned registered owner of this Warrant irrevocably exercises this
Warrant for the purchase of ______ Shares of Common Stock of Data Systems &
Software Inc., and herewith makes payment therefor in cash or by check or bank
draft made payable to the Company, all at the price and on the terms and
conditions specified in this Warrant and requests that certificates for the
shares of Common Stock hereby purchased (and any securities or other property
issuable upon such exercise) be issued in the name of and delivered to
_____________ whose address is _________________ and, if such shares of Common
Stock shall not include all of the shares of Common Stock issuable as provided
in this Warrant, that a new Warrant of like tenor and date for the balance of
the shares of Common Stock issuable hereunder be delivered to the undersigned.
-------------------------------
(Name of Registered Owner)
-------------------------------
(Signature of Registered Owner)
-------------------------------
(Street Address)
-------------------------------
(City) (State) (Zip Code)
NOTICE: The signature on this subscription must correspond with the name as
written upon the face of the within Warrant in every particular, without
alteration or enlargement or any change whatsoever.
18
<PAGE>
EXHIBIT B
ASSIGNMENT FORM
FOR VALUE RECEIVED the undersigned registered owner of this Warrant hereby
sells, assigns and transfers unto the Assignee named below all of the rights of
the undersigned under this Warrant, with respect to the number of shares of
Common Stock set forth below:
Name and Address of Assignee No. of Shares of
---------------------------- ----------------
Common Stock
------------
and does hereby irrevocably constitute and appoint _______ ________________
attorney-in-fact to register such transfer on the books of Data Systems &
Software Inc., maintained for the purpose, with full power of substitution in
the premises.
Dated:__________________ Print Name:___________________
Signature:____________________
Witness:______________________
NOTICE: The signature on this assignment must correspond with the name as
written upon the face of the within Warrant in every particular, without
alteration or enlargement or any change whatsoever.
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<PAGE>
EXHIBIT D
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of October 12, 1999 (this
"Agreement"), is entered into by and between DATA SYSTEMS & SOFTWARE INC., a
Delaware corporation (the "Company") and BOUNTY INVESTORS LLC, a Delaware
limited liability company (the "Purchaser").
W I T N E S S E T H:
WHEREAS, pursuant to a Securities Purchase Agreement, dated as of October
12, 1999, by and between the Purchaser and the Company (the "Securities Purchase
Agreement"), the Company has agreed to issue and sell to the Purchaser
$2,000,000 principal amount of the Company's 0% Convertible Debentures due 2001
(the "Debentures") and three year Warrants to purchase 100,000 shares of Common
Stock of the Company (the "Warrants"; the Debentures and the Warrants
collectively, the "Securities");
WHEREAS, pursuant to the terms of the Debentures and the Warrants, (i) upon
the conversion of the Debentures and (ii) upon exercise of the Warrants, the
Company will issue shares of the Company's common stock, par value $.01 per
share (the "Common Stock") (the shares of Common Stock issued or issuable to the
Purchaser upon the conversion the Debentures and/or upon the exercise of the
Warrants are collectively referred to herein as the "Shares") to the Purchaser;
and
WHEREAS, to induce the Purchaser to execute and deliver the Securities
Purchase Agreement, the Company has agreed to provide certain registration
rights under the Securities Act of 1933, as amended (the "Securities Act"), and
applicable state securities laws.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and the Purchaser
hereby agree as follows:
1. Definitions.
(a) As used in this Agreement, the following terms shall have the following
meanings:
(i) "Minimum Conversion Shares" on any date means a number of shares equal
to at least the sum of: (x) two (2) times the number of shares of Common Stock
that are issuable upon conversion of the Debentures on such date, without regard
to any limitation on any holder's ability to convert the Debentures and (y) the
number of shares of Common Stock issuable upon exercise of the Warrants.
<PAGE>
(ii) "Register," "Registered," and "Registration" refer to a registration
effected by preparing and filing one or more Registration Statement or
Statements in compliance with the Securities Act and pursuant to Rule 415 under
the Securities Act or any successor rule providing for offering securities on a
continuous basis ("Rule 415"), and the declaration or ordering of effectiveness
of such Registration Statement by the Securities and Exchange Commission (the
"Commission").
(iii) "Registrable Securities" means the Shares; provided that any Shares
shall cease to be Registrable Securities when sold pursuant to a Registration
Statement or pursuant to Rule 144 under the Securities Act..
(iv) "Registration Statement" means a registration statement of the Company
under the Securities Act.
Capitalized terms used herein and not otherwise defined herein shall have
the meanings set forth in the Securities Purchase Agreement, the Debentures or
the Warrants, as the case may be.
2. Registration.
(a) Mandatory Registration. The Company shall prepare and, as soon as
practicable but in no event later than thirty (30) days after the Closing Date
(the "Required Filing Date"), file with the Commission a Registration Statement
on Form S-3, or an amendment to any pending Registration Statement on Form S-3
of the Company, covering resales of (a) the Common Stock issuable upon exercise
of the Warrants and (b) the Minimum Conversion Shares on the filing date. In the
event that Form S-3 is unavailable for such a registration, the Company shall
use such other form as is available for such a registration. Such Registration
Statement or amended Registration Statement, as the case may be, shall state
that, in accordance with Rule 416 under the Securities Act, it also covers such
indeterminate number of additional Shares as may become issuable upon conversion
of the Debentures and exercise of the Warrants (i) to prevent dilution resulting
from stock splits, stock dividends or similar transactions and (ii) to the
extent consistent with the interpretations of the Commission of such rule at
such time, resulting from any adjustment in the applicable Conversion Price of
such Debentures or the Current Warrant Price of such Warrants. If on any date
the Minimum Conversion Shares exceed the total number of Shares so registered,
the Company shall (i) if such Registration Statement has not been declared
effective by the Commission at that time, amend the Registration Statement filed
by the Company pursuant to the preceding portions of this paragraph, to register
all of such Minimum Conversion Shares, or (ii) if such Registration Statement
has been declared effective by the Commission at that time, file with the
Commission an additional Registration Statement on S-3 (or, in the event that
Form S-3 is unavailable for such a registration, on such other form as is
available) to register all of such Minimum Conversion Shares that have not
already been so registered. The Company shall use its best efforts to cause any
such Registration Statement or amended Registration Statement, as the case may
be, to become effective within the earliest to occur of (i) ninety (90) days
following the Closing Date; (ii) if the Commission elects not to conduct a
review of the Registration Statement, the date which is eight (8) business days
after the date upon which either the Company or its counsel is so notified,
whether orally or in writing; or
2
<PAGE>
(iii) if the Registration Statement is reviewed by the Commission, the earlier
of (x) one hundred twenty (120) days following the Closing Date or (y) the date
which is five (5) business days after the date upon which the Company or its
counsel is notified by the Commission, whether orally or in writing, that the
Commission has no further comments with respect to the Registration Statement,
or that the Registration Statement may be declared effective. The earliest of
such dates is referred to herein as the "Required Effective Date."
Notwithstanding the use of the terms "Required Filing Date" and "Required
Effective Date" herein, the Company shall at all times use its best efforts to
file each required Registration Statement or amendment to a Registration
Statement as soon as possible after the Closing Date or after the date the
Company becomes obligated to file such Registration Statement or amendment, as
the case may be, and to cause each such Registration Statement or amendment to
become effective as soon as possible thereafter. No securities of the Company
other than the Registrable Securities shall be included in any such Registration
Statement (except for the (x) the 250,000 shares of Common Stock underlying the
warrants issued to Bank Leumi USA and Bank Leumi le-Israel B.M. and (y) the
20,000 shares of Common Stock underlying the warrants issued to the Finder (as
defined in the Securities Purchase Agreement)). The Company shall keep each
Registration Statement effective pursuant to Rule 415 at all times until such
date as is the earlier of (i) the date on which all of the Registrable
Securities have been sold and (ii) the date on which the Registrable Securities
(in the opinion of counsel to the Purchaser) may be immediately sold without
restriction (including without limitation as to volume by each holder thereof)
without registration under the Securities Act (the "Registration Period").
(b) Payments by the Company.
(i) (A) If the Registration Statement covering the Registrable Securities
is not filed in proper form with the Commission on or prior to the Required
Filing Date, (B) if the Registration Statement covering the Registrable
Securities is not effective on or prior to the Required Effective Date, (C) if
the number of Shares qualified for trading on the NASDAQ National Market or
reserved by the Company for issuance shall be insufficient for issuance upon the
conversion of the outstanding Debentures and the exercise of the Warrants, or
(D) upon the occurrence of a Blackout Event (as described in Section 3(f) or
Section 3(g) below) (each of the events described in clauses (A) through (D) of
this paragraph are referred to herein as a "Registration Default"), the Company
will make payments to the Purchaser in such amounts and at such times as shall
be determined pursuant to this Section 2(b).
(ii) The amount (the "Periodic Amount") to be paid by the Company to the
Purchaser for each thirty (30) day period, or portion thereof, during which a
Registration Default shall be in effect (each such period, a "Default Period")
shall be equal to two percent (2%) of the sum of (a) the principal amount of
Debentures outstanding and (b) the principal amount of Debentures converted into
shares of Common Stock (except for shares sold pursuant to Rule 144) (the
"Purchase Price"); provided, with respect to any Default Period during which the
relevant Registration Defaults shall have been cured, the Periodic Amount shall
be pro rated for the number of days during such period during which the
Registration Defaults were pending; and provided further, that the payment of
such Periodic Amounts shall not relieve the Company from its continuing
obligations to register the Registrable Securities pursuant to Section 2(a).
3
<PAGE>
(iii) Each Periodic Amount shall be payable by the Company, in cash or
other immediately available funds, to the Purchaser on the last day of each
month during which a Registration Default occurred or was continuing, without
demand therefor by the Purchaser. If the Company shall not remit the Periodic
Amounts payable to the Purchaser as set forth in paragraph (ii) above, the
Company will pay the Purchaser reasonable costs of collection, including
attorneys' fees, in addition to the Periodic Amounts.
(iv) The parties acknowledge that the damages which may be incurred by the
Purchaser if the Registration Statement is not filed by the Required Filing
Date, if the Registration Statement has not been declared effective by the
Required Effective Date, if an insufficient number of shares of Common Stock
shall be qualified for trading or reserved for issuance, or if the provisions of
Section 3(f) or 3(g) become applicable, may be difficult to ascertain. The
parties agree that the Periodic Amount represents a reasonable estimate on the
part of the parties, as of the date of this Agreement, of the amount of such
damages.
(c) Piggyback Registration. (i) If at any time or from time to time, the
Company shall determine to register any of its securities, for its own account
or the account of any of its shareholders, other than a Registration Statement
relating solely to employee share option plans or pursuant to an acquisition
transaction on Form S-4 (a "Piggyback Registration"), the Company will:
(A) provide to the Purchaser written notice thereof as soon as
practicable prior to filing the Registration Statement; and
(B) include in such Registration Statement and in any underwriting
involved therein, all of the Registrable Securities specified in a
written request by the Purchaser made within fifteen (15) days after
receipt of such written notice from the Company.
(ii) If the Registration is for a registered public offering involving an
underwriting, the Company shall so advise the Purchaser as a part of the written
notice given pursuant to this Section. In such event, the rights of the
Purchaser hereunder shall include participation in such underwriting and the
inclusion of the Registrable Securities in the underwriting to the extent
provided herein. To the extent that the Purchaser proposes to distribute its
securities through such underwriting, the Purchaser shall (together with the
Company and any other securityholders of the Company distributing their
securities through such underwriting) enter into an underwriting agreement in
customary form with the underwriter or underwriters selected for such
underwriting by the Company. Notwithstanding any other provision of this
Section, if the managing underwriter of such underwriting determines that
marketing factors require a limitation of the number of shares to be offered in
connection with such underwriting, the managing underwriter may limit the number
of Registrable Securities to be included in the Registration and underwriting
(provided, however, that (a) the Registrable Securities shall not be excluded
from such underwritten offering prior to the exclusion of any securities held by
officers and directors of the Company or their affiliates, (b) the Registrable
Securities shall be entitled to at least the same priority in an underwritten
offering as any securities included in such offering by any of the Company's
other existing securityholders, and
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(c) the Company shall not enter into any agreement that would provide any
securityholder with priority in connection with an underwritten offering greater
than the priority granted to the Purchaser hereunder). The Company shall so
advise any of its other securityholders who are distributing their securities
through such underwriting pursuant to their respective piggyback registration
rights, and the number of shares of Registrable Securities and other securities
that may be included in the registration and underwriting shall be allocated
among the Purchaser and all other securityholders of the Company in proportion,
as nearly as practicable, to the respective amounts of Registrable Securities
held by the Purchaser and such other securityholders at the time of the filing
of the registration statement. If the Purchaser disapproves of the terms of any
such underwriting, it may elect to withdraw therefrom by written notice to the
Company. Any Registrable Securities so excluded or withdrawn from such
underwriting shall be withdrawn from such Registration.
(d) Eligibility for Form S-3. The Company represents and warrants that it
meets all of the requirements for the use of Form S-3 for the Registration of
the sale by the Purchaser and any transferee who purchases the Registrable
Securities, and the Company shall file all reports required to be filed by the
Company with the Commission in a timely manner, and shall take such other
actions as may be necessary to maintain such eligibility for the use of Form
S-3.
(e) Priority in Filing. The Company covenants that beginning on the Closing
Date and ending on the date that is one hundred and eighty (180) days after the
Registration Statement filed pursuant to Section 2(a) of this Agreement becomes
effective (provided that if, after the effective date of such Registration
Statement, the Purchaser shall be unable to sell Registrable Securities pursuant
to such Registration Statement for any number of days, the provisions of this
Section 2(e) shall apply for an additional number of days equal to the number of
days during which any Purchaser is unable to sell Registrable Securities
pursuant to such Registration Statement), the Company will not file any
Registration Statement, other than a Registration Statement required by Section
2(a) hereof, without the written consent of the Purchaser.
3. Obligations of the Company.
In connection with the registration of the Registrable Securities, the
Company shall do each of the following:
(a) Prepare and file with the Commission the Registration Statements
required by Section 2 of this Agreement and such amendments (including
post-effective amendments) and supplements to the Registration Statements and
the prospectuses used in connection with such Registration Statements, each in
such form as to which the Purchaser and its counsel shall not have objected, as
may be necessary to keep the Registration Statements effective at all times
during the Registration Period, and, during the Registration Period, comply with
the provisions of the Securities Act with respect to the disposition of all of
the Registrable Securities of the Company covered by the Registration Statements
until such time as all of such Registrable Securities have been disposed of in
accordance with the intended methods of disposition by the seller or sellers
thereof as set forth in the Registration Statements;
(b) Furnish to the Purchaser and its legal counsel identified to the
Company, promptly after the same is prepared and publicly distributed, filed
with the Commission, or
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<PAGE>
received by the Company, a copy of the Registration Statement, each preliminary
prospectus, each final prospectus, and all amendments and supplements thereto
and such other documents, as the Purchaser may reasonably request in order to
facilitate the disposition of its Registrable Securities;
(c) Furnish to the Purchaser and its counsel copies of any correspondence
between the Company and the Commission with respect to any Registration
Statement or amendment or supplement thereto filed pursuant to this Agreement;
(d) Use all reasonable efforts to (i) register and qualify the Registrable
Securities covered by the Registration Statements under such other securities or
blue sky laws of such jurisdictions as the Purchaser may reasonably request,
(ii) prepare and file in those jurisdictions such amendments (including
post-effective amendments) and supplements to such registrations and
qualifications as may be necessary to maintain the effectiveness thereof at all
times during the Registration Period, (iii) take such other actions as may be
necessary to maintain such registrations and qualifications in effect at all
times during the Registration Period and (iv) take all other actions reasonably
necessary or advisable to qualify the Registrable Securities for sale in such
jurisdictions, provided that in connection therewith, the Company shall not be
required to qualify as a foreign corporation or to file a general consent to the
service of process in any jurisdiction;
(e) Qualify such securities for trading on the NASDAQ National Market and
list such securities on all the other national securities exchanges on which any
securities of the Company are then listed, and file any filings required by the
NASDAQ National Market and/or such other exchanges;
(f) As promptly as practicable after becoming aware thereof, notify the
Purchaser of any need to suspend use of the prospectus included in the
Registration Statement, including any suspension resulting form the occurrence
of any event, which renders such prospectus misleading, and to use its best
efforts to promptly prepare a supplement or amendment to such Registration
Statement or other appropriate filing with the Commission to allow the
resumption of the use of such prospectus, and to deliver a number of copies of
such supplement or amendment to the Purchaser as the Purchaser may reasonably
request;
(g) As promptly as practicable after becoming aware of such event, notify
the Purchaser (or, in the event of an underwritten offering, the managing
underwriters) of the issuance by the Commission of any stop order or other
suspension of the effectiveness of any Registration Statement at the earliest
possible time, and to use its best efforts to promptly obtain the withdrawal of
such stop order or other suspension of effectiveness (the occurrence of any of
the events described in paragraphs (f) and (g) of this Section 3 is referred to
herein as a "Blackout Event");
(h) During the period commencing upon (i) the Purchaser's receipt of a
notification pursuant to Section 3(f) above or (ii) the entry of a stop order or
other suspension of the effectiveness of the Registration Statement described in
Section 3(g) above, and ending at such time as (x) the Company shall have
completed the applicable filings (and if applicable, such filings shall have
been declared effective) and shall have delivered to the Purchaser the
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<PAGE>
documents required pursuant to Section 3(f) above or (y) such stop order or
other suspension of the effectiveness of the Registration Statement shall have
been removed, the Company shall be liable to remit the payments required to be
paid to the Purchaser pursuant to Section 2(b) above;
(i) Suspend the use of any prospectus used in connection with any
Registration Statement only in the event, and for such period of time as, such a
suspension is required by the rules and regulations of the Commission;
(j) Enter into such customary agreements for secondary offerings (including
a customary underwriting agreement with the underwriter or underwriters, if any)
and take all such other actions reasonably requested by the Purchaser in
connection therewith in order to expedite or facilitate the disposition of such
Registrable Securities. Whether or not an underwriting agreement is entered into
and whether or not the Registrable Securities are to be sold in an underwritten
offering the Company shall:
(i) make such representations and warranties to the Purchaser and the
underwriter or underwriters, if any, in form, substance and scope as are
customarily made by issuers to selling stockholders and underwriters in
secondary offerings;
(ii) cause to be delivered to the sellers of Registrable Securities
and the underwriter or underwriters, if any, opinions of independent
counsel to the Company (which counsel and opinions shall be reasonably
satisfactory in form, scope and substance to Purchaser and the
underwriter(s), if any, and their counsel), (A) on and dated as of the
effective day of the applicable Registration Statement (and in the case of
an underwritten offering, dated the date of delivery of any Registrable
Securities sold pursuant thereto) stating that (x) such Registration
Statement complies in all material respects with the requirements of the
Securities Act and the rules and regulations of the Commission thereunder,
(y) such Registration Statement does not contain an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading, and (z)
the documents incorporated by reference in the prospectus accompanying such
Registration Statement, at the time they were filed with the Commission or
as amended, complied in all material respects with the requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and the
rules and regulations thereunder and, when read together with the other
information in such prospectus, do not include an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading, and (B)
within fifteen (15) days following the filing of the Company's Annual
Report on Form 10-K for each fiscal year thereafter, an opinion of
independent counsel to the Company, updating the opinion referred to in
clause (A) of this paragraph;
(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), and at the beginning of each fiscal year following a
year during which the Company's independent certified public accountants
shall have reviewed any of the Company's books or records, a
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<PAGE>
"comfort" letter from the Company's independent certified public
accountants addressed to the Purchaser 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
secondary offerings; such accountants shall have undertaken in each such
letter to update the same during each such fiscal year in which such books
or records are being reviewed so that each such letter shall remain
current, correct and complete throughout such fiscal year; and each such
letter and update thereof, if any, shall be reasonably satisfactory to the
Purchaser;
(iv) if an underwriting agreement is entered into, the same shall
include customary indemnification and contribution provisions to and from
the underwriters and procedures for secondary underwritten offerings;
(v) deliver such documents and certificates as may be reasonably
requested by any purchaser 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; and
(vi) deliver to Purchaser on the effective day of the applicable
Registration Statement (and, in the case of an underwritten offering, on
the date of delivery of any Registrable Securities sold pursuant thereto),
and at the beginning of each fiscal quarter thereafter, a certificate in
form and substance as shall be reasonably satisfactory to Purchaser,
executed by an executive officer of the Company and to the effect that all
the representations and warranties of the Company contained in the
Securities Purchase Agreement are still true and correct except as
disclosed in such certificate; the Company shall, as to each such
certificate delivered at the beginning of each fiscal quarter, update or
cause to be updated each such certificate during such quarter so that it
shall remain current, complete and correct throughout such quarter; and
such updates received by Purchaser during such quarter, if any, shall have
been reasonably satisfactory to Purchaser.
(k) Make available for inspection by Purchaser, its representative(s), any
underwriter participating in any disposition pursuant to a Registration
Statement, and any attorney or accountant retained by the Purchaser or
underwriter, all financial and other records customary for purposes of
Purchaser's and underwriters' due diligence examination of the Company and
review of any Registration Statement, all filings made with the Commission
subsequent to the Closing, pertinent corporate documents and properties of the
Company, and cause the Company's officers, directors and employees to supply all
information reasonably requested by any such representative, underwriter,
attorney or accountant in connection with such Registration Statement, provided
that such parties agree to keep such information confidential;
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<PAGE>
(l) Cooperate with the Purchaser to facilitate the timely preparation and
delivery of certificates for the Registrable Securities to be offered pursuant
to any Registration Statement and to enable such certificates for the
Registrable Securities to be in such denominations or amounts, as the case may
be, as the Purchaser may reasonably request, and registered in such names as the
Purchaser may request; and, within three (3) business days after a Registration
Statement which includes Registrable Securities is ordered effective by the
Commission, the Company shall deliver, and shall cause legal counsel selected by
the Company to deliver, to the transfer agent for the Registrable Securities
(with copies to the Purchaser) an appropriate instruction and opinion of such
counsel; and
(m) Permit counsel to Purchaser to review the Registration Statement and
all amendments and supplements thereto within a reasonable period of time (but
not less than five (5) business days) prior to each filing, and to incorporate
those changes, if provided to the Company or its counsel within such five (5)
business day period, suggested by such counsel.
(n) Notwithstanding any other provision in this Agreement, the Company
shall have no obligation to participate in any manner (including, without
limitation, by the signing of an underwriting agreement, delivery of
indemnification agreements, delivery of comfort letters, payment of expenses or
otherwise) in an underwritten resale of the Shares, except in connection with a
Piggyback Registration.
4. Obligations of the Purchaser.
In connection with the registration of the Registrable Securities, the
Purchaser shall have the following obligations:
(a) Furnish to the Company such information regarding itself, the
Registrable Securities held by it, and the intended method of disposition of the
Registrable Securities held by it, as shall be reasonably required to effect the
registration of such Registrable Securities. The intended method or methods of
disposition and/or sale (Plan of Distribution) of the Registrable Securities as
so provided by the participating Purchaser shall be included without alteration
in any Registration Statement covering the Registrable Securities and shall not
be changed without written consent of the Purchaser. At least five (5) business
days prior to the first anticipated filing date of any Registration Statement,
the Company shall notify the Purchaser of the information the Company requires
from the Purchaser if the Purchaser elects to have any of its Registrable
Securities included in such Registration Statement; and
(b) The Purchaser agrees that, upon receipt of any notice from the Company
of the happening of any Blackout Event of the kind described in Section 3(f) or
3(g) above, it will immediately discontinue disposition of its Registrable
Securities pursuant to the Registration Statement covering such Registrable
Securities until such copies of the supplemented or amended prospectus
contemplated by Section 3(f) or 3(g) shall be furnished to the Purchaser.
5. Expenses of Registration.
Other than underwriting discounts and commissions, all expenses incurred in
connection with registrations, filings or qualifications pursuant to this
Agreement, including, without
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<PAGE>
limitation, all registration, listing, and qualification fees, printing and
accounting fees, and the fees and disbursements of counsel for the Company, and
the fees of one counsel to the Purchaser with respect to each Registration
Statement filed pursuant hereto, shall be borne by the Company.
6. Indemnification.
In the event any Registrable Securities are included in a Registration
Statement under this Agreement:
(a) The Company will indemnify and hold harmless the Purchaser, each of its
officers, directors and partners, and each person, if any, who controls the
Purchaser within the meaning of the Securities Act or the Exchange Act (each, an
"Indemnified Person"), against any losses, claims, damages, liabilities or
expenses (joint or several) incurred (collectively, "Claims") to which any of
them may become subject under the Securities Act, the Exchange Act or otherwise,
insofar as such Claims (or actions or proceedings, whether commenced or
threatened, in respect thereof) arise out of or are based upon: (i) any untrue
or alleged untrue statement of a material fact contained in the Registration
Statement or any post-effective amendment thereof or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
in which they were made, not misleading, (ii) any untrue or alleged statement of
a material fact contained in any preliminary prospectus if used prior to the
effective date of such Registration Statement, or contained in the final
prospectus (as amended or supplemented, if the Company files any amendment
thereof or supplement thereto with the Commission) or the omission or alleged
omission to state therein any material fact necessary in order to make the
statements made therein, in light of the circumstances under which they were
made, not misleading, or (iii) any violation or alleged violation by the Company
of the Securities Act, the Exchange Act, any state or foreign securities law or
any rule or regulation under the Securities Act, the Exchange Act or any state
or foreign securities law (the matters in foregoing clauses (i) through (iii)
being, collectively, "Violations"). The Company shall, subject to the provisions
of Section 6(b) below, reimburse each Purchaser, promptly as such expenses are
incurred and are due and payable, for any legal and other costs, expenses and
disbursements in giving testimony or furnishing documents in response to a
subpoena or otherwise, including without limitation, the costs, expenses and
disbursements, as and when incurred, of investigating, preparing or defending
any such action, suit, proceeding or investigation (whether or not in connection
with litigation in which the Purchaser is a party), incurred by it in connection
with the investigation or defense of any such Claim. Notwithstanding anything to
the contrary contained herein, the indemnification agreement contained in this
Section 6(a) shall not (i) apply to any Claim arising out of or based upon a
Violation which occurs in reliance upon and in conformity with information
furnished in writing to the Company by or on behalf of any Indemnified Person
expressly for use in connection with the preparation of the Registration
Statement or any such amendment thereof supplement thereto; (ii) with respect to
any preliminary prospectus, inure to the benefit of any such person from whom
the person asserting any such Claim purchased the Registrable Securities that
are the subject thereof (or to the benefit of any person controlling such
person) if the untrue statement or omission of material fact contained in the
preliminary prospectus was corrected in the final prospectus, as then amended or
supplemented, if such final prospectus was
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<PAGE>
timely made available by the Company pursuant to Section 3(b) hereof; (iii) be
available to the extent that such Claim is based upon a failure of the Purchaser
to deliver or to cause to be delivered the prospectus made available by the
Company, if such prospectus was timely made available by the Company pursuant to
Section 3(b) hereof; or (iv) apply to amounts paid in settlement of any Claim if
such settlement is effected without the prior written consent of the Company,
which consent shall not be unreasonably withheld. Such indemnity shall remain in
full force and effect regardless of any investigation made by or on behalf of
the Indemnified Person and shall survive the transfer of the Registrable
Securities by the Purchaser pursuant to Section 9. The Purchaser will indemnify
the Company and its officers and directors against any Claims arising out of or
based upon a Violation which occurs in reliance upon and in conformity with
information furnished in writing to the Company, by or on behalf of the
Purchaser, expressly for use in connection with the preparation of the
Registration Statement, subject to such limitations and conditions as are
applicable to the Indemnification provided by the Company in this Section 6.
(b) Promptly after receipt by an Indemnified Person under this Section 6 of
notice of the commencement of any action (including any governmental action),
such Indemnified Person shall, if a Claim in respect thereof is to be made
against any indemnifying party under this Section 6, deliver to the indemnifying
party a written notice of the commencement thereof, and the indemnifying party
shall have the right to participate in, and to the extent that the indemnifying
party so desires, jointly with any other indemnifying party similarly notified,
to assume control of the defense thereof with counsel mutually satisfactory to
the indemnifying party and the Indemnified Person; provided, however, that an
Indemnified Person shall have the right to retain its own counsel with the
reasonable fees and expenses to be paid by the indemnifying party, if, in the
reasonable opinion of counsel retained by the indemnifying party, the
representation by such counsel of the Indemnified Person and the indemnifying
party would be inappropriate due to actual or potential differing interests
between such Indemnified Person and any other party represented by such counsel
in such proceeding. In such event, the Company shall pay for only one separate
legal counsel for the Purchaser, and such legal counsel shall be selected by the
Purchaser. The failure to deliver written notice to an indemnifying party within
a reasonable time after the commencement of any such action shall not relieve
such indemnifying party of any liability to the Indemnified Person under this
Section 6, except to the extent that the indemnifying party is materially
prejudiced in its ability to defend such action. The indemnification required by
this Section 6 shall be made by periodic payments of the amount thereof during
the course of the investigation or defense, as such expense, loss, damage or
liability is incurred and is due and payable.
(c) No indemnifying party, in the defense of any such claim or litigation,
shall, except with the consent of each Indemnified Party, consent to entry of
any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Person of an unconditional and irrevocable release from all
liability in respect of such claim or litigation.
(d) Notwithstanding the foregoing, to the extent that any provisions
relating to indemnification or contribution contained in the underwriting
agreements entered into among the Company, the underwriters and the Purchaser in
connection with an underwritten public offering
11
<PAGE>
are in conflict with the foregoing provisions, the provisions in such
underwriting agreements shall be controlling as to the Registrable Securities
included in the public offering; provided, however, that if, as a result of this
Section 6(d), any Purchaser, its officers, directors, partners, members or any
person controlling such Purchaser is or are held liable with respect to any
Claim for which they would be entitled to indemnification hereunder but for this
Section 6(d) in an amount which exceeds the aggregate proceeds received by such
Purchaser from the sale of Registrable Securities included in a registration
pursuant to such underwriting agreement (the "Excess Liability"), the Company
shall reimburse such Purchaser for such Excess Liability.
7 Contribution.
To the extent any indemnification by an indemnifying party is prohibited or
limited under applicable law, the indemnifying party agrees to contribute to the
amount paid or payable by such indemnified party as a result of such loss,
claim, damage, liability or expense in such proportion as is appropriate to
reflect the relative fault of the indemnifying party on the one hand and the
Indemnified Person on the other hand in connection with the statements or
omissions which resulted in such Claim, as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and the Indemnified
Person shall be determined by reference to, among other things, whether the
untrue statement of a material fact or the omission to state a material fact on
which such Claim is based relates to information supplied by the indemnifying
party or by the Indemnified Person, and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission. Notwithstanding the forgoing, (a) no seller of Registrable Securities
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any seller of
Registrable Securities who was not guilty of such fraudulent misrepresentation
and (b) contribution by any seller of Registrable Securities shall be limited in
amount to the net proceeds received by such seller from the sale of such
Registrable Securities. The Company and the Purchaser agree that it would not be
just and equitable if contribution pursuant to this Section 7 were determined by
pro rata allocation (even if the Purchaser and any other party were treated as
one entity for such purpose) or by any other method of allocation that does not
take account of the equitable considerations referred to in this Section.
8 Reports Under Exchange Act.
With a view to making available to the Purchaser the benefits of Rule 144
promulgated under the Securities Act or any other similar rule or regulation of
the Commission that may at any time permit the Purchaser to sell securities of
the Company to the public without registration ("Rule 144"), the Company agrees
to:
(i) make and keep public information available, as those terms are
understood and defined in Rule 144;
(ii) file with the Commission in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange Act;
and
(iii) furnish to the Purchaser, so long as the Purchaser owns Registrable
Securities, promptly upon request, (i) a written statement by the Company that
it has complied
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with the reporting requirements of the Securities Act and the Exchange Act, (ii)
a copy of the most recent annual or periodic report of the Company and such
other reports and documents so filed by the Company and (iii) such other
information as may be reasonably requested to permit such Purchaser to sell such
securities pursuant to Rule 144 without registration.
9 Assignment of the Registration Rights.
The rights to have the Company register Registrable Securities pursuant to
this Agreement shall be automatically assigned by any Purchaser to any
transferee of all or any portion of the Securities or Shares held by such
Purchaser if: (a) such Purchaser agrees in writing with the transferee or
assignee to assign such rights, and a copy of such agreement is furnished to the
Company within a reasonable time after such assignment; (b) the Company is,
within a reasonable time after such transfer or assignment, furnished with
written notice of (i) the name and address of such transferee or assignee and
(ii) the Securities or Shares with respect to which such registration rights are
being transferred or assigned; (c) at or before the time the Company receives
the written notice contemplated by clause (b) of this sentence, the transferee
or assignee agrees in writing with the Company to be bound by all of the
provisions contained herein; and (d) the transferee of the relevant Securities
or Shares complies with the restrictions on the Purchaser set forth in Section 4
of the Securities Purchase Agreement.
10 Amendment of Registration Rights.
Any provision of this Agreement may be amended and the observance thereof
may be waived (either generally or in a particular instance and either
retroactively or prospectively), only with the written consent of the Company
and holders of 75% of the Registrable Securities from time to time. Any
amendment or waiver effected in accordance with this Section 10 shall be binding
upon the Purchaser and the Company.
11 Miscellaneous.
(a) A person or entity is deemed to be a holder of Registrable Securities
whenever such person or entity owns of record such Registrable Securities. If
the Company receives conflicting instructions, notices or elections from two or
more persons or entities with respect to the same Registrable Securities, the
Company shall act upon the basis of the instructions, notice or election
received from the registered owner of such Registrable Securities.
(b) Any notice required or permitted hereunder shall be given in writing
(unless otherwise specified herein) and shall be effective upon personal
delivery, via facsimile (upon receipt of confirmation of error-free
transmission) or two business days following deposit of such notice with an
internationally recognized courier service, with postage prepaid and addressed
to each of the other parties thereunto entitled at the following addresses, or
at such other addresses as a party may designate by five days advance written
notice to each of the other parties hereto.
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Company: Data Systems & Software Inc.
200 Route 17
Mahwah, New Jersey 07430
Attention: George Morgenstern,
President
Tel: (201) 529-2026
Fax: (201) 529-3163
With a copy to:
Ehrenreich Eilenberg Krause & Zivian, LLP
11 East 44th Street
New York, New York 10017
Attention: Sheldon Krause, Esq.
Tel: (212) 986-9700
Fax: (212) 986-2399
Purchaser: Bounty Investors LLC
c\o WEC Asset Management LLC
One World Trade Center, Suite #4563
New York, New York 10048
Attention: Daniel J. Saks
Tel: (212) 775-9299
Fax: (212) 775-9311
With a copy to:
Pryor Cashman Sherman & Flynn LLP
410 Park Avenue
New York, New York 10022
Attention: Mark Saks, Esq.
Tel: (212) 326-0140
Fax: (212) 326-0806
(c) Failure of any party to exercise any right or remedy under this
Agreement or otherwise, or delay by a party in exercising such right or remedy,
shall not operate as a waiver thereof.
(d) This Agreement shall be governed by and interpreted in accordance with
the laws of the State of New York, except for provisions with respect to
internal corporate matters of the Company which shall be governed by the
corporate laws of the State of Florida. Each of the parties consents to the
jurisdiction of the federal courts whose districts encompass any part of the
City of New York or the state courts of the State of New York sitting in the
City of New York in connection with any dispute arising under this Agreement and
hereby waives, to the maximum extent permitted by law, any objection, including
any objection based on forum non conveniens,
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to the bringing of any such proceeding in such jurisdictions. This Agreement may
be signed in one or more counterparts, each of which shall be deemed an
original. The headings of this Agreement are for convenience of reference and
shall not form part of, or affect the interpretation of, this Agreement. This
Agreement has been entered into freely by each of the parties, following
consultation with their respective counsel, and shall be interpreted fairly in
accordance with its terms, without any construction in favor of or against
either party. If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such validity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement or the
validity or enforceability of this Agreement in any other jurisdiction. This
Agreement supersedes all prior agreements and understandings among the parties
hereto with respect to the subject matter hereof.
(e) This Agreement constitutes the entire agreement among the parties
hereto with respect to the subject matter hereof. There are no restrictions,
promises, warranties or undertakings, other than those set forth, or referred to
herein and in the other Primary Documents. This Agreement supersedes all prior
agreements and understandings among the parties hereto with respect to the
subject matter hereof.
(f) Subject to the requirements of Section 9 hereof, this Agreement shall
inure to the benefit of and be binding upon the successors and assigns of each
of the parties hereto.
(g) All pronouns and any variations thereof refer to the masculine,
feminine or neuter, singular or plural, as the context may require.
(h) The Company acknowledges that any failure by the Company to perform its
obligations under Section 2(a), or any delay in such performance could result in
direct damages to the Purchaser, and the Company agrees that, in addition to any
other liability the Company may have by reason of any such failure or delay, the
Company shall be liable for all direct damages caused by any such failure or
delay.
[REMAINDER OF PAGE LEFT INTENTIONALLY BLANK, SIGNATURE PAGE TO FOLLOW]
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IN WITNESS WHEREOF, the parties have caused this Registration Rights
Agreement to be duly executed.
DATA SYSTEMS & SOFTWARE INC.
By:
----------------------------------
Name: George Morgenstern
Title: President
BOUNTY INVESTORS LLC
By: WEC Asset Management LLC, Manager
By:
----------------------------------
Name: Daniel J. Saks
Title: Managing Director
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