<PAGE> 1
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) December 20, 1996
PINNACLE MICRO, INC.
(Exact name of Registrant as specified in charter)
Delaware 0-21892 33-0238563
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification No.)
19 Technology Drive, Irvine, California 92618
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (714) 789-3000
Not Applicable
(Former name or former address, if changed, since last report)
Page 1 of 62 Pages
<PAGE> 2
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
Exhibit Number Description Page Number
99.1 Form of Offshore Securities
Subscription Agreement
99.2 Form of Convertible Note
99.3 Form of Warrant to Purchase
Shares of Common Stock of
Pinnacle Micro, Inc.
99.4 Form of Registration Rights Agreement
<PAGE> 3
ITEM 9. SALES OF EQUITY SECURITIES PURSUANT TO REGULATION S.
1. On December 20, 1996, the Company closed on offshore private placement
of $5 million of 6% coupon convertible notes (before fees and expenses). The
notes were sold to certain offshore accredited investors. First Bermuda
Securities, Ltd. ("First Bermuda") acted as placement agent. The offshore
offering was made pursuant to Regulation S and Section 4(2) of the Securities
Act of 1933.
The initial principal amounts of the notes may be converted, at the
option of the holders, as follows: (a) 30% at a conversion price per share equal
to 85% of the then average closing bid of the Company's common stock commencing
51 days after December 20, 1996; (b) 40% at a conversion price per share equal
to 82.5% of the average closing bid price of the Company's common stock
commencing 81 days after December 20, 1996; and (c) the remaining 30% at a
conversion price per share equal to 80% of the average closing bid price of the
Company's common stock commencing 111 days after December 20, 1996. Each
conversion is calculated from the average closing bid price of the Company's
stock the five trading days immediately before the conversion date.
In addition to the convertible notes, each offshore investor was
entitled to receive a pro rata share of warrants to purchase an aggregate of
approximately 32,538 shares of the Common Stock of the Company at $4.61/share or
125% of the closing bid price of the Company's common stock on December 19,
1996. The warrants have a 12 month term and can be exercised at any time 90 days
after December 20, 1996.
The Company also granted the investors certain registration rights
covering the shares of common stock issuable upon conversion of the notes under
the terms of a registration rights agreement. First Bermuda, the placement
agent, is entitled to receive a warrant to purchase approximately 65,076 shares
of Company common stock at an exercise price of $4.61 per share. The form of
note, subscription agreement and other documents contain a number of terms and
covenants applicable to the Company, copies of which are filed as exhibits
hereto and incorporated herein.
The Company had previously announced its intention to raise
approximately $8 million from an offshore private placement during the fourth
quarter of 1996. In the end, an aggregate of $5 million of the notes as
disclosed in this report were sold in the placement.
<PAGE> 4
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: January 7, 1997
PINNACLE MICRO, INC.
By: /s/Kenneth Campbell
--------------------------------
Kenneth Campbell, President
By: /s/Roger Hay
--------------------------------
Roger Hay
Executive Vice President and
Chief Financial Officer
<PAGE> 1
EXHIBIT 99.1
DRAFT: 12/26/96
THE SECURITIES SUBSCRIBED FOR HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED
STATES SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE OFFERED OR
SOLD IN THE UNITED STATES (AS DEFINED IN REGULATION S UNDER THE ACT) OR TO OR
FOR THE ACCOUNT OR BENEFIT OF U.S. PERSONS (AS DEFINED IN REGULATION S) EXCEPT
PURSUANT TO REGISTRATION UNDER OR AN EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE ACT.
OFFSHORE SECURITIES SUBSCRIPTION AGREEMENT
This Offshore Securities Subscription Agreement (the "Agreement"), dated
December 20, 1996, is entered into by and between Pinnacle Micro, Inc., a
company incorporated in the state of Delaware (the "Company"), and ((1)) (the
"Buyer").
The Company has offered for sale outside the United States (as that term is
defined in Regulation S ("Regulation S") under the Act up to $5,000,000 of 6%
Convertible Notes due December 20, 2001 (the "Securities"), convertible into
common stock of the Company. Buyer has been offered $ ((2)) in principal amount
of the Securities. Interest on the Securities will be payable as provided in the
form of Convertible Note attached hereto as Annex A. The terms on which the
Securities may be converted into shares of the Company's common stock (such
shares underlying the Securities being referred to herein as "Shares") and the
other terms of the Securities are set forth in the Form of Convertible Note
attached as Annex A. Capitalized terms used herein and not defined herein shall
have the meanings given to them in Regulation S as the same may be amended from
time to time.
The parties hereto agree as follows:
1. Purchase and Sale of Securities. Upon the basis of the representations and
warranties, and subject to the terms and conditions, set forth in this
Agreement, the Company covenants and agrees to sell to the Buyer on the Closing
Date (as hereinafter defined) $ ((2)) of the Securities at a price of 100% of
the original principal amount of the Securities, and upon the basis of the
representations and warranties, and subject to the terms and conditions, set
forth in this Agreement, the Buyer covenants and agrees to purchase from the
Company, on the Closing Date $ ((2)) of the Securities of the Company at 100% of
the original principal amount of the Securities.
2. Closing Instructions to Escrow Agent. (a) The closing of the purchase and
sale of the Securities pursuant to Section 1 hereof shall take place on or
before December 20, 1996 (the "Closing Date") after the Company has delivered to
the offices of First Bermuda Securities, Limited (the "Escrow Agent") located at
Jardine House, 3rd Floor, 33/35 Reid Street, Hamilton, HM 12 Bermuda,
Convertible Notes (each a "Convertible Note") representing
<PAGE> 2
EXHIBIT 99.1 (CONTINUED)
the Securities in amounts of not less than $100,000, in denominations of not
less than $25,000 and integral multiples thereof, registered in the name of the
Buyer (representing the maximum amount of Securities to be purchased by the
Buyer hereunder) and Warrants (as defined below) registered in the name of the
Buyer.
(b) The Company and the Buyer agree that they shall instruct the Escrow
Agent as provided in Annex B and as follows:
(i) On the Closing Date, for each Convertible Note and Warrant
subscribed for and delivered to the Escrow Agent pursuant to paragraph 2(a)
above, the Escrow Agent shall, upon confirmation in the form of a federal funds
wire number that First Bermuda Securities Limited has wired payment of the
aggregate purchase price for the Securities (less any fees the Company has
authorized Escrow Agent to deduct) in immediately available funds to the
Company's account as provided in the escrow instructions attached as Annex B,
release the Securities and the Warrants described in paragraph 2(a) above. The
Escrow Agent shall return to the Company any Convertible Notes and Warrants that
the Buyer does not purchase on the Closing Date. If the closing shall not have
taken place by December 20, 1996, this Agreement shall terminate.
(ii) The Escrow Agent will make delivery of the number of
Convertible Notes and Warrants set forth in clause (2a) above in accordance with
the instructions of the Buyer subject to customary settlement procedures upon
confirmation of the wiring of funds to the Company as described in clause
2(b)(i) above, except that all such Convertible Notes and the Warrants shall be
delivered to a location outside the United States and none of the Convertible
Notes or Warrants shall be delivered to a U.S. Person (as defined in Regulation
S).
3. Representations and Warranties of the Buyer: The Buyer understands and
represents and warrants to, and agrees with the Company that:
(a) The Buyer understands that no federal or state agency has passed on,
or made any recommendation or endorsement of the Securities.
(b) The Buyer acknowledges that, in making the decision to purchase the
Securities, it has relied solely upon independent investigations made by it and
not upon any representations made by the Company with respect to the Company or
the Securities, except for the representations and warranties in this Agreement,
the Convertible Note, the Warrant, the Registration Rights Agreement and the
Officer Certificate (as defined below), except that the Buyer has received,
reviewed and relied upon the Opinions of Counsel (as defined below) and copies
of the report on Form 10-Q for the quarter ended September 28, 1996, the report
Form 10-K for the year ended December 30, 1995, filed by the Company
<PAGE> 3
EXHIBIT 99.1 (CONTINUED)
pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and all other filings, including filings on Form 8-K, under the Exchange
Act since December 30, 1995, which, together with any filings by Company after
the date hereof and prior the Closing, are defined as "Exchange Act Reports".
(c) The Buyer understands that the Securities are being offered and sold
to it in reliance on specific exemptions from or non-application of the
registration requirements of federal and state securities laws and that the
Company is relying upon the truth and accuracy of the representations,
warranties, agreements, acknowledgments and understandings of the Buyer set
forth herein in order to determine the applicability of such exemptions and the
suitability of the Buyer to acquire the Securities.
(d) The Buyer is not a U.S. Person (as defined in Regulation S) and is
not and will not be an affiliate (as defined in the Exchange Act) of the
Company. To enable the Company to avoid withholding interest paid, the Buyer
certifies under penalty of perjury that it is neither a citizen nor a resident
of the United States and that its address set forth in the Escrow Agreement is
correct.
(e) No public offer or solicitation of the Securities or the Shares
issuable on conversion of the Securities was made to the Buyer and no offer of
the Securities or the Shares issuable on conversion of the Securities was made
to the Buyer while the Buyer was present in the United States.
(f) At the time the buy order for the Securities was originated the Buyer
was located outside the United States and is outside the United States on the
date of the execution and delivery of this agreement and will be outside the
United States on the Closing Date.
(g) The Buyer is aware that the Securities and the Shares issuable upon
exercise of conversion rights have not been and will not be registered under the
Act (except as may be required under the Registration Rights Agreement) and may
only be offered or sold pursuant to registration under the Act or an available
exemption therefrom and Buyer has not, and will not, engage in any public
offering or distribution of the Securities or the Shares.
(h) The Buyer (i) will not, during the period commencing on the Closing
Date and ending 40 days after the Closing Date (the "Restricted Period"), offer
or sell or agree to sell the Securities in the United States, to a U.S. Person
or for the account or benefit of a U.S. Person or other than in accordance with
Rule 903 or 904, as applicable, of Regulation S, and (ii) will, after the
expiration of the Restricted Period, offer, sell, pledge or otherwise
<PAGE> 4
EXHIBIT 99.1 (CONTINUED)
transfer the Securities or the common stock issuable upon the exercise of
conversion rights only pursuant to registration under the Act or an available
exemption therefrom and, in any case, in accordance with applicable federal and
state securities laws.
(i) The Buyer and its affiliates have been advised of and are familiar
with, have complied, and will comply, with the offering restrictions, and any
other requirements, of Regulation S.
(j) The transactions contemplated by this Agreement (i) have not been
pre-arranged by the Buyer with a purchaser located in the United States which is
a U.S. Person, and (ii) are not part of a plan or scheme by the Buyer to evade
the registration provisions of the Act.
(k) The Buyer is an "accredited investor" as defined in the Act and will
be purchasing the Securities for its account for the purpose of investment and
not (i) with a view to, or for sale in connection with, any distribution thereof
or (ii) for the account or on behalf of any U.S. Person.
(l) Neither the Buyer nor any of its affiliates has entered, has the
intention of entering, or will during the Restricted Period enter into, with any
U.S. Person, any put option, short position or other similar instrument or
position with respect to the Securities or securities into which the Securities
are convertible or participate in any other attempt designed to lower the
trading prices of the Company's common stock.
(m) The Buyer shall indemnify the Company against any loss, cost or
damages (including reasonable attorney's fees and expenses) incurred as a result
of such parties' breach of any representation, warranty, covenant or agreement
in this Agreement.
4. Registration Rights; Warrant. On or prior to the Closing Date, the Company
and Buyer agree to execute a Registration Rights Agreement (the "Registration
Rights Agreement") and a Warrant (the "Warrant") in the forms substantially set
out in Annex C and Annex D attached hereto, respectively.
5. Conversion of Securities. The Securities may be converted into the Shares, as
herein defined, at the option of the holder thereof under the terms set forth in
the Form of Convertible Note, attached hereto as Annex A.
6. Representations and Warranties of the Company. The Company represents and
warrants to, and agrees with, the Buyer that:
(a) The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of Delaware.
<PAGE> 5
EXHIBIT 99.1 (CONTINUED)
(b) This Agreement has been duly authorized, executed and delivered by
the Company and is a valid and binding agreement enforceable in accordance with
its terms, subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general applicability relating to
or affecting creditors' rights generally and to general principles of equity;
and the Company has full corporate power and authority necessary to enter into
this Agreement and to perform its obligations thereunder.
(c) No consent, approval, authorization or order of any court,
governmental agency or body or arbitrator having jurisdiction over the Company
or any of its affiliates is required for execution of this Agreement, including,
without limitation, the issuance and sale of the Securities, or the performance
of its obligations hereunder.
(d) Except as disclosed to the Buyer or its representatives in writing,
neither the sale of Securities pursuant to, nor the performance of its
obligations under this Agreement by the Company will (i) violate, conflict with,
result in a breach of, or constitute a default (or an event which with the
giving of notice or the lapse of time or both would be reasonably likely to
constitute a default) under (A) the certificate of incorporation, charter or
by-laws of the Company or any of its affiliates, (B) any decree, judgment,
order, law, treaty, rule, regulation or determination applicable to the Company
or any of its affiliates of any court, governmental agency or body, or
arbitrator having jurisdiction over the Company or any of its affiliates or over
the properties or assets of the Company or any of its affiliates, (C) the terms
of any bond, debenture, note or any other evidence of indebtedness, or any
material agreement, stock option or other similar plan, indenture, lease,
mortgage, deed of trust or other material instrument to which the Company or any
of its affiliates is a party, by which the Company or any of its affiliates is
bound, or to which any of the properties of the Company or any of its affiliates
is subject, or (D) the terms of any "lock-up" or similar provision of any
underwriting or similar agreement to which the Company or any of its affiliates
is a party to; or (ii) result in the creation or imposition of any lien, charge
or encumbrance upon the Securities or any of the assets of the Company or any of
its affiliates.
(e) The Company has an authorized capitalization consisting of 30,000,000
shares of common stock, par value $.001 per share (the "Common Stock"), and
5,000,000 shares of Preferred Stock, par value $.001 per share ("Preferred
Stock"). The Company has issued and outstanding 9,859,986 shares of Common Stock
and nil shares of Preferred Stock as of December 16, 1996. All of the issued
shares of capital stock of the Company have been duly and validly authorized and
issued, are fully paid and non-assessable; prior to the Closing Date, the
authorized capitalization shall include the Shares to be issued upon conversion
of the Securities. The shares of Common Stock issuable upon conversion of the
Securities, when issued and delivered in accordance with the terms of the
Securities, will be duly and validly issued, fully paid and non-assessable. The
issuance of the Shares will not be in violation of any preemptive or similar
rights of the holders of any securities of the
<PAGE> 6
EXHIBIT 99.1 (CONTINUED)
Company. The Securities (i) are free and clear of any security interests, liens,
claims or other encumbrances, (ii) have been duly and validly authorized and on
the Closing Date will be duly and validly issued, fully paid and non assessable,
(iii) will not have been, individually and collectively, issued or sold in
violation of any preemptive or other similar rights of the holders of any
securities of the Company and (iv) will not subject the holders thereof to
personal liability by reason of being such holders. The Common Stock underlying
the Securities is quoted on, and will be, following the completion of the
Restricted Period (if sold in accordance with the provisions of this Agreement,
applicable securities law and Regulation S as then in effect), eligible for
trading on, The Nasdaq Stock Market ("NASDAQ").
(f) The Company is a Reporting Issuer (as defined in Regulation S)
because it has a class of securities registered pursuant to Section 12(g) of the
Exchange Act and has filed all the material required to be filed pursuant to
Section 13(a) of the Exchange Act for a period of at least twelve (12) months
preceding the date of this Agreement, except that, as disclosed in subparagraph
(j) below, certain of the Company's reports contain 1993 financial statements
which are not audited for the reasons stated in such reports. The Common Stock
is listed on NASDAQ and the Company has received no notice, oral or written,
with respect to its continued eligibility for such listing. The Company hereby
agrees, promptly following the Closing of the transactions contemplated by this
Agreement, to take such action as is necessary to cause the Shares issued upon
exercise of conversion rights under the Convertible Note to be listed on NASDAQ
upon such conversion following expiration of the Restricted Period (subject, if
required, to notice to NASDAQ of the actual number of shares issued). The
Company further agrees, if the Company applies to have the Common Stock traded
on any other principal stock exchange or market, it will include in such
application the Shares and will take such other action as is necessary or
desirable to cause the Shares to be listed on such other exchange or market upon
expiration of the Restricted Period.
(g) The Exchange Act Reports are the only filings made by the Company
since December 30, 1995 pursuant to Sections 13(a), 13(c), 14 and 15(d) of the
Exchange Act, and the Company will cause its Common Stock to continue to be
registered under Section 12(g) or 12(b) of the Securities Exchange Act of 1934,
will comply in all respects with its reporting and filing obligations under said
Act, and will not take any action or file any document (whether or not permitted
by said Act or the rules thereunder) to terminate or suspend such registration
or to terminate or suspend its reporting and filing obligations under said Act.
The Company will take all action necessary to continue the listing and trading
of its Common Stock on NASDAQ and will comply in all respects with the Company's
reporting, filing and other obligations under the by-laws or rules of the NASD
and NASDAQ.
<PAGE> 7
EXHIBIT 99.1 (CONTINUED)
(h) The Company has the requisite corporate power to own its properties
and to carry on its business as now being conducted. The Company does not have
any subsidiaries. The Company is duly qualified as a foreign corporation to do
business and is in good standing in every jurisdiction in which the nature of
the business conducted or property owned by it makes such qualification
necessary other than those in which the failure so to qualify would not have a
Material Adverse Effect. "Material Adverse Effect" means any adverse effect on
the business, operations, properties, prospects, or financial condition of the
entity with respect to which such term is used and which is material to such
entity.
(i) The Company has furnished or made available to the Buyer true and
correct copies of the Company's Certificate of Incorporation as in effect on the
date hereof (the "Certificate of Incorporation"), and the Company's By-Laws, as
in effect on the date hereof (the "By-Laws").
(j) The Company has delivered or made available to the Buyer true and
complete copies of the Exchange Act Reports (including, without limitation,
proxy information and solicitation materials excluding any preliminary proxy not
distributed). The Company has not provided to the Buyer any information which,
according to applicable law, rule or regulation, should have been disclosed
publicly by the Company but which has not been so disclosed. As of their
respective dates, the Exchange Act Reports complied in all material respects
with the requirements of the Exchange Act and the rules and regulations of the
SEC promulgated thereunder and other federal, state and local laws, rules and
regulations applicable to such Exchange Act Reports, and none of the Exchange
Act Reports contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading; except that the Company's 1993 financial statements are
not audited for the reasons stated in the Exchange Act Reports and the related
disclosures contained in such reports. The financial statements of the Company
included in the Exchange Act Reports comply as to form in all material respects
with applicable accounting requirements and the published rules and regulations
of the SEC or other applicable rules and regulations with respect thereto;
except that the Company's 1993 financial statements are not audited for the
reasons stated in the Exchange Act Reports and the related disclosures contained
in such reports. Such financial statements have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis during
the periods involved (except (i) as may be otherwise indicated in such financial
statements or the notes thereto or (ii) in the case of unaudited interim
statements, to the extent they may not include footnotes or may be condensed or
summary statements) and fairly present in all material respects the financial
position of the Company as of the dates thereof and the results of operations
and cash flows for the periods then ended (subject, in the case of unaudited
statements, to normal year-end audit adjustments).
<PAGE> 8
EXHIBIT 99.1 (CONTINUED)
(k) Except as set forth in the financial statements and other documents
filed by the Company under the Exchange Act, the Company has no liabilities,
contingent or otherwise, other than (i) liabilities incurred in the ordinary
course of business subsequent to September 28, 1996 and (ii) obligations under
contracts and commitments incurred in the ordinary course of business and not
required under generally accepted accounting principles to be reflected in such
financial statements, which individually or in the aggregate, are not material
to the financial condition or operating results of the Company. The Company has
not provided to the Buyer any information which, according to applicable law,
rule or regulation, should have been disclosed publicly by the Company but which
has not been so disclosed.
(l) Since September 28, 1996 there has been no material adverse change
and no material adverse development in the business, properties, operations,
financial condition, results of operations or prospects of the Company, except
as disclosed in accordance with the Exchange Act Reports and except that the
Company continues to incur losses.
(m) There is no material action, suit, proceeding, inquiry or to the
knowledge of the Company, investigation before or by any court, public board,
government agency, self-regulatory organization or body pending, or to the
knowledge of the Company or any of its subsidiaries, threatened against or
affecting the Company or any of its subsidiaries, except as disclosed in the
Exchange Act Reports.
(n) Neither the Company, nor any or its affiliates, nor any person acting
on its or their behalf has, directly or indirectly, made any offers or sales of
any security or solicited any offers to buy any security, under circumstances
that would require registration of the Securities under the Act.
(o) The Company has taken no action which would give rise to any claim by
any person for brokerage commissions, finder's fees or similar payments by the
Buyer relating to this Agreement of the transactions contemplated hereby, except
for dealings with First Bermuda Securities Limited, whose commissions and fees
will be paid for by the Company.
(p) As of the date hereof, the Company has reserved and the Company shall
continue to reserve and keep available at all times, free of preemptive rights,
shares of Common Stock for the purpose of enabling the Company to satisfy any
obligation to issue shares of its Common Stock upon conversion of the
Securities; provided, however, that the number of shares so reserved shall at
all times be at least 2,000,000 in aggregate for purposes of conversion of the
Securities and exercise of the Warrants. The number of shares so reserved may be
reduced by the number of shares actually delivered pursuant to the conversion of
the Securities and exercise of the Warrants (provided that in no event shall the
number of shares so reserved be less than the number required to satisfy the
<PAGE> 9
EXHIBIT 99.1 (CONTINUED)
remaining conversion rights on the unconverted Securities or exercise rights on
the exercised Warrants) and the number of shares so reserved shall be increased
to reflect stock splits and stock dividends and distributions.
(q) No legend has been or shall be placed on the Securities or share
certificates representing the Securities or Shares and no note or stock transfer
instructions have been or shall be given to the Company's transfer agent with
respect thereto other than as set forth in Section 10.
(r) Based upon the truth and accuracy of the representations and
warranties made by the Buyer, the sale of the Securities pursuant to this
Agreement will be made in accordance with the provisions and requirements of
Regulation S and applicable state law, except that as disclosed in subparagraph
(j) above, certain of the Company's reports contain financial statements that
are not audited.
(s) No offer to sell the Securities was made by the Company to any
person in the United States.
(t) None of the Company, any affiliate of the Company, or any person
acting on behalf of the Company or any such affiliate has engaged, or will
engage, in any Directed Selling Efforts as that term is defined in Regulation S
with respect to the Securities nor any general solicitation of the Securities.
(u) The transactions contemplated by this Agreement (i) have not been
pre-arranged with a purchaser who is in the United States or is a U.S. Person,
and (ii) are not part of a plan or scheme to evade the registration provisions
of the Act.
(v) The Company undertakes and agrees to make all necessary filings in
connection with this offering as required by the laws and regulations of all
appropriate jurisdictions and securities exchanges in the United States of
America.
(w) The Company shall indemnify the Holder against any loss, cost or
damages (including reasonable attorney's fees and expenses) incurred as a result
of such parties' breach of any representation, warranty, covenant or agreement
in this Agreement.
7. Offering Materials. All offering materials and documents used in connection
with the offers and sales of the Securities prior to the expiration of the
Restricted Period include statements to the effect that the Securities and the
Shares issuable upon the exercise of conversion rights have not been registered
under the Act and that the Buyer, may not directly or indirectly offer or sell
the Securities or such shares in the United States or to a U.S. Persons (other
than distributors) unless the Securities or shares are registered under the Act,
or an exemption from the registration requirements of the Act is available. Such
<PAGE> 10
EXHIBIT 99.1 (CONTINUED)
statements shall appear (1) on the cover of any prospectus or offering circular
used in connection with the offer or sale of the Securities and (2) in the
placement section of any prospectus or offering circular used in connection with
the offer or sale of the Securities. Buyer represents that all offering
materials and documents received by it in connection with the offers and sales
of the Securities prior to the Closing of the transactions contemplated herein
have complied with the foregoing. Nothing contained in this Section 7 shall
negate or detract from any of the representations, warranties and agreements of
Buyer contained in Section 3 above.
8. Covenants of the Company. (a) The Company agrees that during the period
beginning on the date hereof and ending 90 days following the Closing Date, the
Company will not contract with any party to obtain additional equity financing
(including debt financing with an equity component) in any form. The foregoing
limitation shall not apply to a subsequent offering (the "Future Offering") of
convertible debt securities not exceeding $3 million which is expected to close
within the next 90 days after this closing and any transaction involving the
Company's commercial banking arrangements or issuances of securities in
connection with a merger, consolidation or sale of assets, or in connection with
any strategic partnership or joint venture (the primary purpose of which is not
to raise equity capital), or in connection with the disposition or acquisition
of a business, product or license by the Company (so long as the securities so
issued are "restricted securities" within the meaning of Rule 144 under the Act
and do not carry registration or piggy back rights for at least 360 days from
the date of this Agreement), the issuance of securities to settle securities
litigation, or exercise of options by or the grant of performance shares to
employees, consultants or directors. The Company agrees that it will deliver to
the Buyer at least ten (10) business days prior to the closing of the Future
Offering, written notice describing the proposed Future Offering, including the
terms and conditions thereof, and provide the Buyer an option during such ten
(10) day period to purchase all or any portion of its "pro-rata share" of the
securities being offered in the Future Offering on the same terms as
contemplated by the Future Offering. The term "pro-rata share" means the
principal amount of all Securities initially purchased by all buyers divided by
the aggregate principal amount of all Securities sold hereunder.
(b) The parties shall use their best efforts timely to satisfy each of
the conditions described in Section 9 of this Agreement.
(c) So long as the Buyer beneficially owns any of the Securities, the
Company shall timely file all reports required to be filed with the SEC pursuant
to the Exchange Act, and the Company shall not terminate its status as an issuer
required to file reports under the Exchange Act even if the Exchange Act or the
rules and regulations thereunder would permit such termination, except in the
event of a merger, consolidation or sale of all or substantially all of the
Company's assets, as long as the surviving or successor entity in such
<PAGE> 11
EXHIBIT 99.1 (CONTINUED)
transaction (i) assumes the Company's obligations hereunder and under the
agreements and instruments entered into in connection herewith and (ii) is a
publicly traded corporation whose Common Stock is listed for trading on the
AMEX, the NYSE or the NASDAQ.
(d) At Buyer's request, the Company agrees to send the following reports
to Buyer until Buyer transfers, assigns, or sells all of the Securities: (i)
within ten (10) days after the filing with the SEC, a copy of its Annual Report
on Form 10-K, its Quarterly Reports on Form 10-Q and any Current Reports on Form
8-K; and (ii) within two (2) business days after release, copies of all press
releases issued by the Company or any of its subsidiaries.
(e) The Company shall at all times have authorized, and reserved for the
purpose of issuance, a sufficient number of shares of Common Stock to provide
for the full conversion of the outstanding Securities and issuance of the Shares
in connection therewith (based on the conversion price of the Securities in
effect from time to time). In that regard, on the Closing Date, the Company
shall have at least 2,000,000 shares reserved for issuance upon conversion of
the Securities and exercise of the Warrants (subject to adjustment in order to
comply with the immediately preceding sentence); provided that the Company shall
not reduce the number of shares of Common Stock reserved for issuance upon
conversion of the Securities and exercise of the Warrants without the consent of
a majority-in-interest of the buyers of the Securities and the buyers of the
Securities, which consent will not be unreasonably withheld.
(f) So long as the Buyer beneficially owns any Securities, the Company
shall maintain its corporate existence, except in the event of a merger,
consolidation or sale of all or substantially all of the Company's assets, as
long as the surviving or successor entity in such transaction (i) assumes the
Company's obligations hereunder and under the agreements and instruments entered
into in connection herewith and (ii) is a publicly traded corporation whose
Common Stock is listed for trading on the AMEX, the NYSE or the NASDAQ.
(g) The Company and the Buyer agree that the Closing Date, when certified
by Escrow Agent as the Closing shall be deemed to be a conclusion of the
offering of the Securities contemplated hereby. The Company acknowledges and
agrees that, for purposes of clarifying and specifying the applicable Restricted
Period under Regulation S, the Buyer intends to observe as the Restricted Period
(as defined in Regulation S) for the Securities, the period of 40 days
commencing on the Closing Date and ending 40 days thereafter.
(h) The Shares issued upon conversion of the Securities and the
certificates evidencing the same shall at all times be free of legends (except
as provided in Section 10 below), "stock transfer restrictions," or other
restrictions, except as expressly set forth in this Agreement and the
Convertible Note.
<PAGE> 12
EXHIBIT 99.1 (CONTINUED)
9. Conditions Precedent to the Buyer's Obligation. The obligations of the Buyer
hereunder are subject to the performance by the Company of the following
additional conditions precedent:
(a) The Buyer shall receive, on the Closing Date, an opinion of
independent counsel to the Company, dated the Closing Date, as to the
representations made by the Company in Sections 6(a) through and including 6(c)
hereof, and the opinion of the Company's general counsel as to matters
represented by the Company in Sections 6(d) through 6(f) hereof, and in Sections
6(m) and 6(n) hereof, and such other matters as Buyer reasonably requests
(collectively, the "Opinions of Counsel"). The form of the Opinions of Counsel
shall be as set forth in Exhibits 1 and 2 hereof.
(b) Delivery of the notes representing the Securities with restrictive
legends to the Escrow Agent as set forth herein.
(c) The Company shall have delivered to the Buyer a certificate (the
"Officer Certificate") in form and substance reasonably satisfactory to the
Buyer, executed by an executive officer of the Company, to the effect that all
the conditions to the Closing shall have been satisfied and the representations
and warranties of the Company herein are true and correct as of the date when
made and as of the Closing Date, and certifying as to the Company's Certificate
of Incorporation, By-Laws, resolutions authorizing transaction, and incumbency
of Company officers.
(d) The Company and the Buyer shall have entered into the Registration
Rights Agreement and the Warrant as contemplated by Section 4.
10. Legends. (a) The certificates representing the Securities, and the Shares
issued during the Restricted Period, shall bear the following legend (the
"Legend"):
"The securities represented hereby have been issued pursuant to
Regulation S promulgated under the Securities Act of 1933, as amended
(the "1933 Act"), and have not been registered under the 1933 Act. Such
securities may not be transferred, offered or sold prior to the end of
the forty (40) day period (the "Restricted Period") commencing on
December 20, 1996 unless such transfer, offer or sale is made in an
"offshore transaction" and not to or for the account of or benefit of a
"U.S. Person" (as such terms are defined in Regulation S) and is
otherwise in accordance with the requirements of Regulation S.
Following expiration of the Restricted Period, the securities
represented hereby may not be offered, sold or otherwise transferred in
the United States or to a U.S. Person unless the securities are
registered under the 1933 Act and applicable state securities laws, or
such offers, sales and transfers are made pursuant to an available
exemption from the registration requirements of those laws."
<PAGE> 13
EXHIBIT 99.1 (CONTINUED)
(b) Following the expiration of the Restricted Period, and subject to
Section 10(d) below, the Company will remove or will promptly instruct its
transfer agent to remove the Legend from the Shares issued during the Restricted
Period (and will instruct its transfer agent to issue without the Legend, the
Shares issuable upon any conversion or exercise occurring after the Restricted
Period), if the Buyer holding such Securities or any other person in whose name
the certificates have been or are to be validly and legally issued shall have
delivered a certificate (a "Removal Certificate") to the Company to the
following effect:
"The undersigned acknowledges that the securities to which this
certificate relates have not been registered under Securities Act of
1933, as amended (the "1933 Act") and that offers, sales or other
transfer of such securities must be made in compliance with Regulation
S promulgated under the 1933 Act, pursuant to an effective registration
statement under the 1933 Act or pursuant to an available exemption from
registration, and the undersigned certifies that the undersigned has
not made, nor will the undersigned make or cause to be made, any offer,
sale or other transfer of such securities, in violation of the 1933
Act, other applicable securities laws or the rules and regulations of
the Securities and Exchange Commission."
(c) Upon the submission, at any time after the expiration of the
Restricted Period, by Buyer of a written request for legend removal for the
purpose of a bona fide pledge or deposit of the Shares with a margin account,
together with the certificates for which the legend removal is being requested
and a Removal Certificate signed by both the Buyer and the pledgee or other
holder of the Shares, the Company will reissue or will promptly instruct its
transfer agent to reissue the certificates representing the Shares to be so
pledged or deposited without the Legend.
(d) Notwithstanding the provisions of this Section 10, if with respect to
the Company's receipt of a Removal Certificate from any person, prior to any
removal of the Legend, there shall have been after the date hereof any amendment
to the Act or Regulation S or any no action letter, interpretative release or
other advice from the Securities and Exchange Commission after the date hereof
which disallows the removal of the Legend under the circumstances in which the
request that it be removed is being made, then the Company shall have no
obligation to remove or to instruct its transfer agent to remove the Legend,
unless the Company shall have received from the person requesting such removal a
written letter of counsel to such person reasonably acceptable to the Company
and its counsel confirming that the Legend may be so removed or share
certificates may be so issued without the Legend without violation of the Act.
If the person requesting a removal of the Legend is unable to supply the legal
opinion referred to above then the Company shall, upon demand of such person, be
obligated to register the Common Stock for resale pursuant to the terms of the
Registration Rights Agreement.
<PAGE> 14
EXHIBIT 99.1 (CONTINUED)
11. Transfer Agent Instructions. The Company's transfer agent will be instructed
to reserve for issuance such number of shares of the Company's Common Stock as
would be issuable if the Convertible Notes were converted on the Closing Date
and such additional number of shares as, from time to time, shall be necessary
to provide for the issuance of Shares upon the conversion of the Convertible
Note. Additionally, the Company shall deliver to its transfer agent promptly
after closing irrevocable instructions substantially in the form set forth in
Annex E attached hereto, pursuant to which the transfer agent shall be
instructed to issue upon conversion the number of shares provided for in the
Convertible Note being converted on the terms provided for therein without
restrictive legend, registered in the names provided by the Holders, subject to
the terms and conditions in this Agreement and in the Convertible Note. The
Company warrants and covenants that no instructions restricting the
transferability of the Shares other than the instructions in the immediately
preceding sentence and instructions for a "stop transfer" instruction until the
end of the Restricted Period have been given, or shall be given, to the transfer
agent, and that the Shares shall otherwise be freely transferable on the books
and records of the Company, subject to the restrictions in this Agreement and in
the Convertible Note. Nothing in this section, however, shall affect in any way
the obligations and agreement of the Buyer to comply with all applicable
federal, state and foreign securities laws upon resale of the Securities.
12. Miscellaneous. (a) This Agreement may be executed in one or more
counterparts and it is not necessary that signatures of all parties appear on
the same counterpart, but such counterparts together shall constitute but one
and the same agreement.
(b) This Agreement shall be governed by and constructed in accordance
with the laws of the State of California.
(c) This agreement shall inure to the benefit of and be binding upon the
parties hereto, their respective successors, and no other person shall have any
right or obligation hereunder. This Agreement shall not be assignable by either
party without the prior written consent of the other, and any assignment in
violation hereof shall be void. Notwithstanding the foregoing, the Buyer may
assign its rights in this Agreement subject to the terms and conditions of this
Agreement and the Convertible Note, and the provisions of this Agreement shall
then inure to the benefit of, and be enforceable by, any transferee of any of
the Securities or Shares.
(d) This Agreement together with the Convertible Note, the Registration
Rights Agreement and the Warrant constitutes the entire agreement of the parties
with respect to the subject matter hereof and supersedes all prior oral or
written proposals or agreements related thereto. This Agreement may not be
amended or any provision hereof waived, in whole or in part, except by a written
amendment signed by both of the parties hereto.
<PAGE> 15
EXHIBIT 99.1 (CONTINUED)
IN WITNESS WHEREOF, the parties hereto have duly executed and delivered
this Agreement, all as of the day and year above written.
BY: PINNACLE MICRO, INC.
- ---------------------------------------------
Name: Kenneth Campbell
Title: President
or
Name: Roger Hay
Title: Executive Vice President
and Chief Financial Officer
BY: ((1))
Name:
---------------------------------------
Title:
--------------------------------------
<PAGE> 1
EXHIBIT 99.2
THE SECURITIES REPRESENTED HEREBY AND ANY SHARES (AS DEFINED BELOW) ISSUED UPON
THE EXERCISE OF CONVERSION RIGHTS HEREUNDER HAVE BEEN AND WILL BE ISSUED
PURSUANT TO REGULATION S PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "1933 ACT"), AND HAVE NOT BEEN REGISTERED UNDER THE 1933 ACT. SUCH
SECURITIES MAY NOT BE TRANSFERRED, OFFERED OR SOLD PRIOR TO THE END OF THE FORTY
(40) DAY PERIOD (THE "RESTRICTED PERIOD") COMMENCING ON DECEMBER 20, 1996 UNLESS
SUCH TRANSFER, OFFER OR SALE IS MADE IN AN "OFFSHORE TRANSACTION" AND NOT TO OR
FOR THE ACCOUNT OF OR BENEFIT OF A "U.S. PERSON" (AS SUCH TERMS ARE DEFINED IN
REGULATION S) AND IS OTHERWISE IN ACCORDANCE WITH THE REQUIREMENTS OF REGULATION
S. THIS NOTE MAY NOT BE CONVERTED INTO SHARES BY OR ON BEHALF OF ANY U.S.
PERSON. FOLLOWING THE EXPIRATION OF THE RESTRICTED PERIOD, THE SECURITIES
REPRESENTED HEREBY AND ANY SHARES ISSUED UPON THE EXERCISE OF CONVERSION RIGHTS
MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE UNITED STATES OR TO A
U.S. PERSON UNLESS THE SECURITIES ARE REGISTERED UNDER THE 1933 ACT AND
APPLICABLE STATE SECURITIES LAWS, OR SUCH OFFERS, SALES AND TRANSFERS ARE MADE
PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THOSE
LAWS.
PINNACLE MICRO, INC.
6% CONVERTIBLE NOTE DUE DECEMBER 20, 2001
THIS NOTE is one of a duly authorized issue of Convertible Notes of PINNACLE
MICRO, INC., a Corporation duly organized and existing under the laws of the
state of Delaware (the "Company") designated as its 6% Convertible Notes Due
December 20, 2001, in an aggregate principal amount of up to $5,000,000 (the
"Notes").
FOR VALUE RECEIVED, the Company promises to pay to _______________ or the
permitted registered holder hereof (the "Holder"), the principal sum of
$______________ (United States Dollars) (the "Initial Principal Amount") or such
lesser principal amount as is indicated on the table (the "Table") below
following the conversion or conversions of this Note in accordance with
Paragraph 4 (the "Outstanding Principal Amount") on December 20, 2001 (the
"Maturity Date"), and to pay interest on the Outstanding Principal Amount from
time to time, semi-annually in arrears on the first day of each June and
December (the "Interest Payment Dates"), at the rate of 6% per annum accruing
from the date of issuance. Accrual of interest shall commence on the first
business day to occur after the date hereof until repayment in full of the
principal sum has been made or duly provided for. Accrued and unpaid interest
shall bear interest at the same rate from the due date of the interest payment,
until paid. The interest so payable will be paid at the option of the Company,
either in cash or in shares of the Company's common stock (the "Common Stock")
at the then applicable conversion price (computed as described in Paragraph 4
below) on June 20 and December 20 to the person in whose name this Note (or one
or more predecessor Notes) is registered on the records of the Company regarding
registration and transfers of the Notes (the "Note Register") on the tenth day
prior to the Interest Payment Date. The principal of, and interest on, this Note
are payable in such coin or currency of the United States of America as at the
time of
<PAGE> 2
EXHIBIT 99.2 (CONTINUED)
payment is legal tender for payment of public and private debts, at the address
last appearing on the Note Register of the Company as designated in writing by
the Holder from time to time. The Company will pay the principal of and interest
upon this Note on the due date, free of any withholding or deduction of any kind
(subject to the provisions of Paragraph 2 below), to the registered Holder of
this Note as of the due date and addressed to such Holder at the last address
appearing on the Note Register. The forwarding of such check shall constitute a
payment of principal and interest hereunder and shall satisfy and discharge the
liability for principal and interest on this Note to the extent of the sum
represented by such check plus any amounts so deducted.
TABLE
<TABLE>
<CAPTION>
OUTSTANDING
CONVERSION CONVERSION PRINCIPAL AUTHORIZED
DATE AMOUNT AMOUNT SIGNATURE
<S> <C> <C> <C>
N/A N/A 2~ N/A
</TABLE>
<PAGE> 3
EXHIBIT 99.2 (CONTINUED)
This Note is subject to the following additional provisions:
1. The Notes are originally issuable in amounts of not less than
$100,000 and in denominations of $25,000 and integral multiples
thereof.
2. All payments on account of the principal of and interest on this Note
and all other amounts payable under this Note (whether made by the
Company or any other person) to or for the account of the Holder
hereunder shall be made free and clear of and without reduction by
reason of any present and future income, stamp, registration and
other taxes, levies, duties, costs and charges whatsoever imposed,
assessed, levied or collected by the United States or any political
subdivision or taxing authority thereof or therein, together with
interest thereon and penalties with respect thereto, if any, on or in
respect of this Note (all such taxes, levies, duties, costs and
charges being herein collectively called "United States Taxes").
Should any such payment be subject to any United States Tax and the
provisions of the preceding sentence of this Paragraph 2 either
cannot be effected or do not result in the Holder actually receiving
free and clear of all United States Taxes an amount equal to the full
amount provided under this Note, the Company shall pay to the Holder
such additional amounts as may be necessary to ensure that the Holder
receives a net amount equal to the full amount that it would have
received had such payment not been made subject to United States
Taxes unless withholding arises because holder has failed to furnish
the data described below in this Paragraph 2. In addition to the
United States Taxes paid by the Company or additional amounts paid to
the Holder, in each case pursuant to the preceding provisions of this
Paragraph 2 ("Additional Payments"), the Company shall also pay to
the Holder upon demand such additional amounts as may be necessary to
compensate the Holder, on an after-tax basis, for any tax or levy
imposed or assessed by any jurisdiction on or with respect to any
such Additional Payments (including any income taxes payable by the
Holder with respect to Additional Payments pursuant to the income tax
laws of the jurisdiction of its principal office or lending office or
any political subdivision or taxing authority thereof). Holder agrees
to provide Company a Form W-8, a certification under penalty of
perjury, or a certificate from a financial institution described in
Section 871(h)(4)(B) of the Internal Revenue Code of 1986
demonstrating that the Holder is not a United States person.
3. If at any time there occurs a transaction in which in excess of 50%
of the Company's voting power is transferred (excluding any public or
private offering of Company equity securities), including any
consolidation or merger of the Company with or into any other
corporation or other entity or person (whether or not the Company is
the surviving corporation), or any other corporate reorganization or
transaction or series of related transactions, the Holder of this
Note then outstanding may participate in any such transaction as a
class with common stockholders on the same basis as if this Note had
been converted one day prior to the effective date of such
transaction; provided, however, that at the option of the Holder of
this Note if such Holder may treat the effective date of any
transaction that occurs prior to December 20, 1998 as a redemption
date and shall be entitled to have the Company redeem this Note at a
price
<PAGE> 4
EXHIBIT 99.2 (CONTINUED)
equal to 122.5% of the Outstanding Principal Amount of this Note,
plus accrued but unpaid interest. Such holder shall be entitled to
make such election at any time up to ten (10) days prior to the
effective date of the transaction. The Company shall not effect any
stock split, subdivision or combination with an effective date within
three (3) trading days preceding the effective date of a merger or
consolidation. The Company shall not make, or fix a record date for
the determination of holders of Common Stock entitled to receive, a
dividend or other distribution payable in additional shares of Common
Stock, with an effective date within three (3) trading days prior to
the effective date of a merger or consolidation.
4. The Holder of this Note is entitled, at its option, at any time
commencing (a) fifty-one (51) days after the Closing Date as defined
in the Subscription Agreement (as defined below) until maturity
hereof to convert thirty percent (30%) or any lesser portion of the
Initial Principal Amount which is at least $25,000 into shares of
Common Stock ("Shares") at a conversion price for each Share equal to
eighty-five percent (85%) of the average closing bid price of the
Common Stock for the five (5) trading days immediately preceding the
conversion date (b) eighty-one (81) days after the Closing Date, an
additional forty percent (40%) of the Initial Principal Amount may be
converted and the conversion price for each Share equal to eighty-two
and one half percent (82.5%) of the average closing bid price of the
Common Stock for the five (5) trading days immediately preceding the
conversion date, and (c) one hundred and eleven (111) days after the
Closing Date the remaining thirty percent (30%) of the Initial
Principal Amount may be converted and the conversion price for each
Share after the one hundred eleventh date shall be equal to eighty
percent (80%) of the average closing bid price of the Common Stock
for the five (5) trading days immediately preceding the conversion
date, respectively, provided, however, that in no event shall the
Holder be entitled to convert any portion of this Note in excess of
that portion of this Note upon conversion of which the sum of (1) the
number of shares of Common Stock beneficially owned by the Holder and
its affiliates (other than shares of Common Stock which may be deemed
beneficially owned through the ownership of the unconverted portion
of this Note and the unexercised portion of the Warrant, as defined
in the Subscription Agreement) and (2) the number of Shares issuable
upon the conversion of the portion of this Note with respect to which
the determination of this proviso is being made, would result in
beneficial ownership by the Holder and its affiliates of more than
4.9% of the outstanding Shares. For purposes of the proviso to the
immediately preceding sentence, beneficial ownership shall be
determined in accordance with Section 13(d) of the Securities
Exchange Act of 1934, as amended, and Regulations 13 D-G thereunder,
except as otherwise provided in clause (1) of such proviso. In the
event of any stock split, dividend, combination or similar event
occurring after the Conversion Date and prior to the issuance of the
respective stock certificates, the conversion price will be subject
to appropriate adjustment. For purposes of this section, the closing
bid price of the Common Stock shall be the closing bid price as
reported by The Nasdaq Stock Market, or the closing bid price in the
over-the-counter market or, if the Common Stock is listed on a stock
exchange, the closing bid price on such exchange as reported in The
Wall Street Journal. Such conversion
<PAGE> 5
EXHIBIT 99.2 (CONTINUED)
shall be effectuated by surrendering the Notes to be converted to the
Company, with the form of conversion notice attached to the Note as
Exhibit A, executed by the Holder of the Note evidencing such
Holder's intention to convert this Note, and accompanied, if required
by the Company, by proper assignment hereof in blank. Interest
accrued or accruing from the date of issuance to the date of
conversion on the amount so converted shall be paid in cash or at the
Company's option, in shares of common stock of the Company,
calculated at the same conversion price (as determined above), as
would apply on the conversion date of the principal amount being
converted but using the discount percentage applicable as of such
date and shall constitute payment in full of any such interest on the
same terms as would otherwise apply to the conversion of the
principal amount hereof. No fractional Shares or scrip representing
fractions of Shares will be issued on conversion, but the number of
Shares issuable shall be rounded to the nearest whole Share. The date
on which notice of conversion is given (the "Conversion Date") shall
be deemed to be the date on which the Holder notifies to the Company
of its intention to convert by delivery, by facsimile transmission or
otherwise, of a copy of the Conversion Notice (as defined below).
Notice may be given by facsimile to the Company at (714) 789-3045.
This Note, together with the original executed copy of the Notice of
Conversion, shall be delivered to the Company as soon as practicable
following the date on which notice of conversion is given as
described above. Any unconverted principal amount and accrued
interest thereon shall at the maturity date be paid, at the option of
the Holder, in either (a) cash or (b) Shares valued at a price equal
to the average closing bid price of the Common Stock for the five (5)
trading days immediately preceding the maturity date.
Upon the surrender of this Note, accompanied by a Notice of
Conversion of Convertible Note in the form attached hereto as Exhibit
A, properly completed and duly executed by the Holder (a "Conversion
Notice"), the Company shall issue and, within five (5) business days
(the "Deadline") after actual delivery of this Note with the
Conversion Notice, deliver to or upon the order of the Holder (1)
that number of Shares for the portion of the Note converted as shall
be determined in accordance herewith and (2) this Note with the
appropriate notation to the Table by an authorized officer of the
Company to account for the remaining balance of the principal amount
hereof following conversion, if any. Without in any way limiting the
Holder's right to pursue other remedies, including actual damages
and/or equitable relief, the parties agree that if delivery of the
Shares issuable upon conversion of this Note is more than one (1)
business day after the Deadline the Company shall pay to the Holder
$150 per day in cash, for the first day beyond the Deadline and $500
per day for each day thereafter that the Company fails to deliver the
Shares. Such cash amount shall be paid to Holder by the fifth day of
the month following the month in which it has accrued or, at the
option of the Holder (by written notice to the Company by the first
day of the month following the month in which it has accrued), shall
be added to the principal amount of this Note, in which event
interest shall accrue thereon in accordance with the terms of this
Note and such additional principal amount shall be convertible into
Shares in accordance with the terms of this Note.
<PAGE> 6
EXHIBIT 99.2 (CONTINUED)
The number of shares of Common Stock to be issued upon each
conversion of this Note shall be determined by dividing (i) the sum
of (A) that portion of the principal amount of the Note to be
converted plus (B) the "Conversion Date Interest" (as defined below),
by (ii) the Conversion Price in effect on the date the Conversion
Notice is delivered to the Company by the Holder. Conversion Date
Interest means the product of (i) the principal amount of the Note to
be converted, multiplied by (ii) a fraction (A) the numerator of
which is the number of days elapsed since the date of issuance of
this Note and (B) the denominator of which is 365, multiplied by
(iii) .06.
5. Not used.
6. At any time commencing one year after the Closing, Company may, by
written notice to Holder at Holder's registered address, prepay this
Note in whole or in part. Such notice shall be given at least ten
(10) business days prior to the payment date and on such date Company
shall pay the outstanding principal and all accrued interest on this
Note, unless prior to such payment date Holder has delivered a Notice
of Conversion. Upon delivery of a Notice of Conversion, the
provisions of Paragraph 4 shall apply, except that no further
interest shall accrue after the proposed payment date.
7. No provision of this Note shall alter or impair the obligation of the
Company, which is absolute and unconditional, to pay the principal
of, and interest on, this Note at the time, place, and rate, and in
the coin or currency, herein prescribed. This Note and all other
Notes now or hereafter issued on similar terms are direct obligations
of the Company. This Note ranks equally with all other Notes now or
hereafter issued under the terms set forth herein. In the event of
any liquidation, reorganization, winding up or dissolution repayment
of this Note shall be subordinate in all respects to any other
indebtedness for borrowed money of the Company, whether outstanding
as of the date of this Note or hereafter incurred. Such subordination
shall extend without limiting the generality of the foregoing, to all
indebtedness of the Company to banks, financial institutions, other
secured lenders, equipment lessors and equipment finance companies,
but shall exclude trade debts; and any warrants, options or other
securities convertible into stock of the Company shall rank pari
passu with the Notes in all respects.
8. The Company hereby expressly waives demand and presentment for
payment, notice of nonpayment, protest, notice of protest, notice of
dishonor, notice of acceleration or intent to accelerate, bringing of
suit and diligence in taking any action to collect amounts called for
hereunder and shall be directly and primarily liable for the payment
of all sums owing and to be owing hereon, regardless of and without
any notice, diligence, act or omission as or with respect to the
collection of any amount called for hereunder.
<PAGE> 7
EXHIBIT 99.2 (CONTINUED)
9. If the Company at any time or from time to time after the Closing
Date makes, a dividend or other distribution to holders of Common
Stock payable in securities of the Company other than Shares, then
and in each such event provision shall be made so that the Holder
shall receive upon conversion of this Note pursuant to Paragraph 4
hereof, in addition to the number of Shares receivable thereupon, the
amount of such other securities of the Company to which the Holder on
the relevant record or payment date, as applicable, of the number of
Shares so receivable upon conversion would have been entitled, plus
any dividends or other distributions which would have been received
with respect to such securities had the Holder thereafter, during the
period from the date of such event to and including the Conversion
Date retained such securities, subject to all other adjustments
called for during such period under this Note with respect to the
rights of the Holder.
10. If at any time or from time to time after the Closing Date, the
Common Stock issuable upon the conversion of the Note is changed into
the same or different number of shares of any class or classes of
stock, whether by re-capitalization, reclassification or otherwise
(other than a subdivision or combination of shares or stock dividend
or reorganization provided for elsewhere in this Note or a merger or
consolidation, provided for in Paragraph 3), then and in each such
event the Holder shall have the right thereafter to convert the Note
into the kind of stock receivable upon such re-capitalization,
reclassification or other change by holders of shares of Common
Stock, all subject to further adjustment as provided herein. In such
event, the formulae set forth herein for conversion and redemption
shall be equitably adjusted to reflect such change in number of
shares or, if shares of a new class of stock are issued, to reflect
the market price of the class or classes of stock issued in
connection with the above described transaction.
11. If at any time or from time to time after the Closing Date there is
a capital reorganization of the Common Stock (other than a
re-capitalization, subdivision, combination, reclassification
exchange of shares provided for elsewhere in this Note) then, as a
part of such reorganization, provision shall be made so that the
Holder shall thereafter be entitled to receive upon conversion of
this Note the number of shares of stock or other securities or
property to which a holder of the number of Shares deliverable upon
conversion would have been entitled on such capital reorganization.
In any such case, appropriate adjustment shall be made in the
application of the provisions of this Note with respect to the rights
of the Holder after the reorganization to the end that the provisions
of this Note shall be applicable after that event and be as nearly
equivalent as may be practicable, including, by way of illustration
and not limitation, by equitably adjusting the formulae set forth
herein for conversion and redemption to reflect the market price of
the securities or property issued in connection with the above
described transaction.
12. If one or more of the "Events of Default" as described in Paragraph
13 shall occur, the Company agrees to pay all costs and expenses,
including reasonable attorneys' fees, which may be incurred by the
Holder in collecting any amount due under this Note.
<PAGE> 8
EXHIBIT 99.2 (CONTINUED)
13. If one or more of the following described "Events of Default" shall
occur:
(a) The Company shall default in the payment of principal or
interest on this Note; or
(b) Any of the representations or warranties made by the Company
herein, in the Offshore Securities Subscription Agreement
dated as of December 20, 1996 between the Company and the
Holder (the "Subscription Agreement"), or in any certificate
or financial or other statements heretofore or hereafter
furnished by or on behalf of the Company in connection with
the execution and delivery of this Note or the Subscription
Agreement shall be false or misleading in any material
respect at the time made; or
(c) The Company shall fail to perform or observe any other
covenant, term, provision, condition, agreement or
obligation of the Company under this Note and such failure
shall continue uncured for a period of thirty (30) days
after notice from the Holder of such failure; or
(d) The Company shall (1) become insolvent; (2) admit in writing
its inability to pay its debts as they mature; (3) make an
assignment for the benefit of creditors or commence
proceedings for its dissolution; or (4) apply for or consent
to the appointment of a trustee, liquidator or receiver for
it or for a substantial part of its property or business; or
(e) A trustee, liquidator or receiver shall be appointed for the
Company or for a substantial part of its property or
business without its consent and shall not be discharged
within thirty (30) days after such appointment; or
(f) Any governmental agency or any court of competent
jurisdiction at the instance of any governmental agency
shall assume custody or control of the whole or any
substantial portion of the properties or assets of the
Company and shall not be dismissed within thirty (30) days
thereafter; or
(g) Any money judgment, writ or warrant of attachment, or
similar process except mechanics and materialmen's liens
incurred in the ordinary course of business in excess of Two
Hundred Thousand Dollars ($200,000) in the aggregate shall
be entered or filed against the Company or any of its
properties or other assets and shall remain unsatisfied,
unvacated, unbonded or unstayed for a period of thirty (30)
days (unless such order provides for delayed payment) or in
any event later than five (5) days prior to the date of any
proposed sale thereunder; or
(h) Bankruptcy, reorganization, insolvency or liquidation
proceedings or other proceedings for relief under any
bankruptcy law or any law for the relief of debtors shall be
instituted by or against the Company and, if instituted
against
<PAGE> 9
EXHIBIT 99.2 (CONTINUED)
the Company, shall not be dismissed, stayed or bonded within
sixty (60) days after such institution or the Company shall
by any action or answer approve of, consent to, or acquiesce
in any such proceedings or admit the material allegations
of, or default in answering a petition filed in any such
proceeding; or
(i) The Company shall have its common stock delisted from an
exchange or The Nasdaq Stock Market.
Then, or at any time thereafter, and in each and every such case,
unless such Event of Default shall have been waived in writing by the
holders of a majority of all Notes then outstanding (which waiver
shall not be deemed to be a waiver of any subsequent default) at the
option of the holders of a majority of all Notes outstanding and in
their discretion, the Holder may consider this Note immediately due
and payable, without presentment, demand, protest or notice of any
kind, all of which are hereby expressly waived, anything herein or in
any note or other instruments contained to the contrary
notwithstanding, and the Holder may immediately, and without
expiration of any period of grace, enforce any and all of the
Holder's rights and remedies provided herein or any other rights or
remedies afforded by law. In such event, this Note shall be redeemed
by the Company at a redemption price per Note equal to (i) the lesser
of (a) 122.5% of the Outstanding Principal Amount due hereunder or
(b) the maximum redemption premium which may be permitted under the
laws of Delaware (including any provision of law relating to usury)
and (ii) accrued and unpaid interest.
14. If at any time on or after the date hereof and prior to the first
anniversary of the Closing Date, trading in the shares on the Common
Stock is suspended on the principal market or exchange for such
shares (including The Nasdaq Stock Market), for a period of five (5)
consecutive trading days, other than as a result of the suspension or
trading in securities in general, or if such Shares are delisted,
then, at the Holder's option, the Company shall redeem the Note at a
redemption date designated by Holder, and for the redemption price
provided in Paragraph 13.
15. Notwithstanding anything to the contrary contained herein, each
Conversion Notice shall contain a representation that, after giving
effect to the Shares to be issued pursuant to such conversion notice,
the total number of Shares deemed beneficially owned by the Holder,
together with all Shares deemed beneficially owned by the Holder's
"affiliates" as defined in Rule 144 of the Act, will not exceed 4.9%
of the total issued and outstanding Shares.
16. The Holder may, subject to compliance with the Subscription Agreement
and the provisions of Regulation S, without notice, transfer, assign,
mortgage or encumber this Note, any interest herein or any part
hereof integral multiples of $50,000 or the entire outstanding
balance to an "accredited investor" as defined in the 1933 Act (other
than to a U.S. Person or on behalf of a U.S. Person) that will be
acquiring the Note or interest herein for its account for the purpose
of investment and not with a view to, or
<PAGE> 10
EXHIBIT 99.2 (CONTINUED)
for sale in connection with any distribution hereof and, each
assignee, transferee and mortgagee (which may include any affiliate
of the Holder) shall have the right to transfer or assign its
interest subject to the same limitations. Each such assignee,
transferee and mortgagee shall have all of the rights of the Holder
under this Note. The Company may condition registrations of transfers
on the receipt of a certificate from the assignee, transferee or
mortgagee in a form acceptable to the Company that contains
representations and warranties similar to those of the Holder
contained in Section 3 of the Subscription Agreement, and IRS Form
W-8 or an equivalent certification under penalty of perjury in
compliance with Section 871(h)(4)(B) of the Internal Revenue Code of
1986.
17. For so long as any amount payable under this Note remains unpaid, the
Company shall furnish to the Holder, upon request by the Holder, the
following information:
(a) No later than one hundred five (105) days following the end
of each fiscal year, beginning with the fiscal year ending
December 28, 1996, consolidated balance sheets, statements
of operations and statements of cash flow and shareholders'
equity of the Company and its subsidiaries, if any, prepared
in accordance with generally accepted accounting principles,
and audited by a firm of independent public accountants. The
Company may satisfy this requirement by delivering its
report on Form 10-K for each such year.
(b) Within fifty-one (51) days after the end of each quarter
(except the fourth quarter) of each fiscal year,
consolidated balance sheets, statements of operations and
statements of cash flow and shareholders' equity of the
Company and its subsidiaries. The Company may satisfy this
requirement by delivering its report on Form 10-Q for each
such quarter.
18. The Company covenants and agrees that until all amounts due under
this Note have been paid in full, by conversion or otherwise, unless
the Holder waives compliance in writing, the Company shall:
(a) Give prompt written notice to the Holder of any Event of
Default or of any other matter which has resulted in, or
could reasonably be expected to result in, a materially
adverse change in its financial condition or operations.
(b) Give prompt notice to the Holder of any claim, action or
proceeding which, in the event of any unfavorable outcome,
would or could reasonably be expected to have a Material
Adverse Effect (as defined in the Subscription Agreement) on
the financial condition of the Company.
(c) At all times reserve and keep available out of its
authorized but unissued stock, for the purpose of effecting
the conversion of this Note such number of its duly
authorized Shares as shall from time to time be sufficient
to effect the conversion of the outstanding principal
balance of this Note into Shares. If the
<PAGE> 11
EXHIBIT 99.2 (CONTINUED)
Company does not have a sufficient number of Shares
available to satisfy the Company's obligations to the Holder
upon receipt of a Conversion Notice or is otherwise unable
to issue such Shares in accordance with the terms of this
Note (a "Conversion Default"), from and after the fifth
(5th) day following a Conversion Default (which for all
purposes shall be deemed to have occurred upon the Company's
receipt of the applicable conversion notice), the Holder
shall have the right to demand from the Company immediate
redemption of this Note in cash at a redemption price equal
to 122.5% of the Outstanding Principal Amount, plus accrued
but unpaid interest on the Note; provided, however, that no
Redemption Notice may be delivered by the Holder subsequent
to the Holder's receipt of notice from the Company (sent by
overnight or 2-day courier with a copy sent by facsimile) of
availability of sufficient Shares to permit conversion (a
"Post-Default Conversion") of the Note; provided further
that such right shall be reinstated if the Company shall
thereafter fail to perfect such Post-Default Conversion by
delivery of Common Stock certificates in accordance with the
applicable provision of Paragraph 4 hereof and payment of
all accrued and unpaid interest in cash with respect thereto
within five business days of delivery of the notice of
Post-Default Conversion. In addition to the foregoing, upon
a Conversion Default, the rate of interest on the Note
shall, to the maximum extent of the law, be increased by two
percent (2%) (i.e., from 6% to 8% commencing on the first
day of the thirty (30) day period (or part thereof)
following a Conversion Default; an additional two percent
(2%) commencing on the first day of each of the second and
third such thirty (30) day periods (or part thereof); an
additional one percent (1%) on the first day of each
consecutive thirty (30) day period (or part thereof)
thereafter until such securities have been duly converted or
redeemed as herein provided. Any such interest which is not
paid when due shall, to the maximum extent permitted by law,
accrue interest until paid at the rate from time to time
applicable to interest on the Note as to which the
Conversion Default has occurred.
(d) Upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or
mutilation of this Note and
(i) in the case of loss, theft or destruction, upon
provision of indemnity reasonably satisfactory to it and/or
its transfer agent, or
(ii) in the case of mutilation, upon surrender and
cancellation of this Note,
the Company at its expense will execute and deliver a new
Note, dated the date of the lost, stolen, destroyed or
mutilated Note.
19. The Holder of this Note, by acceptance hereof, agrees that this Note
is being acquired for investment and that such Holder will not offer,
sell or otherwise dispose of this Note or the Shares issuable upon
exercise thereof except under circumstances which will not result in
a violation of the 1933 Act or any applicable state securities' laws.
<PAGE> 12
EXHIBIT 99.2 (CONTINUED)
20. In case any provision of this Note is held by a court of competent
jurisdiction to be excessive in scope or otherwise invalid or
unenforceable, such provision shall be adjusted rather than voided,
if possible, so that it is enforceable to the maximum extent
possible, and the validity and enforceability of the remaining
provisions of this Note will not in any way be affected or impaired
thereby.
21. This Note, the Warrant, the Subscription Agreement and the
Registration Rights Agreement (as defined in the Subscription
Agreement) between the Company and the Holder constitute the full and
entire understanding and agreement between the Company and the Holder
with respect to the subject hereof. Neither this Note nor any term
hereof may be amended, waived, discharged or terminated other than by
a written instrument signed by the Company and the Holder.
22. This Note shall be governed by and construed in accordance with the
laws of the state of California.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed by an officer thereunto duly authorized.
PINNACLE MICRO, INC.
DATED: __________________________ BY: ______________________________
Name:
Title:
1~
DATED: __________________________ BY: ______________________________
Name:
Title:
Buyer certifies under penalty of perjury that Buyer is neither a
citizen nor a resident of the United States and that Buyer's full name
and address are as set out below:
4~
<PAGE> 13
EXHIBIT 99.2 (CONTINUED)
EXHIBIT A
NOTICE OF CONVERSION
(To be Executed by the Registered Holder in order to Convert the Note)
RE: A CONVERTIBLE NOTE OF PINNACLE MICRO, INC.
IN THE PRINCIPAL AMOUNT OUTSTANDING OF $ __________________.
The undersigned hereby irrevocably elects to convert $ __________________ of the
outstanding principal amount of the above referenced Note No._________ (the
"Note") into shares of common stock of PINNACLE MICRO, INC. (the "Company")
according to the conditions hereof, as of the date written below. The
undersigned represents and warrants that (i) all of the requirements of
Regulation S promulgated under the Securities Act of 1933, as amended (the
"Securities Act") applicable to the undersigned have been complied with by the
undersigned, (ii) the undersigned is not a "U.S. Person" as defined in
Regulation S and the Note is not being converted on behalf of any "U.S. Person,"
(iii) the undersigned has not engaged in any transaction or series of
transactions that is a part of or a plan or scheme to evade the registration
requirements of the Securities Act, (iv) on the date of the conversion the
undersigned was located outside the United States and (iv) the undersigned has
complied with the terms and conditions of the Note and the Subscription
Agreement (as defined in the Note) pertaining to conversion of the Note.
Further, the undersigned represents and warrants that after giving effect to the
conversion hereby requested, the undersigned will not beneficially own, together
with its affiliates, more than 4.9% of the Company's issued and outstanding
common stock.
----------------------------------
Date of Conversion*
----------------------------------
Applicable Conversion Price
----------------------------------
Signature
----------------------------------
Name
Address:
----------------------------------
----------------------------------
* The original Note and this Notice of Conversion must be received by the
Company by the fifth business day following the Date of Conversion (as defined
in the Note).
<PAGE> 1
EXHIBIT 99.3
THE SECURITIES REPRESENTED HEREBY AND ANY SHARES ISSUED UPON THE EXERCISE OF
THIS WARRANT HAVE BEEN AND WILL BE ISSUED PURSUANT TO REGULATION S ("REGULATION
S") PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND
HAVE NOT BEEN REGISTERED UNDER THE ACT. SUCH SECURITIES MAY NOT BE TRANSFERRED,
OFFERED OR SOLD PRIOR TO THE END OF THE RESTRICTED PERIOD CONTAINED HEREIN. THIS
WARRANT MAY NOT BE EXERCISED INTO SHARES BY OR ON BEHALF OF ANY "U.S. PERSON"
(AS DEFINED IN REGULATION S) FOLLOWING THE EXPIRATION OF THE RESTRICTED PERIOD.
THIS WARRANT AND ANY SHARES ISSUED UPON THE EXERCISE OF THIS WARRANT MAY NOT BE
OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE UNITED STATES OR TO A U.S. PERSON
UNLESS THE SECURITIES ARE REGISTERED UNDER THE ACT AND APPLICABLE STATE
SECURITIES LAWS, OR SUCH OFFERS, SALES AND TRANSFERS ARE MADE PURSUANT TO AN
AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THOSE LAWS.
THIS WARRANT MAY NOT BE SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THE
COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER OF THIS WARRANT THAT THE
TRANSFEREE IS AN AFFILIATE OF THE HOLDER WITHIN THE MEANING OF RULE 144 UNDER
THE ACT AND IS AN "ACCREDITED INVESTOR" WITHIN THE MEANING OF REGULATION D UNDER
THE ACT.
WARRANT TO PURCHASE
SHARES OF COMMON STOCK OF
PINNACLE MICRO, INC.
W-((6))
This certifies that ((1)) (the "Holder"), for value received, is entitled to
purchase from Pinnacle Micro, Inc., a Delaware corporation (the "Company"),
having a place of business at 19 Technology Drive, Irvine, CA 92618, a maximum
of ((5)) fully paid and nonassessable shares of the Company's Common Stock,
$0.001 par value ("Common Stock") for cash at the Stock Purchase Price (as
defined below) at any time or from time to time up to and including 5:00 p.m.
(California time) on December 20, 1997 (the "Expiration Date"), upon surrender
to the Company at its principal office (or at such other location as the Company
may advise the Holder in writing) of this Warrant properly endorsed with the
Subscription Form attached hereto duly filled in and signed and upon payment in
cash or by check of the aggregate Stock Purchase Price for the number of shares
for which this Warrant is being exercised determined in accordance with the
provisions hereof. The "Stock Purchase Price" shall equal $4.61 per share, which
equals
<PAGE> 2
EXHIBIT 99.3 (CONTINUED)
one hundred twenty-five percent (125%) of the closing bid price of the Company's
common stock on December 19, 1996, the trading date immediately before the date
of this Warrant. The Stock Purchase Price and the number of shares purchasable
hereunder are subject to adjustment as provided in Section 3 of this Warrant.
This Warrant is subject to the following terms and conditions.
1. EXERCISE; ISSUANCE OF CERTIFICATES; PAYMENT FOR SHARES. This
Warrant is exercisable at the option of the Holder of record hereof, at any time
or from time to time after the Restricted Period (as defined below), up to the
Expiration Date for all or any part of the shares of Common Stock (but not for a
fraction of a share) which may be purchased hereunder, provided, however, that
in no event shall the Holder be entitled to exercise any portion of the Warrant
in excess of that portion of the Warrant upon exercise of which the sum of (1)
the number of shares of Common Stock beneficially owned by the Holder and its
affiliates (other than shares of Common Stock which may be deemed beneficially
owned through the ownership of the unexercised portion of the Warrant and the
unconverted portion of the Company's Convertible Notes issued to the Holder) and
(2) the number of shares of Common Stock issuable upon the exercise of the
portion of the Warrant with respect to which the determination of this proviso
is being made, would result in beneficial ownership by the Holder and its
affiliates of more than 4.9% of the outstanding shares of Common Stock. For
purposes of the proviso to the immediately preceding sentence, beneficial
ownership shall be determined in accordance with Section 13(d) of the Securities
Exchange Act of 1934, as amended, and Regulations 13 D-G thereunder, except as
otherwise provided in clause (1) of such proviso. The Company agrees that the
shares of Common Stock purchased under this Warrant shall be and are deemed to
be issued to the Holder hereof as the record owner of such shares as of the
close of business on the date on which this Warrant shall have been surrendered,
properly endorsed, the completed, executed Subscription Form (attached as
Exhibit A) delivered and payment made for such shares. Certificates for the
shares of Common Stock so purchased, together with any other securities or
property to which the Holder hereof is entitled upon such exercise, shall be
delivered to the Holder hereof by the Company within a reasonable time after the
rights represented by this Warrant have been so exercised and will contain a
legend indicating that the shares have not been registered under the Act. In
case of a purchase of less than all the shares which may be purchased under this
Warrant, the Company shall cancel this Warrant and execute and deliver a new
Warrant or Warrants of like tenor for the balance of the shares purchasable
under the Warrant surrendered upon such purchase to the Holder hereof within a
reasonable time. Each stock certificate so delivered shall be in such
denominations of Common Stock as may be required by the Holder hereof and shall
be registered in the name of such Holder. The Company will not issue shares of
Common Stock resulting from the exercise of this Warrant or issue balance
Warrant or Warrants to any "U.S. Person."
<PAGE> 3
EXHIBIT 99.3 (CONTINUED)
2. SHARES TO THE FULLY PAID; RESERVATION OF SHARES. The Company
covenants and agrees that all shares of Common Stock which may be issued upon
the valid exercise of the rights represented by this Warrant will, upon
issuance, be duly authorized, validly issued, fully paid and nonassessable and
free from all preemptive rights of any stockholder and free of all taxes, liens
and charges with respect to the issue thereof. The Company further covenants and
agrees that during the period within which the rights represented by this
Warrant may be exercised, the Company will at all times have authorized and
reserved, for the purpose of issue or transfer upon exercise of the subscription
rights evidenced by this Warrant, a sufficient number of shares of authorized
but unissued Common Stock, or other securities and property, when and as
required to provide for the exercise of the rights represented by this Warrant.
3. ADJUSTMENT OF STOCK PURCHASE PRICE AND NUMBER OF SHARES. The
Stock Purchase Price and the number of shares purchasable upon the exercise of
this Warrant shall be subject to adjustment from time to time upon the
occurrence of certain events described in this Section 3. Upon each adjustment
of the Stock Purchase Price, the Holder of this Warrant shall thereafter be
entitled to purchase, at the Stock Purchase Price resulting from such
adjustment, the number of shares obtained by multiplying the Stock Purchase
Price in effect immediately prior to such adjustment by the number of shares
purchasable pursuant hereto immediately prior to such adjustment, and dividing
the product thereof by the Stock Purchase Price resulting from such adjustment.
3.1 SUBDIVISION OR COMBINATION OF STOCK. In case the
Company shall at any time subdivide its outstanding shares of Common Stock into
a greater number of shares, the Stock Purchase Price in effect immediately prior
to such subdivision shall be proportionately reduced, and conversely, in case
the outstanding shares of Common Stock of the Company shall be combined into a
smaller number of shares, the Stock Purchase Price in effect immediately prior
to such combination shall be proportionately increased.
3.2 DIVIDENDS IN COMMON STOCK, OTHER STOCK, PROPERTY,
RECLASSIFICATION. If at any time or from time to time the holders of Common
Stock (or any shares of stock or other securities at the time receivable upon
the exercise of this Warrant) shall have received or become entitled to receive,
without payment therefor,
(A) Common Stock or any shares of stock or other
securities which are at any time directly or indirectly convertible into or
exchangeable for Common Stock, or any rights or options to subscribe for,
purchase or otherwise acquire any of the foregoing by way of dividend or other
distribution,
(B) any cash paid or payable otherwise than as a
cash dividend, or
<PAGE> 4
EXHIBIT 99.3 (CONTINUED)
(C) Common Stock or additional stock or other
securities or property (including cash) by way of spin-off, split-up,
reclassification, combination of shares or similar corporate rearrangement,
(other than (i) shares of Common Stock issued as a stock split, adjustments in
respect of which shall be covered by the terms of Section 3.1 above or (ii) an
event for which adjustment is otherwise made pursuant to Section 3.3 below),
then and in each such case, the Holder hereof shall, upon the exercise of this
Warrant, be entitled to receive, in addition to the number of shares of Common
Stock receivable thereupon, and without payment of any additional consideration
therefor, the amount of stock and other securities and property (including in
the cases referred to in clauses (B) and (C) above) which such Holder would hold
on the date of such exercise had he been the holder of record of such Common
Stock as of the date on which holders of Common Stock received or became
entitled to receive such shares or all other additional stock and other
securities and property.
3.3 REORGANIZATION, RECLASSIFICATION, CONSOLIDATION,
MERGER OR SALE. If any capital reorganization of the capital stock of the
Company, or any consolidation or merger of the Company with another corporation,
or the sale of all or substantially all of its assets to another corporation
shall be effected in such a way that holders of Common Stock shall be entitled
to receive stock, securities, or other assets or property, then, as a condition
of such reorganization, reclassification, consolidation, merger or sale, lawful
and adequate provisions shall be made whereby the holder hereof shall thereafter
have the right to purchase and receive (in lieu of the shares of the Common
Stock of the Company immediately theretofore purchasable and receivable upon the
exercise of the rights represented hereby) such shares of stock, securities or
other assets or property as may be issued or payable with respect to or in
exchange for a number of outstanding shares of such Common Stock equal to the
number of shares of such stock immediately theretofore purchasable and
receivable upon the exercise of the rights represented hereby. In any
reorganization described above, appropriate provision shall be made with respect
to the rights and interests of the Holder of this Warrant to the end that the
provisions hereof (including, without limitation, provisions for adjustments of
the Stock Purchase Price and of the number of shares purchasable and receivable
upon the exercise of this Warrant) shall thereafter be applicable, as nearly as
may be, in relation to any shares of stock, securities or assets thereafter
deliverable upon the exercise hereof. The Company will not effect any such
consolidation, merger or sale unless, prior to the consummation thereof, the
successor corporation (if other than the Company) resulting from such
consolidation or the corporation purchasing such assets shall assume by written
instrument, executed and mailed or delivered to the registered Holder hereof at
the last address of such Holder appearing on the books of the Company, the
obligation to deliver to such Holder such shares of stock, securities or assets
as, in accordance with the foregoing provisions, such Holder may be entitled to
purchase.
<PAGE> 5
EXHIBIT 99.3 (CONTINUED)
3.4 NOTICE OF ADJUSTMENT. Upon any adjustment of the Stock
Purchase Price or any increase or decrease in the number of shares purchasable
upon the exercise of this Warrant, the Company shall give written notice
thereof, by first class mail, postage prepaid, addressed to the registered
Holder of this Warrant at the address of such Holder as shown on the books of
the Company, and, in case of a Holder with an address or record outside of the
United States, by facsimile, and confirmed in writing by first class air mail.
The notice shall be signed by the Company's chief financial officer and shall
state the Stock Purchase Price resulting from such adjustment and the increase
or decrease, if any, in the number of shares purchasable at such price upon the
exercise of this Warrant, setting forth in reasonable detail the method of
calculation and the facts upon which such calculation is based.
3.5 OTHER NOTICES. If at any time:
(1) the Company shall declare any cash dividend upon its
Common Stock;
(2) the Company shall declare any dividend upon its
Common Stock payable in stock or make any special dividend or other distribution
to the holders of its Common Stock;
(3) the Company shall offer for subscription pro rata to
the holders of its Common Stock any additional shares of stock of any class or
other rights;
(4) there shall be any capital reorganization or
reclassification of the capital stock of the company; or consolidation or merger
of the Company; or consolidation or merger of the Company with, or sale of all
or substantially all of its assets to, another corporation; or
(5) there shall be a voluntary or involuntary
dissolution, liquidation or winding-up of the Company;
then, in any one or more of said cases, the Company shall give, by first class
mail, postage prepaid, addressed to the Holder of this Warrant at the address of
such Holder as shown on the books of the Company, (a) at least thirty (30) days'
prior written notice (by the method set forth in Section 3.4 above) of the date
on which the books of the Company shall close or a record shall be taken for
such dividend, distribution or subscription rights or for determining rights to
vote in respect of any such reorganization, reclassification, consolidation,
merger, sale, dissolution, liquidation or winding-up, and (b) in the case of any
such reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding-up, at least thirty (30) days' prior written notice of
the date when
<PAGE> 6
EXHIBIT 99.3 (CONTINUED)
the same shall take place; provided, however, that the Holder shall make a best
efforts attempt to respond to such notice as early as possible after the receipt
thereof. Any notice given in accordance with the foregoing clause (a) shall also
specify, in the case of any such dividend, distribution or subscription rights,
the date on which the holders of Common Stock shall be entitled thereto. Any
notice given in accordance with the foregoing clause (b) shall also specify the
date on which the holders of Common Stock shall been entitled to exchange their
Common Stock for securities or to other property deliverable upon such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation, winding-up or conversion, as the case may be.
4. ISSUE TAX. The issuance of certificates for shares of Common
Stock upon the exercise of the Warrant shall be made without charge to the
Holder of the Warrant for any issue tax (other than any applicable income taxes)
in respect thereof; provided, however, that the Company shall not be required to
pay any tax which may be payable in respect of any transfer involved in the
issuance and delivery of any certificate in a name other than that of the then
Holder of the Warrant being exercised.
5. CLOSING OF BOOKS. The Company will at no time close its
transfer books against the transfer of any warrant or of any shares of Common
Stock issued or issuable upon the exercise of any warrant in any manner which
interferes with the timely exercise of this Warrant.
6. NO VOTING OR DIVIDEND RIGHTS; LIMITATIONS OF LIABILITY.
Nothing contained in this Warrant shall be construed as conferring upon the
holder hereof the right to vote or to consent or to receive notice as a
stockholder of the Company or any other matters or any rights whatsoever as a
stockholder of the Company. No dividends or interest shall be payable or accrued
in respect of this Warrant or the interest represented hereby or the shares
purchasable hereunder until and only to the extent that this Warrant shall have
been exercised. No provisions hereof, in the absence of affirmative action by
the holder to purchase shares of Common Stock, and no mere enumeration herein of
the rights or privileges of the holder hereof, shall give rise to any liability
of such holder for the Stock Purchase Price or as a stockholder of the Company,
whether such liability is asserted by the Company or by its creditors.
7. TRANSFER. After ninety (90) days from the date of this Warrant
and subject to compliance with applicable federal and state securities laws,
this Warrant and all rights hereunder are transferable only to affiliates of the
Holder (as such term is defined in Rule 144 of the Act) who are not U.S. Persons
(as defined in Regulation S) and who are "accredited investors" within the
meaning of Regulation D under the Act, in whole or in part, upon surrender of
this Warrant properly endorsed. Neither this Warrant nor any rights hereunder
are transferable other than to affiliates of the Holder who are not U.S.
<PAGE> 7
EXHIBIT 99.3 (CONTINUED)
Persons (as defined in Regulation S) and who are "accredited investors" within
the meaning of Regulation D under the Act. Each taker and holder of this
Warrant, by taking or holding the same, consents and agrees that this Warrant,
when endorsed in blank, shall be deemed negotiable, and that the holder hereof,
when this Warrant shall have been so endorsed, may be treated by the Company, at
the Company's option, and all other persons dealing with this Warrant as the
absolute owner hereof for any purpose and as the person entitled to exercise the
rights represented by this Warrant, or to the transfer hereof on the books of
the Company any notice to the contrary notwithstanding; but until such transfer
on such books, the Company may treat the registered owner hereof as the owner
for all purposes. The Company may condition registrations of transfers on
registrations of transfers on the receipt of a certificate from transferee in a
form acceptable to the Company that contains representations and warranties
similar to those of the Holder contained in Section 9.
8. RIGHTS AND OBLIGATIONS SURVIVE EXERCISE OF WARRANT. The
rights, obligations, representations and warranties of the Company, of the
holder of this Warrant and of the holder of shares of Common Stock issued upon
exercise of this Warrant referred to in Section 7 shall survive the exercise of
this Warrant.
9. REPRESENTATIONS AND WARRANTIES OF THE HOLDER. The Holder
understands and represents and warrants to, and agrees with Company that:
(a) The Holder understands that no federal or state
agencies have passed on, or made any recommendation or endorsement with respect
to this Warrant or any of the shares of Common Stock issuable upon the exercise
of this Warrant.
(b) The Holder acknowledges, in making the decision to
acquire this Warrant and exercise this Warrant, that the Holder has relied
solely upon independent investigations made by the Holder and not upon any
representations made by the Company or with respect to the Company or with
respect to the shares of Common Stock.
(c) The Holder understands that this Warrant and the
shares of Common Stock issuable upon the exercise of this Warrant are being
offered and sold to it in reliance on specific exemptions from or
non-application of the registration requirements of federal and state securities
laws and that the Company is relying upon the truth and accuracy of the
representations, warranties, agreements, acknowledgments and understandings of
the Holder set forth herein in order to determine the applicability of such
exemptions and the suitability of the Holder.
(d) The Holder is not a U.S. Person (as defined in
Regulation S) under the Act and is not and will not be an affiliate (as defined
in the U.S. Securities Exchange Act of 1934, as amended) of the Company. The
Holder certifies under penalty of perjury
<PAGE> 8
EXHIBIT 99.3 (CONTINUED)
that it is neither a citizen nor a resident of the United States and that its
address set forth in the Escrow Agreement, dated December 20, 1996, among the
Holder, the Company and the Escrow Agent named therein, is correct.
(e) No public offer or solicitation of this Warrant or
the shares of Common Stock issuable upon the exercise of this Warrant was made
to the Holder. No offer of this Warrant or the shares of Common Stock issuable
upon the exercise of this Warrant was made to the Holder while Holder was
present in the United States. At the time Holder acquires this Warrant, the
Holder is located outside the United States.
(f) The Holder is aware that this Warrant and the Common
Stock issuable upon the exercise of this Warrant have not been and will not be
registered under the Act (except as may be required under Section 10 below) and
will only be offered or sold pursuant to registration under the Act or an
available exemption therefrom and the Holder has not, and will not, engage in
any public offering or distribution of the Warrant or the shares of Common Stock
issuable upon its exercise.
(g) The Holder (i) will not, during the period of time
commencing from the date of this Warrant and ending ninety (90) days from the
date of this Warrant (the "Restricted Period"), offer or sell or agree to sell
any of the shares of Common Stock issuable upon the exercise of this Warrant in
the United States, to a U.S. Person or for the benefit of a U.S. Person, and
(ii) will, after the expiration of the Restricted Period, offer, sell, pledge or
otherwise transfer the shares of Common Stock issuable upon the exercise of this
Warrant only pursuant to registration under the Act or an available exemption
therefrom and, in any case, in accordance with applicable federal and state
securities laws.
(h) The Holder has been advised of and is familiar with,
has complied, and will comply, with the offering restrictions, and all other
requirements, of Regulation S.
(i) The transactions contemplated by this Warrant (i)
have not been prearranged by the Holder with a purchaser located in the United
States or a U.S. Person and (ii) are not part of a plan or scheme by the Holder
to evade the registration provisions of the Act.
(j) The Holder is an "accredited investor" as defined in
the Act and will be acquiring this Warrant for its account for the purpose of
investment and not (i) with a view to, or for sale in connection with, any
distribution thereof or (ii) for the account or on behalf of any U.S. Person.
<PAGE> 9
EXHIBIT 99.3 (CONTINUED)
(k) The Holder will acquire the shares of Common Stock
issued upon the exercise of this Warrant for the purpose of investment and not
(i) with a view to, or for sale in connection with, any distribution thereof or
(ii) for the account of or on behalf of any U.S. Person.
(l) Neither the Holder nor any of its affiliates has
entered, has any intention of entering, or will, while any portion of this
Warrant remains unexercised, enter into with any person, any put option, short
position or other similar instruments or position with respect to the shares of
Common Stock issuable upon the exercise of this Warrant or participate in any
other attempt designed to lower the trading prices of the Common Stock.
(m) The Holder shall indemnify the Company against any
loss, cost or damages (including reasonable attorney's fees and expenses)
incurred as a result of such parties' breach of any representation, warranty,
covenant or agreement in this Warrant.
10. REGISTRATION RIGHTS.
10.1 "PIGGY BACK" REGISTRATION.
(a) Each time the Company shall determine to
file a registration statement under the Act (other than on Form S-4, S-8 or a
registration statement on Form S-1 covering an employee benefit plan) in
connection with the proposed offer and sale for money of any of its securities
either for its own account or on behalf of any other security holder, the
Company agrees to give prompt written notice of its determination to the Holder.
Upon the written request of the Holder given within thirty (30) days after the
receipt of such written notice from the Company, the Company agrees to cause all
Registrable Securities as to which the Holder has requested registration, to be
included in such registration statement and registered under the Act, all to the
extent requisite to permit the sale or other disposition by the Holder of the
Registrable Securities to be so registered. "Registrable Securities" shall mean
the shares of Common Stock issued to the Holder or its permitted transferee upon
exercise of the Warrant or upon any stock split, stock dividend,
recapitalization or similar event with respect to such shares; provided,
however, that Registrable Securities shall cease to be Registrable Securities
when they may be sold pursuant to Rule 144 under the Act or other exemption from
registration. Registrable Securities shall not include the Warrant.
(b) If the registration of which the Company
gives written notice pursuant to 10.1(a) is for a public offering involving an
underwriting, the Company agrees to so advise the Holder as a part of its
written notice. In such event the
<PAGE> 10
EXHIBIT 99.3 (CONTINUED)
right of the Holder to registration pursuant to this Section 10 shall be
conditioned upon the Holder's participation in such underwriting and the
inclusion of the Holder's Registrable Securities in the underwriting to the
extent provided herein. The Holder agrees to enter into (together with the
Company and any other holders distributing their securities through such
underwriting) an underwriting agreement with the underwriter or underwriters
selected for such underwriting by the Company, provided that such underwriting
agreement is in customary form and is reasonably acceptable to the Holder.
(c) Notwithstanding any other provision of this Section
10, if the managing underwriter of an underwritten distribution advises the
Company and the Holder in writing that in its good faith judgment the number of
shares of Registrable Securities and the other securities requested to be
registered exceeds the number of shares of Registrable Securities and other
securities which can be sold in such offering, then (i) the number of shares of
Registrable Securities and other securities so requested to be included in the
offering shall be reduced to that number of shares which in the good faith
judgment of the managing underwriter can be sold in such offering (except for
shares to be included pursuant to registration rights granted by the Company,
(y) which are by their terms senior to the rights of the Holder, in an offering
initiated upon the exercise of such rights, and (z) except for shares to be
issued by the Company in an offering initiated by the Company, each of which
shall have priority over the Registrable Securities), and (ii) such reduced
number of shares shall be allocated among the Holder and the holders of other
securities in proportion, as nearly as practicable, to the respective number of
shares of Registrable Securities and other securities held by the Holder and
other holders at the time of filing the registration statement. All Registrable
Securities and other securities which are excluded from the underwriting by
reason of the underwriter's marketing limitation and all other Registrable
Securities not originally requested to be so included shall not be included in
such registration and shall be withheld from the market by the Holder for a
period, not to exceed one hundred eighty days (180), which the managing
underwriter reasonably determines is necessary to effect the underwritten public
offering.
10.2 EXPENSES OF REGISTRATION. All expenses incurred by the Company
in connection with the Holder's exercise of its registration rights under this
warrant, including, without limitation, all registration and filing fees,
printing expenses, fees and disbursements of counsel for the Company, blue sky
fees and expenses, and the expense of any special audits incident to or required
by any such registration (but excluding the compensation of regular employees of
the Company, which shall be paid in any event by the Company) shall be borne by
the Company. All registration and filing fees, and underwriting discounts and
selling commissions applicable to the sale of Registrable Securities and all
fees and disbursements of counsel for the Holder shall be borne by the Holder.
<PAGE> 11
EXHIBIT 99.3 (CONTINUED)
10.3 REGISTRATION ON FORM S-3. Although the Company shall
use its commercially reasonable efforts to qualify for registration on Form S-3
or any comparable or successor form or forms, or in the event that the Company
is ineligible to use such form, such form as the Company is eligible to use
under the Act, nothing in this Warrant is intended to require the Company to pay
dividends in order to use Form S-3.
Nothing in this Warrant shall be interpreted or otherwise construed to
require the Company to seek the opinion of its outside independent accountants
for the year ended December 31, 1993.
10.4 INDEMNIFICATION.
(a) Company Indemnity. The Company will
indemnify the Holder, each of its officers, directors and partners, and each
person controlling Holder, within the meaning of Section 15 of the Act and the
rules and regulations thereunder with respect to which registration,
qualification or compliance has been effected pursuant to this Warrant against
all claims, losses, damages and liabilities (or actions in respect thereof)
arising out of or based on any untrue statement (or alleged untrue statement) of
a material fact contained in any prospectus, (including any related registration
statement, notification or the like) incident to any such registration,
qualification or compliance, or based on any omission (or alleged omission) to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, or any violation by the Company of the
Act or any state securities law or in either case, any rule or regulation
thereunder applicable to the Company and relating to action or inaction required
of the Company in connection with any such registration, qualification or
compliance, and will reimburse the Holder, each of its officers, directors and
partners, and each person controlling the Holder, for any legal and any other
expenses reasonably incurred in connection with investigating and defending any
such claim, loss, damage, liability or action, provided that the Company will
not be liable in any such case to the extent that any such claim, loss, damage,
liability or expense arises out of or is based on any untrue statement or
omission based upon written information furnished to the Company by the Holder
or the underwriter and stated to be specifically for use therein. The indemnity
agreement contained in this Section 10.4(a) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Company (which consent will
not be unreasonably withheld).
(b) Holder Indemnity. The Holder will, if
Registrable Securities held by it are included in the securities as to which
such registration, qualification or compliance is being effected, indemnify the
Company, each of its directors, officers, partners, of the Company's securities
covered by such a registration
<PAGE> 12
EXHIBIT 99.3 (CONTINUED)
statement, each person who controls the Company within the meaning of Section 15
of the Act and the rules and regulations thereunder, each other Holder (if any),
and each of their officers, directors and partners, and each person controlling
such other Holder against all claims, losses, damages and liabilities (or
actions in respect thereof) arising out of or based on any untrue statement (or
alleged untrue statement) of a material fact contained in any such registration
statement, prospectus, offering circular or other document, or any omission (or
alleged omission) to state therein a material fact required to be stated therein
or necessary to make the statement therein not misleading, and will reimburse
the Company and such other Holders and their directors, officers and partners,
or control persons for any legal or any other expenses reasonably incurred in
connection with investigating and defending any such claim, loss, damage,
liability or action, in each case to the extent, but only to the extent, that
such untrue statement (or alleged untrue statement) or omission (or alleged
omission) is made in such registration statement, prospectus, offering circular
or other document in reliance upon and in conformity with written information
furnished to the Company by the Holder and stated to be specifically for use
therein, and provided that the maximum amount for which the Holder shall be
liable under this indemnity shall not exceed the net proceeds received by the
Holder from the sale of the Registrable Securities. The indemnity agreement
contained in this Section 10.4(b) shall not apply to amounts paid in settlement
of any such claims, losses, damages or liabilities if such settlement is
effected without the consent of Holder (which consent shall not be unreasonably
withheld).
(c) Procedure. Each party entitled to
indemnification under this Section 10.4 (the "Indemnified Party") shall give
notice to the party required to provide indemnification (the "Indemnifying
Party") promptly after such Indemnified Party has actual knowledge of any claim
as to which indemnity may be sought, and shall permit the Indemnifying Party to
assume the defense of any such claim in any litigation resulting therefrom,
provided that counsel for the Indemnifying Party, who shall conduct the defense
of such claim or any litigation resulting therefrom, shall be approved by the
Indemnified Party (whose approval shall not be unreasonably withheld), and the
Indemnified Party may participate in such defense at such party's expense, and
provided further that the failure of any Indemnified Party to give notice as
provided herein shall not relieve the Indemnifying Party of its obligations
under this Section 10.4 except to the extent that the Indemnifying Party is
materially and adversely affected by such failure to provide notice. No
Indemnifying Party, in the defense of any such claim or litigation, shall,
except with the consent of each Indemnified Party, consent to entry of any
judgment or enter into any settlement which does not include as an unconditional
term thereof the giving by the claimant or plaintiff to such Indemnified Party
of a release from all liability in respect to such claim or litigation. Each
Indemnified Party shall furnish such information regarding itself or the claim
in question as an Indemnifying Party may reasonably request in writing and as
shall be reasonably required in connection with the defense of such claim and
litigation resulting therefrom.
<PAGE> 13
EXHIBIT 99.3 (CONTINUED)
10.5 CONTRIBUTION. If the indemnification provided for in
Section 10.4 herein is unavailable to the Indemnified Parties in respect of any
losses, claims, damages or liabilities referred to herein (other than by reason
of the exceptions provided therein), then each such Indemnifying Party, in lieu
of indemnifying such Indemnified Party, shall contribute to the amount paid or
payable by such Indemnified Party as a result of such losses, claims, damages or
liabilities (i) as between the Company and the Holder in such proportion as is
appropriate to reflect the relative benefits received by the Company and the
Holder as the case may be, on the other from the offering of the Registrable
Securities, or if such allocation is not permitted by applicable law, in such
proportion as is appropriate to reflect not only such relative benefits but also
the relative fault of the Company on the one hand and of the Holder as the case
may be, on the other in connection with the statements or omissions which
resulted in such losses, claims, damages or liabilities, as well as any other
relevant equitable considerations and (ii) as between the Company on the one
hand and the Holder on the other, in such proportion as is appropriate to
reflect the relative fault of the Company and of the Holder in connection with
the statements or omissions which resulted in such losses, claims, damages or
liabilities, as well as any other relevant equitable considerations.
The relative benefits received by the Company on the one hand and the
Holder, as the case may be, on the other shall be deemed to be in the same
proportion as the proceeds from the offering (net of underwriting discounts and
commissions but before deducting expenses) received by the Company from the
initial sale of the Registrable Securities by the Company to the Holder pursuant
to this Warrant bear to the gain realized by the Holder. The relative fault of
the Company on the one hand and of the Holder, as the case may be, on the other
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or omission or alleged omission to
state a material fact relates to information supplied by the Company or by the
Holder.
In no event shall the obligation of any Indemnifying Party to
contribute under this Section 10.5 exceed the amount that such Indemnifying
Party would have been obligated to pay by way of indemnification if the
indemnification provided for under Section 10.4(a) or 10.4(b) hereof had been
available under the circumstances.
The Company and the Holder agree that it would not be just and
equitable if contribution pursuant to this Section 10.5 were determined by pro
rata allocation or by any other method of allocation which does not take account
of the equitable considerations referred to in the immediately preceding
paragraphs. The amount paid or payable by an Indemnified Party as a result of
the losses, claims, damages and liabilities referred to in the immediately
preceding paragraphs shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses reasonably incurred by such
<PAGE> 14
EXHIBIT 99.3 (CONTINUED)
Indemnified Party in connection with investigating or defending any such action
or claim. Notwithstanding the provisions of this section, no Holder shall be
required to contribute any amount in excess of the amount by which in the case
of the Holder, the net proceeds received by the Holder from the sale of
Registrable Securities exceeds, in any such case, the amount of any damages that
the Holder or underwriter has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Act) shall be entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation.
10.6 SURVIVAL. The indemnity and contribution agreements
contained in Sections 10.4 and 10.5 shall remain operative and in full force and
effect regardless of any investigation made by or on behalf of any Indemnified
Party or by or on behalf of the Company and the consummation of the sale or
successive resales of the Registrable Securities.
10.7 INFORMATION BY HOLDER. The Holder shall furnish to
the Company such information regarding the Holder and the distribution proposed
by the Holder as the Company may reasonably request in writing and as shall be
reasonably required in connection with any registration, qualification or
compliance referred to in this Warrant.
11. MODIFICATION AND WAIVER. This Warrant and any provision hereof
may be changed, waived, discharged or terminated only by an instrument in
writing signed by the party against which enforcement of the same is sought.
12. NOTICES. Any notice, request or other document required or
permitted to be given or delivered to the Holder hereof or the Company shall be
delivered or shall be sent by certified mail, postage prepaid, to each such
holder at its address as shown on the books of the Company or to the Company at
the address indicated therefor in the first paragraph of this Warrant or such
other address as either may from time to time provide to the other and shall be
sent to each such holder located outside of the United States by facsimile
confirmed in writing by first class air mail.
13. BINDING EFFECT ON SUCCESSORS. This Warrant shall be binding
upon any corporation succeeding the Company by merger, consolidation or
acquisition of all or substantially all of the Company's assets. All of the
obligations of the Company relating to the Common Stock issuable upon the
exercise of this Warrant shall survive the exercise and termination of this
Warrant. All of the covenants and agreements of the Company shall inure to the
benefit of the successors and assigns of the Holder hereof.
<PAGE> 15
EXHIBIT 99.3 (CONTINUED)
14. DESCRIPTIVE HEADINGS AND GOVERNING LAW. The description
headings of the several sections and paragraphs of this Warrant are inserted for
convenience only and do not constitute a part of this Warrant. This Warrant
shall be construed and enforced in accordance with, and the rights of the
parties shall be governed by, the laws of the State of California.
15. LOST WARRANTS. The Company represents and warrants to the
Holder hereof that upon receipt of evidence reasonably satisfactory to the
Company of the loss, theft, destruction, or mutilation of this Warrant and, in
the case of any such loss, theft or destruction, upon receipt of an indemnity
reasonably satisfactory to the Company, or in the case of any such mutilation
upon surrender and cancellation of such Warrant, the Company, at its expense,
will make and deliver a new Warrant, of like tenor, in lieu of the lost, stolen,
destroyed or mutilated Warrant.
16. FRACTIONAL SHARES. No fractional shares shall be issued upon
exercise of this Warrant. The Company shall, in lieu of issuing any fractional
share, pay the holder entitled to such fraction a sum in cash equal to such
fraction multiplied by the then effective Stock Purchase Price.
<PAGE> 16
EXHIBIT 99.3 (CONTINUED)
IN WITNESS WHEREOF, the undersigned have caused this Warrant to be duly
executed by their respective officers, thereunto duly authorized as of the 20th
day of December, 1996.
PINNACLE MICRO, INC.,
a Delaware corporation
By:____________________________
Name: Kenneth Campbell
Title: President
or
Name: Roger Hay
Title: Chief Financial Officer and
Executive Vice President
"Holder"
((1))
By:____________________________
Title:_________________________
<PAGE> 17
EXHIBIT 99.3 (CONTINUED)
EXHIBIT A
SUBSCRIPTION FORM
Date:__________
______________________________
______________________________
______________________________
Gentlemen:
The undersigned hereby elects to exercise the warrant issued to it by
Pinnacle Micro, Inc. (the "Company") and dated December _____, 1996, Warrant No.
W-_____ (the "Warrant") and to purchase thereunder ____________________ shares
of the Common Stock of the Company (the "Shares") at a purchase price of
____________________ Dollars ($__________) per Share or an aggregate purchase
price of ____________________ Dollars ($________) (the "Purchase Price").
The undersigned represents and warrants that (i) all the requirements
of Regulation S promulgated under the Securities Act of 1933, as amended (the
"Act") applicable to the undersigned have been complied with by the undersigned,
(ii) the undersigned is not a "U.S. Person" as defined in Regulation S and this
Warrant is not being exercised on behalf of any "U.S. Person," (iii) the
undersigned has not engaged in any transaction or series of transactions that is
a part of or a plan or scheme to evade the registration requirements of the Act,
(iv) on the date of exercise the undersigned was located outside of the United
States, (iv) the undersigned has complied with the terms and conditions of the
Warrant and (v) the representations and warranties of the Holder set forth in
Section 9 of the Warrant are true and correct in all aspects as of the date set
forth above. Further, the undersigned represents and warrants that after giving
effect to the exercise hereby requested, the undersigned will not beneficially
own, together with its affiliates, more than 4.9% of the Company's issued and
outstanding common stock.
The undersigned represents that the Shares to be issued to the
undersigned are not being issued in a transaction involving a public offering
and are being issued pursuant to an exemption from registration under the Act.
The undersigned is acquiring the Shares for its own account, to hold
for an investment, and the undersigned will not make any sale, transfer or
disposition of the Shares in violation of the Act or the rules and regulations
promulgated by the Securities and Exchange Commission. The undersigned has been
advised that Shares have not been registered for initial issuance under the Act
or state securities laws.
<PAGE> 18
EXHIBIT 99.3 (CONTINUED)
The undersigned has been informed that under the Act, the Shares must
be held indefinitely unless it is subsequently registered under the Act or
unless an exemption from registration is available for Shares or any proposed
transfer or disposition by the undersigned of the Shares. The undersigned
further agrees that the Company may refuse to permit the undersigned to sell,
transfer or dispose of the Shares unless there is in effect of registration
statement under the Act or unless the undersigned furnishes an opinion of
counsel satisfactory to counsel for the Company, to the effect that such
registration is not required.
The undersigned understands that the Shares may not be delivered within
the United States upon the exercise of the Warrant.
The undersigned also understands and agrees there will be placed on the
certificates for the Shares a legend stating in substance:
"These securities have not been registered under the Securities Act of
1933, as amended. They may not be sold, offered for sale, pledged or
hypothecated in the absence of a Registration Statement in effect with respect
to securities under the Securities Act of 1933, as amended, or an opinion of
counsel satisfactory to the Company that such registration is not required, or
unless sold pursuant to Rule 144 of such Act."
Pursuant to the terms of the Warrant the undersigned has delivered the
Purchase Price herewith in full in cash or by certified check or wire transfer.
Very truly yours,
______________________________
By:___________________________
Title:________________________
<PAGE> 1
EXHIBIT 99.4 DRAFT 12/26/96
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement"), entered
into as of December 20, 1996 by and between ((1)), (the "Buyer"), and Pinnacle
Micro, Inc., a Delaware corporation with offices at 19 Technology Drive, Irvine,
California 92618, U.S.A. (the "Company").
W I T N E S S E T H:
WHEREAS, pursuant to a Convertible Securities Subscription
Agreement, dated as of the date hereof (the "Subscription Agreement"), by and
between the Company and the Buyer, the Company has agreed to sell and the Buyer
has agreed to purchase U.S. $ ((3)) of the Company's 6% Convertible Notes due
December 20, 2001 (the "Note"), convertible into shares of the Company's common
stock, $0.001 par value (the "Shares");
WHEREAS, pursuant to the terms of, and in partial
consideration for, the Buyer's agreement to enter into the Subscription
Agreement, the Company has agreed to provide the Buyer with certain registration
rights with respect to the Shares as set forth in this Agreement;
NOW, THEREFORE, in consideration of the mutual promises,
representations, warranties, covenants and conditions set forth in the
Subscription Agreement and this Agreement, the Company and the Buyer agree as
follows:
1. Certain Definitions. As used in this Agreement, the
following terms shall have the following respective meanings:
"Commission" shall mean the Securities and Exchange Commission
or any other federal agency at the time administering the Securities Act.
"Registrable Securities" shall mean the Shares issued to Buyer
or its designee upon conversion of the Notes or upon any stock split, stock
dividend, recapitalization or similar event with respect to such Shares;
provided, however, that Registrable Securities shall cease to be Registrable
Securities when they may be sold pursuant to Rule 144 under the Securities Act.
Registrable Securities shall not include the Notes.
The terms "register", "registered" and "registration" shall
refer to a registration effected by preparing and filing a registration
statement in compliance with the Securities Act and applicable rules and
regulations thereunder, and the declaration or ordering of the effectiveness of
such registration statement.
<PAGE> 2
EXHIBIT 99.4 (CONTINUED)
"Registration Expenses" shall mean all expenses to be incurred
by the Company in connection with Buyer's exercise of its registration rights
under this Agreement, including, without limitation, all registration and filing
fees, printing expenses, fees and disbursements of counsel for the Company, blue
sky fees and expenses, reasonable fees and disbursements of one counsel to
Holders participating in the registration for a review of the Registration
Statement and related documents, and the expense of any special audits incident
to or required by any such registration (but excluding the compensation of
regular employees of the Company, which shall be paid in any event by the
Company).
"Selling Expenses" shall mean all underwriting discounts and
selling commissions applicable to the sale of Registrable Securities and all
fees and disbursements of counsel for Holder not included with "Registration
Expenses".
"Holder" shall include the Buyer and any permitted transferee
of Notes, Shares or Registrable Securities which have not been sold to the
public to whom the registration rights conferred by this Agreement have been
transferred in compliance with Section 11 herein.
"Registration Statement" shall have the meaning set forth in
Section 3(a) herein.
"Regulation S" shall mean Regulation S as promulgated pursuant
to the Securities Act, and as subsequently amended.
"Rule 144" shall mean Rule 144 under the Securities Act, as
such rule may be amended from time to time, or any similar rule or regulation
hereafter adopted by the Commission.
"Securities Act" shall mean the United States Securities Act
of 1933, as amended.
2. Conditions to Registration Requirement. The Company's
obligation hereunder to register Registrable Securities shall arise in the event
that Company receives a written opinion of counsel for the Holder (which counsel
shall be of a law firm experienced in United States securities matters)
indicating that there has been an amendment or change to the Securities Act or
Regulation S after the date hereof, or the promulgation by the Commission of an
interpretative release or other statement after the date hereof, which prohibits
or restricts Holder from reselling Registrable Securities without registration
under the Securities Act (a "Registration Trigger Event"). Notwithstanding the
foregoing, it will not be deemed a "Registration Trigger Event" to
<PAGE> 3
EXHIBIT 99.4 (CONTINUED)
the extent that Holder desires to engage in a distribution of the Registrable
Securities which otherwise requires registration under the Securities Act or in
activity which otherwise deems Holder to be a statutory underwriter under
Section 5 of the Securities Act. In the event that a Registration Trigger Event
has occurred, then Holder shall be entitled to require the Company to register
all of Holder's Registrable Securities in accordance with this Agreement.
3. Request for Registration.
(a) Upon the occurrence of a Registration
Trigger Event, if the Company shall receive from a Holder (or, in the event
there is more than one Holder as a result of the issuance by the Company of the
Note, the Company shall receive written notice from such Holders acting with
respect to their rights under this Agreement according to a vote of a
majority-in-interest of the Holders) a written request that the Company effect
any registration with respect to any Registrable Securities, the Company shall
use its commercially reasonable efforts to effect such registration (including,
without limitation, the execution of an undertaking to file post-effective
amendments, appropriate qualification under applicable state securities laws and
appropriate compliance with applicable regulations issued under the Securities
Act) as may be so requested and as would permit or facilitate the sale and
distribution of all or such portion of such Registrable Securities as are
specified in such request in the states specified in such request.
Notwithstanding the foregoing, the Company shall not be obligated hereunder to
effect such registration unless (i) the proposed public offering price of the
securities to be included in such registration shall be at least $500,000
(before deducting underwriting discounts and commissions) and (ii) such notice
requesting that the Company effect a registration pursuant to this Agreement
shall have been received by the Company after the Company has filed its Annual
Report on Form 10-K for the fiscal year ending December 28, 1996 containing
three-year audited financial statements. If the registration request pertains to
any Registrable Securities not yet outstanding because conversion rights have
not been exercised, Company may condition the registration of such securities on
an irrevocable undertaking to pay all expenses incident to such registration if
such conversion rights are not exercised prior to the effective date of the
registration statement.
Subject to the previous paragraph, the Company shall file (i)
a registration statement with the Commission pursuant to Rule 415 under the
Securities Act on Form S-3 under the Securities Act (or in the event that the
Company in ineligible to use such form, such other form as the Company is
eligible to use under the Securities Act) covering the Registrable Securities so
requested to be registered ("Registration Statement"); (ii) such state
securities filings as shall have been requested by the Holder; and (iii) any
required filings with The Nasdaq Stock Market, Inc. or exchange where the
<PAGE> 4
EXHIBIT 99.4 (CONTINUED)
Shares are traded, as soon as practicable, after receipt of the request of the
Holder. Thereafter the Company shall use its best efforts to have such
Registration Statement and other filings declared effective.
(b) (i) Subject to the conditions contained in
Section 3(a) above, if the Company fails to file a Registration Statement
complying with the requirements of this Agreement within 45 days from the date
of receipt by the Company of the Holder's written request (provided, however,
that under the circumstances described in 3(e)(i)(ii) or (iii) below the Company
may have an additional 45 days thereafter to file such Registration Statement by
providing written notice to the Holders requesting such registration indicating
that the Company is diligently pursuing the filing of such Registration
Statement) or if such Registration Statement has not become effective within 90
days from the date of filing thereof, the Holder shall have, in addition to and
without limiting any other rights it may have at law, in equity or under the
Notes, the Subscription Agreement, or this Agreement (including the right to
specific performance), the right to receive, as liquidated damages, the payments
as provided in subparagraph (ii) of this section.
(ii) If after ninety (90) days from the date of
filing of the Registration Statement, the Registration Statement has not been
declared effective by the Commission because the Company (A) has been negligent
in timely responding to any comments from the Commission on the Registration
Statement; (B) has failed to use its commercially reasonable efforts to cause
the Registration Statement to be declared effective by the Commission; (C) has
otherwise acted in bad faith in honoring its commitment to cause the
Registration Statement to be declared effective; (D) has been forced to restate
its current or previous financial statements (for years ending after December
30, 1995); (E) has commenced a corporate action such as an acquisition, merger
divestiture, asset sale, reorganization or similar transaction; or (F) has filed
a Registration Statement with the Commission to issue public securities in
accordance with the Securities Act which does not include a registration of the
Registrable Securities, then the Company shall pay to the Buyer an amount equal
to 3% of the Initial Principal Amount (as defined in the Note) in cash, for each
30-day period after the ninety (90) day period that such Registration Statement
is not effective (which payment shall be pro rata for any period of less than 30
days). In addition to the foregoing, if after 180 days from the date hereof the
Registration Statement has not been declared effective by the Commission due to
any of the causes described in clauses (A) through (F) of this paragraph
3(b)(ii), then at the option of such Holder, the Company shall be required to
redeem the Note held by such Holder at a redemption price equal to 140% of the
amounts outstanding under the Note plus accrued interest thereon, together with
all other payments due under this paragraph and under the Note and the
Agreement.
<PAGE> 5
EXHIBIT 99.4 (CONTINUED)
(iii) The Company acknowledges that its failure
to register the Registrable Securities in accordance with this Agreement will
cause the Holder to suffer damages in an amount that will be difficult to
ascertain. Accordingly, the parties agree that it is appropriate to include in
this Agreement a provision for liquidated damages. The parties acknowledge and
agree that the liquidated damages provisions set forth above represent the
parties' good faith effort to quantify such damages and, as such, agree that the
form and amount of such liquidated damages are reasonable and will not
constitute a penalty.
(iv) In computing the time periods provided in
this paragraph 3(b), any delays arising from the failure or refusal of any
Holder to provide information which the Company's counsel or the Commission
states in writing is required for inclusion on the Registration Statement within
ten (10) days of a written request by the Company to provide such information,
shall increase the number of days for the Company to act by a corresponding
number.
(c) If there is more than one Holder, such Holders
shall act with respect to their rights under this Agreement according to the
vote of a majority-in-interest of the Holders.
(d) The Company shall make available for inspection
by a representative or representatives of the Holder, and any attorney or
accountant retained by such Holder, all financial and other records customary
for such purposes, pertinent corporate documents and properties of the Company,
and cause the Company's officers, directors and employees to supply all
information reasonably requested by any such representative, attorney or
accountant in connection with such Registration Statement. The Holder will agree
to keep all non-public information supplied to it confidential until such
information is included in a Registration Statement which has been made publicly
available.
(e) The Company shall not be obligated to keep such
Registration Statement continuously effective for a period of more than two
years from the date it is declared effective by the Commission; provided,
however, that if so requested by the holders of a majority-in-interest of the
Registrable Securities the Company shall agree to extend the period for which
the Registration Statement remains effective to the same extent that "suspension
periods" are imposed pursuant to the next paragraph, but only so long as the
then unsold Registrable Securities covered by such Registration are too numerous
to be sold under the volume limitations of Rule 144 in any applicable
three-month period by any holder.
<PAGE> 6
EXHIBIT 99.4 (CONTINUED)
Following the effectiveness of the Registration
Statement pursuant to this Agreement, the Company may, at any time, suspend the
effectiveness of such Registration Statement and sales thereunder for up to
forty-five (45) days, as appropriate (a "Suspension Period"), by giving notice
to each holder (or underwriter, if any) selling thereunder, if the Company shall
have determined that the Company may be required to disclose any material
corporate development which disclosure (i) may have a material adverse effect on
the Company, (ii) may have a material adverse affect on the transaction or
matter to be disclosed, or (iii) would be detrimental to the Company or its
stockholders. Notwithstanding the foregoing, no more than two Suspension Periods
(i.e., ninety (90) days) may occur in immediate succession, and the Company
shall use its best efforts to limit the duration and number of any suspension
periods. Holder agrees (and shall require that any underwriter agree) that, upon
receipt of any notice from the Company of any Suspension Period, Holder shall
forthwith discontinue disposition of shares covered by the Registration
Statement and related prospectus or other offering materials (the "Prospectus")
until such Holder (i) is advised in writing by the Company that the use of the
applicable Prospectus may be resumed, (ii) has received copies of a supplemental
or omitted Prospectus, if applicable, and (iii) has received copies of any
additional or supplemental filings which are incorporated or deemed to be
incorporated by reference in such Prospectus.
4. Expenses of Registration. All Registration Expenses
incurred in connection with any registration, qualification or compliance with
registration pursuant to this Agreement shall be borne by the Company, and all
Selling Expenses shall be borne by the Holder.
5. Registration on Form S-3. Although the Company shall
use its commercially reasonable efforts to qualify for registration on Form S-3
or any comparable or successor form or forms, or in the event that the Company
is ineligible to use such form, such form as the Company is eligible to use
under the Securities Act, nothing in the Subscription Agreement or this
Agreement is intended to require the Company to pay dividends in order to use
Form S-3.
6. Registration Procedures. In the case of each
registration effected by the Company pursuant to this Agreement, the Company
will keep the Holder advised in writing as to the initiation of each
registration and as to the completion thereof. At its expense, the Company will
use its best efforts to:
(a) Keep such Registration Statement effective
for the period ending twenty-four (24) months after the registration has been
declared effective by the Commission or until the Holder has completed the
distribution described in the Registration Statement relating thereto, whichever
first occurs.
<PAGE> 7
EXHIBIT 99.4 (CONTINUED)
(b) Furnish such number of Prospectuses and
other documents incident thereto as the Holder from time to time may reasonably
request.
7. Indemnification.
(a) Company Indemnity. The Company will
indemnify the Holder, each of its officers, directors and partners, and each
person controlling Holder, within the meaning of Section 15 of the Securities
Act and the rules and regulations thereunder with respect to which registration,
qualification or compliance has been effected pursuant to this Agreement,
against all claims, losses, damages and liabilities (or actions in respect
thereof) arising out of or based on any untrue statement (or alleged untrue
statement) of a material fact contained in any Prospectus, (including any
related Registration Statement, notification or the like) incident to any such
registration, qualification or compliance, or based on any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, or any violation by the
Company of the Securities Act or any state securities law or in either case, any
rule or regulation thereunder applicable to the Company and relating to action
or inaction required of the Company in connection with any such registration,
qualification or compliance, and will reimburse the Holder, each of its
officers, directors and partners, and each person controlling such Holder, for
any legal and any other expenses reasonably incurred in connection with
investigating and defending any such claim, loss, damage, liability or action,
provided that the Company will not be liable in any such case to the extent that
any such claim, loss, damage, liability or expense arises out of or is based on
any untrue statement or omission based upon written information furnished to the
Company by Holder and stated to be specifically for use therein. The indemnity
agreement contained in this Section 7(a) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Company (which consent will
not be unreasonably withheld).
(b) Holder Indemnity. The Holder will, if
Registrable Securities held by it are included in the securities as to which
such registration, qualification or compliance is being effected, indemnify the
Company, each of its directors, officers, partners, and each underwriter, if
any, of the Company's securities covered by such a registration statement, each
person who controls the Company or such underwriter within the meaning of
Section 15 of the Securities Act and the rules and regulations thereunder, each
other Holder (if any), and each of their officers, directors and partners, and
each person controlling such other Holder against all claims, losses, damages
and liabilities (or actions in respect thereof) arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained in
any such registration statement, prospectus, offering circular or other
document, or any omission (or alleged omission) to state therein a material fact
required to be stated therein or
<PAGE> 8
EXHIBIT 99.4 (CONTINUED)
necessary to make the statement therein not misleading, and will reimburse the
Company and such other holders and their directors, officers and partners,
underwriters or control persons for any legal or any other expenses reasonably
incurred in connection with investigating and defending any such claim, loss,
damage, liability or action, in each case to the extent, but only to the extent,
that such untrue statement (or alleged untrue statement) or omission (or alleged
omission) is made in such registration statement, prospectus, offering circular
or other document in reliance upon and in conformity with written information
furnished to the Company by Holder and stated to be specifically for use
therein, and provided that the maximum amount for which the Holder shall be
liable under this indemnity shall not exceed the net proceeds received by the
Holder from the sale of the Registrable Securities. The indemnity agreement
contained in this Section 7(b) shall not apply to amounts paid in settlement of
any such claims, losses, damages or liabilities if such settlement is effected
without the consent of Holder (which consent shall not be unreasonably
withheld).
(c) Procedure. Each party entitled to
indemnification under this Section 7 (the "Indemnified Party") shall give notice
to the party required to provide indemnification (the "Indemnifying Party")
promptly after the Indemnified Party has actual knowledge of any claim as to
which indemnity may be sought, and shall permit the Indemnifying Party to assume
the defense of any such claim in any litigation resulting therefrom, provided
that counsel for the Indemnifying Party, who shall conduct the defense of such
claim or any litigation resulting therefrom, shall be approved by the
Indemnified Party (whose approval shall not be unreasonably withheld), and the
Indemnified Party may participate in such defense at such party's expense, and
provided further that the failure of any Indemnified Party to give notice as
provided herein shall not relieve the Indemnifying Party of its obligations
under this Section 7 except to the extent that the Indemnifying Party is
materially and adversely affected by such failure to provide notice. No
Indemnifying Party, in the defense of any such claim or litigation, shall,
except with the consent of each Indemnified Party, consent to entry of any
judgment or enter into any settlement which does not include as an unconditional
term thereof the giving by the claimant or plaintiff to such Indemnified Party
of a release from all liability in respect to such claim or litigation. Each
Indemnified Party shall furnish such information regarding itself or the claim
in question as an Indemnifying Party may reasonably request in writing and as
shall be reasonably required in connection with the defense of such claim and
litigation resulting therefrom.
8. Contribution. If the indemnification provided for in
Section 7 herein is unavailable to the Indemnified Parties in respect of any
losses, claims, damages or liabilities referred to herein (other than by reason
of the exceptions provided therein), then each such Indemnifying Party, in lieu
of indemnifying the Indemnified Party, shall contribute to the amount paid or
payable by the Indemnified Party as a result of such losses, claims, damages or
liabilities (i) as between the Company and the Holder on the
<PAGE> 9
EXHIBIT 99.4 (CONTINUED)
one hand and the underwriters on the other, in such proportion as is appropriate
to reflect the relative benefits received by the Company and the Holder on the
one hand or underwriters, as the case may be, on the other from the offering of
the Registrable Securities, or if such allocation is not permitted by applicable
law, in such proportion as is appropriate to reflect not only such relative
benefits but also the relative fault of the Company on the one hand and of the
Holder or underwriters, as the case may be, on the other in connection with the
statements or omissions which resulted in such losses, claims, damages or
liabilities, as well as any other relevant equitable considerations and (ii) as
between the Company on the one hand and the Holder on the other, in such
proportion as is appropriate to reflect the relative fault of the Company and of
the Holder in connection with the statements or omissions which resulted in such
losses, claims, damages or liabilities, as well as any other relevant equitable
considerations.
The relative benefits received by the Company on the one hand
and the Holder or the underwriters, as the case may be, on the other shall be
deemed to be in the same proportion as the proceeds from the offering (net of
underwriting discounts and commissions but before deducting expenses) received
by the Company from the initial sale of the Notes which can be converted into
Registrable Securities by the Company to the Holder pursuant to the Subscription
Agreement which corresponds to this Agreement bear to the gain realized by such
Holder or the total underwriting discounts and commissions received by the
underwriters as set forth in the table on the cover page of the prospectus, as
the case may be. The relative fault of the Company on the one hand and of the
Holder or underwriters, as the case may be, on the other shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or omission or alleged omission to state a material fact
relates to information supplied by the Company, by the Holder or by the
underwriters.
In no event shall the obligation of any Indemnifying Party to
contribute under this Section 8 exceed the amount that the Indemnifying Party
would have been obligated to pay by way of indemnification if the
indemnification provided for under Section 7(a) or 7(b) hereof had been
available under the circumstances.
The Company and the Holder agree that it would not be just and
equitable if contribution pursuant to this Section 8 were determined by pro rata
allocation (even if the Holder or the underwriters were treated as one entity
for such purpose) or by any other method of allocation which does not take
account of the equitable considerations referred to in the immediately preceding
paragraphs. The amount paid or payable by an Indemnified Party as a result of
the losses, claims, damages and liabilities referred to in the immediately
preceding paragraphs shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses reasonably incurred by the Indemnified
Party in connection with investigating or defending any such action or claim.
<PAGE> 10
EXHIBIT 99.4 (CONTINUED)
Notwithstanding the provisions of this Section, no Holder or underwriter shall
be required to contribute any amount in excess of the amount by which (i) in the
case of the Holder, the net proceeds received by the Holder from the sale of
Registrable Securities or (ii) in the case of an underwriter, the total price at
which the Registrable Securities purchased by it and distributed to the public
were offered to the public exceeds, in any such case, the amount of any damages
that the Holder or underwriter has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
9. Survival. The indemnity and contribution agreements
contained in Sections 7 and 8 shall remain operative and in full force and
effect regardless of (i) any termination of the Subscription Agreement or any
underwriting agreement, (ii) any investigation made by or on behalf of any
Indemnified Party or by or on behalf of the Company and (iii) the consummation
of the sale or successive resales of the Registrable Securities.
10. Information by Holder. The Holder shall furnish to
the Company such information regarding such Holder and the distribution proposed
by such Holder as the Company may reasonably request in writing and as shall be
reasonably required in connection with any registration, qualification or
compliance referred to in this Agreement.
11. Transfer or Assignment of Registration Rights. The
rights, granted to Buyer by the Company under this Agreement, to cause the
Company to register Registrable Securities, may be transferred or assigned to a
transferee or assignee of not less than $50,000 in principal amount of the Note,
provided that the Company is given written notice by Holder at the time of or
within a reasonable time after said transfer or assignment, stating the name and
address of said transferee or assignee and identifying the securities with
respect to which such registration rights are being transferred or assigned, and
provided further that the transferee or assignee of such rights is not deemed by
the board of directors of the Company, in its reasonable judgment, to be a
competitor of the Company; and provided further that the transferee or assignee
of such rights agrees to be bound by this Agreement.
Buyer is one of a group of holders of Registrable Securities
issued or issuable pursuant to a total aggregate amount of up to $5 million of
notes purchased by Buyer and others in a transaction designed to qualify as an
offering pursuant to Regulation S. Any action to be taken under this Agreement
or any term of this Agreement may be amended or waived only with written action
by the Company and the
<PAGE> 11
EXHIBIT 99.4 (CONTINUED)
holders of at least a majority-in-interest of the total of the Registrable
Securities. Any action, amendment or waiver effected in accordance with this
paragraph shall be binding upon each of the other holders of Registrable
Securities at the time then outstanding.
12. Miscellaneous.
(a) Entire Agreement. This Agreement contains
the entire understanding and agreement of the parties, and may not be modified
or terminated except by a written agreement signed by both parties.
(b) Notices. Any notice or other communication
given or permitted under this Agreement shall be in writing and shall be deemed
to have been duly given if personally delivered or sent by registered or
certified mail, return receipt requested, postage prepaid or by air courier, (a)
if to Buyer, at its address set forth below its signature line, (b) if to the
Company, at its address hereinabove set forth, and (c) if to a holder other than
Buyer, at the address thereof furnished by like notice to the Company, or (d) to
any such addresses at such other address or addresses as shall be so furnished
to the other parties by like notice.
(c) Gender of Terms. All terms used herein shall
be deemed to include the feminine and the neuter, and the singular and the
plural, as the context requires.
(d) Governing Law; Consent of Jurisdiction. This
Agreement and the validity and performance of the terms hereof shall be governed
by and construed in accordance with the laws of the State of California, except
to the extent that the law of Delaware regulates the Company's issuance of
securities. The parties hereto hereby consent to, and waive any objection to the
exercise of, personal jurisdiction in the State of California with respect to
any action or proceeding arising out of this Agreement.
(e) Titles. The titles used in this Agreement
are used for convenience only and are not to be considered in construing or
interpreting this Agreement.
(f) Prospectus Delivery Requirements. Holder
agrees, on Holder's behalf, and shall require any transferee or assignee
pursuant to Section 11 above to agree, to comply with all prospectus delivery
requirements applicable to resales of the securities pursuant to the
Registration Statement.
(g) Termination. The rights of Holder to require
the Company to request a registration pursuant to this Agreement shall terminate
on the date which is five (5) years from the date of this Agreement.
<PAGE> 12
EXHIBIT 99.4 (CONTINUED)
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the date first above written.
BUYER SELLER
((1)) PINNACLE MICRO, INC.
a Delaware Corporation
By:___________________________ By:____________________________
Name:_________________________ Name: Kenneth Campbell
Title:________________________ Title: President
or
Name: Roger Hay
Title: Executive Vice President and
Chief Financial Officer
Buyer's Address:
((4))
