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 31, 1997
SOFTNET SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
NEW YORK
(State or other jurisdiction of incorporation)
1-5270 11-1817252
(Commission File Number) (I.R.S. Employer Identification Number)
520 Logue Ave., Mountain View, CA 94043
(Address of principal executive offices) (Zip Code)
(650) 965-3700
(Registrant's telephone number, including area code)
ITEM 5. OTHER EVENTS
On December 31, 1997 Registrant issued to a single institutional
investor 5,000 shares of Series A Convertible Preferred Stock ("Preferred
Stock") and warrants ("Warrants") to purchase 150,000 shares of Common
Stock. The Preferred Stock is convertible at a price based upon the market
price for the Company's Common Stock during the trading period preceding
conversion but not more than $8.28 per share. The Warrants are exercisable
at $7.95 per share. Any Preferred Stock outstanding on December 31, 2000
will be automatically converted into Common Stock and the Warrants expire
on December 31, 2001.
The Warrants require adjustments of the exercise price and the number
of share of Common Stock issuable if the Company issued additional shares
of Common Stock (other than pursuant to presently outstanding warrants and
other convertible securities, as well as under Board approved
employee/director option plans) at prices less than the then market price.
The Warrants permit cashless exercise. The Preferred Stock is subject to
mandatory redemption, at 118% of stated value ($5,000,000), and the Company
is subject to penalties, under a variety of circumstances, including
failure to list the underlying Common Stock on the American Stock Exchange
and failure to register the resale of the underlying Common Stock under the
Securities Act of 1933. At the Company's option, the Preferred Stock may
be redeemed after December 31, 1998 at 130% of its stated value. The
Preferred Stock is entitled to dividends, at the rate of 5% per annum,
payable in cash or, at the Company's election, in additional shares of
Preferred Stock.
The financing was arranged by Shoreline Pacific Institutional Finance,
the Institutional Division of Financial West Group, who received a fee of
$250,000 plus warrants, exercisable at $6.625 and expiring on December 31,
2000, to purchase 20,000 shares of Common Stock.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(c) Exhibits
Number Description
3.1 Certificate of Amendment to Certificate of Incorporation, as
filed in the Department of State of New York, on December
31, 1997.
4.1 Stock Purchase Warrant for 150,000 shares of Common Stock at
$7.95 per share expiring on December 31, 2001.
4.2 Stock Purchase Warrant for 20,000 shares of Common Stock at
$6.625 per share, expiring on December 31, 2000.
10.1 Securities Purchase Agreement dated December 31, 1997
10.2 Registration Rights Agreement dated December 31, 1997
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
SOFTNET SYSTEMS, INC.
By: /s/ A J.R. Oosthuizen
Dated: January 8, 1998
Exhibit 3.1
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
SOFTNET SYSTEMS, INC.
Under Section 805 of the Business Corporation Law
of the State of New York
THE UNDERSIGNED, Johann Oosthuizen_____________ and Mark
Phillips______________, being the President and Secretary of Softnet Systems,
Inc. (the "Corporation") hereby certify that:
Article 1. The name of the Corporation is Softnet Systems, Inc. (the
"Corporation"), originally known as Tensor Electric Development Co., Inc.
Article 2. The Certificate of Incorporation was filed by the Department of
State on the 12th day of December, 1956.
Article 3. The Certificate of Incorporation is amended to establish the
designations, powers, preferences and rights of the Series A Convertible
Preferred Stock. To effect the foregoing, Article Third of the Certificate of
Incorporation is hereby amended by adding the following provisions to the end of
Article Third:
I. Designation and Amount
The designation of this series, which consists of 5,000 shares of Preferred
Stock, is Series A Convertible Preferred Stock (the "Series A Preferred Stock")
and the stated value shall be One Thousand Dollars ($1,000) per share (the
"Stated Value").
II. Rank
The Series A Preferred Stock shall rank (i) prior to the Corporation's
common stock, par value $.01 per share (the "Common Stock"); (ii) prior to any
class or series of capital stock of the Corporation hereafter created (unless,
with the consent of the holders of Series A Preferred Stock obtained in
accordance with Article IX hereof, such class or series of capital stock
specifically, by its terms, ranks senior to or pari passu with the Series A
Preferred Stock) (collectively, with the Common Stock, "Junior Securities");
(iii) pari passu with any class or series of capital stock of the Corporation
hereafter created (with the consent of the holders of Series A Preferred Stock
obtained in accordance with Article IX hereof) specifically ranking, by its
terms, on parity with the Series A Preferred Stock ("Pari Passu Securities");
and (iv) junior to any class or series of capital stock of the Corporation
hereafter created (with the consent of the holders of Series A Preferred Stock
obtained in accordance with Article IX hereof) specifically ranking, by its
terms, senior to the Series A Preferred Stock ("Senior Securities"), in each
case as to distribution of assets upon liquidation, dissolution or winding up of
the Corporation, whether voluntary or involuntary.
III. Dividends
The Series A Preferred Stock shall bear dividends which will accrue
cumulatively at a rate of 5% per annum and shall be payable quarterly, at the
Corporation's option, in cash or in additional shares of Series A Preferred
Stock and may be entitled to additional distributions, pursuant to the terms of
Article VI(C)(4) and (5) hereof. In no event, so long as any Series A Preferred
Stock shall remain outstanding, shall any dividend whatsoever be declared or
paid upon, nor shall any distribution be made upon, any Junior Securities, nor
shall any shares of Junior Securities be purchased or redeemed by the
Corporation nor shall any moneys be paid to or made available for a sinking fund
for the purchase or redemption of any Junior Securities, without, in each such
case, the written consent of the holders of a majority of the outstanding shares
of Series A Preferred Stock, voting together as a class.
IV. Liquidation Preference
A. If the Corporation shall commence a voluntary case under the
Federal bankruptcy laws or any other applicable Federal or State bankruptcy,
insolvency or similar law, or consent to the entry of an order for relief in an
involuntary case under any law or to the appointment of a receiver, liquidator,
assignee, custodian, trustee, sequestrator (or other similar official) of the
Corporation or of any substantial part of its property, or make an assignment
for the benefit of its creditors, or admit in writing its inability to pay its
debts generally as they become due, or if a decree or order for relief in
respect of the Corporation shall be entered by a court having jurisdiction in
the premises in an involuntary case under the Federal bankruptcy laws or any
other applicable Federal or state bankruptcy, insolvency or similar law
resulting in the appointment of a receiver, liquidator, assignee, custodian,
trustee, sequestrator (or other similar official) of the Corporation or of any
substantial part of its property, or ordering the winding up or liquidation of
its affairs, and any such decree or order shall be unstayed and in effect for a
period of thirty (30) consecutive days and, on account of any such event, the
Corporation shall liquidate, dissolve or wind up, or if the Corporation shall
otherwise liquidate, dissolve or wind up (each such event being considered a
"Liquidation Event"), no distribution shall be made to the holders of any shares
of capital stock of the Corporation (other than Senior Securities) upon
liquidation, dissolution or winding up unless prior thereto, the holders of
shares of Series A Preferred Stock, shall have received the Liquidation
Preference (as defined in Article IV.C) with respect to each share. If upon the
occurrence of a Liquidation Event, the assets and funds available for
distribution among the holders of the Series A Preferred Stock and holders of
Pari Passu Securities shall be insufficient to permit the payment to such
holders of the preferential amounts payable thereon, then the entire assets and
funds of the Corporation legally available for distribution to the Series A
Preferred Stock and the Pari Passu Securities shall be distributed ratably among
such shares in proportion to the ratio that the Liquidation Preference payable
on each such share bears to the aggregate liquidation preference payable on all
such shares.
B. At the option of any holder of Series A Preferred Stock, the
sale, conveyance or disposition of all or substantially all of the assets of the
Corporation in a single transaction or series of related transactions, the
effectuation by the Corporation of a transaction or series of related
transactions in which more than 50% of the voting power of the Corporation is
disposed of, or the consolidation, merger or other business combination of the
Corporation with or into any other Person (as defined below) or Persons when the
Corporation is not the survivor shall either: (i) be deemed to be a liquidation,
dissolution or winding up of the Corporation pursuant to which the Corporation
shall be required to distribute an amount equal to 118% of the Liquidation
Preference with respect to each outstanding share of Series A Preferred Stock
owned by such holder in accordance with and subject to the terms of this Article
IV or (ii) be treated pursuant to Article VI.C(3) hereof. "Person" shall mean
any individual, corporation, limited liability company, partnership,
association, trust or other entity or organization.
C. For purposes hereof, the "Liquidation Preference" with respect to
a share of the Series A Preferred Stock shall mean an amount equal to the sum of
(i) the Stated Value thereof, plus (ii) an amount equal to five percent (5%) per
annum of such Stated Value for the period beginning on the date of issuance of
such share and ending on the date of final distribution to the holder thereof
(pro rated for any portion of such period) minus any dividends that have accrued
and been paid in cash or in stock in respect of such share of Series A Preferred
Stock. The liquidation preference with respect to any Pari Passu Securities
shall be as set forth in the Certificate of Amendment of the Certificate of
Incorporation filed in respect thereof.
V. Redemption
A. If any of the following events (each, a "Mandatory Redemption
Event") shall occur:
(i) The Corporation fails to issue shares of Common Stock to any
holder of Series A Preferred Stock upon exercise by such holder of its
conversion rights in accordance with the terms of this Certificate of
AmendmentIncorporation (for a period of at least sixty (60) days if such failure
is solely as a result of the circumstances governed by the second paragraph of
Article VI.F below and the Corporation is using all commercially reasonable
efforts to authorize a sufficient number of shares of Common Stock as soon as
practicable), fails to transfer or to cause its transfer agent to transfer any
certificate for shares of Common Stock issued to a holder upon conversion of
the Series A Preferred Stock as and when required by this Certificate of
Incorporation or the Registration Rights Agreement, dated as of December 31,
1997, by and between the Corporation and any other signatory thereto (the
"Registration Rights Agreement"), fails to remove any restrictive legend on any
certificate or any shares of Common Stock issued to the holders of Series A
Preferred Stock upon conversion of the Series A Preferred Stock as and when
required by this Certificate of AmendmentIncorporation, the Securities Purchase
Agreement dated as of December 31, 1997, by and between the Corporation and any
other signatory thereto (the "Purchase Agreement") or the Registration Rights
Agreement, or fails to fulfill its obligations pursuant to Section 4 of the
Purchase Agreement (or makes any statement that it does not intend to honor the
obligations described in this paragraph) and any such failure set forth above in
this paragraph shall continue uncured (or any statement not to honor its
obligations shall not be rescinded) for ten (10) business days;
(ii) The Corporation fails to obtain effectiveness with the
Securities and Exchange Commission (the "SEC") of the Registration Statement (as
defined in the Registration Rights Agreement) prior to June 30, 1998 or such
Registration Statement lapses in effect (or sales otherwise cannot be made
thereunder, whether by reason of the Company's failure to amend or supplement
the prospectus included therein in accordance with the Registration Rights
Agreement or otherwise) (a "Sale Restriction Day") for more than
forty-fivethirty (3045) consecutive days or seventy-five sixty (7560) days in
any twelve (12) month period after such Registration Statement becomes
effective;
(iii) The Corporation shall make an assignment for the
benefit of creditors, or apply for or consent to the appointment of a receiver
or trustee for it or for all or substantially all of its property or business;
or such a receiver or trustee shall otherwise be appointed;
(iv) Bankruptcy, insolvency, reorganization 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 Corporation or
any subsidiary of the Corporation; or
(v) The Common Stock is suspended from trading on any of, or is
not listed for trading on at least one of the American Stock Exchange ("AMEX"),
the New York Stock Exchange or the Nasdaq National Market for an aggregate of at
least ten (10) days in any twelve (12) month period, then, upon the occurrence
and during the continuation of any Mandatory Redemption Event specified in
subparagraphs (i), (ii) or (v) at the option of one or more holders of then
outstanding shares of Series A Preferred Stock by written notice (the "Mandatory
Redemption Notice") to the Corporation of such Mandatory Redemption Event, or
upon the occurrence of any Mandatory Redemption Event specified in subparagraphs
(iii) or (iv), the Corporation shall purchase such holder's or all holders'
shares of Series A Preferred Stock for an amount per share equal to the greater
of (1) 118% multiplied by the sum of (a) the Stated Value of the shares to be
redeemed, plus (b) an amount equal to five percent (5%) per annum of such Stated
Value as reduced by any cash or stock dividends paid through the date of payment
of the Mandatory Redemption Amount for the period beginning on the date of
issuance of such shares and ending on the date of payment of the Mandatory
Redemption Amount (as defined below) (the "Mandatory Redemption Date") and (2)
the "parity value" of the shares to be redeemed, where parity value means the
product of (a) the number of shares of Common Stock issuable upon conversion of
such shares in accordance with Article VI below (treating the Trading Day (as
defined in Article VI.B below) immediately preceding the Mandatory Redemption
Date as the "Conversion Date" (as hereinafter defined) unless the Mandatory
Redemption Event arises as a result of a breach in respect of a specific
Conversion Date in which case such Conversion Date shall be the Conversion Date,
and deeming the two consecutive Trading Days in the Pricing Period (as
hereinafter defined) preceding the Mandatory Redemption Date that maximize the
number of shares of Common Stock issuable for purposes of this proviso as the
Market Price Days (as hereinafter defined), multiplied by (b) the Closing Price
(as hereinafter defined) for the Common Stock on such Conversion Date (the
greater of such amounts being referred to as the "Mandatory Redemption Amount").
Notwithstanding the foregoing, any holder of Series A Preferred who does not
sign the Mandatory Redemption Notice shall retain such holder's shares of Series
A Preferred Stock, the rights of which shall continue to be governed by the
terms of this Certificate of Incorporation. The Corporation shall notify all
holders promptly of the receipt by the Corporation of a Mandatory Redemption
Notice from any holder.
In the case of a Mandatory Redemption Event, if the Corporation fails
to pay the Mandatory Redemption Amount for each share within five (5) business
days of written notice that such amount is due and payable, then (assuming there
are sufficient authorized shares) in addition to all other available remedies,
each holder of Series A Preferred Stock shall have the right at any time, so
long as the Mandatory Redemption Event continues, to require the Corporation,
upon written notice, to immediately issue (in accordance with and subject to the
terms of Article VI below), in lieu of the Mandatory Redemption Amount, with
respect to each outstanding share of Series A Preferred Stock held by such
holder, the number of shares of Common Stock of the Corporation equal to the
Mandatory Redemption Amount divided by the Conversion Price then in effect.
B. If the Series A Preferred Stock ceases to be convertible as a
result of the limitations described in the second paragraph of Article VI.A
below (a "19.99% Event"), and the Corporation (i) has not obtained approval of
the issuance of the Conversion Shares by the requisite vote of the holders of
the then-outstanding Common Stock, (ii)has not prior to, or within thirty (30)
days after, the date that such 19.99% Event arises received other permission
pursuant to the rules of AMEX allowing the Corporation to resume issuances of
Conversion Shares, or (iii) is no longer governed by a rule promulgated by a
stock exchange, Nasdaq or other applicable body prohibiting the issuance of
Common Stock upon conversion of the Series A Preferred Stock in excess of 19.99%
of the Outstanding Common Amount. then, with respect to any Conversion Shares
issuable after the occurrence of the 19.99% Event, the Corporation shall pay
cash to the holder submitting the Notice of Conversion that includes such
Conversion Shares, in an amount equal to the product of (a) the number of
Conversion Shares issuable in accordance with such Notice of Conversion, but
which cannot be issued as a result of the 19.99% Event, multiplied by (b) the
Closing Price for the Common Stock on the Conversion Date. Upon the occurrence
of a 19.99% Event, a Notice shall be delivered promptly to the holders of Series
A Preferred Stock at their registered address appearing on the records of the
Corporation and shall state that 19.99% of the Outstanding Common Amount (as
defined in Article VI.A below) has been issued upon exercise of the Series A
Preferred Stock. All cash payments arising out of a 19.99% Event shall be paid
within three (3) business days of the Conversion Date.
C. Redemption at the Option of the Corporation
(i) The Corporation shall have the right to redeem the Series A
Preferred Stock on the following terms and conditions on any day after the first
anniversary of the date of original issuance of the Series A Preferred Stock.
(ii) In the case of a redemption under this Article V.C, the
redemption price per share of Series A Preferred Stock shall be the greater of
(i) 130% of the Stated Value, or (ii) the "parity value" of the shares to be
redeemed, where parity value means the product of (a) the number of shares of
Common Stock issuable upon conversion of such shares in accordance with Article
VI below (treating the Trading Day (as defined in Article VI.B below)
immediately preceding the Optional Redemption Date (as defined below) as the
"Conversion Date" (as hereinafter defined) and deeming the two consecutive
Trading Days in the Pricing Period (as hereinafter defined) preceding the
Optional Redemption Date that maximize the number of shares of Common Stock
issuable for purposes of this proviso as the Market Price Days (as hereinafter
defined)), multiplied by (b) the Closing Price (as hereinafter defined) for the
Common Stock on such Conversion Date (the greater of such amounts being referred
to as the "Optional Redemption Amount").
(iii) The Corporation shall effect each such redemption by
giving notice (the "Optional Redemption Notice") of its election to redeem, by
facsimile with a copy by overnight or 2-day courier, no less than 10 business
days prior to the redemption date (the "Optional Redemption Date"). The
Corporation may elect to redeem some, but not all, of the Series A Preferred
Stock, but in no event less than $1,500,000 per redemption. If the Corporation
elects to redeem some, but not all, of the Series A Preferred Stock, the
Corporation shall redeem a pro-rata amount from among all the Series A Preferred
Stock holders. The Optional Redemption Notice shall indicate whether the
Corporation will redeem all or part of the Series A Preferred Stock and the
Optional Redemption Date. The holders of the Series A Preferred Stock shall
have the right to convert their Series A Preferred Stock until 12:00 midnight,
New York time, on the Trading Day preceding the Optional Redemption Date.
(iv) The Corporation shall not be entitled to send an Optional
Redemption Notice unless it has (x) the full amount of the redemption price
(assuming that the Optional Redemption Amount equals 130% of the Stated Value
for all of the shares of Series A Preferred Stock to be redeemed), in cash,
available in a demand or other immediately available account in a bank or
similar financial institution or (y) immediately available credit facilities, in
the full amount of the redemption price (as calculated above), with a bank or
similar financial institution on the date the Optional Redemption Notice is
sent. If the Corporation has met the requirements of the preceding sentence,
and a holder has not submitted his Series A Preferred Stock for redemption as
required by this Article V.C by the Optional Redemption Date, the Corporation
may pay the Optional Redemption Price and cancel the Series A Preferred Stock
subject to the Optional Redemption Notice, and such redeemed Series A Preferred
Stock shall be of no further validity, force or effect. The Optional Redemption
Price shall be paid within three (3) business days after the Optional Redemption
Date.
VI. Conversion at the Option of the Holder
A. Each holder of shares of Series A Preferred Stock may, at its
option in accordance with the terms hereof, upon surrender of the certificates
therefor, convert any or all of its shares of Series A Preferred Stock into
Common Stock as follows (an "Optional Conversion") on or after the first to
occur of (a) the listing on AMEX (or on such other national securities exchange
or automated quotation system upon which the Common Stock is listed) of the
Common Stock into which the Series A Preferred Stock is then convertible or (b)
10 business days after the issuance of such Series A Preferred Stock. Each
share of Series A Preferred Stock shall be convertible into such number of fully
paid and nonassessable shares of Common Stock as is determined by dividing (1)
the sum of (a) the Stated Value thereof, plus, (b) the Premium Amount (as
defined below), by (2) the then effective Conversion Price (as defined below);
provided, however, that, unless the holder delivers a waiver in accordance with
the immediately following sentence, in no event shall a holder of shares of
Series A Preferred Stock be entitled to convert any such shares in excess of
that number of shares upon conversion of which the sum of (x) 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 the shares of Series A
Preferred Stock or unexercised portion of warrants or any other securities
containing analogous limitations) and (y) the number of shares of Common Stock
issuable upon the conversion of the shares of Series A Preferred Stock with
respect to which the determination of this proviso is being made, would result
in beneficial ownership by a holder and such holder's affiliates of more than
4.99% of the outstanding shares of Common Stock. For purposes of the proviso to
the immediately preceding sentence, (i) beneficial ownership shall be determined
in accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended, and Regulation 13D-G thereunder, except as otherwise provided in clause
(x) of such proviso, and (ii) a holder may waive the limitations set forth
therein by written notice to the Corporation upon not less than sixty-one (61)
days prior written notice (with such waiver taking effect only upon the
expiration of such sixty-one (61) day notice period)); or (iii) is no longer
governed by a rule promulgated by a stock exchange, Nasdaq or other applicable
body prohibiting the issuance of Common Stock upon conversion of the Series A
Preferred Stock in excess of 19.99% of the Outstanding Common Amount. The
"Premium Amount" for each share of Series A Preferred Stock means the product of
the Stated Value, multiplied by .05, multiplied by (N/365), minus any dividends
that have accrued and been paid in cash or in stock in respect of such share of
Series A Preferred Stock, where "N" equals the number of days elapsed from the
date of issuance of the Series A Preferred Stock to and including the Conversion
Date (as defined in Article VI.B. below).
Notwithstanding anything to the contrary contained herein, if, at any time,
the aggregate number of shares of Common Stock then issued upon conversion of
the Series A Preferred Stock equals 19.99% of the "Outstanding Common Amount"
(as hereinafter defined), the Series A Preferred Stock shall, from that time
forward, cease to be convertible into Common Stock in accordance with the terms
of this Article VI and Article VII below, unless the Corporation (i) has
obtained approval of the issuance of the Series A Preferred Stock by a majority
of the total votes eligible to be cast on such proposal, in person or by proxy,
by the holders of the then-outstanding Common Stock, or (ii) shall have
otherwise obtained permission to allow such issuances from AMEX; or (iii) is no
longer governed by a rule promulgated by a stock exchange, Nasdaq or other
applicable body prohibiting the issuance of Common Stock upon conversion of the
Series A Preferred Stock in excess of 19.99% of the Outstanding Common Amount
without shareholder approval. For purposes of this paragraph, "Outstanding
Common Amount" shall be determined in accordance with the rules of AMEX, as may
be in effect from time to time. The maximum number of shares of Common Stock
issuable as a result of the 19.99% limitation set forth herein is hereinafter
referred to as the "Maximum Share Amount." With respect to each holder of Series
A Preferred Stock, the Maximum Share Amount shall refer to such holder's pro
rata share thereof determined in accordance with Article X below. In the event
that the Corporation obtains stockholder approval, the approval of AMEX or
otherwise concludes that it is able to increase the number of shares to be
issued above the Maximum Share Amount (such increased number being the "New
Maximum Share Amount"), the references to Maximum Share Amount, above, shall be
deemed to be instead, references to the greater New Maximum Share Amount. In
the event that stockholder approval is not obtained, there are insufficient
reserved or authorized shares or a registration statement covering the
additional shares of Common Stock which constitute the New Maximum Share Amount
is not effective prior to the Maximum Share Amount being issued (if such
registration statement is necessary to allow for the public resale of such
securities), the Maximum Share Amount shall remain unchanged; provided, however,
that the holder may grant an extension to obtain a sufficient reserved or
authorized amount of shares or of the period for obtaining effectiveness of such
registration statement. In the event that (a) the aggregate number of shares of
Common Stock issued pursuant to the outstanding Series A Preferred Stock
represents at least twenty percent (20%) of the Maximum Share Amount and (b) the
sum of (x) the aggregate number of shares of Common Stock issued upon conversion
of Series A Preferred Stock plus (y) the aggregate number of shares of Common
Stock that remains issuable upon conversion of Series A Preferred Stock,
together in each case with any shares of Common Stock that are integrated with
the Conversion Shares for purposes of the rules of AMEX, represents at least one
hundred percent (100%) of the Maximum Share Amount (the "Triggering Event"), the
Corporation will use its best efforts to seek and obtain Stockholder Approval
(or obtain such other relief as will allow conversions hereunder in excess of
the Maximum Share Amount) as soon as practicable following the Triggering Event
and before the Mandatory Redemption Date.
B. 1. Subject to subparagraph (b) and (c) and Article VI.C below, the
"Conversion Price" shall be the lesser of (i) the Market Price (as defined
herein) (the "Variable Conversion Price") and (ii) the Fixed Conversion Price.
"Market Price" shall mean the average of the closing bid prices of the Common
Stock on AMEX, or on the principal securities exchange or other market on which
the Common Stock is then being traded (in each case, as reported by Bloomberg),
for any two (2) consecutive Trading Days (as defined herein) (the "Market Price
Days") in the 20 Trading Day period (the "Pricing Period") ending one (1)
Trading Day prior to the date (the "Conversion Date") the Notice of Conversion
(as defined in Section VI.E) is sent by a holder to the Corporation via
facsimile. "Trading Day" shall mean any day on which the Common Stock is traded
for any period on AMEX, or on the principal securities exchange or other
securities market on which the Common Stock is then being traded. The
converting holder shall designate the "Market Price Days" on the Conversion
Date, from the Trading Days comprising the Pricing Period and such selection
shall be indicated in the Notice of Conversion. The "Fixed Conversion Price"
shall equal $[125% of Closing Price]. $8.28.
2. Notwithstanding anything contained in subparagraph (1) of this
Paragraph B to the contrary, in the event the Corporation (i) makes a public
announcement that it intends to consolidate or merge with any other corporation
(other than a merger in which the Corporation is the surviving or continuing
corporation and its capital stock is unchanged and the stockholders of the
Corporation prior to the date of such consolidation or merger continue to own at
least 51% of the surviving or continuing corporation) or sell or transfer all or
substantially all of the assets of the Corporation or (ii) any person, group or
entity (including the Corporation) publicly announces a tender offer (as such
term is used in the Exchange Act) to purchase 50% or more of the Corporation's
Common Stock (the date of the announcement referred to in clause (i) or (ii) is
hereinafter referred to as the "Announcement Date"), then the Conversion Price
shall, effective upon the Announcement Date and continuing through the Adjusted
Conversion Price Termination Date (as defined below), be equal to the lower of
(x) the Conversion Price which would have been applicable for an Optional
Conversion occurring on the Announcement Date and (y) the Conversion Price that
would otherwise be in effect. From and after the Adjusted Conversion Price
Termination Date, the Conversion Price shall be determined as set forth in
subparagraph (1) of this Article VI.B. For purposes hereof, "Adjusted
Conversion Price Termination Date" shall mean, with respect to any proposed
transaction or tender offer for which a public announcement as contemplated by
this subparagraph (2) has been made, six (6) Trading Days after the date upon
which the Corporation (in the case of clause (i) above) or the person, group or
entity (in the case of clause (ii) above) publicly announces the termination or
abandonment of the proposed transaction or tender offer which caused this
subparagraph (2) to become operative, or the date on which the proposed
transaction or tender offer has been consummated.
3. In the event that (i) the Corporation fails to obtain
effectiveness with the SEC of the Registration Statement prior to 90 days (or
120 days if the Company is advised by the SEC that it is not eligible to use
form S-3 and is thus required to use Form S-1) following the issuance of the
Series A Preferred Stock, or (ii) such Registration Statement lapses in effect,
or sales otherwise cannot be made thereunder, whether by reason of the
Corporation's failure or inability to amend or supplement the prospectus (the
"Prospectus") included therein in accordance with the Registration Rights
Agreement or otherwise, after such Registration Statement becomes effective,
then the Pricing Period shall be comprised of, (a) in the case of an event
described in clause (i), the twenty (20) Trading Days preceding the 90th day (or
the 120th day if the Company is advised by the SEC that it is not eligible to
use form S-3 and is thus required to use Form S-1) following the issuance of the
Series A Preferred Stock plus all Trading Days through and including the third
Trading Day following the date of effectiveness of the Registration Statement;
and (b) in the case of an event described in clause (ii), the twenty (20)
Trading Days preceding the date on which the holders are first notified or
otherwise first reasonably determine based on the information available that
sales may not be made under the Prospectus, plus all Trading Days through and
including the third Trading Day following the date on which the holders of
Series A Preferred Stock are notified or otherwise first reasonably determine
based on the information available that such sales may again be made under the
Prospectus.
C. The Conversion Price shall be subject to adjustment from time to time
as follows:
1. Adjustment to Fixed Conversion Price Due to Stock Split, Stock
Dividend, Etc. If at any time when the Series A Preferred Stock is issued and
outstanding, the number of outstanding shares of Common Stock is increased by a
stock split, stock dividend, combination, reclassification, below-Market Price
rights offering to all holders of Common Stock or other similar event, the Fixed
Conversion Price shall be proportionately reduced, or if the number of
outstanding shares of Common Stock is decreased by a reverse stock split,
combination or reclassification of shares, or other similar event, the Fixed
Conversion Price shall be proportionately increased. In such event, the
Corporation shall notify the transfer agent and the conversion agent for the
Series A Preferred Stock (the "Transfer Agent") of such change on or before the
effective date thereof.
2. Adjustment to Variable Conversion Price. If at any time when
Series A Preferred Stock is issued and outstanding, the number of outstanding
shares of Common Stock is increased or decreased by a stock split, stock
dividend, combination, reclassification, below-Market Price rights offering to
all holders of Common Stock or other similar event, which event shall have taken
place during the reference period for determination of the Conversion Price for
any Optional Conversion or Automatic Conversion of the Series A Preferred Stock,
then the Variable Conversion Price shall be calculated giving appropriate effect
to the stock split, stock dividend, combination, reclassification or other
similar event for the entire Pricing Period immediately preceding the Conversion
Date. In such event, the Corporation shall notify the Transfer Agent of such
change on or before the effective date thereof.
3. Adjustment Due to Merger, Consolidation, Etc. Subject to Article
IV.B, if, at any time when Series A Preferred Stock is issued and outstanding
and prior to the conversion of all Series A Preferred Stock, there shall be any
merger, consolidation, exchange of shares, recapitalization, reorganization, or
other similar event, as a result of which shares of Common Stock of the
Corporation shall be changed into the same or a different number of shares of
another class or classes of stock or securities of the Corporation or another
entity, or in case of any sale or conveyance of all or substantially all of the
assets of the Corporation other than in connection with a plan of complete
liquidation of the Corporation, then the holders of Series A Preferred Stock
shall thereafter have the right to receive upon conversion of the Series A
Preferred Stock, upon the basis and upon the terms and conditions specified
herein and in lieu of the shares of Common Stock immediately theretofore
issuable upon conversion, such stock, securities or assets which the holders of
Series A Preferred Stock would have been entitled to receive in such transaction
had the Series A Preferred Stock been converted in full (without regard to any
limitations on conversion contained herein) immediately prior to such
transaction, and in any such case appropriate provisions shall be made with
respect to the rights and interests of the holders of Series A Preferred Stock
to the end that the provisions hereof (including, without limitation, provisions
for adjustment of the Conversion Price and of the number of shares of Common
Stock issuable upon conversion of the Series A Preferred Stock) shall thereafter
be applicable, as nearly as may be practicable in relation to any securities or
assets thereafter deliverable upon the conversion of Series A Preferred Stock.
The Corporation shall not effect any transaction described in this subsection
(3) unless (i) it first gives, to the extent practical, thirty (30) days' prior
written notice (but in any event at least fifteen (15) business days prior
written notice) of such merger, consolidation, exchange of shares,
recapitalization, reorganization or other similar event or sale of assets
(during which time the holders of Series A Preferred Stock shall be entitled to
convert the Series A Preferred Stock) and (ii) the resulting successor or
acquiring entity (if not the Corporation) assumes by written instrument the
obligations of this subsection (3). The above provisions shall similarly apply
to successive consolidations, mergers, sales, transfers or share exchanges.
4. Adjustment Due to Distribution. Subject to Article III, if the
Corporation shall declare or make any distribution of its assets (or rights to
acquire its assets) to holders of Common Stock as a dividend, stock repurchase,
by way of return of capital or otherwise (including any dividend or distribution
to the Corporation's shareholders in cash or shares (or rights to acquire
shares) of capital stock of a subsidiary (i.e., a spin-off)) (a "Distribution"),
then the holders of Series A Preferred Stock shall be entitled, upon any
conversion of shares of Series A Preferred Stock after the date of record for
determining shareholders entitled to such Distribution, to receive the amount of
such assets which would have been payable to the holder with respect to the
shares of Common Stock issuable upon such conversion had such holder been the
holder of such shares of Common Stock on the record date for the determination
of shareholders entitled to such Distribution.
5. Purchase Rights. Subject to Article III, if at any time when any
Series A Preferred Stock is issued and outstanding, the Corporation issues any
convertible securities or rights to purchase stock, warrants, securities or
other property (the "Purchase Rights") pro rata to the record holders of any
class of Common Stock, then the holders of Series A Preferred Stock will be
entitled to acquire, upon the terms applicable to such Purchase Rights, the
aggregate Purchase Rights which such holder could have acquired if such holder
had held the number of shares of Common Stock acquirable upon complete
conversion of the Series A Preferred Stock (without regard to any limitations on
conversion contained herein) immediately before the date on which a record is
taken for the grant, issuance or sale of such Purchase Rights, or, if no such
record is taken, the date as of which the record holders of Common Stock are to
be determined for the grant, issue or sale of such Purchase Rights.
6. Notice of Adjustments. Upon the occurrence of each adjustment or
readjustment of the Conversion Price pursuant to this Article VI.C. the
Corporation, at its expense, shall make available to the holders the information
necessary to determine such adjustment or readjustment. The Corporation shall,
upon the written request at any time of any holder of Series A Preferred Stock,
furnish to such holder a certificate setting forth (i) such adjustment or
readjustment, (ii) the Conversion Price at the time in effect and (iii) the
number of shares of Common Stock and the amount, if any, of other securities or
property which at the time would be received upon conversion of a share of
Series A Preferred Stock.
D. For purposes of Article VI.C(1) and (2) above, "Market Price," which
shall be measured as of the record date in respect of the rights offering means
(i) the average of the last reported sale prices for the shares of Common Stock
as reported by AMEX, as applicable, for the twenty (20) Trading Days immediately
preceding such date, or (ii) if AMEX is not the principal trading market for the
shares of Common Stock, the average of the last reported sale prices on the
principal trading market for the Common Stock during the same period, or (iii)
if market value cannot be calculated as of such date on any of the foregoing
bases, the Market Price shall be the fair market value as reasonably determined
in good faith by (a) the Board of Directors of the Corporation, or (b) at the
option of two-thirds (2/3) of the holders, of the outstanding Series A Preferred
Stock by an independent investment bank of nationally recognized standing in the
valuation of businesses similar to the business of the Corporation.
E. In order to convert Series A Preferred Stock into full shares of
Common Stock, a holder of Series A Preferred Stock shall: (i) submit a copy of
the fully executed notice of conversion in the form attached hereto as Exhibit A
("Notice of Conversion") to the Corporation by facsimile dispatched on the
Conversion Date (or by other means resulting in notice to the Corporation on the
Conversion Date) at the office of the Corporation or the Transfer Agent that the
holder elects to convert the same, which notice shall specify the number of
shares of Series A Preferred Stock to be converted, the applicable Conversion
Price, the Market Price Days, and a calculation of the number of shares of
Common Stock issuable upon such conversion (together with a copy of the first
page of each certificate to be converted) prior to 12:00 Midnight, New York City
time (the "Conversion Notice Deadline") on the date of conversion specified on
the Notice of Conversion; and (ii) surrender the original certificates
representing the Series A Preferred Stock being converted (the "Preferred Stock
Certificates"), duly endorsed, along with a copy of the Notice of Conversion to
the office of the Corporation or the Transfer Agent as soon as practicable
thereafter. The Corporation shall not be obligated to issue certificates
evidencing the shares of Common Stock issuable upon such conversion, until
eitheruntileither the Preferred Stock Certificates are delivered to the
Corporation or its Transfer Agent as provided above, or the holder notifies the
Corporation or its Transfer Agent that such certificates have been lost, stolen
or destroyed (subject to the requirements of subparagraph (1) below). In the
case of a dispute as to the calculation of the Conversion Price, the Corporation
shall promptly issue such number of shares of Common Stock that are not disputed
in accordance with subparagraph (2) below. The Corporation shall submit the
disputed calculations to its outside accountant via facsimile within two (2)
business days of receipt of the Notice of Conversion. The accountant shall
audit the calculations and notify the Corporation and the holder of the results
no later than 48 hours from the time it receives the disputed calculations. The
accountant's calculation shall be deemed conclusive absent manifest error.
1. Lost or Stolen Certificates. Upon receipt by the Corporation of
evidence of the loss, theft, destruction or mutilation of any Preferred Stock
Certificates representing shares of Series A Preferred Stock, and (in the case
of loss, theft or destruction) of indemnity reasonably satisfactory to the
Corporation, and upon surrender and cancellation of the Preferred Stock
Certificate(s), if mutilated, the Corporation shall execute and deliver new
Preferred Stock Certificate(s) of like tenor and date.
2. Delivery of Common Stock Upon Conversion. Upon the surrender of
certificates as described above together with a Notice of Conversion, the
Corporation shall issue and, within three (3) business days after such surrender
(or, in the case of lost, stolen or destroyed certificates, after provision of
agreement and indemnification pursuant to subparagraph (1) above) (the "Delivery
Period"), deliver (or cause its Transfer Agent to so issue and deliver) to or
upon the order of the holder (i) that number of shares of Common Stock for the
portion of the shares of Series A Preferred Stock converted as shall be
determined in accordance herewith and (ii) a certificate representing the
balance of the shares of Series A Preferred Stock not converted, if any. In
addition to any other remedies available to the holder, including actual damages
and/or equitable relief, the Corporation shall pay to a holder $500 per day in
cash for each day beyond the three (3) day grace period following the Delivery
Period that the Corporation fails to deliver Common Stock issuable upon
surrender of shares of Series A Preferred Stock with a Notice of Conversion
until such time as the Corporation has delivered all such Common Stock. Such
cash amount shall be paid to such 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 Corporation by the first day of the month following the month in
which it has accrued), shall be payable in Common Stock in accordance with the
terms of this Article VI.
In lieu of delivering physical certificates representing the Common Stock
issuable upon conversion, provided the Transfer Agent is participating in the
Depository Trust Company ("DTC") Fast Automated Securities Transfer ("FAST")
program, upon request of the holder and subject to the limitations contained in
Article VI.A. and to the holder's compliance with the provisions in this Article
VI.E., the Corporation shall use its best efforts to cause the Transfer Agent to
electronically transmit the Common Stock issuable upon conversion to the holder
by crediting the account of holder's Prime Broker with DTC through its Deposit
Withdrawal Agent Commission ("DWAC") system. The time periods for delivery and
penalties described in the immediately preceding paragraph shall apply to the
electronic transmittals described herein.
3. No Fractional Shares. If any conversion of Series A Preferred
Stock would result in a fractional share of Common Stock or the right to acquire
a fractional share of Common Stock, such fractional share shall be disregarded
and the number of shares of Common Stock issuable upon conversion, of the Series
A Preferred Stock shall be the next higher number of shares.
4. Conversion Date. The "Conversion Date" shall be the date
specified in the Notice of Conversion, provided that the Notice of Conversion is
submitted by facsimile (or by other means resulting in notice) to the
Corporation or the Transfer Agent before 12:00 Midnight, New York City time, on
the Conversion Date. Subject to Article VI.G, the person or persons entitled to
receive the shares of Common Stock issuable upon conversion shall be treated for
all purposes as the record holder or holders of such securities as of the
Conversion Date and all rights with respect to the shares of Series A Preferred
Stock surrendered shall forthwith terminate except the right to receive the
shares of Common Stock or other securities or property issuable on such
conversion and except that the holders preferential rights as a holder of Series
A Preferred Stock shall survive to the extent the corporation fails to deliver
such securities.
F. A number of shares of the authorized but unissued Common Stock
sufficient to provide for the conversion of the Series A Preferred Stock
outstanding at the then current Conversion Price shall at all times be reserved
by the Corporation, free from preemptive rights, for such conversion or
exercise. As of the date of issuance of the Series A Preferred Stock, _____
authorized and unissued shares of Common Stock have been duly reserved for
issuance upon conversion of the Series A Preferred Stock (the "Reserved
Amount"). The Reserved Amount shall be increased from time to time in
accordance with the Corporation's obligations pursuant to Section 4(h) of the
Purchase Agreement. In addition, if the Corporation shall issue any securities
or make any change in its capital structure which would change the number of
shares of Common Stock into which each share of the Series A Preferred Stock
shall be convertible at the then current Conversion Price, the Corporation shall
at the same time also make proper provision so that thereafter there shall be a
sufficient number of shares of Common Stock authorized and reserved, free from
preemptive rights, for conversion of the outstanding Series A Preferred Stock.
If at any time a holder of shares of Series A Preferred Stock submits a
Notice of Conversion, and the Corporation does not have sufficient authorized
but unissued shares of Common Stock available to effect such conversion, in
accordance with the provisions of this Article VI (a "Conversion Default"), the
Corporation shall issue to the holder (or holders, if more than one holder
submits a Notice of Conversion in respect of the same Conversion Date), the
number of shares of Common Stock which are available to effect such conversion
up to such holder's pro rata share of the Reserved Amount, as determined in
accordance with Article X. The number of shares of Series A Preferred Stock
included in the Notice of Conversion which exceeds the amount which is then
convertible into available shares of Common Stock (the "Excess Amount") shall,
notwithstanding anything to the contrary contained herein, not be convertible
into Common Stock in accordance with the terms hereof until (and at the holder's
option at any time after) the date additional shares of Common Stock are
authorized by the Corporation to permit such conversion, at which time the
Conversion Price in respect thereof shall be the lesser of (i) the Conversion
Price on the Conversion Default Date (as defined below) and (ii) the Conversion
Price on the Conversion Date elected by the holder in respect thereof. The
Corporation shall use its best efforts to effect an increase in the authorized
number of shares of Common Stock as soon as possible following a Conversion
Default. In addition, the Corporation shall pay to the holder payments
("Conversion Default Payments") for a Conversion Default in the amount of (a)
(N/365), multiplied by (b) the sum of the Stated Value plus the Premium Amount
per share of Series A Preferred Stock through the Authorization Date (as defined
below), multiplied by (c) the Excess Amount on the day the holder submits a
Notice of Conversion giving rise to a Conversion Default (the "Conversion
Default Date"), multiplied by (d) .24, where (i) N = the number of days from the
Conversion Default Date to the date (the "Authorization Date") that the
Corporation authorizes a sufficient number of shares of Common Stock to effect
conversion of the full number of shares of Series A Preferred Stock. The
Corporation shall send notice to the holder of the authorization of additional
shares of Common Stock, the Authorization Date and the amount of holder's
accrued Conversion Default Payments. The accrued Conversion Default Payment for
each calendar month shall be paid in cash or shall be convertible into Common
Stock at the Conversion Price, at the holder's option, as follows:
1. In the event the holder elects to receive such payment in cash,
cash payment shall be made to holder by the fifth day of the month following the
month in which it has accrued; and
2. In the event the holder elects to receive such payment in Common
Stock, the holder may convert such payment amount into Common Stock at the
Conversion Price (as in effect at the time of Conversion) at any time after the
fifth day of the month following the month in which it has accrued in accordance
with the terms of this Article VI (so long as there is then a sufficient number
of authorized shares).
Nothing herein shall limit the holder's right to pursue actual damages for
the Corporation's failure to maintain a sufficient number of authorized shares
of Common Stock, and each holder shall have the right to pursue all remedies
available at law or in equity (including a decree of specific performance and/or
injunctive relief).
G. Upon submission of a Notice of Conversion by a holder of Series A
Preferred Stock, (i) the shares covered thereby (other than the shares, if any,
which cannot be issued because their issuance would exceed such holder's
allocated portion of the Reserved Amount) shall be deemed converted into shares
of Common Stock and (ii) the holder's rights as a holder of such converted
shares of Series A Preferred Stock shall cease and terminate, excepting only the
right to receive certificates for such shares of Common Stock and to any
remedies provided herein or otherwise available at law or in equity to such
holder because of a failure by the Corporation to comply with the terms of this
Certificate of Incorporation. Notwithstanding the foregoing, if a holder has
not received certificates for all shares of Common Stock prior to the tenth
(10th) business day after the expiration of the Delivery Period with respect to
a conversion of shares of Series A Preferred Stock for any reason, then (unless
the holder otherwise elects to retain its status as a holder of Common Stock by
so notifying the Corporation) the holder shall regain the rights of a holder of
such shares of Series A Preferred Stock with respect to such unconverted shares
of Series A Preferred Stock and the Corporation shall, as soon as practicable,
return such unconverted shares of Series A Preferred Stock to the holder or, if
such shares of Series A Preferred Stock have not been surrendered, adjust its
records to reflect that such shares of Series A Preferred Stock have not been
converted. In all cases, the holder shall retain all of its rights and remedies
(including, without limitation, the right to receive Conversion Default Payments
pursuant to Article VI.F. to the extent required thereby for such Conversion
Default and any subsequent Conversion Default).
VII. Automatic Conversion
So long as the Registration Statement is then effective or sales can
otherwise be made without volume restrictions under the Securities Act by the
holders of the Series A Preferred Stock and there is not then a continuing
Mandatory Redemption Event, each share of Series A Preferred Stock issued and
outstanding on December 31, 2000 (the "Automatic Conversion Date"),
automatically shall be converted into shares of Common Stock on such date at the
then effective Conversion Price in accordance with, and subject to, the
provisions of Article VI hereof (the "Automatic Conversion"); provided, however,
that the Automatic Conversion Date shall be extended by the number of Sale
Restriction Days which exceed a total of thirty (30) days. The Automatic
Conversion Date shall be the Conversion Date for purposes of determining the
Conversion Price and the time within which certificates representing the Common
Stock must be delivered to the holder.
VIII. Voting Rights
The holders of the Series A Preferred Stock have no voting power
whatsoever, except as otherwise provided by the Business Corporation Law of the
State of New York ("BCL"), in this Article VIII, and in Article IX below.
Notwithstanding the above, the Corporation shall provide each holder
of Series A Preferred Stock with prior notification of any meeting of the
shareholders (and copies of proxy materials and other information sent to
shareholders). In the event of any taking by the Corporation of a record of its
shareholders for the purpose of determining shareholders who are entitled to
receive payment of any dividend or other distribution, any right to subscribe
for, purchase or otherwise acquire (including by way of merger, consolidation or
recapitalization) any share of any class or any other securities or property, or
to receive any other right, or for the purpose of determining shareholders who
are entitled to vote in connection with any proposed sale, lease or conveyance
of all or substantially all of the assets of the Corporation, or any proposed
liquidation, dissolution or winding up of the Corporation, the Corporation shall
mail a notice to each holder, at least ten (10) days prior to the record date
specified therein (or thirty (30) days prior to the consummation of the
transaction or event, whichever is earlier), of the date on which any such
record is to be taken for the purpose of such dividend, distribution, right or
other event, and a brief statement regarding the amount and character of such
dividend, distribution, right or other event to the extent known at such time.
To the extent that under the BCL the vote of the holders of the Series
A Preferred Stock, voting separately as a class or series, as applicable, is
required to authorize a given action of the Corporation, the affirmative vote or
consent of the holders of at least a majority of the shares of the Series A
Preferred Stock represented at a duly held meeting at which a quorum is present
or by written consent of a majority of the shares of Series A Preferred Stock
(except as otherwise may be required under the BCL) shall constitute the
approval of such action by the class. To the extent that under the BCL holders
of the Series A Preferred Stock are entitled to vote on a matter with holders of
Common Stock, voting together as one class, each share of Series A Preferred
Stock shall be entitled to a number of votes equal to the number of shares of
Common Stock into which it is then convertible using the record date for the
taking of such vote of shareholders as the date as of which the Conversion
Price is calculated. Holders of the Series A Preferred Stock shall be entitled
to notice of all shareholder meetings or written consents (and copies of proxy
materials and other information sent to shareholders) with respect to which they
would be entitled to vote, which notice would be provided pursuant to the
Corporation's bylaws and the BCL.
IX. Protective Provisions
So long as shares of Series A Preferred Stock are outstanding, the
Corporation shall not, without first obtaining the approval (by vote or written
consent, as provided by the BCL) of the holders of at least a majority of the
then outstanding shares of Series A Preferred Stock:
(a) alter or change the rights, preferences or privileges of the
Series A Preferred Stock or any Senior Securities so as to affect adversely the
Series A Preferred Stock;
(b) create any new class or series of capital stock having a
preference over the Series A Preferred Stock as to distribution of assets upon
liquidation, dissolution or winding up of the Corporation (as previously defined
in Article II hereof, "Senior Securities");
(c) create any new class or series of capital stock ranking pari
passu with the Series A Preferred Stock as to distribution of assets upon
liquidation, dissolution or winding up of the Corporation (as previously defined
in Article II hereof, "Pari Passu Securities");
(d) increase the authorized number of shares of Series A
Preferred Stock; or
(e) do any act or thing not authorized or contemplated by this
Certificate of Incorporation which would result in taxation of the holders of
shares of the Series A Preferred Stock under Section 305 of the Internal Revenue
Code of 1986, as amended (or any comparable provision of the Internal Revenue
Code as hereafter from time to time amended).
In the event holders of at least a majority of the then outstanding
shares of Series A Preferred Stock agree to allow the Corporation to alter or
change the rights, preferences or privileges of the shares of Series A Preferred
Stock, pursuant to subsection (a) above, so as to affect the Series A Preferred
Stock, then the Corporation will deliver notice of such approved change to the
holders of the Series A Preferred Stock that did not agree to such alteration or
change (the "Dissenting Holders") and Dissenting Holders shall have the right
for a period of thirty (30) days to convert pursuant to the terms of this
Certificate of Incorporation as they exist prior to such alteration or change or
continue to hold their shares of Series A Preferred Stock.
X. Pro Rata Allocations
The Maximum Share Amount and the Reserved Amount (including any
increases thereto) shall be allocated by the Corporation pro rata among the
holders of Series A Preferred Stock based on the number of shares of Series A
Preferred Stock then held by each holder relative to the total aggregate number
of shares of Series A Preferred Stock then outstanding.
Article 4.
Article 4. This Certificate of Amendment was authorized and approved by the
Board of Directors of the Corporation at a meeting held on December 30, 1997
and thereby duly adopted in accordance with the provisions of Section 502
of the Business Corporation Law of the state of New York.
IN WITNESS WHEREOF, this certificate has been subscribed to this 30th
day of December, 1997 by the undersigned, who affirm that the statements made
herein are true under penalties of perjury.
_______________________________
Name:
Title:
[SEAL]
Attest:___________________________
Name:
Title:
NOTICE OF CONVERSION
(To be Executed by the Registered Holder
in order to Convert the Series A Preferred Stock)
The undersigned hereby irrevocably elects to convert ______ shares of
Series A Preferred Stock, represented by stock certificate No(s). __________
(the "Preferred Stock Certificates") into shares of common stock ("Common
Stock") of Softnet Systems, Inc. (the "Corporation") according to the conditions
of the Certificate of Amendment of Series A Preferred Stock, as of the date
written below. If securities are to be issued in the name of a person other
than the undersigned, the undersigned will pay all transfer taxes payable with
respect thereto and is delivering herewith such certificates. No fee will be
charged to the Holder for any conversion, except for transfer taxes, if any. A
copy of each Preferred Stock Certificate is attached hereto (or evidence of
loss, theft or destruction thereof).
The undersigned represents and warrants that all offers and sales by
the undersigned of the securities issuable to the undersigned upon conversion of
the Series A Preferred Stock shall be made pursuant to registration of the
securities under the Securities Act of 1933, as amended (the "Act"), or pursuant
to an exemption from registration under the Act.
Date of Conversion:___________________________
Applicable Conversion Price:____________________
Number of Shares of
Common Stock to be Issued:_____________________
Signature:____________________________________
Name:_______________________________________
Address:______________________________________
*The Corporation is not required to issue shares of Common Stock until the
original Series A Preferred Stock Certificate(s) (or evidence of loss, theft or
destruction thereof) to be converted are received by the Corporation or its
Transfer Agent. The Corporation shall issue and deliver shares of Common Stock
to an overnight courier not later than two (2) business days following receipt
of the original Preferred Stock Certificate(s) to be converted, and shall make
payments pursuant to the Certificate of Amendment for the number of business
days such issuance and delivery is late.
Exhibit 4.1
THIS WARRANT AND THE SHARES ISSUABLE UPON THE EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES
LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER JURISDICTION. EXCEPT AS
OTHERWISE SET FORTH HEREIN OR IN THE SECURITIES PURCHASE AGREEMENT DATED AS OF
DECEMBER 31, 1997, NEITHER THIS WARRANT NOR ANY OF SUCH SHARES MAY BE SOLD,
OFFERED FOR SALE, ASSIGNED, TRANSFERRED, OR OTHERWISE DISPOSED OF IN THE ABSENCE
OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER APPLICABLE
SECURITIES LAWS OR UNLESS SOLD PURSUANT TO AN AVAILABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF SUCH LAWS.
Right to Purchase
150,000 Shares of
Common Stock,
par value $.01 per share
STOCK PURCHASE WARRANT
THIS CERTIFIES THAT, for value received, RGC International Investors, LDC,
or its registered assigns permitted under the terms hereof (the "Holders"), is
entitled to purchase from Softnet Systems, Inc., a New York corporation (the
"Company"), at any time or from time to time during the period specified in
Paragraph 2 hereof, One Hundred Fifty Thousand (150,000) fully paid and
nonassessable shares of the Company's Common Stock, par value $.01 per share,
(the "Common Stock"), at an exercise price of $7.95 per share (the "Exercise
Price"). The term "Warrant Shares," as used herein, refers to the shares of
Common Stock purchasable hereunder. The number of Warrant Shares and the amount
of the Exercise Price are subject to adjustment as provided in Paragraph 4
hereof. The term Warrants means this Warrant and the other warrants issued
pursuant to that certain Securities Purchase Agreement, dated December 31, 1997,
by and between the Company and the Buyer listed on the execution page thereof
(the "Securities Purchase Agreement").
This Warrant is subject to the following terms, provisions, and conditions:
1. Manner of Exercise; Issuance of Certificates; Payment for Shares.
Subject to the provisions hereof, this Warrant may be exercised by the holder
hereof, in whole or in part, by the surrender of this Warrant, together with a
completed exercise agreement in the form attached hereto (the "Exercise
Agreement"), to the Company during normal business hours on any business day
(defined as a day which is not a day on which banking institutions in New York
State are authorized by law to close) at the Company's principal executive
offices (or such other office or agency of the Company as it may designate by
notice to the holder hereof), and upon (i) payment to the Company in cash, by
certified or official bank check or by wire transfer for the account of the
Company of the Exercise Price for the Warrant Shares specified in the Exercise
Agreement or (ii) if (a) the resale of the Warrant Shares by the holder is not
then registered pursuant to an effective registration statement under the
Securities Act of 1933, as amended (the "Securities Act"), at any time when
registration is so required pursuant to the Registration Rights Agreements, or
(b) the Company has provided written notice to the holder stating that cashless
exercise of this Warrant will be required, and such notice has not been revoked
in writing by the Company, delivery to the Company of a written notice of an
election to effect a "Cashless Exercise" (as defined in Section 11(c) below) for
the Warrant Shares specified in the Exercise Agreement. The Warrant Shares so
purchased shall be deemed to be issued to the holder hereof or such holder's
designee, as the record owner of such shares, as of the close of business on the
date on which this Warrant shall have been surrendered, the completed Exercise
Agreement shall have been delivered, and payment shall have been made for such
shares as set forth above. Certificates for the Warrant Shares so purchased,
representing the aggregate number of shares specified in the Exercise Agreement,
shall be delivered to the holder hereof within a reasonable time, not exceeding
three (3) business days, after this Warrant shall have been so exercised (the
"Delivery Period"). The certificates so delivered shall be in such
denominations as may be requested by the holder hereof and shall be registered
in the name of such holder or if such Warrant Shares are registered for resale
under an effective registration statement or if the transfer of such Warrant
Shares is otherwise permitted pursuant to Section 7(f) hereof, such other name
as shall be designated by such holder. If this Warrant shall have been
exercised only in part, then, unless this Warrant has expired, the Company
shall, at its expense, at the time of delivery of such certificates, deliver to
the holder a new Warrant representing the number of shares with respect to which
this Warrant shall not then have been exercised.
If, at any time, a holder of this Warrant submits this Warrant, an
Exercise Agreement and payment to the Company of the Exercise Price for each of
the Warrant Shares specified in the Exercise Agreement, and the Company fails
for any reason to deliver, on or prior to the fourth business day following the
expiration of the Delivery Period for such exercise, the number of shares of
Common Stock to which the holder is entitled upon such exercise (an "Exercise
Default"), then the Company shall pay to the holder payments ("Exercise Default
Payments") for an Exercise Default in the amount of (a) (N/365), multiplied by
(b) the amount by which the Market Price (as defined in Section 4(l) below) on
the date the Exercise Agreement giving rise to the Exercise Default is
transmitted in accordance with Section 1 (the "Exercise Default Date") exceeds
the Exercise Price multiplied by (c) the number of shares of Common Stock the
Company failed to so deliver in such Exercise Default, multiplied by (d) .24,
where N=the number of days from the Exercise Default Date to the date that the
Company effects the full exercise of this Warrant which gave rise to the
Exercise Default. The accrued Exercise Default Payment for each calendar month
shall be paid in cash or shall be convertible into Common Stock at the Exercise
Price, at the holder's option, to be specified by the last day of the month in
which such Exercise Default occurred, as follows:
(a) In the event holder elects to take such payment in cash, cash
payment shall be made to holder by the fifth (5th) day of the month following
the month in which it has accrued; and
(b) In the event the holder elects to take such payment in Common
Stock, the holder may convert such payment amount into Common Stock (in
accordance with the terms contained in the Certificate of Incorporation (the
"Certificate of Incorporation") governing the Company's Series A Convertible
Preferred Stock (the "Series A Preferred Stock")) at the lower of the Exercise
Price or the Market Price (as defined in Section 4(l)) (as in effect at the time
of conversion) at any time after the fifth (5th) day of the month following the
month in which it has accrued.
Nothing herein shall limit the holder's right to pursue actual damages
for the Company's failure to maintain a sufficient number of authorized shares
of Common Stock as required pursuant to the terms of Section 3(b) or to
otherwise issue shares of Common Stock upon exercise of this Warrant in
accordance with the terms hereof, and each holder shall have the right to pursue
all remedies available at law or in equity (including a decree of specific
performance and/or injunctive relief).
Notwithstanding anything in this Warrant to the contrary, in no event
shall the holder of this Warrant be entitled to exercise a number of Warrants
(or portions thereof) in excess of the number of Warrants (or portions thereof)
upon exercise of which the sum of (i) 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 Warrants and unconverted shares of Series A Preferred Stock (as
defined in the Securities Purchase Agreement)) or other securities containing
restrictions on conversion or exercise analogous to the provisions in this
paragraph, and (ii) the number of shares of Common Stock issuable upon exercise
of the Warrants (or portions thereof) with respect to which the determination
described herein is being made, would result in beneficial ownership by the
holder and its affiliates of more than 4.99% of the outstanding shares of Common
Stock. For purposes of the immediately preceding sentence, (x) beneficial
ownership shall be determined in accordance with Section 13(d) of the Securities
Exchange Act of 1934, as amended, and Regulation 13D-G thereunder, except as
otherwise provided in clause (i) hereof, and (y) a holder may waive the
limitations set forth herein upon not less than sixty-one (61) days prior
written notice to the Company (with such waiver taking effect only upon the
expiration of such sixty-one (61) day notice period).
2. Period of Exercise. This Warrant is exercisable at any time or from
time to time on or after the date that is 10 business days following the date on
which this Warrant is issued and delivered pursuant to the terms of the
Securities Purchase Agreement and before 5:00 p.m., New York City time on the
fourth anniversary of the date of such issuance (the "Exercise Period").
3. Certain Agreements of the Company. The Company hereby covenants and
agrees as follows:
(a) Shares to Be Fully Paid. All Warrant Shares will, upon payment
of the Exercise Price and issuance in accordance with the terms of this Warrant,
be validly issued, fully paid, and nonassessable and free from all taxes, liens,
and charges with respect to the issuance thereof.
(b) Reservation of Shares. During the Exercise Period, the Company
shall at all times have authorized, and reserved for the purpose of issuance
upon exercise of this Warrant, a sufficient number of shares of Common Stock to
provide for the exercise of this Warrant (without giving effect to the
limitations on exercise set forth in Section 1 above).
(c) Listing. The Company shall no later than 10 business days
following issuance of this Warrant secure the listing of the shares of Common
Stock issuable upon exercise of the Warrant upon each national securities
exchange or automated quotation system, if any, upon which shares of Common
Stock are then listed or become listed (subject to official notice of issuance
upon exercise of this Warrant) and shall maintain, so long as any holder, to the
Company's knowledge after due inquiry, owns any Warrants or Warrant Shares, such
listing of all shares of Common Stock from time to time issuable upon the
exercise of this Warrant; and the Company shall so list on each national
securities exchange or automated quotation system, as the case may be, and shall
maintain such listing of, any other shares of capital stock of the Company
issuable upon the exercise of this Warrant if and so long as any holder, to the
Company's knowledge after due inquiry, owns any Warrants or Warrant Shares.
(d) Certain Actions Prohibited. The Company will not, by amendment
of its Articles of Incorporation or through any reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities, or any
other voluntary action, avoid or seek to avoid the observance or performance of
any of the terms to be observed or performed by it hereunder, but will at all
times in good faith assist in the carrying out of all the provisions of this
Warrant and in the taking of all such action as may reasonably be requested by
the holder of this Warrant in order to protect the exercise privilege of the
holder of this Warrant against dilution or other impairment as provided in
Section 4, consistent with the tenor and purpose of this Warrant. Without
limiting the generality of the foregoing, the Company (i) will not increase the
par value of any shares of Common Stock receivable upon the exercise of this
Warrant above the Exercise Price then in effect, and (ii) will take all such
actions as may be necessary or appropriate in order that the Company may validly
and legally issue fully paid and nonassessable shares of Common Stock upon the
exercise of this Warrant.
(e) Successors and Assigns. This Warrant will be binding upon any
entity succeeding to the Company by merger, consolidation, or acquisition of all
or substantially all the Company's assets.
4. Antidilution Provisions. During the Exercise Period, to the extent
the Warrant is unexercised, the Exercise Price and the number of Warrant Shares
shall be subject to adjustment from time to time as provided in this Paragraph
4.
In the event that any adjustment of the Exercise Price as required herein
results in a fraction of a cent, such Exercise Price shall be rounded up to the
nearest cent.
(a) Adjustment of Exercise Price and Number of Shares upon Issuance
of Common Stock. Except as otherwise provided in Paragraphs 4(c) and 4(e)
hereof, if and whenever during the Exercise Period, the Company issues or sells,
or in accordance with Paragraph 4(b) hereof is deemed to have issued or sold,
any shares of Common Stock for no consideration or for a consideration per share
(before deduction of reasonable expenses or commissions or underwriting
discounts or allowances in connection therewith) less than the Market Price (as
hereinafter defined) on the date of issuance (a "Dilutive Issuance"), then
immediately upon the Dilutive Issuance, the Exercise Price will be reduced to a
price determined by multiplying the Exercise Price in effect immediately prior
to the Dilutive Issuance by a fraction, (i) the numerator of which is an amount
equal to the sum of (x) the number of shares of Common Stock actually
outstanding immediately prior to the Dilutive Issuance, plus (y) the quotient of
the aggregate consideration, calculated as set forth in Paragraph 4(b) hereof,
received by the Company upon such Dilutive Issuance divided by the Market Price
in effect immediately prior to the Dilutive Issuance, and (ii) the denominator
of which is the total number of shares of Common Stock Deemed Outstanding (as
defined below) immediately after the Dilutive Issuance.
(b) Effect on Exercise Price of Certain Events. For purposes of
determining the adjusted Exercise Price under Paragraph 4(a) hereof, the
following will be applicable:
(i) Issuance of Rights or Options. If the Company in any manner
issues or grants any warrants, rights or options, whether or not immediately
exercisable, to subscribe for or to purchase Common Stock or other securities
convertible into or exchangeable for Common Stock ("Convertible Securities")
(such warrants, rights and options to purchase Common Stock or Convertible
Securities are hereinafter referred to as "Options") and the price per share for
which Common Stock is issuable upon the exercise of such Options is less than
the Market Price on the date of issuance or grant of such Options, then the
maximum total number of shares of Common Stock issuable upon the exercise of all
such Options will, as of the date of the issuance or grant of such Options, be
deemed to be outstanding and to have been issued and sold by the Company for
such price per share. For purposes of the preceding sentence, the "price per
share for which Common Stock is issuable upon the exercise of such Options" is
determined by dividing (i) the total amount, if any, received or receivable by
the Company as consideration for the issuance or granting of all such Options,
plus the minimum aggregate amount of additional consideration, if any, payable
to the Company upon the exercise of all such Options, plus, in the case of
Convertible Securities issuable upon the exercise of such Options, the minimum
aggregate amount of additional consideration payable upon the conversion or
exchange thereof at the time such Convertible Securities first become
convertible or exchangeable, by (ii) the maximum total number of shares of
Common Stock issuable upon the exercise of all such Options (assuming full
conversion of Convertible Securities, if applicable). No further adjustment to
the Exercise Price will be made upon the actual issuance of such Common Stock
upon the exercise of such Options or upon the conversion or exchange of
Convertible Securities issuable upon exercise of such Options.
(ii) Issuance of Convertible Securities. If the Company in any
manner issues or sells any Convertible Securities, whether or not immediately
convertible (other than where the same are issuable upon the exercise of
Options) and the price per share for which Common Stock is issuable upon such
conversion or exchange is less than the Market Price on the date of issuance of
such Convertible Securities, then the maximum total number of shares of Common
Stock issuable upon the conversion or exchange of all such Convertible
Securities will, as of the date of the issuance of such Convertible Securities,
be deemed to be outstanding and to have been issued and sold by the Company for
such price per share. For the purposes of the preceding sentence, the "price
per share for which Common Stock is issuable upon such conversion or exchange"
is determined by dividing (i) the total amount, if any, received or receivable
by the Company as consideration for the issuance or sale of all such Convertible
Securities, plus the minimum aggregate amount of additional consideration, if
any, payable to the Company upon the conversion or exchange thereof at the time
such Convertible Securities first become convertible or exchangeable, by (ii)
the maximum total number of shares of Common Stock issuable upon the conversion
or exchange of all such Convertible Securities. No further adjustment to the
Exercise Price will be made upon the actual issuance of such Common Stock upon
conversion or exchange of such Convertible Securities.
(iii) Change in Option Price or Conversion Rate. If there is
a change at any time in (i) the amount of additional consideration payable to
the Company upon the exercise of any Options; (ii) the amount of additional
consideration, if any, payable to the Company upon the conversion or exchange of
any Convertible Securities; or (iii) the rate at which any Convertible
Securities are convertible into or exchangeable for Common Stock (other than
under or by reason of provisions designed to protect against dilution), the
Exercise Price in effect at the time of such change will be readjusted to the
Exercise Price which would have been in effect at such time had such Options or
Convertible Securities still outstanding provided for such changed additional
consideration or changed conversion rate, as the case may be, at the time
initially granted, issued or sold.
(iv) Treatment of Expired Options and Unexercised Convertible
Securities. If, in any case, the total number of shares of Common Stock
issuable upon exercise of any Option or upon conversion or exchange of any
Convertible Securities is not, in fact, issued and the rights to exercise such
Option or to convert or exchange such Convertible Securities shall have expired
or terminated, the Exercise Price then in effect will be readjusted to the
Exercise Price which would have been in effect at the time of such expiration or
termination had such Option or Convertible Securities, to the extent outstanding
immediately prior to such expiration or termination (other than in respect of
the actual number of shares of Common Stock issued upon exercise or conversion
thereof), never been issued.
(v) Calculation of Consideration Received. If any Common Stock,
Options or Convertible Securities are issued, granted or sold for cash, the
consideration received therefor for purposes of this Warrant will be the amount
received by the Company therefor, before deduction of reasonable commissions,
underwriting discounts or allowances or other reasonable expenses paid or
incurred by the Company in connection with such issuance, grant or sale. In
case any Common Stock, Options or Convertible Securities are issued or sold for
a consideration part or all of which shall be other than cash, the amount of the
consideration other than cash received by the Company will be the fair value of
such consideration, except where such consideration consists of securities, in
which case the amount of consideration received by the Company will be the
Market Price thereof as of the date of receipt. In case any Common Stock,
Options or Convertible Securities are issued in connection with any acquisition,
merger or consolidation in which the Company is the surviving corporation, the
amount of consideration therefor will be deemed to be the fair value of such
portion of the net assets and business of the non-surviving corporation as is
attributable to such Common Stock, Options or Convertible Securities, as the
case may be. The fair value of any consideration other than cash or securities
will be determined in good faith by the Board of Directors of the Company.
(vi) Exceptions to Adjustment of Exercise Price. No adjustment
to the Exercise Price will be made (i) upon the exercise or conversion of any
warrants, options or convertible securities granted, issued and outstanding on
the date of issuance of this Warrant and set forth on Schedule 3(c) to the
Securities Purchase Agreement, in accordance with the terms of such securities
as of such date; (ii) upon the grant or exercise of any stock or options which
may hereafter be granted or exercised under any employee or director benefit
plan of the Company now existing or to be implemented in the future, so long as
the issuance of such stock or options is approved by the Board of Directors of
the Company or a majority of the members of a committee of independent directors
established for such purpose; (iii) upon the exercise of the Warrants; or (iv)
upon the conversion of the Company's Series A Convertible Preferred Stock.
(c) Subdivision or Combination of Common Stock. If the Company at
any time during the Exercise Period subdivides (by any stock split, stock
dividend, recapitalization, reorganization, reclassification or otherwise) its
shares of Common Stock into a greater number of shares, then, after the date of
record for effecting such subdivision, the Exercise Price in effect immediately
prior to such subdivision will be proportionately reduced. If the Company at
any time during the Exercise Period combines (by reverse stock split,
recapitalization, reorganization, reclassification or otherwise) its shares of
Common Stock into a smaller number of shares, then, after the date of record for
effecting such combination, the Exercise Price in effect immediately prior to
such combination will be proportionately increased.
(d) Adjustment in Number of Shares. Upon each adjustment of the
Exercise Price pursuant to the provisions of this Paragraph 4, the number of
shares of Common Stock issuable upon exercise of this Warrant shall be adjusted
by multiplying a number equal to the Exercise Price in effect immediately prior
to such adjustment by the number of shares of Common Stock issuable upon
exercise of this Warrant immediately prior to such adjustment and dividing the
product so obtained by the adjusted Exercise Price.
(e) Consolidation, Merger or Sale. In case of any consolidation of
the Company with, or merger of the Company into any other corporation, or in
case of any sale or conveyance of all or substantially all of the assets of the
Company other than in connection with a plan of complete liquidation of the
Company at any time during the Exercise Period, then as a condition of such
consolidation, merger or sale or conveyance, adequate provision will be made
whereby the holder of this Warrant will have the right to acquire and receive
upon exercise of this Warrant in lieu of the shares of Common Stock immediately
theretofore acquirable upon the exercise of this Warrant, such shares of stock,
securities or assets as may be issued or payable with respect to or in exchange
for the number of shares of Common Stock immediately theretofore acquirable and
receivable upon exercise of this Warrant had such consolidation, merger or sale
or conveyance not taken place. In any such case, the Company will make
appropriate provision to insure that the provisions of this Paragraph 4 will
thereafter be applicable as nearly as may be in relation to any shares of stock
or securities thereafter deliverable upon the exercise of this Warrant. The
Company will not effect any consolidation, merger or sale or conveyance unless
prior to the consummation thereof, the successor corporation (if other than the
Company) assumes by written instrument the obligations under this Paragraph 4
and the obligations to deliver to the holder of this Warrant such shares of
stock, securities or assets as, in accordance with the foregoing provisions, the
holder may be entitled to acquire.
(f) Distribution of Assets. In case the Company shall declare or
make any distribution of its assets (including cash) or rights to acquire its
assets to holders of Common Stock as a partial liquidating dividend, stock
repurchase, by way of return of capital or otherwise, and the Company shall fail
to provide timely notice of such distribution to the holder of this Warrant in
accordance with Section 4(j), then, after the date of record for determining
stockholders entitled to such distribution, but prior to the date of
distribution, the holder of this Warrant shall be entitled upon exercise of this
Warrant for the purchase of any or all of the shares of Common Stock subject
hereto, to receive the amount of such assets (or rights) which would have been
payable to the holder had such holder been the holder of such shares of Common
Stock on the record date for the determination of stockholders entitled to such
distribution.
(g) Notice of Adjustment. Upon the occurrence of any event which
requires any adjustment of the Exercise Price, then, and in each such case, the
Company shall give notice thereof to the holder of this Warrant, which notice
shall state the Exercise Price resulting from such adjustment and the increase
or decrease in the number of Warrant Shares purchasable at such price upon
exercise, setting forth in reasonable detail the method of calculation and the
facts upon which such calculation is based. Such calculation shall be certified
by the Treasurer of the Company.
(h) Minimum Adjustment of Exercise Price. No adjustment of the
Exercise Price shall be made in an amount of less than 1% of the Exercise Price
in effect at the time such adjustment is otherwise required to be made, but any
such lesser adjustment shall be carried forward and shall be made at the time
and together with the next subsequent adjustment which, together with any
adjustments so carried forward, shall amount to not less than 1% of such
Exercise Price.
(i) No Fractional Shares. No fractional shares of Common Stock are
to be issued upon the exercise of this Warrant, but, at the option of the
Company, the Company either (i) shall pay a cash adjustment in respect of any
fractional share which would otherwise be issuable in an amount equal to the
same fraction of the Market Price of a share of Common Stock on the date of such
exercise or (ii) shall round up such fraction to the next whole number of shares
of Common Stock.
(j) Other Notices. In case at any time:
(i) the Company shall declare any dividend upon the Common Stock
payable in shares of stock of any class or make any other distribution
(including dividends or distributions payable in cash out of retained earnings)
to the holders of the Common Stock;
(ii) the Company shall offer for subscription pro rata to the
holders of the Common Stock any additional shares of stock of any class or other
rights;
(iii) there shall be any capital reorganization of the Company,
or reclassification of the Common Stock, or consolidation or merger of the
Company with or into, or sale of all or substantially all its assets to, another
corporation or entity; or
(iv) there shall be a voluntary or involuntary dissolution,
liquidation or winding-up of the Company;
then, in each such case, the Company shall give to the holder of this Warrant
(a) notice of the date on which the books of the Company shall close or a record
shall be taken for determining the holders of Common Stock entitled to receive
any such dividend, distribution, or subscription rights or for determining the
holders of Common Stock entitled 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, notice of
the date (or, if not then known, a reasonable approximation thereof by the
Company) when the same shall take place. Such notice shall also specify the
date on which the holders of Common Stock shall be entitled to receive such
dividend, distribution, or subscription rights or to exchange their Common Stock
for stock or other securities or property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation, or
winding-up, as the case may be. Such notice shall be given at least 15 days
prior to the record date or the date on which the Company's books are closed in
respect thereto. Failure to give any such notice or any defect therein shall
not affect the validity of the proceedings referred to in clauses (i), (ii),
(iii) and (iv) above.
(k) Certain Events. If, at any time during the Exercise Period, any
event occurs of the type contemplated by the adjustment provisions of this
Paragraph 4 but not expressly provided for by such provisions, the Company will
give notice of such event as provided in Paragraph 4(g) hereof, and the
Company's Board of Directors will make an appropriate adjustment in the Exercise
Price and the number of shares of Common Stock acquirable upon exercise of this
Warrant so that the rights of the Holder shall be neither enhanced nor
diminished by such event.
(l) Certain Definitions.
(i) "Common Stock Deemed Outstanding" shall mean the number of
shares of Common Stock actually outstanding (not including shares of Common
Stock held in the treasury of the Company), plus (x) pursuant to Paragraph
4(b)(i) hereof, the maximum total number of shares of Common Stock issuable upon
the exercise of Options, as of the date of such issuance or grant of such
Options, if any, and (y) pursuant to Paragraph 4(b)(ii) hereof, the maximum
total number of shares of Common Stock issuable upon conversion or exchange of
Convertible Securities, as of the date of issuance of such Convertible
Securities, if any.
(ii) "Market Price," as of any date, (i) means the average of the
last reported sale prices for the shares of Common Stock on the American Stock
Exchange (the "AMEX") for the five (5) trading days immediately preceding such
date as reported by Bloomberg, L.P. ("Bloomberg"), or (ii) if the AMEX is not
the principal trading market for the shares of Common Stock, the average of the
last reported sale prices on the principal trading market for the Common Stock
during the same period as reported by Bloomberg, or (iii) if market value cannot
be calculated as of such date on any of the foregoing bases, the Market Price
shall be the fair market value as reasonably determined in good faith by (a) the
Board of Directors of the Company or, at the option of and at the expense of a
majority-in-interest of the holders of the outstanding Warrants by (b) an
independent investment bank of nationally recognized standing in the valuation
of businesses similar to the business of the Company. The manner of determining
the Market Price of the Common Stock set forth in the foregoing definition shall
apply with respect to any other security in respect of which a determination as
to market value must be made hereunder.
(iii) "Common Stock," for purposes of this Paragraph 4,
includes the Common Stock, par value $.01 per share, and any additional class of
stock of the Company having no preference as to dividends or distributions on
liquidation, provided that the shares purchasable pursuant to this Warrant shall
include only shares of Common Stock, par value $.01 per share, in respect of
which this Warrant is exercisable, or shares resulting from any subdivision or
combination of such Common Stock, or in the case of any reorganization,
reclassification, consolidation, merger, or sale of the character referred to in
Paragraph 4(e) hereof, the stock or other securities or property provided for in
such Paragraph.
5. Issue Tax. The issuance of certificates for Warrant Shares upon the
exercise of this Warrant shall be made without charge to the holder of this
Warrant or such shares for any issuance tax or other costs in respect thereof,
provided 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 the holder of this Warrant.
6. No Rights or Liabilities as a Shareholder. This Warrant shall not
entitle the holder hereof to any voting rights or other rights as a shareholder
of the Company at law or in equity. No provision of this Warrant, in the
absence of affirmative action by the holder hereof to purchase Warrant Shares,
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 Exercise Price or as a
shareholder of the Company, whether such liability is asserted by the Company or
by creditors of the Company.
7. Transfer, Exchange, and Replacement of Warrant.
(a) Restriction on Transfer. This Warrant and the rights granted to
the holder hereof are transferable, in whole or in part, upon surrender of this
Warrant, together with a properly executed assignment in the form attached
hereto, at the office or agency of the Company referred to in Paragraph 7(e)
below, provided, however, that any transfer or assignment shall be subject to,
and shall not be made in the absence of compliance with, the conditions set
forth in Paragraph 7(f) hereof and to the applicable provisions of the
Securities Purchase Agreement. Until due presentment for registration of
transfer on the books of the Company, the Company may treat the registered
holder hereof as the owner and holder hereof for all purposes, and the Company
shall not be affected by any notice to the contrary. Notwithstanding anything
to the contrary contained herein, the registration rights described in Paragraph
8 are assignable only in accordance with the provisions of that certain
Registration Rights Agreement, dated as of December 31, 1997, by and between the
Company and the other signatory thereto (the "Registration Rights Agreement").
(b) Warrant Exchangeable for Different Denominations. This Warrant
is exchangeable, upon the surrender hereof by the holder hereof at the office or
agency of the Company referred to in Paragraph 7(e) below, for new Warrants of
like tenor representing in the aggregate the right to purchase the number of
shares of Common Stock which may be purchased hereunder, each of such new
Warrants to represent the right to purchase such number of shares as shall be
designated by the holder hereof at the time of such surrender.
(c) Replacement of Warrant. 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
delivery of an indemnity agreement reasonably satisfactory in form and amount to
the Company, or, in the case of any such mutilation, upon surrender and
cancellation of this Warrant, the Company, at its expense, will execute and
deliver, in lieu thereof, a new Warrant of like tenor.
(d) Cancellation; Payment of Expenses. Upon the surrender of this
Warrant in connection with any transfer, exchange, or replacement as provided in
this Paragraph 7, this Warrant shall be promptly canceled by the Company. The
Company shall pay all taxes (other than securities transfer taxes) and all other
reasonable expenses (other than legal expenses, if any, incurred by the holder
or transferees) and charges payable in connection with the preparation,
execution, and delivery of Warrants pursuant to this Paragraph 7. The Company
shall indemnify and reimburse the holder of this Warrant for all reasonable
costs (including legal fees) incurred by such holder in connection with the
successful enforcement of such holder's rights hereunder.
(e) Register. The Company shall maintain, at its principal executive
offices (or such other office or agency of the Company as it may designate by
notice to the holder hereof), a register for this Warrant, in which the Company
shall record the name and address of the person in whose name this Warrant has
been issued, as well as the name and address of each transferee and each prior
owner of this Warrant.
(f) Exercise or Transfer Without Registration. If, at the time of
the surrender of this Warrant in connection with any exercise, transfer, or
exchange of this Warrant, this Warrant (or, in the case of any exercise, the
Warrant Shares issuable hereunder), shall not be registered under the Securities
Act of 1933, as amended (the "Securities Act") and under applicable state
securities or blue sky laws, the Company may require, as a condition of allowing
such exercise, transfer, or exchange, (i) that the holder or transferee of this
Warrant, as the case may be, furnish to the Company a written opinion of
counsel, which opinion shall be in form, substance and scope customary for
opinions of counsel in comparable transactions, to the effect that such
exercise, transfer, or exchange may be made without registration under said Act
and under applicable state securities or blue sky laws, (ii) that the transferee
execute and deliver to the Company an investment letter in form and substance
acceptable to the Company and (iii) that the transferee be an "accredited
investor" as defined in Rule 501(a) promulgated under the Securities Act;
provided that no such opinion, letter or status as an "accredited investor"
shall be required in connection with a transfer pursuant to Rule 144 under the
Securities Act. The first holder of this Warrant, by taking and holding the
same, represents to the Company that such holder is acquiring this Warrant for
investment and not with a view to the distribution thereof and makes all other
representations regarding the purchase of the "Securities" contained in the
Securities Purchase Agreement between the Company and such holder of even date
herewith as though such representations were fully set forth herein.
8. Registration Rights. The initial holder of this Warrant (and certain
assignees thereof) is entitled to the benefit of such registration rights in
respect of the Warrant Shares as are set forth in Section 2 of the Registration
Rights Agreement.
9. Notices. All notices, requests, and other communications required or
permitted to be given or delivered hereunder to the holder of this Warrant shall
be in writing, and shall be personally delivered, or shall be sent by certified
or registered mail or by recognized overnight mail courier, postage prepaid and
addressed, to such holder at the address shown for such holder on the books of
the Company, or at such other address as shall have been furnished to the
Company by notice from such holder. All notices, requests, and other
communications required or permitted to be given or delivered hereunder to the
Company shall be in writing, and shall be personally delivered, or shall be sent
by certified or registered mail or by recognized overnight mail courier, postage
prepaid and addressed, to the office of the Company at 520 Logue Avenue,
Mountain View, CA 94043 Attention: Chief Executive Officer, or at such other
address as shall have been furnished to the holder of this Warrant by notice
from the Company. Any such notice, request, or other communication may be sent
by facsimile, but shall in such case be subsequently confirmed by a writing
personally delivered or sent by certified or registered mail or by recognized
overnight mail courier as provided above. All notices, requests, and other
communications shall be deemed to have been given either at the time of the
receipt thereof by the person entitled to receive such notice at the address of
such person for purposes of this Paragraph 9, or, if mailed by registered or
certified mail or with a recognized overnight mail courier upon deposit with the
United States Post Office or such overnight mail courier, if postage is prepaid
and the mailing is properly addressed, as the case may be.
10. Governing Law. THIS WARRANT SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE INTERNAL LAWS OF NEW YORK STATE WITHOUT REGARD
TO THE BODY OF LAW CONTROLLING CONFLICTS OF LAW.
11. Miscellaneous.
(a) Amendments. This Warrant and any provision hereof may only be
amended by an instrument in writing signed by the Company and the holder hereof.
(b) Descriptive Headings. The descriptive headings of the several
paragraphs of this Warrant are inserted for purposes of reference only, and
shall not affect the meaning or construction of any of the provisions hereof.
(c) Cashless Exercise. Notwithstanding anything to the contrary
contained in this Warrant, if the resale of the Warrant Shares by the holder is
not registered pursuant to an effective registration statement under the
Securities Act at any time when registration is so required pursuant to the
Registration Rights Agreement or the Company has provided notice to the holder
stating that the Company will require cashless exercise of this Warrant, this
Warrant may be exercised by presentation and surrender of this Warrant to the
Company at its principal executive offices with a written notice of the holder's
intention to effect a cashless exercise, including a calculation of the number
of shares of Common Stock to be issued upon such exercise in accordance with the
terms hereof (a "Cashless Exercise"). In the event of a Cashless Exercise, in
lieu of paying the Exercise Price in cash, the holder shall surrender this
Warrant for that number of shares of Common Stock determined by multiplying the
number of Warrant Shares to which it would otherwise be entitled by a fraction,
the numerator of which shall be the difference between the then current Market
Price per share of the Common Stock and the Exercise Price, and the denominator
of which shall be the then current Market Price per share of Common Stock.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its
duly authorized officer.
Softnet Systems, Inc.
By:________________________
Name:
Title:
Dated as of December __, 1997
FORM OF EXERCISE AGREEMENT
Dated: ________, ____.
To: Softnet Systems, Inc.
The undersigned, pursuant to the provisions set forth in the within
Warrant, hereby agrees to purchase 150,000 shares of Common Stock covered by
such Warrant, and makes payment herewith in full therefor at the price per share
provided by such Warrant in cash or by certified or official bank check in the
amount of, or, in the case of cashless exercise, by surrender of securities
issued by the Company (including a portion of the Warrant) having a market value
(in the case of a portion of this Warrant, determined in accordance with Section
11(c) of the Warrant) equal to $_________. Please issue a certificate or
certificates for such shares of Common Stock in the name of and pay any cash for
any fractional share to:
Name: _____________________________
Signature: _____________________________
Address: _____________________________
_____________________________
Note: The above signature should correspond exactly with the name on
the face of the within Warrant.
and, if said number of shares of Common Stock shall not be all the shares
purchasable under the within Warrant, a new Warrant is to be issued in the name
of said undersigned covering the balance of the shares purchasable thereunder
less any fraction of a share paid in cash.
FORM OF ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and transfers
all the rights of the undersigned under the within Warrant, with respect to the
number of shares of Common Stock covered thereby set forth herein below, to:
Name of Assignee Address No of Shares
, and hereby irrevocably constitutes and appoints ______________
________________________ as agent and attorney-in-fact to transfer said Warrant
on the books of the within-named corporation, with full power of substitution in
the premises.
Dated: _____________________, ____,
In the presence of
Name: _________________________
Signature: _________________________
Title of Signing Officer or Agent (if any):
Address: ___________________________
___________________________
Note: The above signature should correspond exactly with the name on the
face of the within Warrant.
Exhibit 4.2
THIS WARRANT AND THE SHARES ISSUABLE UPON THE EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES
LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER JURISDICTION. EXCEPT AS
OTHERWISE SET FORTH HEREIN OR IN THE SECURITIES PURCHASE AGREEMENT DATED AS OF
DECEMBER 31, 1997, NEITHER THIS WARRANT NOR ANY OF SUCH SHARES MAY BE SOLD,
OFFERED FOR SALE, ASSIGNED, TRANSFERRED, OR OTHERWISE DISPOSED OF IN THE ABSENCE
OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER APPLICABLE
SECURITIES LAWS OR UNLESS SOLD PURSUANT TO AN AVAILABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF SUCH LAWS.
Right to Purchase
__,000 Shares of
Common Stock,
par value $.01 per share
STOCK PURCHASE WARRANT
THIS CERTIFIES THAT, for value received_______________________, or its
registered assigns permitted under the terms hereof (the "Holders"), is entitled
to purchase from Softnet Systems, Inc., a New York corporation (the "Company"),
at any time or from time to time during the period specified in Paragraph 2
hereof, ____________________ Thousand (___,000) fully paid and nonassessable
shares of the Company's Common Stock, par value $.01 per share, (the "Common
Stock"), at an exercise price of $____ per share (the "Exercise Price"). The
term "Warrant Shares," as used herein, refers to the shares of Common Stock
purchasable hereunder. The number of Warrant Shares and the amount of the
Exercise Price are subject to adjustment as provided in Paragraph 4 hereof. The
term Warrants means this Warrant and the other warrants issued pursuant to that
certain Securities Purchase Agreement, dated December 31, 1997, by and between
the Company and the Buyer listed on the execution page thereof (the "Securities
Purchase Agreement").
This Warrant is subject to the following terms, provisions, and conditions:
1. Manner of Exercise; Issuance of Certificates; Payment for Shares.
Subject to the provisions hereof, this Warrant may be exercised by the holder
hereof, in whole or in part, by the surrender of this Warrant, together with a
completed exercise agreement in the form attached hereto (the "Exercise
Agreement"), to the Company during normal business hours on any business day
(defined as a day which is not a day on which banking institutions in New York
State are authorized by law to close) at the Company's principal executive
offices (or such other office or agency of the Company as it may designate by
notice to the holder hereof), and upon (i) payment to the Company in cash, by
certified or official bank check or by wire transfer for the account of the
Company of the Exercise Price for the Warrant Shares specified in the Exercise
Agreement or (ii) if (a) the resale of the Warrant Shares by the holder is not
then registered pursuant to an effective registration statement under the
Securities Act of 1933, as amended (the "Securities Act"), at any time when
registration is so required pursuant to the Registration Rights Agreements, (b)
the Company has provided written notice to the holder stating that cashless
exercise of this Warrant will be required, and such notice has not been revoked
in writing by the Company, or (c) the holder elects in its sole discretion to
effect a cashless exercise of this Warrant, delivery to the Company of a written
notice of an election to effect a "Cashless Exercise" (as defined in Section
11(c) below) for the Warrant Shares specified in the Exercise Agreement. The
Warrant Shares so purchased shall be deemed to be issued to the holder hereof or
such holder's designee, as the record owner of such shares, as of the close of
business on the date on which this Warrant shall have been surrendered, the
completed Exercise Agreement shall have been delivered, and payment shall have
been made for such shares as set forth above. Certificates for the Warrant
Shares so purchased, representing the aggregate number of shares specified in
the Exercise Agreement, shall be delivered to the holder hereof within a
reasonable time, not exceeding three (3) business days, after this Warrant shall
have been so exercised (the "Delivery Period"). The certificates so delivered
shall be in such denominations as may be requested by the holder hereof and
shall be registered in the name of such holder or if such Warrant Shares are
registered for resale under an effective registration statement or if the
transfer of such Warrant Shares is otherwise permitted pursuant to Section 7(f)
hereof, such other name as shall be designated by such holder. If this Warrant
shall have been exercised only in part, then, unless this Warrant has expired,
the Company shall, at its expense, at the time of delivery of such certificates,
deliver to the holder a new Warrant representing the number of shares with
respect to which this Warrant shall not then have been exercised.
If, at any time, a holder of this Warrant submits this Warrant, an
Exercise Agreement and payment to the Company of the Exercise Price for each of
the Warrant Shares specified in the Exercise Agreement, and the Company fails
for any reason to deliver, on or prior to the fourth business day following the
expiration of the Delivery Period for such exercise, the number of shares of
Common Stock to which the holder is entitled upon such exercise (an "Exercise
Default"), then the Company shall pay to the holder payments ("Exercise Default
Payments") for an Exercise Default in the amount of (a) (N/365), multiplied by
(b) the amount by which the Market Price (as defined in Section 4(l) below) on
the date the Exercise Agreement giving rise to the Exercise Default is
transmitted in accordance with Section 1 (the "Exercise Default Date") exceeds
the Exercise Price multiplied by (c) the number of shares of Common Stock the
Company failed to so deliver in such Exercise Default, multiplied by (d) .24,
where N=the number of days from the Exercise Default Date to the date that the
Company effects the full exercise of this Warrant which gave rise to the
Exercise Default. The accrued Exercise Default Payment for each calendar month
shall be paid in cash or shall be convertible into Common Stock at the Exercise
Price, at the holder's option, to be specified by the last day of the month in
which such Exercise Default occurred, as follows:
(a) In the event holder elects to take such payment in cash, cash
payment shall be made to holder by the fifth (5th) day of the month following
the month in which it has accrued; and
(b) In the event the holder elects to take such payment in Common
Stock, the holder may convert such payment amount into Common Stock (in
accordance with the terms contained in the Certificate of Incorporation (the
"Certificate of Incorporation") governing the Company's Series A Convertible
Preferred Stock (the "Series A Preferred Stock")) at the lower of the Exercise
Price or the Market Price (as defined in Section 4(l)) (as in effect at the time
of conversion) at any time after the fifth (5th) day of the month following the
month in which it has accrued.
Nothing herein shall limit the holder's right to pursue actual damages
for the Company's failure to maintain a sufficient number of authorized shares
of Common Stock as required pursuant to the terms of Section 3(b) or to
otherwise issue shares of Common Stock upon exercise of this Warrant in
accordance with the terms hereof, and each holder shall have the right to pursue
all remedies available at law or in equity (including a decree of specific
performance and/or injunctive relief).
Notwithstanding anything in this Warrant to the contrary, in no event
shall the holder of this Warrant be entitled to exercise a number of Warrants
(or portions thereof) in excess of the number of Warrants (or portions thereof)
upon exercise of which the sum of (i) 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 Warrants and unconverted shares of Series A Preferred Stock (as
defined in the Securities Purchase Agreement)) or other securities containing
restrictions on conversion or exercise analogous to the provisions in this
paragraph, and (ii) the number of shares of Common Stock issuable upon exercise
of the Warrants (or portions thereof) with respect to which the determination
described herein is being made, would result in beneficial ownership by the
holder and its affiliates of more than 4.99% of the outstanding shares of Common
Stock. For purposes of the immediately preceding sentence, (x) beneficial
ownership shall be determined in accordance with Section 13(d) of the Securities
Exchange Act of 1934, as amended, and Regulation 13D-G thereunder, except as
otherwise provided in clause (i) hereof, and (y) a holder may waive the
limitations set forth herein upon not less than sixty-one (61) days prior
written notice to the Company (with such waiver taking effect only upon the
expiration of such sixty-one (61) day notice period).
2. Period of Exercise. This Warrant is exercisable at any time or from
time to time on or after the date that is 10 business days following the date on
which this Warrant is issued and delivered pursuant to the terms of the
Securities Purchase Agreement and before 5:00 p.m., New York City time on the
fourth anniversary of the date of such issuance (the "Exercise Period").
3. Certain Agreements of the Company. The Company hereby covenants and
agrees as follows:
(a) Shares to Be Fully Paid. All Warrant Shares will, upon payment
of the Exercise Price and issuance in accordance with the terms of this Warrant,
be validly issued, fully paid, and nonassessable and free from all taxes, liens,
and charges with respect to the issuance thereof.
(b) Reservation of Shares. During the Exercise Period, the Company
shall at all times have authorized, and reserved for the purpose of issuance
upon exercise of this Warrant, a sufficient number of shares of Common Stock to
provide for the exercise of this Warrant (without giving effect to the
limitations on exercise set forth in Section 1 above).
(c) Listing. The Company shall no later than 10 business days
following issuance of this Warrant secure the listing of the shares of Common
Stock issuable upon exercise of the Warrant upon each national securities
exchange or automated quotation system, if any, upon which shares of Common
Stock are then listed or become listed (subject to official notice of issuance
upon exercise of this Warrant) and shall maintain, so long as any holder, to the
Company's knowledge after due inquiry, owns any Warrants or Warrant Shares, such
listing of all shares of Common Stock from time to time issuable upon the
exercise of this Warrant; and the Company shall so list on each national
securities exchange or automated quotation system, as the case may be, and shall
maintain such listing of, any other shares of capital stock of the Company
issuable upon the exercise of this Warrant if and so long as any holder, to the
Company's knowledge after due inquiry, owns any Warrants or Warrant Shares.
(d) Certain Actions Prohibited. The Company will not, by amendment
of its Articles of Incorporation or through any reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities, or any
other voluntary action, avoid or seek to avoid the observance or performance of
any of the terms to be observed or performed by it hereunder, but will at all
times in good faith assist in the carrying out of all the provisions of this
Warrant and in the taking of all such action as may reasonably be requested by
the holder of this Warrant in order to protect the exercise privilege of the
holder of this Warrant against dilution or other impairment as provided in
Section 4, consistent with the tenor and purpose of this Warrant. Without
limiting the generality of the foregoing, the Company (i) will not increase the
par value of any shares of Common Stock receivable upon the exercise of this
Warrant above the Exercise Price then in effect, and (ii) will take all such
actions as may be necessary or appropriate in order that the Company may validly
and legally issue fully paid and nonassessable shares of Common Stock upon the
exercise of this Warrant.
(e) Successors and Assigns. This Warrant will be binding upon any
entity succeeding to the Company by merger, consolidation, or acquisition of all
or substantially all the Company's assets.
4. Antidilution Provisions. During the Exercise Period, to the extent
the Warrant is unexercised, the Exercise Price and the number of Warrant Shares
shall be subject to adjustment from time to time as provided in this Paragraph
4.
In the event that any adjustment of the Exercise Price as required herein
results in a fraction of a cent, such Exercise Price shall be rounded up to the
nearest cent.
(a) Adjustment of Exercise Price and Number of Shares upon Issuance
of Common Stock. Except as otherwise provided in Paragraphs 4(c) and 4(e)
hereof, if and whenever during the Exercise Period, the Company issues or sells,
or in accordance with Paragraph 4(b) hereof is deemed to have issued or sold,
any shares of Common Stock for no consideration or for a consideration per share
(before deduction of reasonable expenses or commissions or underwriting
discounts or allowances in connection therewith) less than the Market Price (as
hereinafter defined) on the date of issuance (a "Dilutive Issuance"), then
immediately upon the Dilutive Issuance, the Exercise Price will be reduced to a
price determined by multiplying the Exercise Price in effect immediately prior
to the Dilutive Issuance by a fraction, (i) the numerator of which is an amount
equal to the sum of (x) the number of shares of Common Stock actually
outstanding immediately prior to the Dilutive Issuance, plus (y) the quotient of
the aggregate consideration, calculated as set forth in Paragraph 4(b) hereof,
received by the Company upon such Dilutive Issuance divided by the Market Price
in effect immediately prior to the Dilutive Issuance, and (ii) the denominator
of which is the total number of shares of Common Stock Deemed Outstanding (as
defined below) immediately after the Dilutive Issuance.
(b) Effect on Exercise Price of Certain Events. For purposes of
determining the adjusted Exercise Price under Paragraph 4(a) hereof, the
following will be applicable:
(i) Issuance of Rights or Options. If the Company in any manner
issues or grants any warrants, rights or options, whether or not immediately
exercisable, to subscribe for or to purchase Common Stock or other securities
convertible into or exchangeable for Common Stock ("Convertible Securities")
(such warrants, rights and options to purchase Common Stock or Convertible
Securities are hereinafter referred to as "Options") and the price per share for
which Common Stock is issuable upon the exercise of such Options is less than
the Market Price on the date of issuance or grant of such Options, then the
maximum total number of shares of Common Stock issuable upon the exercise of all
such Options will, as of the date of the issuance or grant of such Options, be
deemed to be outstanding and to have been issued and sold by the Company for
such price per share. For purposes of the preceding sentence, the "price per
share for which Common Stock is issuable upon the exercise of such Options" is
determined by dividing (i) the total amount, if any, received or receivable by
the Company as consideration for the issuance or granting of all such Options,
plus the minimum aggregate amount of additional consideration, if any, payable
to the Company upon the exercise of all such Options, plus, in the case of
Convertible Securities issuable upon the exercise of such Options, the minimum
aggregate amount of additional consideration payable upon the conversion or
exchange thereof at the time such Convertible Securities first become
convertible or exchangeable, by (ii) the maximum total number of shares of
Common Stock issuable upon the exercise of all such Options (assuming full
conversion of Convertible Securities, if applicable). No further adjustment to
the Exercise Price will be made upon the actual issuance of such Common Stock
upon the exercise of such Options or upon the conversion or exchange of
Convertible Securities issuable upon exercise of such Options.
(ii) Issuance of Convertible Securities. If the Company in any
manner issues or sells any Convertible Securities, whether or not immediately
convertible (other than where the same are issuable upon the exercise of
Options) and the price per share for which Common Stock is issuable upon such
conversion or exchange is less than the Market Price on the date of issuance of
such Convertible Securities, then the maximum total number of shares of Common
Stock issuable upon the conversion or exchange of all such Convertible
Securities will, as of the date of the issuance of such Convertible Securities,
be deemed to be outstanding and to have been issued and sold by the Company for
such price per share. For the purposes of the preceding sentence, the "price
per share for which Common Stock is issuable upon such conversion or exchange"
is determined by dividing (i) the total amount, if any, received or receivable
by the Company as consideration for the issuance or sale of all such Convertible
Securities, plus the minimum aggregate amount of additional consideration, if
any, payable to the Company upon the conversion or exchange thereof at the time
such Convertible Securities first become convertible or exchangeable, by (ii)
the maximum total number of shares of Common Stock issuable upon the conversion
or exchange of all such Convertible Securities. No further adjustment to the
Exercise Price will be made upon the actual issuance of such Common Stock upon
conversion or exchange of such Convertible Securities.
(iii) Change in Option Price or Conversion Rate. If there is
a change at any time in (i) the amount of additional consideration payable to
the Company upon the exercise of any Options; (ii) the amount of additional
consideration, if any, payable to the Company upon the conversion or exchange of
any Convertible Securities; or (iii) the rate at which any Convertible
Securities are convertible into or exchangeable for Common Stock (other than
under or by reason of provisions designed to protect against dilution), the
Exercise Price in effect at the time of such change will be readjusted to the
Exercise Price which would have been in effect at such time had such Options or
Convertible Securities still outstanding provided for such changed additional
consideration or changed conversion rate, as the case may be, at the time
initially granted, issued or sold.
(iv) Treatment of Expired Options and Unexercised Convertible
Securities. If, in any case, the total number of shares of Common Stock
issuable upon exercise of any Option or upon conversion or exchange of any
Convertible Securities is not, in fact, issued and the rights to exercise such
Option or to convert or exchange such Convertible Securities shall have expired
or terminated, the Exercise Price then in effect will be readjusted to the
Exercise Price which would have been in effect at the time of such expiration or
termination had such Option or Convertible Securities, to the extent outstanding
immediately prior to such expiration or termination (other than in respect of
the actual number of shares of Common Stock issued upon exercise or conversion
thereof), never been issued.
(v) Calculation of Consideration Received. If any Common Stock,
Options or Convertible Securities are issued, granted or sold for cash, the
consideration received therefor for purposes of this Warrant will be the amount
received by the Company therefor, before deduction of reasonable commissions,
underwriting discounts or allowances or other reasonable expenses paid or
incurred by the Company in connection with such issuance, grant or sale. In
case any Common Stock, Options or Convertible Securities are issued or sold for
a consideration part or all of which shall be other than cash, the amount of the
consideration other than cash received by the Company will be the fair value of
such consideration, except where such consideration consists of securities, in
which case the amount of consideration received by the Company will be the
Market Price thereof as of the date of receipt. In case any Common Stock,
Options or Convertible Securities are issued in connection with any acquisition,
merger or consolidation in which the Company is the surviving corporation, the
amount of consideration therefor will be deemed to be the fair value of such
portion of the net assets and business of the non-surviving corporation as is
attributable to such Common Stock, Options or Convertible Securities, as the
case may be. The fair value of any consideration other than cash or securities
will be determined in good faith by the Board of Directors of the Company.
(vi) Exceptions to Adjustment of Exercise Price. No adjustment
to the Exercise Price will be made (i) upon the exercise or conversion of any
warrants, options or convertible securities granted, issued and outstanding on
the date of issuance of this Warrant and set forth on Schedule 3(c) to the
Securities Purchase Agreement, in accordance with the terms of such securities
as of such date; (ii) upon the grant or exercise of any stock or options which
may hereafter be granted or exercised under any employee or director benefit
plan of the Company now existing or to be implemented in the future, so long as
the issuance of such stock or options is approved by the Board of Directors of
the Company or a majority of the members of a committee of independent directors
established for such purpose; (iii) upon the exercise of the Warrants; or (iv)
upon the conversion of the Company's Series A Convertible Preferred Stock.
(c) Subdivision or Combination of Common Stock. If the Company at
any time during the Exercise Period subdivides (by any stock split, stock
dividend, recapitalization, reorganization, reclassification or otherwise) its
shares of Common Stock into a greater number of shares, then, after the date of
record for effecting such subdivision, the Exercise Price in effect immediately
prior to such subdivision will be proportionately reduced. If the Company at
any time during the Exercise Period combines (by reverse stock split,
recapitalization, reorganization, reclassification or otherwise) its shares of
Common Stock into a smaller number of shares, then, after the date of record for
effecting such combination, the Exercise Price in effect immediately prior to
such combination will be proportionately increased.
(d) Adjustment in Number of Shares. Upon each adjustment of the
Exercise Price pursuant to the provisions of this Paragraph 4, the number of
shares of Common Stock issuable upon exercise of this Warrant shall be adjusted
by multiplying a number equal to the Exercise Price in effect immediately prior
to such adjustment by the number of shares of Common Stock issuable upon
exercise of this Warrant immediately prior to such adjustment and dividing the
product so obtained by the adjusted Exercise Price.
(e) Consolidation, Merger or Sale. In case of any consolidation of
the Company with, or merger of the Company into any other corporation, or in
case of any sale or conveyance of all or substantially all of the assets of the
Company other than in connection with a plan of complete liquidation of the
Company at any time during the Exercise Period, then as a condition of such
consolidation, merger or sale or conveyance, adequate provision will be made
whereby the holder of this Warrant will have the right to acquire and receive
upon exercise of this Warrant in lieu of the shares of Common Stock immediately
theretofore acquirable upon the exercise of this Warrant, such shares of stock,
securities or assets as may be issued or payable with respect to or in exchange
for the number of shares of Common Stock immediately theretofore acquirable and
receivable upon exercise of this Warrant had such consolidation, merger or sale
or conveyance not taken place. In any such case, the Company will make
appropriate provision to insure that the provisions of this Paragraph 4 will
thereafter be applicable as nearly as may be in relation to any shares of stock
or securities thereafter deliverable upon the exercise of this Warrant. The
Company will not effect any consolidation, merger or sale or conveyance unless
prior to the consummation thereof, the successor corporation (if other than the
Company) assumes by written instrument the obligations under this Paragraph 4
and the obligations to deliver to the holder of this Warrant such shares of
stock, securities or assets as, in accordance with the foregoing provisions, the
holder may be entitled to acquire.
(f) Distribution of Assets. In case the Company shall declare or
make any distribution of its assets (including cash) or rights to acquire its
assets to holders of Common Stock as a partial liquidating dividend, stock
repurchase, by way of return of capital or otherwise, and the Company shall fail
to provide timely notice of such distribution to the holder of this Warrant in
accordance with Section 4(j), then, after the date of record for determining
stockholders entitled to such distribution, but prior to the date of
distribution, the holder of this Warrant shall be entitled upon exercise of this
Warrant for the purchase of any or all of the shares of Common Stock subject
hereto, to receive the amount of such assets (or rights) which would have been
payable to the holder had such holder been the holder of such shares of Common
Stock on the record date for the determination of stockholders entitled to such
distribution.
(g) Notice of Adjustment. Upon the occurrence of any event which
requires any adjustment of the Exercise Price, then, and in each such case, the
Company shall give notice thereof to the holder of this Warrant, which notice
shall state the Exercise Price resulting from such adjustment and the increase
or decrease in the number of Warrant Shares purchasable at such price upon
exercise, setting forth in reasonable detail the method of calculation and the
facts upon which such calculation is based. Such calculation shall be certified
by the Treasurer of the Company.
(h) Minimum Adjustment of Exercise Price. No adjustment of the
Exercise Price shall be made in an amount of less than 1% of the Exercise Price
in effect at the time such adjustment is otherwise required to be made, but any
such lesser adjustment shall be carried forward and shall be made at the time
and together with the next subsequent adjustment which, together with any
adjustments so carried forward, shall amount to not less than 1% of such
Exercise Price.
(i) No Fractional Shares. No fractional shares of Common Stock are
to be issued upon the exercise of this Warrant, but, at the option of the
Company, the Company either (i) shall pay a cash adjustment in respect of any
fractional share which would otherwise be issuable in an amount equal to the
same fraction of the Market Price of a share of Common Stock on the date of such
exercise or (ii) shall round up such fraction to the next whole number of shares
of Common Stock.
(j) Other Notices. In case at any time:
(i) the Company shall declare any dividend upon the Common Stock
payable in shares of stock of any class or make any other distribution
(including dividends or distributions payable in cash out of retained earnings)
to the holders of the Common Stock;
(ii) the Company shall offer for subscription pro rata to the
holders of the Common Stock any additional shares of stock of any class or other
rights;
(iii) there shall be any capital reorganization of the Company,
or reclassification of the Common Stock, or consolidation or merger of the
Company with or into, or sale of all or substantially all its assets to, another
corporation or entity; or
(iv) there shall be a voluntary or involuntary dissolution,
liquidation or winding-up of the Company;
then, in each such case, the Company shall give to the holder of this Warrant
(a) notice of the date on which the books of the Company shall close or a record
shall be taken for determining the holders of Common Stock entitled to receive
any such dividend, distribution, or subscription rights or for determining the
holders of Common Stock entitled 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, notice of
the date (or, if not then known, a reasonable approximation thereof by the
Company) when the same shall take place. Such notice shall also specify the
date on which the holders of Common Stock shall be entitled to receive such
dividend, distribution, or subscription rights or to exchange their Common Stock
for stock or other securities or property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation, or
winding-up, as the case may be. Such notice shall be given at least 15 days
prior to the record date or the date on which the Company's books are closed in
respect thereto. Failure to give any such notice or any defect therein shall
not affect the validity of the proceedings referred to in clauses (i), (ii),
(iii) and (iv) above.
(k) Certain Events. If, at any time during the Exercise Period, any
event occurs of the type contemplated by the adjustment provisions of this
Paragraph 4 but not expressly provided for by such provisions, the Company will
give notice of such event as provided in Paragraph 4(g) hereof, and the
Company's Board of Directors will make an appropriate adjustment in the Exercise
Price and the number of shares of Common Stock acquirable upon exercise of this
Warrant so that the rights of the Holder shall be neither enhanced nor
diminished by such event.
(l) Certain Definitions.
(i) "Common Stock Deemed Outstanding" shall mean the number of
shares of Common Stock actually outstanding (not including shares of Common
Stock held in the treasury of the Company), plus (x) pursuant to Paragraph
4(b)(i) hereof, the maximum total number of shares of Common Stock issuable upon
the exercise of Options, as of the date of such issuance or grant of such
Options, if any, and (y) pursuant to Paragraph 4(b)(ii) hereof, the maximum
total number of shares of Common Stock issuable upon conversion or exchange of
Convertible Securities, as of the date of issuance of such Convertible
Securities, if any.
(ii) "Market Price," as of any date, (i) means the average of the
last reported sale prices for the shares of Common Stock on the American Stock
Exchange (the "AMEX") for the five (5) trading days immediately preceding such
date as reported by Bloomberg, L.P. ("Bloomberg"), or (ii) if the AMEX is not
the principal trading market for the shares of Common Stock, the average of the
last reported sale prices on the principal trading market for the Common Stock
during the same period as reported by Bloomberg, or (iii) if market value cannot
be calculated as of such date on any of the foregoing bases, the Market Price
shall be the fair market value as reasonably determined in good faith by (a) the
Board of Directors of the Company or, at the option of and at the expense of a
majority-in-interest of the holders of the outstanding Warrants by (b) an
independent investment bank of nationally recognized standing in the valuation
of businesses similar to the business of the Company. The manner of determining
the Market Price of the Common Stock set forth in the foregoing definition shall
apply with respect to any other security in respect of which a determination as
to market value must be made hereunder.
(iii) "Common Stock," for purposes of this Paragraph 4,
includes the Common Stock, par value $.01 per share, and any additional class of
stock of the Company having no preference as to dividends or distributions on
liquidation, provided that the shares purchasable pursuant to this Warrant shall
include only shares of Common Stock, par value $.01 per share, in respect of
which this Warrant is exercisable, or shares resulting from any subdivision or
combination of such Common Stock, or in the case of any reorganization,
reclassification, consolidation, merger, or sale of the character referred to in
Paragraph 4(e) hereof, the stock or other securities or property provided for in
such Paragraph.
5. Issue Tax. The issuance of certificates for Warrant Shares upon the
exercise of this Warrant shall be made without charge to the holder of this
Warrant or such shares for any issuance tax or other costs in respect thereof,
provided 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 the holder of this Warrant.
6. No Rights or Liabilities as a Shareholder. This Warrant shall not
entitle the holder hereof to any voting rights or other rights as a shareholder
of the Company at law or in equity. No provision of this Warrant, in the
absence of affirmative action by the holder hereof to purchase Warrant Shares,
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 Exercise Price or as a
shareholder of the Company, whether such liability is asserted by the Company or
by creditors of the Company.
7. Transfer, Exchange, and Replacement of Warrant.
(a) Restriction on Transfer. This Warrant and the rights granted to
the holder hereof are transferable, in whole or in part, upon surrender of this
Warrant, together with a properly executed assignment in the form attached
hereto, at the office or agency of the Company referred to in Paragraph 7(e)
below, provided, however, that any transfer or assignment shall be subject to,
and shall not be made in the absence of compliance with, the conditions set
forth in Paragraph 7(f) hereof and to the applicable provisions of the
Securities Purchase Agreement. Until due presentment for registration of
transfer on the books of the Company, the Company may treat the registered
holder hereof as the owner and holder hereof for all purposes, and the Company
shall not be affected by any notice to the contrary. Notwithstanding anything
to the contrary contained herein, the registration rights described in Paragraph
8 are assignable only in accordance with the provisions of that certain
Registration Rights Agreement, dated as of December 31, 1997, by and between the
Company and the other signatory thereto (the "Registration Rights Agreement").
(b) Warrant Exchangeable for Different Denominations. This Warrant
is exchangeable, upon the surrender hereof by the holder hereof at the office or
agency of the Company referred to in Paragraph 7(e) below, for new Warrants of
like tenor representing in the aggregate the right to purchase the number of
shares of Common Stock which may be purchased hereunder, each of such new
Warrants to represent the right to purchase such number of shares as shall be
designated by the holder hereof at the time of such surrender.
(c) Replacement of Warrant. 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
delivery of an indemnity agreement reasonably satisfactory in form and amount to
the Company, or, in the case of any such mutilation, upon surrender and
cancellation of this Warrant, the Company, at its expense, will execute and
deliver, in lieu thereof, a new Warrant of like tenor.
(d) Cancellation; Payment of Expenses. Upon the surrender of this
Warrant in connection with any transfer, exchange, or replacement as provided in
this Paragraph 7, this Warrant shall be promptly canceled by the Company. The
Company shall pay all taxes (other than securities transfer taxes) and all other
reasonable expenses (other than legal expenses, if any, incurred by the holder
or transferees) and charges payable in connection with the preparation,
execution, and delivery of Warrants pursuant to this Paragraph 7. The Company
shall indemnify and reimburse the holder of this Warrant for all reasonable
costs (including legal fees) incurred by such holder in connection with the
successful enforcement of such holder's rights hereunder.
(e) Register. The Company shall maintain, at its principal executive
offices (or such other office or agency of the Company as it may designate by
notice to the holder hereof), a register for this Warrant, in which the Company
shall record the name and address of the person in whose name this Warrant has
been issued, as well as the name and address of each transferee and each prior
owner of this Warrant.
(f) Exercise or Transfer Without Registration. If, at the time of
the surrender of this Warrant in connection with any exercise, transfer, or
exchange of this Warrant, this Warrant (or, in the case of any exercise, the
Warrant Shares issuable hereunder), shall not be registered under the Securities
Act of 1933, as amended (the "Securities Act") and under applicable state
securities or blue sky laws, the Company may require, as a condition of allowing
such exercise, transfer, or exchange, (i) that the holder or transferee of this
Warrant, as the case may be, furnish to the Company a written opinion of
counsel, which opinion shall be in form, substance and scope customary for
opinions of counsel in comparable transactions, to the effect that such
exercise, transfer, or exchange may be made without registration under said Act
and under applicable state securities or blue sky laws, (ii) that the transferee
execute and deliver to the Company an investment letter in form and substance
acceptable to the Company and (iii) that the transferee be an "accredited
investor" as defined in Rule 501(a) promulgated under the Securities Act;
provided that no such opinion, letter or status as an "accredited investor"
shall be required in connection with a transfer pursuant to Rule 144 under the
Securities Act. The first holder of this Warrant, by taking and holding the
same, represents to the Company that such holder is acquiring this Warrant for
investment and not with a view to the distribution thereof and makes all other
representations regarding the purchase of the "Securities" contained in the
Securities Purchase Agreement between the Company and such holder of even date
herewith as though such representations were fully set forth herein.
8. Registration Rights. The initial holder of this Warrant shall be
entitled to the benefit of such registration rights in respect of the Warrant
Shares as are set forth in the Registration Rights Agreement, including the
right to assign such rights to certain assignees as set forth therein, as if
such Shares were "Registrable Securities" thereunder. The terms of such
Registration Rights Agreement are incorporated by reference as if fully set
forth herein, mutatis mutandis.
9. Notices. All notices, requests, and other communications required or
permitted to be given or delivered hereunder to the holder of this Warrant shall
be in writing, and shall be personally delivered, or shall be sent by certified
or registered mail or by recognized overnight mail courier, postage prepaid and
addressed, to such holder at the address shown for such holder on the books of
the Company, or at such other address as shall have been furnished to the
Company by notice from such holder. All notices, requests, and other
communications required or permitted to be given or delivered hereunder to the
Company shall be in writing, and shall be personally delivered, or shall be sent
by certified or registered mail or by recognized overnight mail courier, postage
prepaid and addressed, to the office of the Company at 520 Logue Avenue,
Mountain View, CA 94043 Attention: Chief Executive Officer, or at such other
address as shall have been furnished to the holder of this Warrant by notice
from the Company. Any such notice, request, or other communication may be sent
by facsimile, but shall in such case be subsequently confirmed by a writing
personally delivered or sent by certified or registered mail or by recognized
overnight mail courier as provided above. All notices, requests, and other
communications shall be deemed to have been given either at the time of the
receipt thereof by the person entitled to receive such notice at the address of
such person for purposes of this Paragraph 9, or, if mailed by registered or
certified mail or with a recognized overnight mail courier upon deposit with the
United States Post Office or such overnight mail courier, if postage is prepaid
and the mailing is properly addressed, as the case may be.
10. Governing Law. THIS WARRANT SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE INTERNAL LAWS OF NEW YORK STATE WITHOUT REGARD
TO THE BODY OF LAW CONTROLLING CONFLICTS OF LAW.
11. Miscellaneous.
(a) Amendments. This Warrant and any provision hereof may only be
amended by an instrument in writing signed by the Company and the holder hereof.
(b) Descriptive Headings. The descriptive headings of the several
paragraphs of this Warrant are inserted for purposes of reference only, and
shall not affect the meaning or construction of any of the provisions hereof.
(c) Cashless Exercise. Notwithstanding anything to the contrary
contained in this Warrant, if (a) the resale of the Warrant Shares by the holder
is not registered pursuant to an effective registration statement under the
Securities Act at any time when registration is so required pursuant to the
Registration Rights Agreement, (b) the Company has provided notice to the
holder stating that the Company will require cashless exercise of this Warrant,
or (c) the holder elects in its sole discretion to effect a cashless exercise of
this Warrant, this Warrant may be exercised by presentation and surrender of
this Warrant to the Company at its principal executive offices with a written
notice of the holder's intention to effect a cashless exercise, including a
calculation of the number of shares of Common Stock to be issued upon such
exercise in accordance with the terms hereof (a "Cashless Exercise"). In the
event of a Cashless Exercise, in lieu of paying the Exercise Price in cash, the
holder shall surrender this Warrant for that number of shares of Common Stock
determined by multiplying the number of Warrant Shares to which it would
otherwise be entitled by a fraction, the numerator of which shall be the
difference between the then current Market Price per share of the Common Stock
and the Exercise Price, and the denominator of which shall be the then current
Market Price per share of Common Stock.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its
duly authorized officer.
Softnet Systems, Inc.
By:________________________
Name:
Title:
Dated as of December __, 1997
FORM OF EXERCISE AGREEMENT
Dated: ________, ____.
To: Softnet Systems, Inc.
The undersigned, pursuant to the provisions set forth in the within
Warrant, hereby agrees to purchase 150,000 shares of Common Stock covered by
such Warrant, and makes payment herewith in full therefor at the price per share
provided by such Warrant in cash or by certified or official bank check in the
amount of, or, in the case of cashless exercise, by surrender of securities
issued by the Company (including a portion of the Warrant) having a market value
(in the case of a portion of this Warrant, determined in accordance with Section
11(c) of the Warrant) equal to $_________. Please issue a certificate or
certificates for such shares of Common Stock in the name of and pay any cash for
any fractional share to:
Name: _____________________________
Signature: _____________________________
Address: _____________________________
_____________________________
Note: The above signature should correspond exactly with the name on
the face of the within Warrant.
and, if said number of shares of Common Stock shall not be all the shares
purchasable under the within Warrant, a new Warrant is to be issued in the name
of said undersigned covering the balance of the shares purchasable thereunder
less any fraction of a share paid in cash.
FORM OF ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and transfers
all the rights of the undersigned under the within Warrant, with respect to the
number of shares of Common Stock covered thereby set forth herein below, to:
Name of Assignee Address No of Shares
, and hereby irrevocably constitutes and appoints ______________
________________________ as agent and attorney-in-fact to transfer said Warrant
on the books of the within-named corporation, with full power of substitution in
the premises.
Dated: _____________________, ____,
In the presence of
Name: _________________________
Signature: _________________________
Title of Signing Officer or Agent (if any):
Address: ___________________________
___________________________
Note: The above signature should correspond exactly with the name on the
face of the within Warrant.
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as of December 31,
1997, by and between Softnet Systems, Inc., a New York corporation, with
headquarters located at 520 Logue Avenue, Mountain View, CA 94043, (the
"Company"), and the purchaser set forth on the signature page hereto (the
"Buyer").
WHEREAS:
A. The Company and the Buyer are executing and delivering this Agreement in
reliance upon the exemption from securities registration afforded by Section
4(2) of the Securities Act of 1933, as amended, (the "1933 Act"), and Rule 506
under Regulation D ("Regulation D") as promulgated by the United States
Securities and Exchange Commission (the "SEC") under the 1933 Act;
B. The Company has authorized a new series of preferred stock, designated as
its Series A Convertible Preferred Stock (the "Preferred Stock"), having the
voting powers, preferences and rights set forth in the Certificate of Amendment
to its Certificate of Incorporation attached hereto as Exhibit "A" (the
"Certificate of Amendment");
C. The Preferred Stock is convertible into shares of Common Stock, par value
$.01 per share, of the Company (the "Common Stock"), upon the terms and subject
to the limitations and conditions set forth in the Certificate of Amendment;
D. The Company has authorized the issuance to the Buyer of 150,000 warrants,
in the form attached hereto as Exhibit "B" (the "Warrants");
E. The Buyer desires to purchase from the Company and the Company desires to
issue and sell to the Buyer, upon the terms and conditions and in reliance on
the representations and warranties set forth in this Agreement, (i) Five
Thousand (5,000) shares of Preferred Stock, and (ii) Warrants to purchase One
Hundred Fifty Thousand (150,000) shares of Common Stock for a purchase price of
Five Million Dollars ($5,000,000);
F. Contemporaneous with the execution and delivery of this Agreement, the
parties hereto are executing and delivering a Registration Rights Agreement, in
the form attached hereto as Exhibit "C" (the "Registration Rights Agreement"),
pursuant to which the Company has agreed to provide to the Buyer certain
registration rights under the 1933 Act and the rules and regulations promulgated
thereunder, and applicable state securities laws.
NOW THEREFORE, the Company and the Buyer hereby agree as follows:
1. PURCHASE AND SALE OF PREFERRED SHARES AND WARRANTS.
a. Purchase of Preferred Shares and Warrants. The Company shall
issue and sell to the Buyer and the Buyer agrees to purchase from the Company
such number of shares of Preferred Stock (together with any Preferred Stock
issued in replacement thereof or as a dividend thereon or otherwise with respect
thereto in accordance with the terms thereof, the "Preferred Shares") and
Warrants, at a purchase price of five million dollars ($5,000,000) (the
"Purchase Price"). The issuance, sale and purchase of the Preferred Shares and
Warrants shall take place at the closing (the "Closing"). Subject to the
satisfaction (or waiver) of the conditions thereto set forth in Section 6 and
Section 7 below, at the Closing, the Company shall issue and sell to the Buyer
and the Buyer shall purchase from the Company Five Thousand (5,000) Preferred
Shares and One Hundred Fifty Thousand (150,000) Warrants.
b. Form of Payment. On the Closing Date (as defined below), (i) the
Buyer shall pay the Purchase Price for the Preferred Shares and Warrants to be
issued and sold to it at the Closing by wire transfer of immediately available
funds to the Company, in accordance with the Company's written wiring
instructions, against delivery of a duly executed certificate(s) representing
the number of Preferred Shares and Warrants which the Buyer is purchasing, and
(ii) the Company shall deliver such certificate(s) and Warrants against delivery
of such Purchase Price.
c. Closing Date. Subject to the satisfaction (or waiver) of the
conditions thereto set forth in Section 6 and Section 7 below, and further
subject to the terms and conditions of the Escrow Agreement, the date and time
of the issuance and sale of the Preferred Shares and Warrants pursuant to this
Agreement shall be 10:00a.m. California Time on December 31, 1997 or such other
mutually agreed upon date or time (the "Closing Date").
2. BUYER'S REPRESENTATIONS AND WARRANTIES.
The Buyer represents and warrants to the Company that:
a. Investment Purpose. As of the date hereof, the Buyer is
purchasing the Preferred Shares and the shares of Common Stock issuable upon
conversion thereof (the "Conversion Shares") and the Warrants and the shares of
Common Stock issuable upon exercise thereof (the "Warrants Shares", and
collectively with the Preferred Shares, Conversion Shares and Warrants, the
"Securities") for its own account for investment only and not with a present
view towards the public sale or distribution thereof, except pursuant to sales
registered or exempted under the 1933 Act.
b. Accredited Investor Status. The Buyer is an "accredited
investor" as that term is defined in Rule 501(a) of Regulation D.
c. Reliance on Exemptions. The Buyer understands that the
Securities are being offered and sold to it in reliance upon specific exemptions
from the registration requirements of United States federal and state securities
laws and that the Company is relying upon the truth and accuracy of, and the
Buyer's compliance with, the representations, warranties, agreements,
acknowledgments and understandings of the Buyer set forth herein in order to
determine the availability of such exemptions and the eligibility of the Buyer
to acquire the Securities.
d. Information. The 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 Securities
which have been requested by the Buyer or its advisors. The Buyer and its
advisors, if any, have been afforded the opportunity to ask questions of the
Company and have received what the Buyer believes to be satisfactory answers to
any such inquiries. Neither such inquiries nor any other due diligence
investigation conducted by Buyer or any of its advisors or representatives shall
modify, amend or affect Buyer's right to rely on the Company's representations
and warranties contained in Section 3 below. The Buyer acknowledges and
understands that its investment in the Securities involves a significant degree
of risk, including the risks reflected in the SEC Documents (as defined below).
e. Governmental Review. The Buyer understands that no United States
federal or state agency or any other government or governmental agency has
passed upon or made any recommendation or endorsement of the Securities.
f. Transfer or Resale. The Buyer understands that (i) except as
provided in the Registration Rights Agreement, the Securities have not been and
are not being registered under the 1933 Act or any applicable state securities
laws and consequently the Buyer may have to bear the risk of owning the
Securities for an indefinite period of time, and the Securities may not be
transferred unless (a) subsequently included in an effective registration
statement thereunder; (b) the Buyer shall have delivered to the Company an
opinion of counsel (which opinion shall be in form, substance and scope
customary for opinions of counsel in comparable transactions) to the effect that
the Securities to be sold or transferred may be sold or transferred pursuant to
an exemption from such registration; (c) sold under Rule 144 promulgated under
the 1933 Act (or a successor rule) or (d) sold or transferred to an affiliate
(as defined in Rule 144) of the Buyer; (ii) any sale of such Securities made in
reliance on Rule 144 may be made only in accordance with the terms of said Rule
and further, if said Rule is not applicable, any resale of such Securities under
circumstances in which the seller (or the person through whom the sale is made)
may be deemed to be an underwriter (as that term is defined in the 1933 Act) may
require compliance with some other exemption under the 1933 Act or the rules and
regulations of the SEC thereunder; and (iii) neither the Company nor any other
person is under any obligation to register such Securities under the 1933 Act or
any state securities laws or to comply with the terms and conditions of any
exemption thereunder (in each case, other than pursuant to the Registration
Rights Agreement). Notwithstanding the foregoing or anything else contained
herein to the contrary, the Securities may be pledged as collateral in
connection with a bona fide margin account or other lending arrangement. The
Buyer covenants it will not make any sale, transfer or other disposition of the
Securities in violation of federal or state securities laws.
g. Legends. The Buyer understands that the certificates
representing the Preferred Shares, Warrants and, until such time as the
Conversion Shares and Warrants Shares have been registered under the 1933 Act or
otherwise may be sold by the Buyer under Rule 144, as contemplated by the
Registration Rights Agreement, the Conversion Shares and Warrant Shares, may
bear a restrictive legend in substantially the following form (and a
stop-transfer order may be placed against transfer of the certificates for such
Securities):
"The securities represented by this certificate have not been registered under
the Securities Act of 1933, as amended. 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 said Act, or an
opinion of counsel, in form, substance and scope customary for opinions of
counsel in comparable transactions, that registration is not required under said
Act or unless sold pursuant to Rule 144 under said Act."
The legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of any certificate upon which it
is stamped, if, unless otherwise required by applicable state securities laws,
(a) the Securities represented by such certificate are registered for sale under
an effective registration statement filed under the 1933 Act, or (b) such holder
provides the Company with an opinion of counsel, in form, substance and scope
customary for opinions of counsel in comparable transactions, to the effect that
a public sale or transfer of such Securities may be made without registration
under the 1933 Act or (c) such holder provides the Company with reasonable
assurances that such Security can be sold under Rule 144 under the 1933 Act (or
a successor rule thereto). The Buyer agrees to sell all Securities, including
those represented by a certificate(s) from which the legend has been removed, in
compliance with applicable prospectus delivery requirements, if any, or
otherwise in compliance with the requirements for an exemption from registration
under the 1933 Act and the rules and regulations promulgated thereunder.
h. Authorization; Enforcement. This Agreement and the Registration
Rights Agreement have been duly and validly authorized, executed and delivered
on behalf of the Buyer and are valid and binding agreements of the Buyer
enforceable in accordance with their terms.
i. Residency. The Buyer is a resident of the jurisdiction set forth
immediately below such Buyer's name on the signature pages hereto.
j. Compliance with Short Sale Regulations. To the extent the Buyer
engages in any hedging transaction involving "short sales" of the Company's
Common Stock, the Buyer agrees to comply with applicable rules and regulations
applying to short sales (subject to applicable exemptions).
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to the Buyer that:
a. Organization and Qualification. Except for the filing by the
Company of its Bienniel Statement with the State of New York, which the Company
shall exercise best efforts to file within 10 business days following the date
hereof, and except for Communicate Direct, Inc.'s failure to file its 1997
Annual Report with the State of Illinois, which the Company shall exercise its
best efforts to file within 10 business days following the date hereof, the
Company and each of its Subsidiaries (as defined below), if any, is duly
incorporated, validly existing and in good standing under the laws of the
jurisdiction in which it is incorporated, with full power and authority
(corporate and other) to own, lease, use and operate its properties and to carry
on its business as and where now owned, leased, used, operated and conducted.
Schedule 3(a) sets forth a list of all of the Subsidiaries of the Company and
the jurisdiction in which each is incorporated. Except with respect to the
jurisdictions specified in Schedule 3(a) (as to which the Company shall
exercise best efforts to become duly qualified to do business and is in good
standing in within 10 business days following the date hereof), the Company and
each of its Subsidiaries is duly qualified 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 where the failure to be so
qualified or in good standing would not have a Material Adverse Effect.
"Material Adverse Effect" means any material adverse effect on (1) the business,
operations, assets or financial condition or prospects of the Company or its
Subsidiaries, if any, taken as a whole, or (ii) on the ability of the Company to
perform its obligations hereunder or under the agreements or instruments to be
entered into or filed in connection herewith, or (iii) the Securities.
"Subsidiaries" means any corporation or other organization, whether incorporated
or unincorporated, in which the Company owns, directly or indirectly, 50% or
more of the equity or other ownership interests.
b. Authorization; Enforcement. (i) The Company has all requisite
corporate power and authority to file and perform its obligations under the
Certificate of Amendment and to enter into and to perform its obligations under
this Agreement, the Registration Rights Agreement and the Warrants and to
consummate the transactions contemplated hereby and thereby and to issue the
Securities, in accordance with the terms hereof and thereof, (ii) the execution,
delivery and performance of this Agreement, the Registration Rights Agreement
and the Warrants by the Company and the consummation by it of the transactions
contemplated hereby and thereby (including without limitation the filing of the
Certificate of Amendment, the issuance of the Preferred Shares and the Warrants
and the issuance and reservation for issuance of the Conversion Shares and
Warrant Shares issuable upon conversion or exercise thereof) have been duly
authorized by the Company's Board of Directors and no further consent or
authorization of the Company, its Board or Directors, or its shareholders is
required, (iii) this Agreement has been duly executed and delivered and the
Certificate of Amendment has been duly filed by the Company, and (iv) each of
this Agreement and the Certificate of Amendment constitutes, and upon execution
and delivery by the Company of the Registration Rights Agreement and the
Warrants, each such agreement will constitute, a legal, valid and binding
obligation of the Company enforceable against the Company in accordance with its
terms, subject to the effect of any applicable bankruptcy, insolvency,
reorganization, or moratorium or similar laws affecting the rights of creditors
generally and the application of general principles of equity.
c. Capitalization. As of the date hereof, the authorized capital
stock of the Company consists of (i) 25,000,000 shares of Common Stock of which
6,970,546 shares are issued and outstanding, 1,600,952 shares are
reserved for issuance pursuant to the Company's employee and director stock
option plans, 1,320,687 shares are reserved for issuance pursuant to
securities (other than the Preferred Shares and the Warrants) exercisable for,
or convertible into or exchangeable for shares of Common Stock and 2,150,000
shares are reserved for issuance upon conversion of the Preferred Shares and
exercise of the Warrants (subject to adjustment pursuant to the Company's
covenant set forth in Section 4(h) below); (ii) 4,000,000 shares of undesignated
preferred stock, par value $ .01 per share, of which no shares are issued and
outstanding. All of such outstanding shares of capital stock are, or upon
issuance will be, duly authorized, validly issued, fully paid and nonassessable.
No shares of capital stock of the Company, including the Securities, are subject
to preemptive rights or any other similar rights of the stockholders of the
Company or any liens or encumbrances imposed through the actions or failure to
act of the Company. Except as disclosed in Schedule 3(c) and except for the
transactions contemplated hereby, as of the date of this Agreement, (i) there
are no outstanding options, warrants, scrip, rights to subscribe for, puts,
calls, rights of first refusal, agreements, understandings, claims or other
commitments or rights of any character whatsoever relating to, or securities or
rights convertible into, exercisable for, or exchangeable for any shares of
capital stock of the Company or any of its Subsidiaries, 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,
and (ii) there are no agreements or arrangements under which the Company or any
of its Subsidiaries is obligated to register the sale of any of its or their
securities under the 1933 Act (except the Registration Rights Agreement) and
(iii) there are no anti-dilution or price adjustment provisions contained in any
security issued by the Company (or in any agreement providing rights to security
holders) that will be triggered by the issuance of the Preferred Shares,
Conversion Shares, Warrants or Warrant Shares. The Company has furnished to the
Buyer true and correct copies of the Company's Certificate of Incorporation, as
amended, as in effect on the date hereof ("Certificate of Incorporation"), the
Company's By-laws as in effect on the date hereof (the "By-laws"), and the terms
of all securities convertible into or exercisable for Common Stock of the
Company and the material rights of the holders thereof in respect thereto. The
Company shall provide the Buyer with a written update of this representation
signed by the Company's Chief Executive or Treasurer on behalf of the Company as
of the Closing Date.
d. Issuance of Shares. The Preferred Shares, Conversion Shares and
Warrant Shares are duly authorized and, upon issuance in accordance with the
terms of this Agreement (including the issuance of the Conversion Shares upon
conversion of the Preferred Shares in accordance with the Certificate of
Amendment and the issuance of the Warrant Shares upon exercise of the Warrants
in accordance with the terms thereof) will be validly issued, fully paid and
non-assessable, and free from all taxes, liens, claims, encumbrances, and
charges with respect to the issue thereof and shall not be subject to preemptive
rights or other similar rights of stockholders of the Company and will not
impose personal liability on the holders thereof. The term Conversion Shares
includes the shares of Common Stock issuable upon conversion of the Preferred
Shares, including without limitation, such additional shares, if any, as are
issuable as a result of the events described in Section 2(c) of the Registration
Rights Agreement. The Company understands and acknowledges the potentially
dilutive effect to the Common Stock of the issuance of the Conversion Shares and
Warrant Shares upon conversion or exercise of the Preferred Shares or Warrants.
The Company further acknowledges that its obligation to issue Conversion Shares
upon conversion of the Preferred Shares and Warrant Shares upon exercise of the
Warrants in accordance with this Agreement, the Certificate of Amendment and the
Warrants is absolute and unconditional regardless of the dilutive effect that
such issuance may have on the ownership interests of other stockholders of the
Company. Taking the foregoing into account, the Company's Board of Directors
has determined that the issuance of the Securities and the consummation of the
other transactions contemplated hereby are in the best interests of the Company
and its stockholders.
e. Series of Preferred Stock. The terms, designations, powers,
preferences and relative, participating, and optional or special rights, and the
qualifications, limitations, and restrictions of each series of preferred stock
of the Company (other than the Preferred Stock) are as stated in the Certificate
of Incorporation, filed on or prior to the date hereof, and the Bylaws. The
terms, designations, powers, preferences and relative, participating, and
optional or special rights, and the qualifications, limitations, and
restrictions of the Preferred Stock are as stated in the Certificates of
Amendment.
f. No Conflicts. The execution, delivery and performance of this
Agreement, the Registration Rights Agreement and the Warrants by the Company and
the consummation by the Company of the transactions contemplated hereby and
thereby (including, without limitation, the filing of the Certificate of
Amendment and the issuance and reservation for issuance of the Preferred Shares,
Warrants, Conversion Shares and Warrant Shares) will not (i) conflict with or
result in a violation of any provision of the Certificate of Incorporation or
By-laws or (ii) except as described in Schedule 3(f), violate or conflict with,
or result in a breach of any provision of, or constitute a default (or an event
which with notice or lapse of time or both could become a default) under, or
give to others any rights of termination, amendment (including without
limitation, the triggering of any anti-dilution provision), acceleration or
cancellation of, any agreement, indenture or instrument to which the Company or
any of its Subsidiaries is a party, or result in a violation of any law, rule,
regulation, order, judgment or decree (including U.S. federal and state
securities laws and regulations and regulations of any self-regulatory
organizations to which the Company or its securities are subject) applicable to
the Company or any of its Subsidiaries or by which any property or asset of the
Company or any of its Subsidiaries is bound or affected (except for such
conflicts, breaches, defaults, terminations, amendments, accelerations,
cancellations and violations as would not, individually or in the aggregate,
have a Material Adverse Effect). Neither the Company nor any of its
Subsidiaries is in violation of its Certificate of Incorporation, By-laws or
other organizational documents and neither the Company nor any of its
Subsidiaries is in default (and no event has occurred which with notice or lapse
of time or both could put the Company or any of its Subsidiaries in default)
under, and neither the Company nor any of its Subsidiaries has taken any action
or failed to take any action that (and no event has occurred which, without
notice or lapse of time or both) would give to others any rights of termination,
amendment, acceleration or cancellation of, any agreement, indenture or
instrument to which the Company or any of its Subsidiaries is a party or by
which any property or assets of the Company or any of its Subsidiaries is bound
or affected, except for possible defaults as would not, individually or in the
aggregate, have a Material Adverse Effect. The businesses of the Company and
its Subsidiaries, if any, are not being conducted, and shall not be conducted so
long as a Buyer owns any of the Securities, in violation of any law, ordinance
or regulation of any governmental entity, the failure to comply with which
would, individually or in the aggregate, have a Material Adverse Effect. Except
as specifically contemplated by this Agreement and as required under the 1933
Act and any applicable state securities laws or any listing agreement with any
securities exchange or automated quotation system, 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 regulatory or self
regulatory agency in order for it to execute, deliver or perform any of its
obligations under this Agreement, the Registration Rights Agreement or the
Warrants or to perform its obligations under the Certificate of Amendment in
each case in accordance with the terms hereof or thereof. Except as discussed
in Schedule 3(f), all consents, authorizations, orders, filings and
registrations which the Company is required to obtain pursuant to the preceding
sentence have been obtained or effected on or prior to the date hereof. The
Company and its Subsidiaries are unaware of any facts or circumstances which
might give rise to any of the foregoing. The Company is not in violation of the
listing requirements of the American Stock Exchange ("AMEX") and does not
reasonably anticipate that the Common Stock will be delisted by the AMEX in the
foreseeable future. The Company and its Subsidiaries are unaware of any facts
or circumstances which might give rise to any of the foregoing.
g. SEC Documents, Financial Statements. Since January 1, 1996, the
Company has timely filed all reports, schedules, forms, statements and other
documents required to be filed by it with the SEC pursuant to the reporting
requirements of the Securities Exchange Act of 1934, as amended (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 (other than
exhibits) incorporated by reference therein, being hereinafter referred to
herein as the "SEC Documents"). The Company has delivered to the Buyer true and
complete copies of the SEC Documents, except for such exhibits and incorporated
documents. As of their respective dates, the SEC Documents complied in all
material respects with the requirements of the 1934 Act or the 1933 Act, as the
case may be, 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 U.S. 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 not include footnotes or may be condensed or summary statements) and fairly
present in all material respects the consolidated financial position of the
Company and its consolidated Subsidiaries as of the dates thereof and the
consolidated results of their operations and cash flows for the periods then
ended (subject, in the case of unaudited statements, to normal year-end audit
adjustments). Except as set forth in the financial statements of the Company
included in the SEC Documents or as set forth on Schedule 3(g), the Company has
no liabilities, contingent or otherwise, other than (i) liabilities incurred in
the ordinary course of business subsequent to September 30, 1997 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.
h. Absence of Certain Changes. Since September 30, 1996, there has
been no material adverse change and no material adverse development in the
assets, liabilities, business, properties, operations, financial condition, or
results of operations of the Company or any of its Subsidiaries.
i. Absence of Litigation. There is no action, suit, claim,
proceeding, inquiry or investigation before or by any court, public board,
government agency, self-regulatory organization or body pending or, to the
knowledge of the Company or any of its Subsidiaries, threatened against or
affecting the Company or any of its Subsidiaries or any of its officers or
directors acting as such that could, individually or in the aggregate, have a
Material Adverse Effect. Schedule 3(i) contains a complete list and summary
description of any pending or, to the knowledge of the Company, threatened
proceeding against or affecting the Company or any of its Subsidiaries, without
regard to whether it could have a Material Adverse Effect.
j. Patents, Copyrights, etc. The Company and each of its
Subsidiaries owns or possesses the requisite licenses or rights to use all
patents, patent applications, patent rights, inventions, know-how, trade
secrets, trademarks, trademark applications, service marks, service names, trade
names and copyrights ("Intellectual Property") necessary to enable it to conduct
its business as now operated (and, except as set forth in Schedule 3(j) hereof,
to the best of the Company's knowledge, as presently contemplated to be operated
in the future); there is no claim or action by any person pertaining to, or
proceeding pending, or to the Company's knowledge threatened which challenges
the right of the Company or of a Subsidiary with respect to any Intellectual
Property necessary to enable it to conduct its business as now operated (and,
except as set forth in Schedule 3(j) hereof, to the best of the Company's
knowledge, as presently contemplated to be operated in the future); to the best
of the Company's knowledge, the Company's or its Subsidiaries' products,
services and processes do not infringe on any Intellectual Property or other
rights held by any person; and the Company is unaware of any facts or
circumstances which might give rise to any of the foregoing. The Company and
each of its Subsidiaries have taken reasonable security measures to protect the
secrecy, confidentiality and value of their Intellectual Property.
k. No Materially Adverse Contracts, Etc. Neither the Company nor
any of its Subsidiaries is subject to any charter, corporate or other legal
restriction, or any judgment, decree, order, rule or regulation which in the
reasonable judgment of the Company's officers has or is expected in the future,
individually or in the aggregate, to have a Material Adverse Effect. Neither
the Company nor any of its Subsidiaries is a party to any contract or agreement
which in the reasonable judgment of the Company's officers has or is expected to
have a Material Adverse Effect.
l. Tax Status. Except as set forth on Schedule 3(l), the Company
and each of its Subsidiaries has made or filed all federal, state and foreign
income and all other tax returns, reports and declarations required by any
jurisdiction to which it is subject (unless and only to the extent that the
Company and each of its Subsidiaries has set aside on its books provisions
reasonably adequate for the payment of all unpaid and unreported taxes) and has
paid all taxes and other governmental assessments and charges that are material
in amount, shown or determined to be due on such returns, reports and
declarations, except those being contested in good faith and has set aside on
its books provisions reasonably adequate for the payment of all taxes for
periods subsequent to the periods to which such returns, reports or declarations
apply. There are no unpaid taxes in any material amount claimed to be due by
the taxing authority of any jurisdiction, and the officers of the Company know
of no basis for any such claim. The Company has not executed a waiver with
respect to the statute of limitations relating to the assessment or collection
of any foreign, federal, state or local tax. None of the Company's tax returns
is presently being audited by any taxing authority.
m. Certain Transactions. Except as disclosed in the SEC Documents
or as set forth on Schedule 3(m) and except for arm's length transactions
pursuant to which the Company or any of its Subsidiaries makes payments in the
ordinary course of business upon terms no less favorable than the Company or any
of its Subsidiaries could obtain from third parties and other than the grant of
stock options or the ownership of other securities and rights disclosed on
Schedule 3(c), none of the officers, directors, or employees of the Company is
presently a party to any transaction with the Company or any of its Subsidiaries
(other than for services as employees, officers and directors), including any
contract, agreement or other arrangement providing for the furnishing of
services to or by, providing for rental of real or personal property to or from,
or otherwise requiring payments to or from any officer, director or employee or,
to the knowledge of the Company, any corporation, partnership, trust or other
entity in which any officer, director, or employee has a substantial interest
or is an officer, director, trustee or partner.
n. Disclosure. All information relating to or concerning the
Company or any of its Subsidiaries set forth in this Agreement and provided to
the Buyer pursuant to Section 2(d) hereof and otherwise in connection with the
transactions contemplated hereby is true and correct in all material respects
and the Company has not omitted to state any material fact necessary in order to
make the statements made herein or therein, in light of the circumstances under
which they were made, not misleading. No event or circumstance has occurred or
information exists with respect to the Company or any of its Subsidiaries or its
or their business, properties, operations or financial conditions, which, under
applicable law, rule or regulation, requires public disclosure or announcement
by the Company but which has not been so publicly announced or disclosed
(assuming for this purpose that the Company's reports filed under the 1934 Act
are being incorporated into an effective registration statement filed by the
Company under the 1933 Act).
o. Acknowledgment Regarding Buyer's Purchase of Securities. The
Company acknowledges and agrees that the Buyer is acting solely in the capacity
of an arm's length purchaser with respect to this Agreement and the transactions
contemplated hereby. The Company further acknowledges that the Buyer is not
acting as a financial advisor or fiduciary of the Company (or in any similar
capacity) with respect to this Agreement and the transactions contemplated
hereby and any advice given by any Buyer or any of its representatives or agents
in connection with this Agreement and the transactions contemplated hereby is
merely incidental to the Buyer's purchase of the Securities and has not been
relied on by the Company in any way. The Company further represents to the
Buyer that the Company's decision to enter into this Agreement has been based
solely on an independent evaluation by the Company and its representatives.
p. No Integrated Offering. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales in any security or solicited any offers to
buy any security under circumstances that would require registration under the
1933 Act of the issuance of the Securities to the Buyers. The issuance of the
Securities to the Buyers will not be integrated with any other issuance of the
Company's securities (past, current or future) for purposes of the 1933 Act or
any applicable rules of AMEX, other than the Warrants to be issued to Shoreline
Pacific Institutional Finance, the Institutional Division of Financial West
Group ("Shoreline Pacific") in connection with the transactions contemplated by
this Agreement.
q. No Brokers. The Company has taken no action which would give
rise to any claim by any person for brokerage commissions, finder's fees or
similar payments relating to this Agreement or the transactions contemplated
hereby, except for dealings with Shoreline Pacific , whose commissions and fees
will be paid for by the Company.
r. Permits; Compliance. The Company and each of its Subsidiaries is
in possession of all franchises, grants, authorizations, licenses, permits,
easements, variances, exemptions, consents, certificates, approvals and orders
necessary to own, lease and operate its properties and to carry on its business
as it is now being conducted except those the failure of which to possess would
not, individually or in the aggregate, have a Material Adverse Effect
(collectively, the "Company Permits"), and there is no action pending or, to the
knowledge of the Company, threatened regarding suspension or cancellation of any
of the Company Permits. Neither the Company nor any of its Subsidiaries is in
conflict with, or in default or violation of, any of the Company Permits, except
for any such conflicts, defaults or violations which, individually or in the
aggregate, would not reasonably be expected to have a Material Adverse Effect.
Since September 30, 1996, neither the Company nor any of its Subsidiaries has
received any notification with respect to possible conflicts, defaults or
violations of applicable laws, except for notices relating to possible
conflicts, defaults or violations, which conflicts, defaults or violations would
not have a Material Adverse Effect.
s. Environmental Matters.
(i) Except as set forth in Schedule 3(s), there are, to the
Company's knowledge, with respect to the Company or any of its Subsidiaries or
any predecessor of the Company, no past or present violations of Environmental
Laws (as defined below), releases of any material into the environment, actions,
activities, circumstances, conditions, events, incidents, or contractual
obligations which may give rise to any common law environmental liability or any
liability under the Comprehensive Environmental Response, Compensation and
Liability Act of 1980 or similar federal, state, local or foreign laws and
neither the Company nor any of its Subsidiaries has received any notice with
respect to any of the foregoing, nor is any action pending or, to the Company's
knowledge, threatened in connection with any of the foregoing. The term
"Environmental Laws" means all federal, state, local or foreign laws relating to
pollution or protection of human health or the environment (including, without
limitation, ambient air, surface water, groundwater, land surface or subsurface
strata), including, without limitation, laws relating to emissions, discharges,
releases or threatened releases of chemicals, pollutants contaminants, or toxic
or hazardous substances or wastes (collectively, "Hazardous Materials") into the
environment, or otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of Hazardous Materials,
as well as all authorizations, codes, decrees, demands or demand letters,
injunctions, judgments, licenses, notices or notice letters, orders, permits,
plans or regulations issued, entered, promulgated or approved thereunder.
(ii) Other than those that are or were stored, used or disposed
of in compliance with applicable law, no Hazardous Materials are contained on or
about any real property currently owned, leased or used by the Company or any of
its Subsidiaries, and no Hazardous Materials were released on or about any real
property previously owned, leased or used by the Company or any of its
Subsidiaries during the period the property was owned, leased or used by the
Company or any of its Subsidiaries.
(iii) Except as set forth in Schedule 3(s), there are no
underground storage tanks on or under any real property owned, leased or used by
the Company or any of its Subsidiaries that are not in compliance with
applicable law.
t. Title to Property. The Company and its Subsidiaries have good
and marketable title in fee simple to all real property and good and marketable
title to all personal property owned by them which is material to the business
of the Company and its Subsidiaries, in each case free and clear of all liens,
encumbrances and defects except such as are described in Schedule 3(t) or such
as would not have a Material Adverse Effect. Any real property and facilities
held under lease by the Company and its Subsidiaries are held by them under
valid, subsisting and enforceable leases with such exceptions as would not have
a Material Adverse Effect.
u. Insurance. The Company and each of its Subsidiaries are insured
by insurers of recognized financial responsibility against such losses and risks
and in such amounts as management of the Company believes to be prudent and
customary in the businesses in which the Company and its Subsidiaries are
engaged. Neither the Company nor any such Subsidiary has any reason to believe
that it will not be able to renew its existing insurance coverage as and when
such coverage expires or to obtain similar coverage from similar insurers as may
be necessary to continue its business at a cost that would not have a Material
Adverse Effect.
v. Internal Accounting Controls. The Company and each of its
Subsidiaries maintain a system of internal accounting controls sufficient, in
the judgment of the Company's board of directors, to provide reasonable
assurance that (i) transactions are executed in accordance with management's
general or specific authorizations, (ii) transactions are recorded as necessary
to permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain asset accountability, (iii)
access to assets is permitted only in accordance with management's general or
specific authorization and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate action
is taken with respect to any differences.
w. Employment Matters. The Company and its Subsidiaries are in
compliance with all federal, state, local and foreign laws and regulations
respecting employment and employment practices, terms and conditions of
employment and wages and hours except where failure to be in compliance would
not have a Material Adverse Effect. There are no pending investigations
involving the Company or any of its Subsidiaries by the U.S. Department of Labor
or any other governmental agency responsible for the enforcement of such
federal, state, local or foreign laws and regulations. There is no unfair labor
practice charge or complaint against the Company or any of its Subsidiaries
pending before the National Labor Relations Board or any strike, picketing,
boycott, dispute, slowdown or stoppage pending or threatened against or
involving the Company or any of its Subsidiaries. Except as set forth in
Schedule 3(w), no representation question exists respecting the employees of the
Company or any of its Subsidiaries, and no collective bargaining agreement or
modification thereof is currently being negotiated by the Company or any of its
subsidiaries. No grievance or arbitration proceeding is pending under any
expired or existing collective bargaining agreements of the Company or any of
its Subsidiaries. No material labor dispute with the employees of the Company or
any of its Subsidiaries exists or, to the knowledge of the Company, is imminent.
x. ERISA Matters. The Company has no employee benefit plans
subject to the Employee Retirement Income Security Act of 1974, as amended.
y. Investment Company Status. The Company is not and upon
consummation of the sale of the Securities will not be an "investment company,"
a company controlled by an "investment company" or an "affiliated person" of, or
"promoter" or "principal underwriter" for, an "investment company" as such terms
are defined in the Investment Company Act of 1940, as amended.
z. Foreign Corrupt Practices. Neither, the Company nor any of its
Subsidiaries, nor any director, officer, agent, employee or other person acting
on behalf of the Company or any Subsidiary has, in the course of his actions
for, or on behalf of, the Company used any corporate funds for any unlawful
contribution, gift, entertainment or other unlawful expenses relating to
political activity; made any direct or indirect unlawful payment to any foreign
or domestic government official or employee from corporate funds; violated or is
in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977;
or made any bribe, rebate, payoff, influence payment, kickback or other unlawful
payment to any foreign or domestic government official or employee.
aa. No General Solicitation. Neither the Company nor any distributor
participating on the Company's behalf in the transactions contemplated hereby
(if any) nor any person acting for the Company, or any such distributor, has
conducted any "general solicitation," as such term is defined in Regulation D,
with respect to any of the Securities being offered hereby.
4. COVENANTS.
a. Best Efforts. The parties shall use their best efforts to
satisfy timely each of the conditions described in Section 6 and 7 of this
Agreement.
b. Form D; Blue Sky Laws. The Company agrees to file a Form D with
respect to the Securities as required under Regulation D and to provide a copy
thereof to the Buyer promptly after such filing. The Company shall, on or
before the Closing Date, take such action as the Company shall reasonably
determine is necessary to qualify the Securities for sale to the Buyer pursuant
to this Agreement under applicable securities or "blue sky" laws of the states
of the United States (or to obtain an exemption from such qualification), and
shall provide evidence of any such action so taken to the Buyer on or prior to
the Closing Date.
c. Reporting Status; Eligibility to Use Form S-3. The Company's
Common Stock is registered under Section 12(b) of the 1934 Act. So long as any
Buyer beneficially owns any of the Securities, the Company shall timely 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. Except for inadvertant failure of the Company to
disclose the information required to be disclosed under Rule 701 of Regulation
S-K under the Securities Act in the Company's Form 10-K for the fiscal year
ended September 30, 1996 and its Form 10-Q's for the first three quarters in the
fiscal year ended September 30, 1997, Tthe Company currently meets, and will
take all necessary action to continue to meet, the "registrant eligibility"
requirements set forth in the general instructions to Form S-3.
d. Use of Proceeds. The Company shall use the proceeds from the
sale of the Preferred Shares and Warrants in the manner set forth in Schedule
4(d) attached hereto and made a part hereof and shall not otherwise, directly
or indirectly, use such proceeds for any loan to or investment in any other
corporation, partnership, enterprise or other person (except in connection with
its direct or indirect Subsidiaries).
e. Expenses. The Company and the Buyer shall each be liable for
their own expenses incurred in connection with the negotiation, preparation,
execution and delivery of this Agreement and the other agreements to be executed
in connection herewith, including, without limitation, attorneys' and
consultants' fees and expenses.
f. Financial Information. The Company agrees to file all reports,
schedules, forms, statements and other documents required to be filed by it with
the SEC pursuant to the reporting requirements of the 1934 Act. The financial
statements of the Company will be prepared in accordance with generally accepted
accounting principles, consistently applied, and will fairly present in all
material respects the consolidated financial position of the Company and its
consolidated subsidiaries and results of their operations and cash flows for the
periods then ended (subject, in the case of unaudited statements, to normal
year-end audit adjustments). The Company agrees to send the following reports
to the Buyer until such 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; (ii) within one (1) day after release, copies of
all press releases issued by the Company or any of its Subsidiaries; and (iii)
contemporaneously with the making available or giving to the stockholders of the
Company, copies of any notices or other information the Company makes available
or gives to such stockholders.
g. Reservation of Shares. 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
Preferred Shares and issuance of the Conversion Shares in connection therewith
(based on the Conversion Price of the Preferred Shares in effect from time to
time) and the full exercise of the Warrants and the issuance of the Warrant
Shares in connection therewith (based upon the Exercise Price of the Warrants in
effect from time to time). The Company shall not reduce the number of shares of
Common Stock reserved for issuance upon conversion of the Preferred Shares or
exercise of the Warrants without the consent of the Buyer, which consent will
not be unreasonably withheld. The Company shall use its best efforts at all
times to maintain the number of shares of Common Stock so reserved for issuance
at no less than two (2) times the number that is then actually issuable upon
full conversion of the Preferred Shares plus the number that is then actually
issuable uponand full exercise of the Warrants (based on the Conversion Price of
the Preferred Shares or Exercise Price of the Warrants in effect from time to
time). If at any time the number of shares of Common Stock authorized and
reserved for issuance is below the number of Conversion Shares and Warrant
Shares issued and issuable upon conversion of the Preferred Shares and exercise
of the Warrants (based on the Conversion Price of the Preferred Shares and
Exercise Price of the Warrants then in effect), the Company will promptly take
all corporate action necessary to authorize and reserve a sufficient number of
shares, including, without limitation, calling a special meeting of shareholders
to authorize additional shares to meet the Company's obligations under this
Section 4(g), in the case of an insufficient number of authorized shares, and
using its best efforts to obtain shareholder approval of an increase in such
authorized number of shares.
h. Listing. The Company shall, on or before 10 business days
following the date hereof, secure the listing of the Conversion Shares and
Warrant 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 such listing of all Conversion
Shares and Warrant Shares from time to time issuable (subject to the Maximum
Share Limit (as defined in the Certificate of Amendment)) upon conversion or
exercise of the Preferred Shares and the Warrants. The Company will obtain and
maintain the listing and trading of its Common Stock on the AMEX, the Nasdaq
National Market System ("Nasdaq NMS"), or the New York Stock Exchange ("NYSE"),
and will comply in all respects with the Company's reporting, filing and other
obligations under the bylaws or rules of the AMEX or other exchanges, as
applicable. The Company shall promptly provide to the Buyer copies of any
notices it receives regarding the continued eligibility of the Common Stock for
listing on the AMEX or other principal exchange or quotation system on which the
Common Stock is listed or traded.
i. Corporate Existence. So long as a Buyer beneficially owns any
Securities, the Company shall maintain its corporate existence in good standing
under the laws of the jurisdiction in which it is incorporated and shall not
sell all or substantially all of the Company's assets, except in the event of a
merger or consolidation or sale of all or substantially all of the Company's
assets, where the surviving or successor entity in such transaction (i) assumes
the Company's obligations hereunder and under the agreements and instruments
entered into or filed in connection herewith and (ii) is a publicly traded
corporation whose Common Stock is listed for trading on AMEX, Nasdaq NMS or
NYSE.
j. Solvency; Compliance with Law. The Company (both before and
after giving effect to the transactions contemplated by this Agreement) is
solvent (i.e., its assets have a fair market value in excess of the amount
required to pay its probable liabilities on its existing debts as they become
absolute and matured) and currently the Company has no information that would
lead it to reasonably conclude that the Company would not have, nor does it
intend to take any action that would impair, its ability to pay its debts from
time to time incurred in connection therewith as such debts mature. The Company
will conduct its business in compliance with all applicable laws, rules and
regulations of the jurisdictions in which it is conducting business, including,
without limitation, all applicable local, state and federal environmental laws
and regulations the failure to comply with which would have a Material Adverse
Effect.
k. Insurance. The Company shall maintain liability, casualty and
other insurance (subject to customary deductions and retentions) with
responsible insurance companies against such risk of the types and in the
amounts customarily maintained by companies of comparable size to the Company.
l. No Integration. The Company will not conduct any future offering
that will be integrated with the issuance of the Securities for purposes of the
rules promulgated by the SEC or AMEX.
m. No Qualified Opinion. The Company did not receive a qualified
opinion from its auditors with respect to its most recent fiscal year end and
does not anticipate or know of any basis upon which its auditors might issue a
qualified opinion in respect of its current fiscal year.
n. Additional Equity Capital; Right of First Refusal. Subject to the
exceptions described below, the Company will not, without the prior written
consent of the Buyer, negotiate or contract with any party to obtain additional
equity financing (including debt financing with an equity component) that
involves (A) the issuance of Common Stock at a discount to the market price of
the Common Stock on the date of original initial issuance of such securities or
(B) the issuance of convertible securities that are convertible into an
indeterminate number of shares of Common Stock during the period (the "Lock-up
Period") beginning on the Closing Date and ending on the later of (i) ninety
(90) days from the Closing Date and (ii) thirty (30) days from the date the
Registration Statement (as defined in the Registration Rights Agreement) is
declared effective. In addition, subject to the exceptions described below, the
Company will not conduct any equity financing (including debt with an equity
component) ("Future Offerings") during the period beginning on the Closing Date
and ending one hundred fifty (150) days after the end of the Lock-up Period
unless it shall have first delivered to the Buyer, at least fifteen (15)
business days prior to the closing of such Future Offering, written notice
describing the proposed Future Offering, including the terms and conditions
thereof, and providing the Buyer an option during the ten (10) day period
following delivery of such notice to purchase the securities being offered in
the Future Offering on the same terms as contemplated by such Future Offering
(the limitations referred to in this and the immediately preceding sentence are
collectively referred to as the "Capital Raising Limitations"). The Capital
Raising Limitations shall not apply to any transaction involving (i) issuances
of securities in a firm commitment underwritten public offering (excluding a
continuous offering pursuant to Rule 415 under the 1933 Act) or (ii) issuances
of securities as consideration for 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. The
Capital Raising Limitations also shall not apply to the issuance of securities
upon exercise or conversion of the Company's options, warrants or other
convertible securities outstanding as of the date hereof or to the grant of
additional options or warrants, or the issuance of additional securities, under
any Company stock option or restricted stock plan approved by a majority of the
Company's board of directors. The term "Capital Raising Limitations" shall not
apply to the issuance of up to $1,400,000 of convertible subordinated debt to R.
Mouran in exchange for certain leases and other assets to be convertible into
Common Stock at an initial conversion price not less than the market price for
the Common Stock on the date of issuance of such convertible subordinated debt;
provided that such convertible subordinated debt shall not be convertible into
Common Stock for a period of 12 months from the date of this Agreement.
5. TRANSFER AGENT INSTRUCTIONS.
The Company shall issue irrevocable instructions to its transfer agent to
issue certificates, registered in the name of the Buyer or its nominee, for the
Conversion Shares and Warrant Shares in such amounts as specified from time to
time by the Buyer to the Company upon proper conversion or exercise of the
Preferred Shares and the Warrants (the "Irrevocable Transfer Agent
Instructions"). All such certificates shall bear the restrictive legend as and
when specified in Section 2(g) of this Agreement. The Company warrants that no
instruction other than the Irrevocable Transfer Agent Instructions referred to
in this Section 5, and stop transfer instructions to give effect to Section 2(f)
hereof (in the case of the Conversion Shares or Warrant Shares, prior to
registration of the Conversion Shares or Warrant Shares under the 1933 Act),
will be given by the Company to its transfer agent and that the Securities shall
otherwise be freely transferable on the books and records of the Company as and
to the extent provided in this Agreement and the Registration Rights Agreement.
Nothing in this Section shall affect in any way the Buyer's obligations and
agreement set forth in Section 2(g) hereof to comply with all applicable
prospectus delivery requirements, if any, upon resale of the Securities. If a
Buyer provides the Company with an opinion of counsel in form, substance and
scope customary for opinions of counsel in comparable transactions, that
registration of a resale by such Buyer of any of the Securities is not required
under the 1933 Act or the Buyer provides the Company with reasonable assurances
that such Securities may be sold under Rule 144, the Company shall permit the
transfer, and, in the case of the Conversion Shares or Warrant Shares, promptly
instruct its transfer agent to issue one or more certificates in such name and
in such denominations as specified by such Buyer. The Company acknowledges that
a breach by it of its obligations hereunder will cause irreparable harm to the
Buyer, by vitiating the intent and purpose of the transaction contemplated
hereby. Accordingly, the Company acknowledges that the remedy at law for a
breach of its obligations under this Section 5 will be inadequate and agrees, in
the event of a breach or threatened breach by the Company of the provisions of
this Section, that the Buyer shall be entitled, in addition to all other
available remedies, to an injunction restraining any breach and requiring
immediate transfer, without the necessity of showing economic loss and without
any bond or other security being required.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
The obligation of the Company hereunder to issue and sell the Preferred
Shares and the Warrants to a Buyer at the Closing is subject to the
satisfaction, at or before the Closing Date of each of the following conditions
thereto, provided that these conditions are for the Company's sole benefit and
may be waived by the Company at any time in its sole discretion:
a. The applicable Buyer shall have executed this Agreement and the
Registration Rights Agreement, and delivered the same to the Escrow Agent.
b. The applicable Buyer shall have delivered the Purchase Price in
accordance with Section 1(b) above.
c. The Certificate of Amendment shall have been filed with the
Secretary of State of the State of New York.
d. The representations and warranties of the applicable 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 which representations and warranties
shall be correct as of such date), and the applicable Buyer shall have
performed, satisfied and complied in all material respects with the covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by the applicable Buyer at or prior to the Closing Date.
e. No litigation, statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by or in any court or governmental authority of competent jurisdiction
or any self-regulatory organization having authority over the matters
contemplated hereby which prohibits the consummation of any of the transactions
contemplated by this Agreement.
7. CONDITIONS TO THE BUYER'S OBLIGATION TO PURCHASE.
The obligation of the Buyer hereunder to purchase the Preferred Shares and
the Warrants 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 such Buyer's sole benefit and may be waived by such Buyer at any time in
its sole discretion:
a. The Company shall have executed this Agreement and the
Registration Rights Agreement, and delivered the same to the Buyer.
b. The Certificate of Amendment shall have been filed with the
Secretary of State of the State of New York, and evidence thereof reasonably
satisfactory to the Buyer shall have been delivered to such Buyer.
c. The Company shall have delivered to the Escrow Agent duly
executed certificates (in such denominations as the Buyer shall request)
representing the Preferred Shares and the Warrants being so purchased in
accordance with Section 1(b) above.
d. The representations and warranties of the Company 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 such time (except for representations and
warranties that speak as of a specific date which representations and warranties
shall be true and correct as of such date) and the Company shall have performed,
satisfied and complied in all material respects with the covenants, agreements
and conditions required by this Agreement to be performed, satisfied or complied
with by the Company at or prior to the Closing Date. The Buyer shall have
received a certificate or certificates, executed by the Chief Executive Officer
or the Treasurer 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, but not limited to certificates with respect to the Company's
Certificate of Incorporation, By-laws, Board of Directors' resolutions relating
to the transactions contemplated hereby and the incumbency and signatures of
each of the officers of the Company who shall execute on behalf of the Company
any document delivered on the Closing Date.
e. No litigation, statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by or in any court or governmental authority of competent jurisdiction
or any self-regulatory organization having authority over the matters
contemplated hereby which prohibits the consummation of any of the transactions
contemplated by this Agreement.
f. Trading and listing of the Common Stock on the AMEX shall not
have been suspended by the SEC or the AMEX.
g. The Buyer shall have received an opinion of the Company's
counsel, dated as of the Closing Date, in form, scope and substance reasonably
satisfactory to the Buyer and in substantially the same form as Exhibit "DE"
attached hereto.
h. The Buyer shall have received an officer's certificate described
in Section 3(c) above, dated as of the Closing Date.
i. The Buyer shall have received executed lock-up agreements from
Johann Oosthuizen and Ian Aaron whereby such persons agree not to sell any
shares of Common Stock for a period commencing on the Closing Date and ending on
June 30, 1999.
j. The Irrevocable Transfer Agent Instructions, in form and
substance satisfactory to the Buyer, shall have been delivered to and
acknowledged in writing by the Company's Transfer Agent.
8. GOVERNING LAW; MISCELLANEOUS.
a. Governing Law; Jurisdiction. This Agreement shall be governed by
and interpreted in accordance with the laws of New York State without regard to
the principles of conflict of laws. The parties hereto hereby submit to the
exclusive jurisdiction of the United States Federal and state courts located in
New York, New York with respect to any dispute arising under this Agreement, the
agreements entered into in connection herewith or the transactions contemplated
hereby or thereby.
b. Counterparts; Signatures by Facsimile. This Agreement may be
executed in two or more 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. This Agreement, once executed
by a party, may be delivered to the other party hereto by facsimile transmission
of a copy of this Agreement bearing the signature of the party so delivering
this 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. If any provision of this Agreement shall be
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement or the validity or enforceability of this Agreement
in any other jurisdiction.
e. Entire Agreement; Amendments. This Agreement and the instruments
referenced herein contain the entire understanding of the parties with respect
to the matters covered herein and therein and, except as specifically set forth
herein or therein, neither the Company nor the Buyer makes any representation,
warranty, covenant or undertaking with respect to such matters. No provision of
this Agreement may be waived or amended other than by an instrument in writing
signed by the party to be charged with enforcement.
f. Notices. Any notices required or permitted to be given under the
terms of this Agreement shall be sent by certified or registered mail (return
receipt requested) or delivered personally or by courier (including a recognized
overnight delivery service) or by facsimile and shall be effective five days
after being placed in the mail, if mailed by regular U.S. mail, or upon receipt,
if delivered personally or by courier (including a recognized overnight delivery
service) or by facsimile, in each case addressed to a party. The addresses for
such communications shall be:
If to the Company:
SoftNet Systems, Inc.
520 Logue Avenue
Mountain View, CA 94043
Attn: Secretary
Phone: (650) 962-7404
Fax: (650) 962-7475
and with a copy to:
McDermott, Will & Emery
227 West Monroe Street
31st Floor
Chicago, IL 60606-5096
Attn: George Mann, Esq.
Phone: (312) 984-7565
Fax: (312) 984-3669
If to a Buyer: To the address set forth immediately below the Buyer's name
on the signature pages hereto.
Each party shall provide notice to the other party of any change in
address.
g. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and assigns. Except as
provided herein or therein, neither the Company nor any Buyer shall assign this
Agreement, the Registration Rights Agreement or the Warrants or any rights or
obligations hereunder or thereunder without the prior written consent of the
other. Notwithstanding the foregoing, any Buyer may assign its rights hereunder
to any person that purchases Securities in a private transaction from a Buyer or
to any of its "affiliates," as that term is defined under the 1934 Act, without
the consent of the Company.
h. 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 agreements and covenants set forth in Sections 3, 4, 5 and 8 shall survive
the closing hereunder notwithstanding any due diligence investigation conducted
by or on behalf of the Buyer. The Company agrees to indemnify and hold harmless
the Buyer and all its officers, directors, employees, partners, members,
affiliates, and agents for loss or damage arising as a result of or related to
any breach or alleged breach by the Company of any of its representations,
warranties and covenants set forth in Sections 3 and 4 hereof or any of its
covenants and obligations under this Agreement or the Registration Rights
Agreement, including advancement of expenses as they are incurred.
j. Publicity. The Company and the Buyer shall have the right to
review a reasonable period of time before issuance of any press releases, or
relevant portions of any SEC or AMEX filings, or any other public statements
with respect to the transactions contemplated hereby; provided, however, that
the Company shall be entitled, without the prior approval of the Buyer, to make
any press release or SEC or AMEX filings with respect to such transactions as is
required by applicable law and regulations (although the Buyer shall be
consulted by the Company in connection with any such press release prior to its
release and filing and shall be provided with a copy thereof and be given an
opportunity to comment thereon).
k. 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.
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.
m. Equitable Relief. The Company recognizes that in the event that
it fails to perform, observe, or discharge any or all of its obligations under
this Agreement, any remedy at law may prove to be inadequate relief to the
Buyer. The Company therefore agrees that the Buyer shall be entitled to
temporary and permanent injunctive relief in any such case without the necessity
of proving actual damages.
[THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, the undersigned Buyer and the Company have caused this
Agreement to be duly executed as of the date first above written.
Softnet Systems, Inc.
By:
RGC International Investors, LDC
By: Rose Glen Capital Management, L.P.
Investment Manager
By: RGC General Partner Corp.
By:
Name: Gary S. Kaminsky
Its: Managing Director
RESIDENCE: Cayman Islands
ADDRESS:
c/o Rose Glen Capital Management, L.P.
3 Bala Plaza East, Suite 200
251 St. Asaphs Road
Bala Cynwyd, PA 19004
Fax: (610) 617-0570
Telephone: (610) 617-5900
Attn: Gary S. Kaminsky
Exhibit A
Certificate of Amendment
Exhibit B
Stock Purchase Warrant
Exhibit C
Registration Rights Agreement
Exhibit D
Form of Legal Opinion Intentionally Omitted
Exhibit 10.2
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of December 31,
1997, by and between Softnet Systems, Inc., a New York corporation, with
headquarters located at 520 Logue Avenue, Mountain View, CA 94043 (the
"Company"), and the undersigned (together with its affiliates and any assignee
or transferee of all of its rights hereunder, the "Initial Investor").
WHEREAS:
A. In connection with the Securities Purchase Agreement by and among the
parties hereto of even date herewith (the "Securities Purchase Agreement"), the
Company has agreed, upon the terms and subject to the conditions contained
therein, to issue and sell to the Initial Investor (i) 5,000 shares of its
Series A Convertible Preferred Stock (the "Preferred Stock") that are
convertible into shares (the "Conversion Shares") of the Company's common stock,
par value $.01 per share, (the "Common Stock"), upon the terms and subject to
the limitations and conditions set forth in the Certificate of Designations,
Preferences and Rights with respect to such Preferred Stock (the "Certificate of
Designation") and (ii) warrants (the "Warrants") to acquire One Hundred Fifty
Thousand (150,000) shares of Common Stock (the "Warrant Shares"), upon the
terms and subject to the limitations and conditions set forth in the Warrants
dated of even date herewith; and
B. To induce the Initial Investor to execute and deliver the Securities
Purchase Agreement, the Company has agreed to provide certain registration
rights under the Securities Act of 1933, as amended, and the rules and
regulations thereunder, or any similar successor statute (collectively, the
"1933 Act"), and applicable state securities laws;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and the Initial
Investor hereby agree as follows:
1. DEFINITIONS.
a. As used in this Agreement, the following terms shall have the
following meanings:
(i) "Investor" means the Initial Investor and any transferee or
assignee who agrees to become bound by the provisions of this Agreement in
accordance with Section 9 hereof.
(ii) "register," "registered," and "registration" refer to a
registration effected by preparing and filing a Registration Statement or
Statements in compliance with the 1933 Act and pursuant to Rule 415 under the
1933 Act or any successor rule providing for offering securities on a continuous
basis ("Rule 415"), and the declaration or ordering of effectiveness of such
Registration Statement by the United States Securities and Exchange Commission
(the "SEC").
(iii) "Registrable Securities" means the Conversion Shares
and the Warrant Shares (including any Conversion Shares issuable with respect to
Conversion Default Payments under the Certificate of Designation or in
redemption of any Preferred Stock and any Warrant Shares issuable with respect
to Exercise Default Payments under the Warrants) issued or issuable with respect
to the Warrants and the Preferred Stock and any shares of capital stock issued
or issuable, from time to time (with any adjustments), as a distribution on or
in exchange for or otherwise with respect to any of the foregoing. As to any
particular securities, such Securities shall cease to be Registrable Securities
when they have been sold pursuant to an effective registration statement or in
compliance with Rule 144 or are eligible to be sold pursuant to Rule 144(k)
under the 1933 Act (or any similar rule then in force).
(iv) "Registration Statement" means a registration statement of
the Company under the 1933 Act.
b. Capitalized terms used herein and not otherwise defined herein
shall have the respective meanings set forth in the Securities Purchase
Agreement.
2. REGISTRATION.
a. Mandatory Registration. The Company shall prepare, and, on or
prior to the date which is twenty (20) business days after the date of the
Closing under the Securities Purchase Agreement (the "Closing Date"), file with
the SEC a Registration Statement on Form S-3 (or, if Form S-3 is not then
available, on Form S-1 (at the time provided for in Section 2(e)), to effect a
registration of all of the Registrable Securities, subject to the consent of the
Initial Investor, which consent will not be unreasonably withheld) covering the
resale of the Registrable Securities underlying the Preferred Stock and Warrants
issued or issuable pursuant to the Securities Purchase Agreement, which
Registration Statement, to the extent allowable under the 1933 Act and the Rules
promulgated thereunder (including Rule 416), shall state that such Registration
Statement also covers such indeterminate number of additional shares of Common
Stock as may become issuable upon conversion of the Preferred Stock and exercise
of the Warrants (i) to prevent dilution resulting from stock splits, stock
dividends or similar transactions or (ii) by reason of changes in the Conversion
Price of the Preferred Stock in accordance with the terms of the Certificate of
Designation or the Exercise Price of the Warrants in accordance with the terms
thereof. The number of shares of Common Stock initially included in such
Registration Statement shall be no less than two (2) times the sum of the number
of Conversion Shares and Warrant Shares that are then issuable upon conversion
of the Preferred Stock or exercise of the Warrants without regard to any
limitation on the Investor's ability to convert the Preferred Stock or Warrants.
The Company shall use its best efforts to obtain effectiveness of the
Registration Statement as soon as practicable.
b. Underwritten Offering. If any offering pursuant to a Registration
Statement pursuant to Section 2(a) hereof involves an underwritten offering, the
Investors who hold a majority in interest of the Registrable Securities subject
to such underwritten offering, with the consent of the Initial Investor, shall
have the right to select one legal counsel and an investment banker or bankers
and manager or managers to administer the offering, which investment banker or
bankers or manager or managers shall be reasonably satisfactory to the Company.
c. Payments by the Company. The Company shall use its best efforts
to obtain effectiveness of the Registration Statement as soon as practicable.
If (i) the Registration Statement(s) covering the Registrable Securities
required to be filed by the Company pursuant to Section 2(a) hereof is not
declared effective by the SEC within ninety (90) days after the Closing Date (or
one hundred twenty (120) days after the Closing Date if the Company is advised
by the SEC that it is not eligible to use Form S-3 and is thus required to use
Form S-1) or if, after the Registration Statement has been declared effective by
the SEC, sales cannot be made pursuant to the Registration Statement, or (ii)
the Common Stock is not listed or included for quotation on the Nasdaq National
Market ("Nasdaq"), the New York Stock Exchange (the "NYSE") or the American
Stock Exchange (the "AMEX") after being so listed or included for quotation,
then the Company will make payments to the Investor in such amounts and at such
times as shall be determined pursuant to this Section 2(c) as partial relief for
the damages to the Investor by reason of any such delay in or reduction of their
ability to sell the Registrable Securities (which remedy shall not be exclusive
of any other remedies available at law or in equity). The Company shall pay to
each holder of the Preferred Stock or Registrable Securities an amount equal to
the outstanding principal amount of the Preferred Stock ("Aggregate Share
Price") multiplied by two hundredths (.020) times the sum of: (i) the number of
months (prorated for partial months) after the end of such 90-day (or 120-day)
period and prior to the date the Registration Statement is declared effective by
the SEC, provided, however, that there shall be excluded from such period any
delays which are solely attributable to changes required by the Investor in the
Registration Statement with respect to information relating to the Investor,
including, without limitation, changes to the plan of distribution, or to the
failure of the Investor to conduct their review of the Registration Statement
pursuant to Section 3(h) below in a reasonably prompt manner; (ii) exclusive of
Allowed Delays (as defined below), the number of months (prorated for partial
months) that sales cannot be made pursuant to the Registration Statement after
the Registration Statement has been declared effective (including, without
limitation, when sales cannot be made by reason of the Company's failure to
properly supplement or amend the prospectus included therein in accordance with
the terms of this Agreement or when such prospectus otherwise contains a
material misstatement or omission) and (iii) exclusive of Allowed Delays the
number of months (prorated for partial months) that the Common Stock is not
listed or included for quotation on the Nasdaq-NMS, NYSE or AMEX or that
trading thereon is halted after the Registration Statement has been declared
effective. (For example, if the Registration Statement becomes effective one (1)
month after the end of such 90-day (or 120 day) period, the Company would pay
$20,000 for each $1,000,000 of Purchase Price. If thereafter, sales could not
be made pursuant to the Registration Statement for an additional period of one
(1) month (exclusive of Allowed Delays), the Company would pay an additional
$20,000 for each $1,000,000 of Purchase Price. Such amounts shall be paid in
cash or, at each Investor's option, may be convertible into Common Stock at the
"Conversion Price" (as defined in the Certificate of Designation). Any shares
of Common Stock issued upon conversion of such amounts shall be Registrable
Securities. If the Investor desires to convert the amounts due hereunder into
Registrable Securities, it shall so notify the Company in writing within two (2)
business days of the date on which such amounts are first payable in cash and
such amounts shall be so convertible (pursuant to the mechanics set forth under
Article VI of the Certificate of Designation), beginning on the last day upon
which the cash amount would otherwise be due in accordance with the following
sentence. Payments of cash pursuant hereto shall be made within five (5) days
after the end of each period that gives rise to such obligation, provided that,
if any such period extends for more than thirty (30) days, interim payments
shall be made for each such thirty (30) day period. The term "Purchase Price"
means the purchase price paid by the Investor for the Preferred Stock.
If at any time during the Registration Period, counsel to the Company should
determine in good faith that the filing of the Registration Statement or the
compliance by the Company with its disclosure obligations in connection with the
Registration Statement may require the disclosure of information which the Board
of Directors of the Company has identified as material and which the Board of
Directors has determined that the Company has a bona fide business purpose for
preserving as confidential, the Company shall promptly, (i) notify the Investor
in writing of the existence of (but in no event, without the prior written
consent of an Investor, shall the Company disclose to such investor any of the
facts or circumstances regarding) material non-public information and (ii)
advise the Investors in writing to cease all sales under the Registration
Statement until such information is disclosed to the public or ceases to be
material. In such instance, the company's obligation to make payments under
this Section 2(c) shall be suspended for a period (an "Allowed Delay") expiring
upon the earlier to occur of (A) the date on which such material information is
disclosed to the public or ceases to be material or the Company is able to so
comply with its disclosure obligations or (B) 15 trading days after the Company
first notifies the Investor of such good faith determination. There shall not
be more than two (2) Allowed Delays in any twelve (12) month period nor more
than three (3) Allowed Delays in any twenty-four (24) month period.
d. Piggy-Back Registrations. If at any time prior to the expiration
of the Registration Period (as hereinafter defined) the Company shall file with
the SEC a Registration Statement relating to an offering for its own account or
the account of others under the 1933 Act of any of its equity securities (other
than on Form S-4 or Form S-8 or their then equivalents relating to equity
securities to be issued solely in connection with any acquisition of any entity
or business or equity securities issuable in connection with stock option, stock
purchase or other employee benefit plans), the Company shall send to each
Investor who is entitled to registration rights under this Section 2(d) written
notice of such determination and, if within fifteen (15) days after the
effective date of such notice, such Investor shall so request in writing, the
Company shall include in such Registration Statement all or any part of the
Registrable Securities such Investor requests to be registered, except that if,
in connection with any underwritten public offering for the account of the
Company the managing underwriter(s) thereof shall impose a limitation on the
number of shares of Common Stock which may be included in the Registration
Statement because, in such underwriter(s)' judgment, marketing or other factors
dictate such limitation is necessary to facilitate public distribution, then the
Company shall be obligated to include in such Registration Statement only such
limited portion of the Registrable Securities with respect to which such
Investor has requested inclusion hereunder as the underwriter shall permit;
provided, however, that the Company shall not exclude any Registrable Securities
unless the Company has first excluded all outstanding securities, the holders of
which are not entitled to inclusion of such securities in such Registration
Statement; and provided, further, however, that, after giving effect to the
immediately preceding proviso, any exclusion of Registrable Securities shall be
made pro rata with holders of other securities having the right to include such
securities in the Registration Statement other than holders of securities
entitled to inclusion of their securities in such Registration Statement by
reason of demand registration rights. No right to registration of Registrable
Securities under this Section 2(d) shall be construed to limit any registration
required under Section 2(a) hereof. If an offering in connection with which an
Investor is entitled to registration under this Section 2(d) is an underwritten
offering, then each Investor whose Registrable Securities are included in such
Registration Statement shall, unless otherwise agreed by the Company, offer and
sell such Registrable Securities in an underwritten offering using the same
underwriter or underwriters and, subject to the provisions of this Agreement, on
the same terms and conditions as other shares of Common Stock included in such
underwritten offering.
e. Eligibility for Form S-3. The Company represents and warrants
that it meets the registrant eligibility and transaction requirements for the
use of Form S-3 for registration of the sale by the Initial Investor and any
other Investor of the Registrable Securities and the Company shall file all
reports required to be filed by the Company with the SEC in a timely manner so
as to maintain such eligibility for the use of Form S-3. In the event that the
Company is advised by the SEC that it is not eligible to use Form S-3 in
connection with the registration of the Registrable Securities, it shall file a
Registration Statement covering the Registrable Securities on Form S-1 as
promptly as practicable and not more than 20 business days after such advice
from the SEC, and the Company shall use its best efforts to obtain eligibility
to use Form S-3 as promptly as practicable thereafter and shall convert the Form
S-1 Registration Statement to a Form S-3 Registration Statement as soon as it is
permitted to do so thereafter.
f. Rule 416. The Company and the Investor each acknowledge that an
indeterminate number of Registrable Securities shall be registered pursuant to
Rule 416 under the Securities Act so as to include in such Registration
Statement any and all Registrable Securities which may become issuable (i) to
prevent dilution resulting from stock splits, stock dividends or similar
transactions and (ii) by reason of reductions in the Conversion Price of the
Preferred Stock in accordance with the terms thereof, including, but not limited
to, the terms which cause the Variable Conversion Price to decrease to the
extent the closing bid price of the Common Stock decreases (collectively, the
"Rule 416 Securities"). In this regard, the Company agrees to take all steps
necessary to ensure that all Registrable Securities are registered pursuant to
Rule 416 under the Securities Act in the Registration Statement and, absent
guidance from the SEC or other definitive authority to the contrary, the Company
shall affirmatively support and not take any action adverse to the position that
the Registration Statements filed hereunder cover all of the Rule 416
Securities. If the Company determines that the Registration Statements filed
hereunder do not cover all of the Rule 416 Securities, the Company shall
immediately provide to each Investor written notice (a "Rule 416 Notice")
setting forth the basis for the Company's position and the authority therefor.
3. OBLIGATIONS OF THE COMPANY.
In connection with the registration of the Registrable Securities, the
Company shall have the following obligations:
a. Subject to Section 2(e) with respect to the possible
ineligibility of the Company to use Form S-3, the Company shall prepare and, on
or prior to the date which is twenty (20) business days after the Closing Date,
file with the SEC, a Registration Statement with respect to the number of
Registrable Securities provided in Section 2(a), and thereafter use its best
efforts to cause such Registration Statement relating to Registrable Securities
to become effective as soon as possible after such filing, and keep the
Registration Statement effective pursuant to Rule 415 at all times until such
date as is the earlier of (i) the date on which all of the Registrable
Securities have been sold and (ii) the date on which the Registrable Securities
(in the opinion of counsel to the Initial Investor) may be immediately sold
without restriction (including without limitation as to volume by each holder
thereof) without registration under the 1933 Act (the "Registration Period"),
which Registration Statement (including any amendments or supplements thereto
and prospectuses contained therein) shall not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein, or
necessary to make the statements therein not misleading.
b. The Company shall prepare and file with the SEC such amendments
(including post-effective amendments) and supplements to the Registration
Statement and the prospectus used in connection with the Registration Statement
as may be necessary to keep the Registration Statement effective at all times
during the Registration Period, and, during such period, comply with the
provisions of the 1933 Act with respect to the disposition of all Registrable
Securities of the Company covered by the Registration Statement until such time
as all of such Registrable Securities have been disposed of in accordance with
the intended methods of disposition by the seller or sellers thereof as set
forth in the Registration Statement. In the event that Rule 416 is determined
by the SEC not to permit the registration of an indeterminate number of shares,
and the number of shares available under a Registration Statement filed pursuant
to this Agreement is insufficient to cover all of the Registrable Securities
issued or issuable upon conversion of the Preferred Stock or exercise of the
Warrants, the Company shall amend the Registration Statement, or file a new
Registration Statement (on the short form available therefore, if applicable),
or both, so as to cover all of the Registrable Securities, in each case, as soon
as practicable, but in any event within twenty (20) business days after the
necessity therefor arises (based on the market price of the Common Stock and
other relevant factors on which the Company reasonably elects to rely). The
Company shall use its best efforts to cause such amendment and/or new
Registration Statement to become effective as soon as practicable following the
filing thereof. The provisions of Section 2(c) above shall be applicable with
respect to such obligation, with the ninety (90) days (or one hundred twenty
(120) days) running from the day after the date on which the Company reasonably
first determines (or reasonably should have determined) the need therefor.
c. The Company shall furnish to each Investor whose Registrable
Securities are included in the Registration Statement and its legal counsel (i)
promptly after the same is prepared and publicly distributed, filed with the
SEC, or received by the Company, one copy of the Registration Statement and any
amendment thereto, each preliminary prospectus and prospectus and each amendment
or supplement thereto, and, in the case of the Registration Statement referred
to in Section 2(a), each letter written by or on behalf of the Company to the
SEC or the staff of the SEC, and each item of correspondence from the SEC or the
staff of the SEC, in each case relating to such Registration Statement (other
than any portion of any thereof which contains information for which the Company
has sought confidential treatment), and (ii) such number of copies of a
prospectus, including a preliminary prospectus, and all amendments and
supplements thereto and such other documents as such Investor may reasonably
request in order to facilitate the disposition of the Registrable Securities
owned by such Investor. The Company will immediately notify each Investor by
facsimile of the effectiveness of the Registration Statement or any
post-effective amendment. The Company will promptly respond to any and all
comments received from the SEC, with a view towards causing any Registration
Statement or any amendment thereto to be declared effective by the SEC as soon
as practicable and shall promptly file an acceleration request as soon as
practicable following the resolution or clearance of all SEC comments or, if
applicable, following notification by the SEC that the Registration Statement or
any amendment thereto will not be subject to review.
d. The Company shall use reasonable efforts to (i) register and
qualify the Registrable Securities covered by the Registration Statement under
such other securities or "blue sky" laws of such jurisdictions in the United
States as the Investors who hold a majority-in-interest of the Registrable
Securities being offered reasonably request, (ii) prepare and file in those
jurisdictions such amendments (including post-effective amendments) and
supplements to such registrations and qualifications as may be necessary to
maintain the effectiveness thereof during the Registration Period, (iii) take
such other actions as may be necessary to maintain such registrations and
qualifications in effect at all times during the Registration Period, and (iv)
take all other actions reasonably necessary or advisable to qualify the
Registrable Securities for sale in such jurisdictions; provided, however, that
the Company shall not be required in connection therewith or as a condition
thereto to (a) qualify to do business in any jurisdiction where it would not
otherwise be required to qualify but for this Section 3(d), (b) subject itself
to general taxation in any such jurisdiction, (c) file a general consent to
service of process in any such jurisdiction, (d) provide any undertakings that
cause the Company undue expense or burden, or (e) make any change in its charter
or bylaws, which in each case the Board of Directors of the Company determines
to be contrary to the best interests of the Company and its stockholders.
e. In the event Investors who hold a majority-in-interest of the
Registrable Securities being offered in the offering (with the approval of the
Initial Investor) select underwriters for the offering, the Company shall enter
into and perform its obligations under an underwriting agreement, in usual and
customary form, including, without limitation, customary indemnification and
contribution obligations, with the underwriters of such offering.
f. As promptly as practicable after becoming aware of such event,
the Company shall notify each Investor of the happening of any event, of which
the Company has knowledge, as a result of which the prospectus included in the
Registration Statement, as then in effect, includes an untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, and use its best
efforts promptly to prepare a supplement or amendment to the Registration
Statement to correct such untrue statement or omission, and deliver such number
of copies of such supplement or amendment to each Investor as such Investor may
reasonably request.
g. The Company shall use its best efforts to prevent the issuance of
any stop order or other suspension of effectiveness of a Registration Statement,
and, if such an order is issued, to obtain the withdrawal of such order at the
earliest possible moment and to notify each Investor who holds Registrable
Securities being sold (or, in the event of an underwritten offering, the
managing underwriters) of the issuance of such order and the resolution thereof.
h. The Company shall permit a single firm of counsel designated by
the Initial Investor to review the Registration Statement and all amendments and
supplements thereto (as well as all requests for acceleration or effectiveness
thereof) a reasonable period of time prior to their filing with the SEC, and not
file any document in a form to which such counsel reasonably objects and will
not request acceleration of the Registration Statement without prior notice to
such counsel. The sections of the Registration Statement covering information
with respect to the Investor, the Investor's beneficial ownership of securities
of the Company or the Investor's intended method of disposition of Registrable
Securities shall conform to the information provided to the Company by the
Investor.
i. The Company shall make generally available to its security
holders as soon as practical, but not later than ninety (90) days after the
close of the period covered thereby, an earnings statement (in form complying
with the provisions of Rule 158 under the 1933 Act) covering a twelve- month
period beginning not later than the first day of the Company's fiscal quarter
next following the effective date of the Registration Statement.
j. At the request of any Investor, the Company shall furnish, on the
date that Registrable Securities are delivered to an underwriter, if any, for
sale in connection with the Registration Statement or, if such securities are
not being sold by an underwriter, on the date of effectiveness thereof (i) an
opinion, dated as of such date, from counsel representing the Company for
purposes of such Registration Statement, in form, scope and substance as is
customarily given in an underwritten public offering, addressed to the
underwriters, if any, and the Investors and (ii) a letter, dated such date, from
the Company's independent certified public accountants in form and substance as
is customarily given by independent certified public accountants to underwriters
in an underwritten public offering, addressed to the underwriters, if any, and
the Investors.
k. The Company shall make available for inspection by (i) any
Investor, (ii) any underwriter participating in any disposition pursuant to the
Registration Statement, (iii) one firm of attorneys and one firm of accountants
or other agents retained by the Initial Investor, (iv) one firm of attorneys and
one firm of accountants or other agents retained by all other Investors, and (v)
one firm of attorneys retained by all such underwriters (collectively, the
"Inspectors") all pertinent financial and other records, and pertinent corporate
documents and properties of the Company (collectively, the "Records"), as shall
be reasonably deemed necessary by each Inspector to enable each Inspector to
exercise its due diligence responsibility, and cause the Company's officers,
directors and employees to supply all information which any Inspector may
reasonably request for purposes of such due diligence; provided, however, that
each Inspector shall hold in confidence and shall not make any disclosure
(except to an Investor) of any Record or other information which the Company
determines in good faith to be confidential, and of which determination the
Inspectors are so notified, unless (a) the disclosure of such Records is
necessary to avoid or correct a misstatement or omission in any Registration
Statement, (b) the release of such Records is ordered pursuant to a subpoena or
other order from a court or government body of competent jurisdiction, or (c)
the information in such Records has been made generally available to the public
other than by disclosure in violation of this or any other agreement. The
Company shall not be required to disclose any confidential information in such
Records to any Inspector until and unless such Inspector shall have entered into
confidentiality agreements (in form and substance satisfactory to the Company)
with the Company with respect thereto, substantially in the form of this Section
3(k). Each Investor agrees that it shall, upon learning that disclosure of such
Records is sought in or by a court or governmental body of competent
jurisdiction or through other means, give prompt notice to the Company and allow
the Company, at its expense, to undertake appropriate action to prevent
disclosure of, or to obtain a protective order for, the Records deemed
confidential. Nothing herein (or in any other confidentiality agreement between
the Company and any Investor) shall be deemed to limit the Investor's ability to
sell Registrable Securities in a manner which is otherwise consistent with
applicable laws and regulations.
l. The Company shall hold in confidence and not make any disclosure
of information concerning an Investor provided to the Company unless (i)
disclosure of such information is necessary to comply with federal or state
securities laws, (ii) the disclosure of such information is necessary to avoid
or correct a misstatement or omission in any Registration Statement, (iii) the
release of such information is ordered pursuant to a subpoena or other order
from a court or governmental body of competent jurisdiction, or (iv) such
information has been made generally available to the public other than by
disclosure in violation of this or any other agreement. The Company agrees that
it shall, upon learning that disclosure of such information concerning an
Investor is sought in or by a court or governmental body of competent
jurisdiction or through other means, give prompt notice to such Investor prior
to making such disclosure, and allow the Investor, at its expense, to undertake
appropriate action to prevent disclosure of, or to obtain a protective order
for, such information.
m. The Company shall (i) cause all the Registrable Securities
covered by the Registration Statement to be listed on each national securities
exchange on which securities of the same class or series issued by the Company
are then listed, if any, if the listing of such Registrable Securities is then
permitted under the rules of such exchange, or (ii) secure the designation and
quotation, of all the Registrable Securities covered by the Registration
Statement on the AMEX or, if not eligible for the AMEX on the Nasdaq National
Market System or Nasdaq Small Cap and, without limiting the generality of the
foregoing, to arrange for at least two market makers to register with the AMEX
as such with respect to such Registrable Securities.
n. The Company shall provide a transfer agent and registrar, which
may be a single entity, for the Registrable Securities not later than the
effective date of the Registration Statement.
o. The Company shall cooperate with the Investors who hold
Registrable Securities being offered and the managing underwriter or
underwriters, if any, to facilitate the timely preparation and delivery of
certificates (not bearing any restrictive legends) representing Registrable
Securities to be offered pursuant to the Registration Statement and enable such
certificates to be in such denominations or amounts, as the case may be, as the
managing underwriter or underwriters, if any, or the Investors may reasonably
request and registered in such names as the managing underwriter or
underwriters, if any, or the Investors may request, and, within three (3)
business days after a Registration Statement which includes Registrable
Securities is ordered effective by the SEC, the Company shall deliver and shall
cause legal counsel selected by the Company to deliver to the transfer agent for
the Registrable Securities (with copies to the Investors whose Registrable
Securities are included in such Registration Statement) an instruction in the
form attached hereto as Exhibit 1 and an opinion from such counsel and a letter
from the Company, which letter has been acknowledged by the Company's transfer
agent as sufficient to permit the issuance of unlegended Conversion Shares and
Warrant Shares which are not subject to a stop transfer notation in the form
attached hereto as Exhibit 2.
p. The Company shall take all other reasonable actions necessary to
expedite and facilitate disposition by the Investors of Registrable Securities
pursuant to the Registration Statement.
q. At the request of any Investor, the Company shall prepare and
file with the SEC such amendments (including post-effective amendments) and
supplements to a Registration Statement and the prospectus used in connection
with the Registration Statement as may be necessary in order to change the plan
of distribution set forth in such Registration Statement.
r. The Company shall comply with all applicable laws related to a
Registration Statement and offering and sale of securities and all applicable
rules and regulations of governmental authorities in connection therewith
(including without limitation the Securities Act and the Securities Exchange Act
of 1934, as amended, and the rules and regulations promulgated by the SEC.)
4. OBLIGATIONS OF THE INVESTORS.
In connection with the registration of the Registrable Securities, the
Investors shall have the following obligations:
a. It shall be a condition precedent to the obligations of the
Company to complete the registration pursuant to this Agreement with respect to
the Registrable Securities of a particular Investor that such Investor shall
furnish to the Company such information regarding itself, the Registrable
Securities held by it and the intended method of disposition of the Registrable
Securities held by it as shall be reasonably required to effect the registration
of such Registrable Securities and shall execute such documents in connection
with such registration as the Company may reasonably request. At least three
(3) business days prior to the first anticipated filing date of the Registration
Statement, the Company shall notify each Investor of the information the Company
requires from each such Investor.
b. Each Investor, by such Investor's acceptance of the Registrable
Securities, agrees to cooperate with the Company as reasonably requested by the
Company in connection with the preparation and filing of the Registration
Statement hereunder, unless such Investor has notified the Company in writing of
such Investor's election to exclude all of such Investor's Registrable
Securities from the Registration Statement.
c. In the event Investors holding a majority-in-interest of the
Registrable Securities being registered (with the approval of the Initial
Investor) determine to engage the services of an underwriter, each Investor
agrees to enter into and perform such Investor's obligations under an
underwriting agreement, in usual and customary form, including, without
limitation, customary indemnification and contribution obligations, with the
managing underwriter of such offering and take such other actions as are
reasonably required in order to expedite or facilitate the disposition of the
Registrable Securities, unless such Investor has notified the Company in writing
of such Investor's election to exclude all of such Investor's Registrable
Securities from the Registration Statement.
d. Each Investor agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in Section 3(f) or
3(g), such Investor will immediately discontinue disposition of Registrable
Securities pursuant to the Registration Statement covering such Registrable
Securities until such Investor's receipt of the copies of the supplemented or
amended prospectus contemplated by Section 3(f) or 3(g) and, if so directed by
the Company, such Investor shall deliver to the Company (at the expense of the
Company) or destroy (and deliver to the Company a certificate of destruction)
all copies in such Investor's possession, of the prospectus covering such
Registrable Securities current at the time of receipt of such notice.
e. No Investor may participate in any underwritten registration
hereunder unless such Investor (i) agrees to sell such Investor's Registrable
Securities on the basis provided in any underwriting arrangements in usual and
customary form entered into by the Company, (ii) completes and executes all
questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents reasonably required under the terms of such underwriting
arrangements, and (iii) agrees to pay its pro rata share of all underwriting
discounts and commissions and any expenses in excess of those payable by the
Company pursuant to Section 5 below.
5. EXPENSES OF REGISTRATION.
All reasonable expenses, other than underwriting discounts and commissions,
incurred in connection with registrations, filings or qualifications pursuant to
Sections 2 and 3, including, without limitation, all registration, listing and
qualification fees, printers and accounting fees, the fees and disbursements of
counsel for the Company, and the reasonable fees and disbursements of one
counsel selected by the Initial Investor pursuant to Sections 2(b) and 3(h)
hereof shall be borne by the Company. In addition, the Company shall pay all of
the Investors' reasonable costs (including legal fees) incurred in connection
with the successful enforcement of the Investors' rights hereunder.
6. INDEMNIFICATION.
In the event any Registrable Securities are included in a Registration
Statement under this Agreement:
a. To the extent permitted by law, the Company will indemnify, hold
harmless and defend (i) each Investor who holds such Registrable Securities,
(ii) the directors, officers, partners, employees, agents and each person who
controls any Investor within the meaning of the 1933 Act or the Securities
Exchange Act of 1934, as amended (the "1934 Act"), if any, (iii) any underwriter
(as defined in the 1933 Act) for the Investors, and (iv) the directors,
officers, partners, employees and each person who controls any such underwriter
within the meaning of the 1933 Act or the 1934 Act, if any (each, an
"Indemnified Person"), against any joint or several losses, claims, damages,
liabilities or expenses (collectively, together with actions, proceedings or
inquiries by any regulatory or self-regulatory organization, whether commenced
or threatened, in respect thereof, "Claims") to which any of them may become
subject insofar as such Claims arise out of or are based upon: (i) any untrue
statement or alleged untrue statement of a material fact in a Registration
Statement or the omission or alleged omission to state therein a material fact
required to be stated or necessary to make the statements therein not
misleading; (ii) any untrue statement or alleged untrue statement of a material
fact contained in any preliminary prospectus if used prior to the effective date
of such Registration Statement, or contained in the final prospectus (as amended
or supplemented, if the Company files any amendment thereof or supplement
thereto with the SEC) or the omission or alleged omission to state therein any
material fact necessary to make the statements made therein, in light of the
circumstances under which the statements therein were made, not misleading; or
(iii) any violation or alleged violation by the Company of the 1933 Act, the
1934 Act, any other law, including, without limitation, any state securities
law, or any rule or regulation thereunder relating to the offer or sale of the
Registrable Securities (the matters in the foregoing clauses (i) through (iii)
being, collectively, "Violations"). Subject to the restrictions set forth in
Section 6(c) with respect to the number of legal counsel, the Company shall
reimburse each Indemnified Person, promptly as such expenses are incurred and
are due and payable, for any reasonable legal fees or other reasonable expenses
incurred by them in connection with investigating or defending any such Claim.
Notwithstanding anything to the contrary contained herein, the indemnification
agreement contained in this Section 6(a): (i) shall not apply to a Claim arising
out of or based upon a Violation which occurs in reliance upon and in conformity
with information furnished in writing to the Company by any Indemnified Person
or underwriter for such Indemnified Person expressly for use in connection with
the preparation of the Registration Statement or any such amendment thereof or
supplement thereto, if such prospectus was timely made available by the Company
pursuant to Section 3(c) hereof; (ii) shall not apply to amounts paid in
settlement of any Claim if such settlement is effected without the prior written
consent of the Company, which consent shall not be unreasonably withheld; and
(iii) with respect to any preliminary prospectus, shall not inure to the benefit
of any Indemnified Person if the untrue statement or omission of material fact
contained in the preliminary prospectus was corrected on a timely basis in the
prospectus, as then amended or supplemented, such corrected prospectus was
timely made available by the Company pursuant to Section 3(c) hereof, and the
Indemnified Person was promptly advised in writing not to use the incorrect
prospectus prior to the use giving rise to a Violation and such Indemnified
Person, notwithstanding such advice, used it. Such indemnity shall remain in
full force and effect regardless of any investigation made by or on behalf of
the Indemnified Person and shall survive the transfer of the Registrable
Securities by the Investors pursuant to Section 9.
b. In connection with any Registration Statement in which an
Investor is participating, each such Investor agrees severally and not jointly
to indemnify, hold harmless and defend, to the same extent and in the same
manner set forth in Section 6(a), the Company, each of its directors, each of
its officers who signs the Registration Statement, each person, if any, who
controls the Company within the meaning of the 1933 Act or the 1934 Act, any
underwriter and any other stockholder selling securities pursuant to the
Registration Statement or any of its directors or officers or any person who
controls such stockholder or underwriter within the meaning of the 1933 Act or
the 1934 Act (collectively and together with an Indemnified Person, an
"Indemnified Party"), against any Claim to which any of them may become subject,
under the 1933 Act, the 1934 Act or otherwise, insofar as such Claim arises out
of or is based upon any Violation by such Investor, in each case to the extent
(and only to the extent) that such Violation occurs in reliance upon and in
conformity with written information furnished to the Company by such Investor
expressly for use in connection with such Registration Statement; and subject to
Section 6(c) such Investor will reimburse any legal or other expenses (promptly
as such expenses are incurred and are due and payable) reasonably incurred by
them in connection with investigating or defending any such Claim; provided,
however, that the indemnity agreement contained in this Section 6(b) shall not
apply to amounts paid in settlement of any Claim if such settlement is effected
without the prior written consent of such Investor, which consent shall not be
unreasonably withheld; provided, further, however, that the Investor shall be
liable under this Agreement (including this Section 6(b) and Section 7) for only
that amount as does not exceed the net proceeds to such Investor as a result of
the sale of Registrable Securities pursuant to such Registration Statement.
Such indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of such Indemnified Party and shall survive
the transfer of the Registrable Securities by the Investors pursuant to Section
9. Notwithstanding anything to the contrary contained herein, the
indemnification agreement contained in this Section 6(b) with respect to any
preliminary prospectus shall not inure to the benefit of any Indemnified Party
if the untrue statement or omission of material fact contained in the
preliminary prospectus was corrected on a timely basis in the prospectus, as
then amended or supplemented.
c. Promptly after receipt by an Indemnified Person or Indemnified
Party under this Section 6 of notice of the commencement of any action
(including any governmental action), such Indemnified Person or Indemnified
Party shall, if a Claim in respect thereof is to be made against any
indemnifying party under this Section 6, deliver to the indemnifying party a
written notice of the commencement thereof, and the indemnifying party shall
have the right to participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly noticed, to assume
control of the defense thereof with counsel mutually satisfactory to the
indemnifying party and the Indemnified Person or the Indemnified Party, as the
case may be; provided, however, that such indemnifying party shall not be
entitled to assume such defense and an Indemnified Person or Indemnified Party
shall have the right to retain its own counsel with the fees and expenses to be
paid by the indemnifying party, if, in the reasonable opinion of counsel
retained by the indemnifying party, the representation by such counsel of the
Indemnified Person or Indemnified Party and the indemnifying party would be
inappropriate due to actual or potential differing interests between such
Indemnified Person or Indemnified Party and any other party represented by such
counsel in such proceeding. The indemnifying party shall pay for only one
separate legal counsel for the Indemnified Persons or the Indemnified Parties,
as applicable, and such legal counsel shall be selected by Investors holding a
majority-in-interest of the Registrable Securities included in the Registration
Statement to which the Claim relates (with the approval of the Initial
Investor), if the Investors are entitled to indemnification hereunder, or the
Company, if the Company is entitled to indemnification hereunder, as applicable.
The failure to deliver written notice to the indemnifying party within a
reasonable time of the commencement of any such action shall not relieve such
indemnifying party of any liability to the Indemnified Person or Indemnified
Party under this Section 6, except to the extent that the indemnifying party is
actually prejudiced in its ability to defend such action. The indemnification
required by this Section 6 shall be made by periodic payments of the amount
thereof during the course of the investigation or defense, as such expense,
loss, damage or liability is incurred and is due and payable.
7. CONTRIBUTION.
To the extent any indemnification by an indemnifying party is prohibited or
limited by law, the indemnifying party agrees to make the maximum contribution
with respect to any amounts for which it would otherwise be liable under Section
6 to the fullest extent permitted by law; provided, however, that (i) no
contribution shall be made under circumstances where the maker would not have
been liable for indemnification under the fault standards set forth in Section
6, (ii) no seller of Registrable Securities guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be
entitled to contribution from any seller of Registrable Securities who was not
guilty of such fraudulent misrepresentation, and (iii) contribution (together
with any indemnification or other obligations under this Agreement) by any
seller of Registrable Securities shall be limited in amount to the net amount of
proceeds received by such seller from the sale of such Registrable Securities.
8. REPORTS UNDER THE 1934 ACT.
With a view to making available to the Investors the benefits of Rule 144
promulgated under the 1933 Act or any other similar rule or regulation of the
SEC that may at any time permit the Investors to sell securities of the Company
to the public without registration ("Rule 144"), the Company agrees, for as long
as there shall be any Series A Preferred Stock, Warrants, Conversion Shares or
Warrant Shares held by an Investor, to:
a. make and keep public information available, as those terms are
understood and defined in Rule 144;
b. file with the SEC in a timely manner all reports and other
documents required of the Company under the 1933 Act and the 1934 Act so long as
the Company remains subject to such requirements (it being understood that
nothing herein shall limit the Company's obligations under Section 4(c) of the
Securities Purchase Agreement) and the filing of such reports and other
documents is required for the applicable provisions of Rule 144; and
c. furnish to each Investor so long as such Investor owns
Registrable Securities, promptly upon request, (i) a written statement by the
Company that it has complied with the reporting requirements of Rule 144, the
1933 Act and the 1934 Act, (ii) a copy of the most recent annual or quarterly
report of the Company and such other reports and documents so filed by the
Company, and (iii) such other information as may be reasonably requested to
permit the Investors to sell such securities pursuant to Rule 144 without
registration.
9. ASSIGNMENT OF REGISTRATION RIGHTS.
The rights under this Agreement shall be automatically assignable by the
Investors to any transferee of all or a portion of Registrable Securities if:
(i) the Investor agrees in writing with the transferee or assignee to assign
such rights, and a copy of such agreement is furnished to the Company within a
reasonable time after such assignment, (ii) the Company is, within a reasonable
time after such transfer or assignment, furnished with written notice of (a) the
name and address of such transferee or assignee, and (b) the securities with
respect to which such registration rights are being transferred or assigned,
(iii) following such transfer or assignment, the further disposition of such
securities by the transferee or assignee is restricted under the 1933 Act and
applicable state securities laws, (iv) at or before the time the Company
receives the written notice contemplated by clause (ii) of this sentence, the
transferee or assignee agrees in writing with the Company to be bound by all of
the provisions contained herein, (v) such transfer shall have been made in
accordance with the applicable requirements of the Securities Purchase
Agreement, and (vi) such transferee shall be an "accredited investor" as that
term defined in Rule 501 of Regulation D promulgated under the 1933 Act and
shall have made appropriate representations to that effect to the Company.
10. AMENDMENT OF REGISTRATION RIGHTS.
Provisions of this Agreement may be amended and the observance thereof may
be waived (either generally or in a particular instance and either retroactively
or prospectively), only with written consent of the Company, the Initial
Investor (to the extent such Initial Investor still owns Registrable Securities)
and Investors who hold a majority interest of the Registrable Securities. Any
amendment or waiver effected in accordance with this Section 10 shall be binding
upon each Investor and the Company.
11. MISCELLANEOUS.
a. A person or entity is deemed to be a holder of Registrable
Securities whenever such person or entity owns of record such Registrable
Securities. If the Company receives conflicting instructions, notices or
elections from two or more persons or entities with respect to the same
Registrable Securities, the Company shall act upon the basis of instructions,
notice or election received from the registered owner of such Registrable
Securities.
b. Any notices required or permitted to be given under the terms
hereof shall be sent by certified or registered mail (return receipt requested)
or delivered personally or by courier (including a recognized overnight delivery
service) or by facsimile and shall be effective five days after being placed in
the mail, if mailed by regular U.S. mail, or upon receipt, if delivered
personally or by courier (including a recognized overnight delivery service) or
by facsimile, in each case addressed to a party. The addresses for such
communications shall be:
If to the Company:
SoftNet Systems, Inc.
520 Logue Avenue
Mountain View, CA 94043
Attn: Secretary
Phone: (650) 962-7404
Fax: (650) 962-7475
With copy to:
McDermott, Will & Emery
227 West Monroe Street
31st Floor
Chicago, IL 60606-5096
Attn: George Mann, Esq.
Phone: (312) 984-7565
Fax: (312) 984-3669
If to an Investor: to the address set forth immediately below such Investor's
name on the signature pages to the Securities Purchase Agreement.
c. Failure of any party to exercise any right or remedy under this
Agreement or otherwise, or delay by a party in exercising such right or remedy,
shall not operate as a waiver thereof.
d. This Agreement shall be enforced, governed by and construed in
accordance with the laws of New York applicable to agreements made and to be
performed entirely within such State. In the event that any provision of this
Agreement is invalid or unenforceable under any applicable statute or rule of
law, then such provision shall be deemed inoperative to the extent that it may
conflict therewith and shall be deemed modified to conform with such statute or
rule of law. Any provision hereof which may prove invalid or unenforceable
under any law shall not affect the validity or enforceability of any other
provision hereof. The parties hereto hereby submit to the exclusive
jurisdiction of the United States Federal Courts located in New York with
respect to any dispute arising under this Agreement or the transactions
contemplated hereby.
e. This Agreement, the Securities Purchase Agreement (including all
schedules and exhibits thereto), and the Warrants constitute the entire
agreement among the parties hereto with respect to the subject matter hereof and
thereof. There are no restrictions, promises, warranties or undertakings, other
than those set forth or referred to herein and therein. This Agreement, the
Securities Purchase Agreement and the Warrants supersede all prior agreements
and understandings among the parties hereto with respect to the subject matter
hereof and thereof.
f. Subject to the requirements of Section 9 hereof, this Agreement
shall inure to the benefit of and be binding upon the successors and assigns of
each of the parties hereto.
g. The headings in this Agreement are for convenience of reference
only and shall not limit or otherwise affect the meaning hereof.
h. This Agreement may be executed in two or more counterparts, each
of which shall be deemed an original but all of which shall constitute one and
the same agreement. This Agreement, once executed by a party, may be delivered
to the other party hereto by facsimile transmission of a copy of this Agreement
bearing the signature of the party so delivering this Agreement.
i. 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.
j. Except as otherwise provided herein, all consents and other
determinations to be made by the Investors pursuant to this Agreement shall be
made by Investors holding a majority of the Registrable Securities, determined
as if the all of the shares of Preferred Stock and Warrants then outstanding
have been converted into or exercised for Registrable Securities.
k. The language used in this Agreement will be deemed to be the
language chosen by the parties to express their mutual intent, and no rules of
strict construction will be applied against any party.
IN WITNESS WHEREOF, the Company and the undersigned Initial Investor have
caused this Agreement to be duly executed as of the date first above written.
SOFTNET SYSTEMS, INC.
By:
RGC International Investors, LDC
By: Rose Glen Capital Management, L.P.,
Investment Manager
By: RGC General Partner Corp.
By:
Gary Kaminsky
Managing Director
