SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 13D
(Rule 13d-101)
UNDER THE SECURITIES EXCHANGE ACT OF 1934
(Amendment No. )(1)
JTS CORPORATION
(Name of Issuer)
Common Stock, par value $.001 per share
(Title of Class of Securities)
4659401 04
(CUSIP Number)
Emanuel J. Adler, Esq.
Tenzer Greenblatt LLP
405 Lexington Avenue
New York, New York 10174
(212) 885-5565
(Name, Address and Telephone Number of Person Authorized
to Receive Notice and Communications)
September 25, 1997
(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition which is the subject of this Schedule 13D, and is filing this
schedule because of Rule 13d-1(b)(3) or (4), check the following box |_|.
Note: Six copies of this statement, including all exhibits, should be
filed with the Commission. See Rule 13d-1(a) for other parties to whom
copies are to be sent.
(Continued on following pages)
- ----------
(1) The remainder of this cover page shall be filled out for a reporting
person's initial filing on this form with respect to the subject class of
securities, and for any subsequent amendment containing information which would
alter disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be
deemed to be "filed" for the purpose of Section 18 of the Securities Exchange
Act of 1934 ("Act") or otherwise subject to the liabilities of that section of
the Act but shall be subject to all other provisions of the Act (however, see
the Notes).
Page 1 of 10 Pages
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SCHEDULE 13D
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CUSIP No. 4659401 04 Page 2 of __ Pages
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1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
AMBER ARBITRAGE LDC
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2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
(a) [ ]
(b) [X]
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3 SEC USE ONLY
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4 SOURCE OF FUNDS*
WC
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5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) OR 2(e) [ ]
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6 CITIZENSHIP OR PLACE OF ORGANIZATION
CAYMAN ISLANDS
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NUMBER OF 7 SOLE VOTING POWER
SHARES 78,229,377
BENEFICIALLY --------------------------------------------------------------
OWNED BY 8 SHARED VOTING POWER
EACH 30,000,016
REPORTING --------------------------------------------------------------
PERSON 9 SOLE DISPOSITIVE POWER
WITH 78,229,377
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10 SHARED DISPOSITIVE POWER
-0-
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11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
108,229,393
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12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*
[ ]
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13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
48.8%
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14 TYPE OF REPORTING PERSON*
CO
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*SEE INSTRUCTIONS BEFORE FILLING OUT!
INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEM 1-7
(INCLUDING EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE ATTESTATION.
Page 2 of 10 Pages
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Item 1. Security and Issuer
This Schedule 13D (the "Schedule 13D") is being filed by Amber
Arbitrage LDC (the "Reporting Person") with respect to the Common
Stock, par value $.001 per share (the "Common Stock"), of JTS
Corporation, a Delaware corporation (the "Company").
On September 25, 1997, the Reporting Person and certain members
of management of the Company (the "Management Investors"; the
Reporting Person and the Management Investors shall sometimes be
collectively referred to herein as the "Purchasers") entered into a
securities purchase agreement (the "Securities Purchase Agreement")
relating to a proposed financing (the "Transaction") of the Company,
consisting of an aggregate of 28,802 shares of Series D Convertible
Preferred Stock (the "Series D Shares") of the Company at a purchase
price of $875 per share, or an aggregate purchase price of
$25,201,750. Each Series D Share is convertible by the holder thereof
into 5,000 shares of Common Stock by the payment of additional
consideration equal to $.65625 per share of Common Stock issuable upon
such conversion, subject to adjustment for stock splits and similar
events. In the event that after July 9, 1998, there are insufficient
shares of Common Stock available for issuance upon conversion of the
Series D Shares, the holders of Series D Shares may convert the Series
D Shares without payment of the additional consideration. In addition,
the Series D Shares are subject to certain redemption and cashless
exercise provisions.
On September 26, 1997,the closing of the Transaction occurred,
pursuant to which the purchase price for the Series D Shares as well
as certificates representing the Series D Shares were deposited in
escrow (the "Escrow") with Cooley Goodward, LLP, as escrow agent (the
"Escrow Agent"), pursuant to an Escrow Agreement (the "Escrow
Agreement") among the Reporting Person, the Management Investors, such
other investors, the Company and the Escrow Agent. Pursuant to the
Escrow Agreement, the funds in the Escrow are the property of the
Reporting Person and the other Purchasers and the Series D Shares in
the Escrow are the property of the Company, in each case until
delivered pursuant to the Escrow Agreement by the Escrow Agent upon
the instruction of a representative designated by a majority in
interest of the Purchasers, who shall have sole discretion to cause
the delivery of such funds and shares at any time until May 31, 1998.
Notwithstanding the foregoing, prior to the expiration or early
termination of the statutory waiting period under the Hart Scott
Rodino Antitrust Improvements Act of 1976 with respect to the purchase
and sale contemplated in the Securities Purchase
Page 3 of 10 Pages
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Agreement, the Escrow Agent shall not be permitted to deliver to the
Company any of the funds or deliver to the Purchasers any of the
shares unless there remains in the Escrow an aggregate of $6,714,750
and 7,674 Series D Shares. Immediately after the entering into of the
Escrow Agreement $9,000,250 aggregate amount of purchase price was
delivered to the Company from the Escrow, of which $7,142,625 was
attributable to the Reporting Person, and 10,286 Series D Shares were
delivered from the Escrow, of which 8,163 Series D Shares were
delivered to the Reporting Person.
The Reporting Person disclaims the existence of a group with
the Management Investors.
The principal executive offices of the Company are located
at 166 Baypointe Parkway, San Jose, California 95134.
Item 2. Identity and Background
I. (a) The Reporting Person is Amber Arbitrage LDC.
(b)-(c)
The Reporting Person is a private investment fund. The principal
business address of the Reporting Person is c/o Custom House Fund
Management Limited, 31 Kildare Street, Dublin 2, Ireland.
(d) During the last five years, the Reporting Person has not been
convicted in a criminal proceeding (excluding traffic violations or
similar misdemeanors).
(e) During the last five years, the Reporting Person has not been a
party to a civil proceeding of a judicial or administrative body of
competent jurisdiction and as a result of such proceeding was or is
subject to any judgment, decree or final order enjoining future
violations of, or prohibiting or mandating activities subject to,
federal or state securities laws or finding any violation with respect
to such laws.
(f) The Reporting Person is a Cayman Islands corporation.
II. (b) - (c)
The sole director of the Reporting Person is Lismore Management, Ltd.,
a British Virgin Islands company, which has a principal business
address at c/o ING Trust (BVI) Limited, P.O. Box 3459, Road Town,
Tortola, British Virgin Islands and whose directors are Peter Anderson
and John Benbow.
Messrs. Anderson and Benbow are principally employed as partners in
the accounting firm of Benbow Anderson & Co., which has a principal
business address at P.O. Box 923, Grand Cayman, Cayman Islands.
(d) To the knowledge of the Reporting Person, none of the individuals
or entity described in this Item 2.II. has been convicted in a
criminal proceeding (excluding traffic violations or similar
misdemeanors).
(e) To the knowledge of the Reporting Person, none of the individuals
or entity described in this Item 2.II. has been a party to a civil
proceeding of a judicial or administrative body of competent
jurisdiction and as a result of such proceeding was or is subject to
any judgment, decree or final order enjoining future violations of, or
prohibiting or mandating activities subject to, federal or state
securities laws or finding any violation with respect to such laws.
(f) To the knowledge of the Reporting Person, each individual
described in this Item 2.II. is a citizen of the United Kingdom and a
permanent resident of the Cayman Islands.
Item 3. Source and Amount of Funds or Other Consideration
The source of the $20,000,250 deposited by the Reporting Person in
escrow as set forth in Item 1 was working capital of the Reporting
Person.
Item 4. Purpose of Transaction.
The Reporting Person acquired the Series D Shares of the Company
reported herein as being owned by it for
Page 4 of 10 Pages
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investment purposes. Depending upon market conditions and other
factors that the Reporting Person may deem material to its investment
decision, the Reporting Person may purchase securities of the Company
in the open market or in private transactions, or may dispose of all
or a portion of the Series D Shares or other securities of the Company
that it now owns or hereafter may acquire, subject to restrictions on
transfer under the securities laws and under the documents pursuant to
which such securities were purchased.
Pursuant to the terms of conversion set forth in Item 1, the Series D
Shares subject to the Securities Purchase Agreement are convertible
into an aggregate of 144,010,000 shares of Common Stock, of which the
Series D Shares purchased and to be purchased by the Reporting Person
are convertible into 114,290,000 shares of Common Stock. The Company
has informed the Reporting Person that as of September 26, 1997, there
were only 63,295,773 shares of Common Stock available for issuance
upon conversion of Series D Shares. Pursuant to the Securities
Purchase Agreement, the Company agreed to hold its 1998 annual meeting
of stockholders no later than July 9, 1998 and to hold a special
meeting of stockholders by November 30, 1997 (unless the proxy
statement relating to such meeting is reviewed by the Securities and
Exchange Commission, in which case the length of time of such review
shall be added to the above date) and to propose at such special
meeting and every special or annual meeting thereafter until adopted,
an amendment (the "Amendment") to the Certificate of Incorporation of
the Company, raising the number of authorized shares of Common Stock
to at least the number of shares of Common Stock issuable upon
conversion of the Series D Shares. In addition, the Amendment will
permit holders of not less than 25% of the outstanding voting power of
the Company to call a special meeting of stockholders. The Company
agreed that it would not submit any other proposals for stockholder
approval until the Amendment is approved, unless upon the advice of
counsel the Company determines that it is obligated to do so under the
Company's charter documents, by law or judicial order, or in order to
discharge its fiduciary obligations. The Company agreed that it would
not issue any additional equity securities or securities exercisable
to purchase or convertible into or exchangeable for equity securities
until the Amendment is approved, other than the securities reserved
for issuance pursuant to the Securities Purchase Agreement. The
Company further agreed that any additional equity securities issued
after approval of the Amendment which have a liquidation preference
senior to the Series D
Page 5 of 10 Pages
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Preferred Shares shall be subject to a right of first refusal in favor
of the Buyers.
The Reporting Person and holders (the "Key Stockholders") of an
aggregate of 30,000,016 shares of Common Stock of the Company entered
into a Stockholders Agreement, dated September 25, 1997, pursuant to
which the Key Stockholders agreed to vote their shares of Common Stock
in favor of the Amendment at any and all meetings of stockholders of
the Company until such Amendment is adopted or September 25, 2018, if
earlier. In addition, the Key Stockholders gave their proxy to a
designee of the Reporting Person in order to vote in favor of the
Amendment. The Reporting Person disclaims the existence of a group
with the Key Stockholders.
The Reporting Person and the other Purchasers entered into a Sales
Lock-up Agreement dated September 25, 1997, pursuant to which they
agreed that without the prior written consent of the Company, for a
period of one year from the date of such Agreement, the Purchasers
would not offer, sell, or otherwise dispose of more than 50% of the
Series D Shares or Common Stock issuable upon conversion of such 50%
of the Series D Shares, subject to certain exceptions.
In conjunction with the Securities Purchase Agreement, the Company,
the Reporting Person and the other Purchasers entered into a
Registration Rights Agreement pursuant to which the Company agreed to
file a registration statement on Form S-3 on or before October 15,
1997 with respect to the shares of Common Stock issuable upon
conversion of the Series D Shares and use its best efforts to cause
such registration statement to be declared effective on or before
January 15, 1998. In addition, pursuant to the Registration Rights
Agreement, the Company granted to the Reporting Person and such other
Purchasers certain piggyback and demand registration rights.
Pursuant to the Stockholders Agreement, the Management Investors
agreed not to convert their Series D Shares into shares of Common
Stock, until the Amendment is approved. Copies of the Securities
Purchase Agreement, the Stockholders Agreement and the Sale Lock-Up
Agreement are attached as Exhibits 7.1, 7.2 and 7.3, respectively, to
this statement and are incorporated herein by reference. The
descriptions of those agreements herein are not complete and are
qualified by their entirety by reference to the aforesaid Exhibits.
Pursuant to the Certificate of Designations relating to the Series D
Shares, the Board of Directors of the Company (the "Board") will
consist of seven members, six of whom will be elected by the holders
of a majority of the shares of Common Stock and one of whom will be
elected by the holders of a majority of the Series D Shares.
Page 6 of 10 Pages
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Except as otherwise set forth above, the Reporting Person has no plans
or proposals which relate to, or would result in, any of the matters
referred to in Paragraphs (b) through (j) of Item 4 of Schedule 13D.
Item 5. Interest in Securities of the Issuer.
(a) - (b)
According to information provided to the Reporting Person by the
Company, there were, as of September 26, 1997, 158,283,990 shares of
Common Stock of the Company issued and outstanding.
The Reporting Person has sole voting and dispositive power over
78,229,377 shares of Common Stock, comprised of (i) 14,928,700 shares
of Common Stock owned of record by Pax Clearing Company Limited
Partnership, the Reporting Person's clearing firm, (ii) 40,815,000
shares of Common Stock issuable upon the conversion of 8,163 Series D
Shares released from the Escrow on September 26, 1997, (iii) 4,904
shares of Common Stock issuable upon conversion of $80,000 principal
amount of the 5.25% convertible subordinated debentures of the Company
due April 29, 2002 owned by the Reporting Person and (iv) 22,480,773
shares of Common Stock issuable upon the conversion of that portion of
the 14,695 Series D Shares remaining in the Escrow that are
attributable to the Reporting Person and that can be converted prior
to the adoption of the Amendment. An additional 50,994,227 shares of
Common Stock will be issuable upon the conversion of Series D Shares
after the adoption of the Amendment. The Reporting Person disclaims
beneficial ownership of such additional shares of Common Stock for
purposes of this Schedule 13D inasmuch as they cannot be acquired by
the Reporting Person within 60 days of the date hereof.
The Reporting Person has the sole power to vote and dispose of all
such securities.
In addition, the Key Stockholders have given a designee of the
Reporting Person a proxy with respect to 30,000,016 shares of Common
Stock for the purpose of voting in favor of the Amendment. The
Reporting Person may be deemed to be the beneficial owner of such
shares by virtue of shared voting power over such shares.
Pursuant to Rule 13d-3 promulgated under the Securities Exchange Act
of 1934, as amended, the shares of Common Stock described in this Item
5(a) - (b) constitute 48.8% of the outstanding shares of Common
Stock.
To the knowledge of the Reporting Person, none of the individuals or
entity described in Item 2.II. of this Schedule 13D owns any
securities of the Company.
(c) On September 26, 1997, pursuant to the Securities Purchase
Agreement, the Reporting Person purchased 8,163 Series D Shares and
14,695 Series D Shares remained in Escrow.
Since July 28, 1997, the Reporting Person has disposed of 1,992,300
shares of Common Stock in transactions on the American Stock Exchange
as follows:
Date Shares Sale Price Per Share
---- ------ --------------------
8/19/97 1,000 $0.7500
8/20/97 113,300 0.7500
8/21/97 4,500 0.7500
8/22/97 4,000 0.7500
8/27/97 36,000 0.7500
8/27/97 50,000 0.8125
8/27/97 69,500 0.8750
8/28/97 7,000 0.8750
8/29/97 17,000 0.8750
9/04/97 18,500 0.7500
9/05/97 100,000 0.7500
9/09/97 25,000 0.7500
9/11/97 16,500 0.6875
9/16/97 1,477,000 0.6250
9/16/97 24,000 0.6875
9/17/97 8,000 0.6875
9/25/97 21,000 0.6250
Since July 28, 1997 the Reporting Person has acquired 12,956,600
shares of Common Stock in transactions on the American Stock Exchange
as follows:
Date Shares Purchase Price Per Share
---- ------ ------------------------
8/01/97 1,600,000 $0.6250
8/04/97 1,750,000 0.6250
8/05/97 1,000,000 0.6250
8/07/97 13,000 0.8125
8/11/97 7,600 0.6875
8/11/97 5,000 0.7500
8/13/97 6,000 0.6875
8/14/97 13,000 0.6875
8/14/97 8,000 0.7500
8/15/97 1,650,000 0.6875
8/18/97 2,000 0.6875
8/20/97 3,406,000 0.6875
8/21/97 3,306,200 0.6875
8/21/97 25,000 0.6250
8/22/97 25,000 0.6250
8/25/97 4,300 0.6250
8/26/97 3,000 0.6250
8/27/97 1,000 0.6875
9/04/97 51,000 0.6875
9/05/97 6,000 0.6875
9/08/97 20,500 0.6875
9/09/97 8,000 0.6875
9/11/97 46,000 0.6250
Since July 28, 1997 the Reporting Person has acquired an aggregate of
$80,000 principal amount of the 5.25% convertible subordinated
debentures of the Company due April 29, 2002 in transactions on the
American Stock Exchange as follows:
Date Amount of Debenture Purchase Price
---- ------------------- --------------
9/11/97 $50,000 $16,750
9/16/97 $10,000 3,013
9/16/97 $20,000 3,063
The debentures, at the option of the Reporting Person, are convertible
into Common Stock at a conversion rate of $16.3125 per share.
Page 7 of 10 Pages
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Other than as set forth above, the Reporting Person has not effected
any transactions in the securities of the Company during the past 60
days.
(d) The Reporting Person affirms that no person other than the
Reporting Person has the right to receive, or the power to direct the
receipt of, dividends from, or the proceeds from the sale of, the
securities owned by the Reporting Person.
(e) It is inapplicable for the purposes herein to state the date on
which the Reporting Person ceased to be the owner of more than five
percent of the Common Stock of the Company.
Item 6. Contracts, Arrangements, Understandings or Relationships with
respect to Securities of the Issuer.
Reference is made to Item 4 above regarding certain arrangements
relating to transfer or voting of securities.
Except as set forth elsewhere in this Schedule 13D, the Reporting
Person does not have any contract, arrangement, understanding or
relationship (legal or otherwise) with any person with respect to any
securities of the Company, including, but not limited to, transfer or
voting of any such securities, finder's fees, joint ventures, loan or
option arrangements, puts or calls, guarantees of profits, division of
profits or loss, or the giving or withholding of proxies.
Item 7. Material to be Filed as Exhibits.
1. Securities Purchase Agreement dated as of September 25, 1997
among the Company, the Reporting Person and certain other
investors named therein.
2. Stockholders Agreement dated September 25, 1997 among the
Company, the Reporting Person and certain holders of Common Stock
named therein.
3. Sale Lock-Up Agreement dated September 25, 1997 among the
Company, the Reporting Person and certain other investors named
therein.
Page 8 of 10 Pages
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SIGNATURE
After reasonable inquiry, and to the best of its knowledge and belief, the
undersigned certifies that the information set forth in this statement is true,
complete and correct.
Date: October 6, 1997
AMBER ARBITRAGE LDC
By: Lismore Mangement Ltd.
By: /s/ Peter Anderson
--------------------------------
Peter Anderson, Director
Page 9 of 10 Pages
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Exhibit Index
Sequential
Exhibit No. Description Page No.
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1. Securities Purchase Agreement dated as of September
25, 1997 among the Company, the Reporting Person and
certain other investors named therein.
2. Stockholders Agreement dated September 25, 1997 among
the Company, the Reporting Person and certain holders
of Common Stock named therein.
3. Sale Lock-Up Agreement dated September 25, 1997 among
the Company, the Reporting Person and certain other
investors named therein.
Page 10 of 10 Pages
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (the "Agreement"), dated as of September 25,
1997, by and among JTS CORPORATION, a Delaware corporation, with headquarters
located at 166 Baypointe Parkway, San Jose, California 95134 (the "Company"),
and the investors listed on the Schedule of Investors attached hereto
(individually, a "Buyer" and collectively, the "Buyers").
WHEREAS:
A. The Company and the Buyers are executing and delivering this Agreement
in reliance upon the exemption from securities registration afforded by Rule 506
of Regulation D ("Regulation D") as promulgated by the United States Securities
and Exchange Commission (the "SEC") under the Securities Act of 1933, as amended
(the "1933 Act");
B. The Company has authorized the following new series of its Preferred
Stock, $.001 par value per share (the "Preferred Stock"): the Company's Series D
Convertible Preferred Stock (the "Series D Preferred Shares"), which shall be
convertible into shares of the Company's Common Stock, $.001 par value per share
(the "Common Stock") (as converted, the "Conversion Shares"), in accordance with
the terms of the Company's Certificate of Designations, Preferences and Rights
of the Series D Preferred Shares, substantially in the form attached hereto as
Exhibit A (the "Certificate of Designations");
C. The Buyers wish to purchase, upon the terms and conditions stated in
this Agreement, an aggregate of up to 28,802 shares of Series D Preferred Shares
in the respective amounts set forth opposite each Buyer's name on the Schedule
of Investors; and
D. Contemporaneously with the execution and delivery of this Agreement, the
parties hereto are executing and delivering a Registration Rights Agreement
substantially in the form attached hereto as Exhibit B (the "Registration Rights
Agreement") pursuant to which the Company has agreed to provide certain
registration rights under the 1933 Act and the rules and regulations promulgated
thereunder, and applicable state securities laws, a Lock-Up Agreement (the
"Lock-Up Agreement") substantially in the form attached hereto as Exhibit C
pursuant to which the Buyers have agreed to restrict sale of fifty percent (50%)
of the Series D Preferred Shares and the Conversion Shares and an Escrow
Agreement (the "Escrow Agreement") substantially in the form attached hereto as
Exhibit D pursuant to which the Buyers and the Company have agreed to establish
an escrow account in connection with the purchase and sale of the Series D
Preferred Shares contemplated hereby.
E. Contemporaneously with the execution and delivery of this Agreement, the
Buyers and certain shareholders of the Company are executing a stockholders
agreement in the form of Exhibit E (the "Stockholders Agreement").
NOW THEREFORE, the Company and the Buyers hereby agree as follows:
1.
<PAGE>
1. PURCHASE AND SALE OF SERIES D PREFERRED SHARES.
a. Purchase of Series D Preferred Shares. Subject to the satisfaction
(or waiver) of the conditions set forth in Sections 5 and 6 below, the
Company shall deposit in the escrow account the number of shares of Series
D Preferred Shares and the Buyers shall deposit the dollar amount stated in
the Escrow Agreement (the "Closing"). Subject to the terms of the Escrow
Agreement, the Escrow Agent (as that term is defined in the Escrow
Agreement) shall release to the Buyers any or all of the Series D Preferred
Shares and to the Company the corresponding dollar amount from each Buyer
from time to time. The per share purchase price (the "Purchase Price") of
the Series D Preferred Shares shall be $875.00.
b. Closing Date. The date and time of the Closing (the "Closing Date")
shall be at 6:00 p.m. Pacific Standard Time on Thursday, September 25, 1997
or at such other time and place as the Company and the Buyers shall
mutually agree. The Closing shall occur on the Closing Date at the offices
of Cooley Godward LLP, Five Palo Alto Square, Palo Alto, California 94306.
c. Form of Payment. On the Closing Date, (i) each Buyer shall deposit
the Purchase Price with the Escrow Agent for the Series D Preferred Shares
to be issued and sold to such Buyer, by wire transfer of immediately
available funds in accordance with the Escrow Agent's written wire
instructions, and (ii) as soon thereafter as practicable, the Company shall
deposit with the Escrow Agent, a stock certificate representing such number
of the Series D Preferred Shares which such Buyer is purchasing (as
indicated opposite such Buyer's name on the Schedule of Investors), duly
executed on behalf of the Company and registered in the name of such Buyer
or its designee (the "Stock Certificates").
2. BUYER'S REPRESENTATIONS AND WARRANTIES.
Each Buyer represents and warrants with respect to only itself that:
a. Investment Purpose. Such Buyer (i) is acquiring the Series D
Preferred Shares and (ii) upon conversion of the Series D Preferred Shares,
will acquire the Conversion Shares then issuable, for its own account for
investment only, not as a nominee or agent, and not with a view to the
resale or distribution of any part thereof. By executing this Agreement,
each Buyer further represents that such Buyer does not have any contract,
undertaking, agreement or arrangement with any person to sell, transfer or
grant participations to such person or to any third person, with respect to
any of the Series D Preferred Shares or the Conversion Shares.
b. Accredited Investor Status. Such Buyer is an "accredited investor"
as that term is defined in Rule 501(a)(3) of Regulation D.
c. Certain Provisions Under 16 C.F.R. Rule 802.64. Consistent with
Rule 802.64(b), Amber Arbitrage LDC ("Amber") is acquiring the Series D
Preferred Shares "solely
2.
<PAGE>
for the purposes of investment" as that term is defined in Rule
801.1(i)(1). Amber is an "Institutional Investor" for the purposes of
16.C.F.R. Rule 802.64(a).
d. Reliance on Exemptions. Such Buyer understands that the Series D
Preferred Shares and the Conversion Shares are being offered and sold to it
in reliance on specific exemptions from the registration requirements of
United States federal and state securities laws and that the Company is
relying in part upon the truth and accuracy of, and such Buyer's compliance
with, the representations, warranties, agreements, acknowledgments and
understandings of such Buyer set forth herein in order to determine the
availability of such exemptions and the eligibility of such Buyer to
acquire the Series D Preferred Shares and the Conversion Shares.
e. Information. Such Buyer and its advisors, if any, have been
furnished with all materials relating to the business, finances and
operations of the Company and materials relating to the offer and sale of
the Series D Preferred Shares and the Conversion Shares which have been
requested by such Buyer. Such Buyer and its advisors, if any, have been
afforded the opportunity to ask questions of the Company. Neither such
inquiries nor any other due diligence investigations conducted by such
Buyer or its advisors, if any, or its representatives shall modify, amend
or affect such Buyer's right to rely on the Company's representations and
warranties contained in Section 3 below. Such Buyer understands that its
investment in the Series D Preferred Shares and the Conversion Shares
involves a high degree of risk. Such Buyer has sought such accounting,
legal and tax advice as it has considered necessary to make an informed
investment decision with respect to its acquisition of the Series D
Preferred Shares and the Conversion Shares.
f. No Governmental Review. Such Buyer understands that no United
States federal or state agency or any other government or governmental
agency has passed on or made any recommendation or endorsement of the
Series D Preferred Shares or the Conversion Shares or the fairness or
suitability of the investment in the Series D Preferred Shares or the
Conversion Shares nor have such authorities passed upon or endorsed the
merits of the offering of the Series D Preferred Shares or the Conversion
Shares.
g. Transfer or Resale. Such Buyer understands that except as provided
in the Registration Rights Agreement: (i) the Series D Preferred Shares and
the Conversion Shares have not been and are not being registered under the
1933 Act or any state securities laws, and may not be sold, assigned or
transferred unless (A) subsequently registered thereunder, (B) such Buyer
shall have delivered to the Company an opinion of counsel, in a generally
acceptable form, to the effect that such securities to be sold, assigned or
transferred may be sold, assigned or transferred pursuant to an exemption
from such registration, or (C) such Buyer provides the Company with
reasonable assurance that such securities can be sold, assigned or
transferred pursuant to Rule 144 promulgated under the 1933 Act (or a
successor rule thereto); (ii) any sale of such securities made in reliance
on Rule 144 promulgated under the 1933 Act (or a successor rule thereto)
("Rule 144") may be made only in accordance with the terms of Rule 144 and
further, if Rule 144 is not applicable, any resale of such securities under
circumstances in which the seller (or the person through whom the sale is
made) may be deemed to be an underwriter
3.
<PAGE>
(as that term is defined in the 1933 Act) may require compliance with some
other exemption under the 1933 Act or the rules and regulations of the SEC
thereunder; and (iii) neither the Company nor any other person is under any
obligation to register such securities under the 1933 Act or any state
securities laws or to comply with the terms and conditions of any exemption
thereunder.
h. Legends. Such Buyer understands that the certificates or other
instruments representing the Series D Preferred Shares and, until such time
as the sale of the Conversion Shares have been registered under the 1933
Act as contemplated by the Registration Rights Agreement, the stock
certificates representing the Conversion Shares, shall bear a restrictive
legend in substantially the following form (and a stop-transfer order may
be placed against transfer of such stock certificates):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE
SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY
NOT BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF
AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF
COUNSEL, ACCEPTABLE TO THE COMPANY, THAT REGISTRATION
IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE STATE
SECURITIES LAWS OR UNLESS SOLD PURSUANT TO RULE 144
UNDER SAID ACT.
Such Buyer also understands that pursuant to the Lock-Up Agreement,
certificates or other instruments representing fifty percent (50%) of the
Series D Preferred Shares and the stock certificates representing the
Conversion Shares issuable upon conversion of such fifty per cent (50%) of
the Series D Preferred Shares shall bear a restrictive legend in
substantially the following form (and a stop-transfer order may be placed
against transfer of such stock certificates):
UNTIL SEPTEMBER 25, 1998, THE SALE, TRANSFER OR
ASSIGNMENT OF THE SECURITIES REPRESENTED BY THIS
CERTIFICATE IS SUBJECT TO THE TERMS OF AN AGREEMENT
BETWEEN THE COMPANY AND THE REGISTERED HOLDER OR HIS
PREDECESSOR IN INTEREST. COPIES OF SUCH AGREEMENT MAY
BE OBTAINED BY WRITTEN REQUEST MADE BY THE HOLDER OF
RECORD OF THIS CERTIFICATE TO THE SECRETARY OF THE
COMPANY.
i. Authorization; Enforcement. This Agreement has been duly and
validly authorized, executed and delivered on behalf of such Buyer and is a
valid and binding agreement of such Buyer enforceable in accordance with
its terms, subject as to enforceability to general principles of equity and
to applicable bankruptcy, insolvency, reorganization, moratorium,
4.
<PAGE>
liquidation and other similar laws relating to, or affecting generally, the
enforcement of applicable creditors' rights and remedies.
j Residency. Such Buyer is a resident of that country specified in its
address on the Schedule of Investors.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to each of the Buyers that:
a. Organization and Qualification. The Company and its significant
subsidiaries (as defined in Rule 1-02 (w) of Regulation S-X promulgated by
the SEC under the 1933 Act and which are set forth in Schedule 3(a)) (the
"Significant Subsidiaries") are corporations duly organized and validly
existing in good standing under the laws of the jurisdictions in which they
are incorporated, and have the requisite corporate power to own their
properties and to carry on their business as now being conducted. Each of
the Company and its subsidiaries is duly qualified as a foreign corporation
to do business and is in good standing in every jurisdiction in which the
nature of the business conducted by it makes such qualification necessary,
except to the extent that the failure to be so qualified or be in good
standing would not have a material adverse effect on the Company and its
subsidiaries taken as a whole. As used in this Section 3, the term
"Company" shall include all of its Significant Subsidiaries.
b. Authorization; Enforcement; Compliance with Other Instruments. (i)
The Company has the requisite corporate power and authority to enter into
and perform this Agreement, the Registration Rights Agreement, the
Certificate of Designations of the Series D Preferred Shares (the
"Certificate of Designations") and the Escrow Agreement (the "Transaction
Documents"), and to issue the Series D Preferred Shares and, upon
authorization in the Certificate of Incorporation, the Conversion Shares in
accordance with the terms hereof and thereof, (ii) the execution and
delivery of the Transaction Documents by the Company and the consummation
by it of the transactions contemplated hereby and thereby, including
without limitation the issuance of the Series D Preferred Shares and the
reservation for issuance and the issuance of the Conversion Shares issuable
upon conversion thereof, have been duly authorized by the Company's Board
of Directors and no further consent or authorization is required by the
Company, its Board of Directors or its stockholders other than the
amendment of the Certificate of Incorporation to increase the authorized
number of shares of Common Stock of the Company to cover the issuance of
the Conversion Shares, (iii) the Transaction Documents have been duly
executed and delivered by the Company, (iv) this Agreement, the
Registration Rights Agreement, and the Escrow Agreement constitute the
valid and binding obligations of the Company enforceable against the
Company in accordance with their terms, except as such enforceability may
be limited by general principles of equity or applicable bankruptcy,
insolvency, reorganization, moratorium, liquidation or similar laws
relating to, or affecting generally, the enforcement of creditors' rights
and remedies, and (v) prior to the Closing Date, the Certificate of
Designations has been filed with the Secretary of State of the State of
Delaware and will be in full force and effect, enforceable against the
Company in accordance with its terms. The Buyers have brought the
Stockholders Agreement to the attention of the Company,
5.
<PAGE>
and the Company agrees not to take any actions not consistent with the
intent of the Stockholders Agreement.
c. Capitalization. As of the date hereof, the authorized capital stock
of the Company consists of 250,000,000 shares of Common Stock, of which
158,283,990 shares are issued and outstanding, and 10,000,000 shares of
Preferred Stock, of which 4,600 shares of Series C Convertible Preferred
Stock (the "Series C Preferred Shares") are issued and outstanding. All of
such outstanding shares have been validly issued and are fully paid and
nonassessable. Except as disclosed in Schedule 3(c), no shares of Common
Stock or Preferred Stock are subject to preemptive rights or any other
similar rights or any liens or encumbrances suffered or permitted by the
Company. Except as disclosed in Schedule 3(c), as of the effective date of
this Agreement, (i) there are no outstanding options, warrants, scrip,
rights to subscribe to, calls or commitments of any character whatsoever
relating to, or securities or rights convertible into, any shares of
capital stock of the Company, or contracts, commitments, understandings or
arrangements by which the Company or any of its subsidiaries is or may
become bound to issue additional shares of capital stock of the Company or
any of its subsidiaries or options, warrants, scrip, rights to subscribe
to, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into, any shares of capital stock of the
Company, (ii) there are no outstanding debt securities and (iii) there are
no agreements or arrangements under which the Company or any of its
subsidiaries is obligated to register the sale of any of their securities
under the 1933 Act (except the Registration Rights Agreement). There are no
securities or instruments containing anti- dilution or similar provisions
that will be triggered by the issuance of the Series D Preferred Shares or
the Conversion Shares as described in this Agreement.
d. Issuance of Securities. The Series D Preferred Shares are duly
authorized and, upon issuance in accordance with the terms hereof, shall be
(i) validly issued, fully paid and non-assessable, (ii) free from all
taxes, liens and charges with respect to the issue thereof and (iii)
entitled to the rights and preferences set forth in the Certificate of
Designations. Upon authorization in the Certificate of Incorporation of not
less than an additional 81,000,000 shares of Common Stock, the Conversion
Shares issuable upon conversion of the Series D Preferred Shares will have
been duly authorized and reserved for issuance and upon conversion or
exercise in accordance with the Certificate of Designations will be validly
issued, fully paid and nonassessable and free from all taxes, liens and
charges with respect to the issue thereof, with the holders being entitled
to all rights accorded to a holder of Common Stock.
e. No Material Adverse Change. Since May 4, 1997, there has been no
material adverse change and no material adverse development in the
business, properties, operations, financial conditions, results of
operations or prospects of the Company, except as disclosed in the SEC
reports (including the Form 10-Q for the quarter ended August 3, 1997,
which Form 10-Q has been disclosed to the Buyers).
f. SEC Documents; Financial Statements. Since September 25, 1996, the
Company has filed timely all reports, schedules, forms, statements and
other documents required to be filed by it with the SEC pursuant to the
reporting requirements of the Securities Exchange
6.
<PAGE>
Act of 1934, as amended (the "1934 Act") (all of the foregoing filed prior
to the date hereof and all exhibits included therein and financial
statements and schedules thereto and documents incorporated by reference
therein and the Company's Registration Statements on Form S-4 filed on June
24, 1996, as amended, and on Form S-1's filed on November 29, 1996 and
February 14, 1997 and all prospectuses related thereto, all exhibits
included therein and financial statements and schedules thereto and
documents incorporated by reference therein, being hereinafter referred to
as the "SEC Documents"). The Company has delivered to the Buyer or its
representative true and complete copies of the SEC Documents. As of their
respective dates, the SEC Documents complied in all material respects with
the requirements of the Securities Act of 1933, as amended (the "1933 Act")
and the 1934 Act, as applicable, and the rules and regulations of the SEC
promulgated thereunder applicable to the SEC Documents, and none of the SEC
Documents, at the time they were filed with the SEC, contained any untrue
statement of a material fact or omitted to state a material fact required
to be stated therein or necessary in order to make the statements therein,
in light of the circumstances under which they were made, not misleading.
As of their respective dates, the financial statements of the Company
included in the SEC Documents complied as to form in all material respects
with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto. Such financial statements have
been prepared in accordance with generally accepted accounting principles,
consistently applied, during the periods involved (except (i) as may be
otherwise indicated in such financial statements or the notes thereto, or
(ii) in the case of unaudited interim statements, to the extent they may
exclude footnotes or may be condensed or summary statements) and fairly
present in all material respects the financial position of the Company as
of the dates thereof and the results of its operations and cash flows for
the periods then ended (subject, in the case of unaudited statements, to
normal year-end audit adjustments). No other information provided by or on
behalf of the Company to the Buyer which is not included in the SEC
Documents, including, without limitation, information referred to in
Section 2(d) of this Agreement, contains any untrue statement of a material
fact or omits to state any material fact necessary in order to make the
statements therein, in the light of the circumstance under which they are
or were made, not misleading.
g. Offering Valid. Assuming the accuracy of the representations and
warranties of the Buyers contained in Section 2 hereof, the offer, sale and
issuance of the Shares and the Conversion Shares will be exempt from the
registration requirements of the Securities Act of 1933, as amended (the
"Act") upon the filing of a Form D under the Act and will have been
registered or qualified (or are exempt from registration and qualification)
under the registration, permit or qualification requirements of all
applicable state securities laws. Neither the Company nor any agent on its
behalf has solicited or will solicit any offers to sell or has offered to
sell or will offer to sell all or any part of the Shares to any person or
persons so as to bring the sale of such Shares by the Company within the
registration provisions of the Act or any state securities laws.
h. Absence of Litigation. There is no action, suit, proceeding,
inquiry or investigation before or by any court, public board, government
agency, self-regulatory organization or body pending or, to the knowledge
of the Company, threatened against or affecting the Company, the Preferred
Stock, the Common Stock or any of the Company's
7.
<PAGE>
subsidiaries, wherein an unfavorable decision, ruling or finding would (i)
have a material adverse effect on the transactions contemplated hereby (ii)
adversely affect the validity or enforceability of, or the authority or
ability of the Company to perform its obligations under, this Agreement or
any of the documents contemplated herein or (iii), except as expressly set
forth in Schedule 3(h), have a material adverse effect on the business,
operations, properties, financial condition or results of operation of the
Company and its subsidiaries taken as a whole.
i. No Conflicts. The execution, delivery and performance of the
Transaction Documents by the Company and the consummation by the Company of
the transactions contemplated thereby will not (i) result in a violation of
the Certificate of Incorporation or Bylaws or (ii) conflict with, or
constitute a default (or an event which with notice or lapse of time or
both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, any material
agreement, indenture or instrument to which the Company or any of its
subsidiaries is a party, or result in a violation of any law, rule,
regulation, order, judgment, decree, license or permit (including federal
and state securities laws and regulations and the rules and regulations of
the principal market or exchange on which the Common Stock is traded or
listed) applicable to the Company or any of its subsidiaries or by which
any property or asset of the Company or any of its subsidiaries is bound or
affected. The Company is not in violation of any term of or in default
under its Certificate of Incorporation or By-laws, or any material
contract, agreement, mortgage, indebtedness, indenture, instrument,
judgment, decree or order or any statute, rule or regulation applicable to
the Company. The business of the Company is not being conducted, and shall
not be conducted so long as the Buyers hold any Series D Preferred Shares
or Conversion Shares, in violation of any law, ordinance, or regulation of
any governmental entity. Except as specifically contemplated by this
Agreement, including, but not limited to Section 4(e), and as required
under the 1933 Act and any applicable state securities laws, the Company is
not required to obtain any consent, authorization or order of, or make any
filing or registration with, any court or governmental agency or any third
party in order for it to execute, deliver or perform any of its obligations
under or contemplated by the Transaction Documents in accordance with the
terms hereof or thereof.
j. Ten Largest Stockholders. The list of stockholders of the Company
attached hereto as Exhibit E constitute the ten (10) largest holders of the
Company's Common Stock as of the date hereof who are affiliated with the
Company.
k. No General Solicitation. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has engaged in
any form of general solicitation or general advertising (within the meaning
of Regulation D under the 1933 Act) in connection with the offer or sale of
the Series D Preferred Shares or the Conversion Shares.
4. COVENANTS.
a. Form D. The Company agrees to file a Form D with respect to the
Series D Preferred Shares and the Conversion Shares as required under
Regulation D and to provide a copy thereof to each Buyer promptly after
such filing. The Company shall, on or before the
8.
<PAGE>
Closing Date, take such action as the Company shall reasonably determine is
necessary to qualify the Series D Preferred Shares and the Conversion
Shares for, or obtain exemption for the Series D Preferred Shares and the
Conversion Shares, for sale to the Buyers at the Closing pursuant to this
Agreement under applicable securities or "Blue Sky" laws of the states of
the United States, and shall provide evidence of any such action so taken
to the Buyers on or prior to the Closing Date.
b. Reporting Status. Until the earlier of (i) the date as of which the
Holders (as that term is defined in the Registration Rights Agreement) may
sell all of the Conversion Shares without restriction pursuant to Rule
144(k) promulgated under the 1933 Act (or successor thereto), or (ii) the
date on which the registration rights expire pursuant to the Registration
Rights Agreement (the "Registration Period"), the Company shall, on a
timely basis, file all reports required to be filed with the SEC pursuant
to the 1934 Act, and the Company shall not terminate its status as an
issuer required to file reports under the 1934 Act even if the 1934 Act or
the rules and regulations thereunder would permit such termination.
c. Use of Proceeds. The Company will use the proceeds from the sale of
the Series D Preferred Shares for the Company's internal working capital
purposes and to make outstanding payments to certain vendors expected, on a
commercially reasonable basis, to be approximately $4,000,000 at Closing
and approximately $2,750,000 per month thereafter.
d. Reservation of Shares. The Company shall have taken all actions
necessary to authorize and reserve 63,295,773 shares of Common Stock
available at the time of the Closing for issuance upon conversion of the
Series D Preferred Shares held by Amber.
e. Listing. The Company shall promptly secure the listing of the
Conversion Shares upon each national securities exchange or automated
quotation system, if any, upon which shares of Common Stock are then listed
(subject to official notice of issuance) and shall maintain, so long as any
other shares of Common Stock shall be so listed, such listing of all
Conversion Shares from time to time issuable under the terms of this
Agreement and the Registration Rights Agreement. The Company shall maintain
the Common Stock's authorization for quotation on AMEX, the Nasdaq National
Market, or The New York Stock Exchange, Inc. The Company shall promptly
provide to each Buyer copies of any notices it receives from AMEX regarding
the continued eligibility of the Common Stock for listing on AMEX. The
Company has not received any notice that the Common Stock is not eligible
for continued listing on AMEX.
f. Annual Meeting; Increase in Authorized Common Stock. The Company
agrees that it will hold the 1998 Annual Meeting of Stockholders (the "1998
Meeting") of the Company no later than July 9, 1998. At the 1998 Meeting or
at any special meeting called on or before the 1998 Meeting, pursuant to
Section 6(h) or otherwise, the Company shall propose an amendment to the
Company's Certificate of Incorporation increasing the Company's authorized
number of shares of Common Stock to cover at least the number of shares of
Common Stock issuable upon conversion of the Series D Preferred Shares and
to permit holders of not less than 25% of the outstanding voting power of
the Company to call a special meeting
9.
<PAGE>
of stockholders (the "Amendment"). In the event the Amendment is not
approved in the 1998 Meeting, the Company agrees that it will continue to
propose the Amendment at subsequent annual meetings of stockholders or
special meetings of stockholders until the Amendment is approved. The
Company agrees that it will not submit any other proposals for stockholder
approval until the Amendment is approved, unless upon the advice of
counsel, the Company determines that it is obligated to do so under the
Company's charter documents, by law or judicial order or in order to
discharge its fiduciary obligations.
g. Further Equity Issuances; Right of First Refusal. The Company
agrees that it shall not issue any additional equity securities or
securities exercisable to purchase, or convertible into, or exchangeable
for, equity securities until the Amendment is approved, other than
securities reserved for issuance as of the Closing. The Company further
agrees that any additional equity securities issued after approval of the
Amendment which have a liquidation preference senior to the Series D
Preferred Shares (the "Additional Equity Securities") shall be subject to a
right of first refusal in favor of the Buyers (the "Right"). Pursuant to
the Right, each Buyer shall have the right to agree to purchase up to its
pro rata share based on its proportionate investment in the Series D
Preferred Shares, of the Additional Equity Securities within five (5) days
of receipt of written notice from the Company of its intent to issue the
Additional Equity Securities. If any Buyer fails to give notice of its
intent to purchase its pro rata share of the Additional Equity Securities
within such five (5) day period, the Company shall thereafter sell the
Additional Equity Securities in respect of which the Right was not
exercised, at a price and upon general terms and conditions materially no
more favorable to the purchasers thereof than specified in the Company's
notice to the Buyers pursuant to this section.
h. Right of Access to Books and Records. The Company agrees to provide
each Buyer with access to the books and records of the Company; provided,
however, that such Buyer shall exercise such right upon reasonable notice
to the Company, at a reasonable time, and with reasonable frequency and
shall execute a confidentiality agreement reasonably acceptable in form to
the Company prior to the exercise of such right. The right shall not be
assignable and shall not apply in instances of contested takeovers in which
the requesting Buyer is a participant or has announced in a Schedule 13D
that it is contemplating participating; provided, however, that the Company
agrees that in no event will the Company provide less information to the
Buyers than is available to other contestants.
i. Board of Directors. The Company agrees that the authorized size of
the Board of Directors of the Company shall be seven directors. The Board
shall initially be comprised of Tom Mitchell, Roger Johnson, Jack Tramiel,
Jugi Tandon, Jean Deleage, and Lip-Bu Tan and a seventh member to be
designated by a majority in interest of the Buyers.
5. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
The obligation of the Company hereunder to deposit with the Escrow Agent
the Series D Preferred Shares at the Closing is subject to the satisfaction, at
or before the Closing Date, of each of the following conditions, provided that
these conditions are for the Company's sole benefit and may be waived by the
Company at any time in its sole discretion:
10.
<PAGE>
a. Such Buyer shall have executed each of the Transaction Documents
and delivered the same to the Company.
b. Such Buyer shall have deposited with the Escrow Agent (i) the
Purchase Price for the Series D Preferred Shares to be purchased by such
Buyer by wire transfer of immediately available funds pursuant to the wire
instructions provided by the Escrow Agent and (ii) an executed Lock-Up
Agreement.
c. The representations and warranties of such Buyer shall be true and
correct in all material respects as of the date when made and as of the
Closing Date as though made at that time (except for representations and
warranties that speak as of a specific date), and such Buyer shall have
performed, satisfied and complied in all material respects with the
covenants, agreements and conditions required by this Agreement to be
performed, satisfied or complied with by such Buyer at or prior to the
Closing Date.
6. CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE.
The obligation of each Buyer hereunder to deposit with the Escrow Agent the
purchase price for the Series D Preferred Shares at the Closing is subject to
the satisfaction, at or before the Closing Date, of each of the following
conditions, provided that these conditions are for each Buyer's sole benefit and
may be waived by such Buyer at any time in its sole discretion:
a. The Company shall have executed each of the Transaction Documents,
and delivered the same to such Buyer.
b. The Certificate of Designations, shall have been filed with the
Secretary of State of the State of Delaware, and a copy thereof certified
by such Secretary of State shall have been delivered to such Buyer.
c. The representations and warranties of the Company shall be true and
correct in all material respects (except to the extent that any of such
representations and warranties is already qualified as to materiality in
Section 3 above, in which case, such representations and warranties shall
be true and correct without further qualification) as of the date when made
and as of the Closing Date as though made at that time (except for
representations and warranties that speak as of a specific date) and the
Company shall have performed, satisfied and complied in all material
respects with the covenants, agreements and conditions required by this
Agreement to be performed, satisfied or complied with by the Company at or
prior to the Closing Date. Such Buyer shall have received a certificate,
executed by the Chief Executive Officer of the Company, dated as of the
Closing Date, to the foregoing effect and as to such other matters as may
be reasonably requested by such Buyer including, without limitation, an
update as of the Closing Date regarding the representation contained in
Section 3(c) above.
11.
<PAGE>
d. Such Buyer shall have received the opinion of the Company's counsel
dated as of the Closing Date, in form, scope and substance reasonably
satisfactory to such Buyer and in substantially the form of Exhibit F
attached hereto.
e. The Company shall have executed and delivered to the Escrow Agent
the Stock Certificates (in such denominations as such Buyer shall request)
for the Series D Preferred Shares being purchased by such Buyer.
f. The Board of Directors of the Company shall have adopted the
resolutions in substantially the form of Exhibit G attached hereto.
g. The Company shall have taken all actions necessary to authorize and
reserve the 63,295,773 shares of Common Stock available as of the date
hereof for the issuance upon conversion of the Series D Preferred Shares
held by Amber Arbitrage.
h. As of the Closing Date, such Buyer shall have received a copy of
letter agreements (the "Stockholders Agreement") executed by the ten (10)
largest stockholders of the Company as of the Closing Date that are
affiliated with the Company's officers or directors (collectively, the
"Approving Stockholders") to the effect that each of the Approving
Stockholders, as common stockholders of the Company, covenants to vote such
Approving Stockholder's shares of Common Stock in favor of amending the
Company's Certificate of Incorporation to increase the number of authorized
shares of Common Stock to cover the number of shares of Common Stock
issuable upon conversion of the Series D Preferred Shares at the Company's
next special or annual meeting of stockholders, which meeting the Company
agrees to hold by November 30, 1997 (unless the proxy statement relating to
such meeting is reviewed by the SEC, in which case the length of time of
such review shall be added to the above date), and at any subsequent
meeting until the Amendment is approved.
i. A total of $5,000,000 shall have been deposited with the Escrow
Agent by Buyers other than Amber.
7. INDEMNIFICATION. In consideration of each Buyer's execution and delivery
of this Agreement and acquiring the Series D Preferred Shares and Conversion
Shares hereunder and in addition to all of the Company's other obligations under
this Agreement, the Company shall defend, protect, indemnify and hold harmless
each Buyer and each other holder of Series D Preferred Shares and Conversion
Shares and all of their officers, directors, employees and agents (including,
without limitation, those retained in connection with the transactions
contemplated by this Agreement) (collectively, the "Indemnitees") from and
against any and all actions, causes of action, suits, claims, losses, costs,
penalties, fees, liabilities and damages, and expenses in connection therewith
(irrespective of whether any such Indemnitee is a party to the action for which
indemnification hereunder is sought), and including reasonable attorneys' fees
and disbursements (the "Indemnified Liabilities'), incurred by the Indemnitees
or any of them as a result of, or arising out of, or relating to (a) any
misrepresentation or breach of any representation or warranty made by the
Company in this Agreement, the Certificate of Designations or the Registration
Rights Agreement or any other certificate, instrument or
12.
<PAGE>
document contemplated hereby or thereby, (b) any breach of any covenant,
agreement or obligation of the Company contained in this Agreement, the
Certificate of Designations or the Registration Rights Agreement or any other
certificate, instrument or document contemplated hereby or thereby, or (c) any
cause of action, suit or claim brought or made against such Indemnitee and
arising out of or resulting from the execution, delivery, performance or
enforcement of this Agreement or any other instrument, document or agreement
executed pursuant hereto by any of the Indemnitees, any transaction financed or
to be financed in whole or in part, directly or indirectly, with the proceeds of
the issuance of the Series D Preferred Shares or the status of such Buyer or
holder of the Series D Preferred Shares or the Conversion Shares as an investor
in the Company. To the extent that the foregoing undertaking by the Company may
be unenforceable for any reason, the Company shall make the maximum contribution
to the payment and satisfaction of each of the Indemnified Liabilities which is
permissible under applicable law.
8. GOVERNING LAW; MISCELLANEOUS.
a. Governing Law. This Agreement shall be governed by and interpreted
in accordance with the laws of the State of California without regard to
the principles of conflict of laws.
b. Counterparts. This Agreement may be executed in two or more
identical counterparts, all of which shall be considered one and the same
agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party. In the event any signature
page is delivered by facsimile transmission, the party using such means of
delivery shall cause four (4) additional original executed signature pages
to be physically delivered to the other party within five (5) days of the
execution and delivery hereof; provided, however, that the failure to so
deliver shall not invalidate the Agreement.
c. Headings. The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Agreement.
d. Severability. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to that
jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without rendering invalid or unenforceable the remaining
terms and provisions of this Agreement or affecting the validity or
enforceability of any of the terms or provision of this Agreement in any
other jurisdiction so long as the economic or legal substance of the
transactions contemplated hereby is not affected in any manner adverse to
any party. If any provision of this Agreement is so broad as to be
unenforceable, the provision shall be interpreted to be only so broad as is
enforceable.
e. Entire Agreement; Amendments. This Agreement supersedes all other
prior oral or written agreements between the Buyers, the Company, their
affiliates and persons acting on their behalf with respect to the matters
discussed herein, and this Agreement and the instruments referenced herein
contain the entire understanding of the parties with respect to the matters
covered herein and therein and, except as specifically set forth herein or
therein, neither
13.
<PAGE>
the Company nor any Buyer makes any representation, warranty, covenant or
undertaking with respect to such matters. No provision of this Agreement
may be waived or amended other than by an instrument in writing signed by
the Company if the Company is to be charged with enforcement and/or, as the
case may be, a majority in interest of the Buyers to be charged with
enforcement.
f. Notices. Any notices, consents, waivers or other communications
required or permitted to be given under the terms of this Agreement must be
in writing and will be deemed to have been delivered (i) upon receipt, when
delivered personally; (ii) upon receipt, when sent by confirmed facsimile,
provided a copy is mailed by U.S. certified mail, return receipt requested;
(iii) five (5) days after being sent by U.S. certified mail, return receipt
requested, or (iv) one (1) day after deposit with a nationally recognized
overnight delivery service, in each case properly addressed to the party to
receive the same. The addresses and facsimile numbers for such
communications shall be:
If to the Company:
166 Baypointe Parkway
San Jose, California 95134
Telephone: (408) 468-1800
Facsimile: (408) 468-1619
Attention: President
With a copy to:
Cooley Godward LLP
3000 El Camino Real
Five Palo Alto Square
Palo Alto, California 94306
Telephone: (650) 843-5000
Facsimile: (650) 843-5048
Attention: Andrei Manoliu, Esq.
If to a Buyer, to its address and facsimile number on the Schedule of
Investors, with copies to such Buyer's counsel as set forth on the Schedule of
Investors. Each party shall provide ten (10) days' prior written notice to the
other party of any change in address or facsimile number.
g. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their respective successors and
assigns. Neither party shall assign this Agreement or any rights or
obligations hereunder without the prior written consent of the other party,
except as specifically set forth in the documents delivered herewith. A
Buyer may assign its rights hereunder without the consent of the Company,
provided, however, that any such assignment shall not release such Buyer
from its obligations hereunder unless such
14.
<PAGE>
obligations are assumed by such assignee and the Company has consented to
such assignment and assumption.
h. No Third Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be
enforced by, any other person.
i. Survival. The representations and warranties of the Company and the
Buyers contained in Sections 2 and 3, the agreements and covenants set
forth in Sections 4, 7 and this Section 8(i), shall survive the Closing.
Each Buyer shall be responsible only for its own representations,
warranties, agreements and covenants hereunder.
j. Further Assurances. Each party shall do and perform, or cause to be
done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents,
as the other party may reasonably request in order to carry out the intent
and accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
k. Placement Agent. The Company and the Buyers shall each indemnify
the other for any broker's or finder's fees for which such indemnifying
party is responsible.
l. No Strict Construction. The language used in this Agreement will be
deemed to be the language chosen by the parties to express their mutual
intent, and no rules of strict construction will be applied against any
party.
15.
<PAGE>
IN WITNESS WHEREOF, the Buyers and the Company have caused this Securities
Purchase Agreement to be duly executed as of the date first written above.
COMPANY BUYERS
JTS CORPORATION AMBER ARBITRAGE LDC
By: /s/ David T. Mitchell By: /s/ John Bender
---------------------------- ----------------------------------
Name: David T. Mitchell Name: John Bender
Its: President and Chief Its: Trading Manager
Executive Officer
/s/ Jack Tramiel
-------------------------------
Jack Tramiel
/s/ Sirjang Lal Tandon
-------------------------------
Sirjang Lal Tandon
/s/ David T. Mitchell
-------------------------------
David T. Mitchell
16.
<PAGE>
EXHIBIT A
SCHEDULE OF INVESTORS
Number of
Series D
Preferred
Investor Name & Address Investment Shares
- ----------------------- ---------- ------
Amber Arbitrage $20,000,750 22,858
c/o Custom House Fund
Management Limited
31 Kildare Street
Dublin 2, Ireland
cc: Tenzer Greenblatt LLP
Attn: Robert Mittman, Esq
405 Lexington Avenue
New York, NY 10174-0208
Jack Tramiel $ 3,000,375 3,429
18331 Lexington Drive
Monte Sereno, CA 95030
David T. Mitchell $ 200,375 229
JTS Corporation
166 Baypointe Parkway
San Jose, CA 95134
Sirjang L. Tandon $ 2,000,250 2,286
Tandon Associates
2125-B Madera Road
Simi Valley, CA 93065
------------------------------
TOTAL $25,201,750 28,802
JTS CORPORATION
STOCKHOLDERS AGREEMENT
THIS STOCKHOLDERS AGREEMENT (the "Agreement") is made and entered into this
25th day of September, 1997, by and among Amber Arbitrage LDC, a Cayman Islands
corporation ("Amber"), and those certain undersigned holders of the Common Stock
of JTS Corporation, a Delaware corporation (the "Company"), listed on Exhibit A
hereto (the "Key Stockholders").
WITNESSETH:
WHEREAS, the Company proposes to sell shares of its Series D Preferred
Stock (the "Series D Preferred Stock") to certain investors (the "Series D
Investors") pursuant to the Securities Purchase Agreement (the "Purchase
Agreement") of even date herewith by and among the Company and the Series D
Investors (the "Financing");
WHEREAS, in connection with the consummation of the Financing, the Key
Stockholders have agreed to vote their shares of the Company's capital stock as
set forth below;
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
ARTICLE 1
VOTING
1.1 Common Shares.
1.1.1 Amber and each of the Key Stockholders each agrees to hold all shares
of voting capital stock of the Company registered in their respective names or
beneficially owned by them as of the record date of any meeting of the Company's
stockholders covered by this Agreement (hereinafter collectively referred to as
the "Common Shares") subject to, and to vote the Common Shares in accordance
with, the provisions of this Agreement.
1.2 Voting. Amber and the Key Stockholders hereby covenant and agree that,
prior to the Expiration Date (as defined below) at any and all meetings of
stockholders of the Company (each a "Meeting") at which an amendment to the
Company's Certificate of Incorporation (i) increasing the Company's authorized
number of shares of Common Stock to cover at least the number of shares of
Common Stock issuable upon conversion of the Series D Preferred Stock and (ii)
authorizing holders of not less than twenty-five percent (25%) of the
outstanding voting capital stock of the Company to call a special meeting of
stockholders (the "Amendment") is submitted for a vote of the Company's
stockholders, to vote their respective shares of the Company's voting stock in
favor of the Amendment. In the event that at such Meeting, the Amendment is not
passed, the obligations of this Section 1.2 shall continue at each subsequent
meeting of stockholders until the Amendment is passed. The Key Stockholders each
1.
<PAGE>
agree not to convert any of the Series D Preferred Stock registered in their
respective names or beneficially owned by each of them as of the date hereof
until the Amendment is approved; provided, however, that Amber shall be able to
convert the number of its shares of Series D Preferred Stock into the maximum
number of shares of Common Stock that are authorized and reserved as of the date
hereof for such conversion subject to restrictions imposed by the Lock Up
Agreement executed by Amber of even date herewith. As used in this Stockholders
Agreement, the term "Expiration Date" shall mean the earlier of the date the
Amendment is approved or September 25, 2018.
1.3 Proxy; Further Assurances. Contemporaneously with the execution of this
Stockholders Agreement, each of the Key Stockholders shall deliver to Amber a
proxy in the form attached hereto as Exhibit B, which shall be irrevocable to
the fullest extent permitted by law, with respect to the respective shares (the
"Proxy"). Each of the Key Stockholders shall perform such further acts and
execute such further documents and instruments as may reasonably be required to
vest in a designee of Amber the power to carry out and give effect to the
provisions of this Stockholders Agreement. Amber hereby agrees that it will vote
all of its Common Shares in the same manner as it will vote the Proxies and that
the Proxies shall become null and void at the time Amber breaches the terms of
this covenant.
1.4 Other Rights. Except as provided by this Agreement, each of Amber and
the Key Stockholders shall be entitled to exercise the full rights of a
stockholder with respect to the Common Shares, including without limitation the
right to buy or sell Common Shares, provided such sales are made in the open
market.
ARTICLE 2
TERMINATION
2.1 This Agreement shall continue in full force and effect from the date
hereof through the earlier of the day after the date of the annual or special
meeting of stockholders of the Company in which the Amendment is approved or
September 25, 2018. On such day the Agreement shall terminate in its entirety.
ARTICLE 3
MISCELLANEOUS
3.1 Ownership. Each of Amber and the Key Stockholders represents and
warrants to all other parties to this Agreement that he, or she or it (a) now
owns the Common Shares, free and clear of liens or encumbrances, and has not,
prior to or on the date of this Agreement and other than as contemplated hereby,
executed or delivered any proxy or entered into any other voting agreement or
similar arrangement other than one which has expired or terminated prior to the
date hereof, and (b) has full power and capacity to execute, deliver and perform
this Agreement, which has been duly executed and delivered by, and evidences the
valid and binding obligation of, such party enforceable in accordance with its
terms.
2.
<PAGE>
3.2 Governing Law. This Agreement, and the rights of the parties hereto,
shall be governed by and construed in accordance with the General Corporation
Law of the State of Delaware.
3.3 Amendment. This Agreement may be amended only by an instrument in
writing signed by Amber and a majority in interest of the Key Stockholders.
Notwithstanding the foregoing, the consent of a Key Stockholder shall be
required for any amendment or waiver of this Agreement which materially
increases either such Key Stockholder's obligations or diminishes such Key
Stockholder's rights under this Agreement (other than on a pro rata basis
including Amber).
3.4 Severability. Any term or provision of this Stockholders Agreement
which is invalid or unenforceable in any jurisdiction shall, as to that
jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without rendering invalid or unenforceable the remaining terms
and provisions of this Stockholders Agreement or affecting the validity or
enforceability of any of the terms or provisions of this Stockholders Agreement
in any other jurisdiction so long as the economic or legal substance of the
transactions contemplated hereby is not affected in any manner adverse to any
party. If any provision of this Stockholders Agreement is so broad as to be
unenforceable, the provision shall be interpreted to be only so broad as is
enforceable.
3.5 Successors. This Agreement shall inure to the benefit of and be binding
upon the parties hereto and their respective heirs, successors, assigns,
administrators, executors and other legal representatives.
3.6 Additional Shares. In the event that subsequent to the date of this
Agreement any shares or other securities (other than any shares or securities of
another corporation issued to the Company's Stockholders pursuant to a plan of
merger) are issued on, or in exchange for, any of the Common Shares by reason of
any stock dividend, stock split, consolidation of shares, reclassification or
consolidation involving the Company, such shares or securities shall be deemed
to be Common Shares, for purposes of this Agreement.
3.7 Counterparts. This Agreement may be executed in one or more
counterparts, each of which will be deemed an original but all of which together
shall constitute one and the same agreement.
3.8 Waiver. No waivers of any breach of this Agreement extended by any
party hereto to any other party shall be construed as a waiver of any rights or
remedies of any other party hereto or with respect to any subsequent breach.
3.9 Attorney's Fees. In the event that any suit or action is instituted to
enforce any provision in this Agreement, the prevailing party shall be entitled
to all costs and expenses of maintaining such suit or action, including
reasonable attorneys' fees.
3.
<PAGE>
3.10 Entire Agreement. This Agreement and the Exhibits hereto, along with
the Purchase Agreement and each of the Exhibits thereto, constitute the full and
entire understanding and agreement between the parties with regard to the
subjects hereof and thereof and no party shall be liable or bound to any other
in any manner by any representations, warranties, covenants and agreements
except as specifically set forth herein and therein.
4.
<PAGE>
SHAREHOLDERS AGREEMENT
IN WITNESS WHEREOF, the parties hereto have executed this Stockholders
Agreement as of the date first above written.
KEY STOCKHOLDERS:
AMBER ARBITRAGE LDC
/s/ Helen Tramiel
- --------------------------------- c/o Custom House Fund
Helen Tramiel Management Limited
31 Kildare Street
Dublin 2, Ireland
/s/ Jack Tramiel
- -------------------------------- By: /s/ John Bender
Jack Tramiel ----------------------------
Title: Trading Manager
/s/ David T. Mitchell
- --------------------------------
David T. Mitchell
Alta V Limited Partnership
By: Alta V Limited Partners, L.P.
/s/ Jean Deleage
- --------------------------------
Jean Deleage
General Partner
Lunenburg S A
/s/ J. Tandon
- --------------------------------
J. Tandon
D & U Tandon LLC
/s/ Devindaer Tandon
- --------------------------------
Devindaer Tandon
/s/ Sirjang Lal Tandon
- --------------------------------
Sirjang Lal Tandon
Tandon Family Partnership
/s/ Sirjang Lal Tandon
- --------------------------------
Sirjang Lal Tandon
J & S Tandon, LLC
/s/ J. Tandon
- --------------------------------
J. Tandon
Lunenburg S A
/s/ J. Tandon
- --------------------------------
J. Tandon
<PAGE>
EXHIBIT A
LIST OF KEY STOCKHOLDERS
Helen Tramiel
Jack Tramiel
David T. Mitchell
Alta V Limited Partnership
Lunenburg S A
D & U Tandon LLC
Sirjang Lal Tandon
Tandon Family Partnership
J & S Tandon, LLC
Lunenburg S A
<PAGE>
EXHIBIT B
IRREVOCABLE PROXY
Each of the undersigned stockholders of JTS Corporation, a Delaware
corporation (the "Company"), hereby irrevocably (to the fullest extent permitted
by law) appoints and constitutes John Bender ("Bender") as attorney and proxy of
the undersigned with full power of substitution and resubstitution, to the full
extent of the undersigned's rights with respect to the shares of capital stock
of the Company owned by the undersigned as of the record date of any meeting of
the stockholders of the Company to which this proxy pertains. (The shares of the
capital stock of the Company referred to in the immediately preceding sentence
are referred to as the "Shares.") Upon the execution hereof, all prior proxies
given by the undersigned with respect to any of the Shares are hereby revoked,
and no subsequent proxies will be given with respect to any of the Shares for as
long as this Proxy remains in effect.
This proxy is irrevocable and is coupled with an interest. This proxy is
granted in connection with the Stockholders Agreement of even date herewith
between Amber Arbitrage LDC ("Amber") and each of the undersigned (the
"Stockholders Agreement") and in consideration of Amber entering into the
Securities Purchase Agreement of even date herewith among the Company, Amber and
certain investors (the "Purchase Agreement") and in consideration of the
benefits accruing to the undersigned by virtue of Amber entering into the
Securities Purchase Agreement. Capitalized terms used but not otherwise defined
in this proxy have the meanings assigned to such terms in the Stockholders
Agreement.
The attorney and proxy named above will be empowered, and may exercise this
proxy, to vote the Shares at any meeting of the stockholders of the Company in
favor of an amendment to the Company's Certificate of Incorporation (the
"Amendment") to (i) increase the Company's authorized number of shares of Common
Stock to cover at least the number of shares of Common Stock issuable upon
conversion of the Series D Preferred Stock (as defined in the Stockholders
Agreement) and (ii) authorizing holders of not less than twenty-five percent
(25%) of the outstanding voting capital stock of the Company to call a special
meeting of stockholders. This proxy shall terminate and have no further effect
following the earlier to occur of (x) the approval by the stockholders of the
Amendment or (y) September 25, 2018.
This proxy shall be binding upon the heirs, successors and assigns of the
undersigned (including any transferee of any of the Shares, except for
transferees of the undersigned in open market transactions).
Dated: September 25, 1997
/s/ Helen Tramiel
------------------------------------------
Name: Helen Tramiel
------------------------------------
<PAGE>
Number of Shares of Company Common
Stock: 11,597,135
-----------------------------------
/s/ Jack Tramiel
------------------------------------------
Name: Jack Tramiel
Number of Shares of Company Common
Stock: 707,611
-----------------------------------
/s/ David T. Mitchell
------------------------------------------
Name: David T. Mitchell
Number of Shares of Company Common
Stock: 4,010,196
-----------------------------------
Alta V Limited Partnership
By: Alta V Management Partners, L.P.
By: /s/ Jean Deleage
--------------------------------------
General Partner
Number of Shares of Company Common
Stock: 3,896,550
-----------------------------------
Lunenburg SA
/s/ J. Tandon
------------------------------------------
Number of Shares of Company Common
Stock: 1,911,673
-----------------------------------
D & U Tandon LLC
/s/ Devindaer Tandon
------------------------------------------
Number of Shares of Company Common
Stock: 1,013,336
-----------------------------------
/s/ Sirjang Lal Tandon
------------------------------------------
Name: Sirjang Lal Tandon
Number of Shares of Company Common
Stock: 1,000,000
-----------------------------------
Tanon Family Partnership
/s/ Sirjang Lal Tandon
------------------------------------------
<PAGE>
Number of Shares of Company Common
Stock: 4,350,000
-----------------------------------
J & S Tandon, LLC
/s/ J. Tandon
------------------------------------------
Number of Shares of Company Common
Stock: 1,013,335
-----------------------------------
Lunenburg SA
/s/ J. Tandon
------------------------------------------
Number of Shares of Company Common
Stock: 500,000
-----------------------------------
JTS CORPORATION
SALE LOCK-UP AGREEMENT
September 25, 1997
JTS Corporation
166 Baypointe Parkway
San Jose, CA 95134
Ladies and Gentlemen:
Each of the undersigned desires to purchase shares of Series D Convertible
Preferred Stock ("Series D Preferred") of JTS Corporation (the "Company")
pursuant to the Securities Purchase Agreement dated of even date herewith (the
"Purchase Agreement").
In consideration of the foregoing, and as a condition to such purchase,
each of the undersigned hereby irrevocably agrees that he, she or it will not,
without the prior written approval of the Company, for a period of one year (the
"Full Lock-up Period") from the date hereof, offer, sell, contract to sell, make
any short sale (including, but not limited to, a "short against the box"),
pledge, or otherwise dispose of directly or indirectly, more than fifty percent
(50%) of the shares of Series D Preferred or Common Stock issuable upon
conversion of such fifty percent (50%) of the shares of Series D Preferred (such
fifty percent (50%) being referred to herein as the "Securities") which he, she
or it may own directly or indirectly or beneficially (as defined by the
Securities Exchange Act of 1934 and the rules and regulations thereunder);
provided however, that this Agreement shall terminate, and the foregoing
restriction shall be of no further force and effect, in the case of (i) an
Acquisition or Asset Transfer (both as defined in the Certificate of Designation
of the Series D Preferred), (ii) the Company's failure to obtain timely SEC
effectiveness of the Form S-3 registration statement pursuant to Section 2.2(a)
of the Registration Rights Agreement of even date herewith, (iii) the
commencement by the Company of bankruptcy proceedings, or (iv) an involuntary
bankruptcy proceeding which the Company has not succeeded in dismissing within
sixty (60) days of its commencement.
The foregoing restriction is expressly agreed to preclude each holder of
Securities from engaging in any hedging or other transaction that is designed to
or reasonably expected to lead to, or result in, a disposition of Securities
during the Lock-Up Period even if such Securities would be disposed of by any of
the undersigned subsequent to the Lock-up Period or by someone other than one of
the undersigned. Nothing herein shall prevent the undersigned from engaging in
direct sales through the American Stock Exchange of Common Stock owned by the
undersigned prior to September 25, 1997.
Notwithstanding the foregoing, any transfer of Securities which either (i)
will not result in any change in beneficial ownership, including, but not
limited to, pro rata partnership distributions and transfers into trusts for the
benefit of the original holder, or (ii) constitute bona fide gifts of such
shares, will not require your consent provided that the transferee enters into
1.
<PAGE>
a lock-up agreement in substantially the form hereof covering the remainder of
the Lock-up Period under this Agreement.
Each of the undersigned confirms that he, she or it understands that the
Company will rely upon the representations set forth in this Agreement in
proceeding with purchase and sale of the Series D Preferred pursuant to the
Purchase Agreement. Each of the undersigned understands that this Agreement is
irrevocable and shall be binding on the undersigned and his, her or its
respective successors, heirs, personal representatives and assigns. Each of the
undersigned agrees and consents to the entry of stop transfer instructions with
the Company's transfer agent against the transfer of the Securities except in
compliance with this Agreement.
Amber Arbitrage LDC
By: /s/ John Bender
-----------------------------------
Name: John Bender
Its: Trading Manager
/s/ Jack Tramiel
---------------------------------------
Jack Tramiel
/s/ Sirjang Lal Tandon
---------------------------------------
Sirjang Lal Tandon
/s/ David T. Mitchell
---------------------------------------
David T. Mitchell
