As filed with the Securities and Exchange Commission on December 24, 1998
Registration No. 333-65593
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________________________________
AMENDMENT NO. 2 TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
__________________________________
SoftNet Systems, Inc.
(Exact name of registrant as specified in its charter)
NEW YORK 11-1817252
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
520 Logue Avenue
Mountain View, CA 94043
(650) 962-7470
(Address, including zip code, and telephone number, including area
code, of registrant's principal executive offices)
Dr. Lawrence B. Brilliant
Chief Executive Officer and President
SoftNet Systems, Inc.
520 Logue Avenue
Mountain View, CA 94043
(650) 962-7470
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
__________________________________
Copy to: Thomas W. Kellerman, Esq.
Two Embarcadero Place
2200 Geng Road
Palo Alto, CA 94303
(650) 424-0160
__________________________________
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From
time to time after the effective date of this Registration Statement.
__________________________________
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. /__/
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering./__/
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering./__/
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
- --------------------------------------------- ------------------- ---------------------- --------------------- --------------------
Proposed Maximum Proposed Maximum
Title of Each Class of Amount to Offering Price Per Aggregate Offering Amount of
Securities to be Registered be Registered Unit(1) Price Registration Fee(4)
- --------------------------------------------- ------------------- ---------------------- --------------------- --------------------
- --------------------------------------------- ------------------- ---------------------- --------------------- ====================
<S> <C> <C> <C> <C> <C> <C>
Common Stock, $0.01 par value (2)........ 2,120,000(2) (3) $7.375 $15,635,000 $4,346.53
- --------------------------------------------- ------------------- ---------------------- --------------------- ====================
<FN>
(1) Estimated solely for purposes of calculating the amount of the
registration fee pursuant to Rule 457(c) of the Securities Act of 1933,
based on the average of the high and low sales price of a share of common
stock of the Registrant on the American Stock Exchange as reported in the
consolidated reporting system on October 8, 1998.
(2) Consists of common stock issuable upon exercise of certain stock purchase
warrants (the "Warrants") and conversion of Series C Convertible Preferred
Stock (the "Series C Preferred Stock").
(3) The shares of common stock set forth in the Calculation of Registration
Fee Table, and which may be offered pursuant to this Registration
Statement, includes the maximum number of shares of common stock
underlying the Series C Preferred Stock and the Warrants, and, pursuant to
Rule 416 of the Securities Act of 1933, as amended (the "Securities Act"),
such additional number of shares of the Registrant's common stock that may
become issuable as a result of any stock splits, stock dividends or
anti-dilution provisions.
(4) Previously paid.
</FN>
</TABLE>
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SEC, ACTING PURSUANT TO SAID SECTION 8(A), MAY
DETERMINE.
<PAGE>
SUBJECT TO COMPLETION, DATED DECEMBER 24, 1998
PROSPECTUS
SOFTNET SYSTEMS, INC.
2,120,000 Shares of Common Stock
The shareholders of SoftNet Systems, Inc. listed on page 23 are
offering and selling up to 2,120,000 shares of SoftNet common stock under this
prospectus. SoftNet will not receive any of the proceeds from the sale of the
SoftNet common stock by the selling shareholders.
The selling shareholders may offer and sell some, all or none of the
SoftNet common stock under this prospectus. The selling shareholders may
determine the prices at which they will sell such SoftNet common stock, which
may be at market prices prevailing at the time of such sale or some other price.
In connection with such sales, the selling shareholders may use brokers or
dealers which may receive compensation or commissions for such sales.
The SoftNet common stock is listed on the American Stock Exchange under
the symbol "SOF." On December 18, 1998, the last reported sales price of the
SoftNet common stock on the American Stock Exchange was $14.8125 per share.
----------------------------
You should carefully consider the risk factors beginning on page 4 of
this Prospectus before purchasing any of the SoftNet common stock being offered
by the selling shareholders.
----------------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
accuracy or adequacy of this prospectus. Any representation to the contrary is a
criminal offense.
The date of this prospectus is December 24, 1998.
----------------------------
The information presented in this prospectus is not complete and may be changed.
We may not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C>
WHERE YOU CAN FIND MORE INFORMATION...............................................................................1
RISK FACTORS......................................................................................................2
We Have Operated Our Internet Services Business Only For a Short Period of Time..........................2
There is No Proven Commercial Acceptance of the Internet Service Division's Services.....................2
We Anticipate Having Negative Cash Flow, Net Losses and Accumulated Stockholders'Deficits for the
Foreseeable Future.......................................................................................3
We Will Require Substantial Future Capital...............................................................3
Our Quarterly Results May Fluctuate......................................................................3
Issuance of Common Stock Pursuant to Existing Obligations Will Result in Dilution to the Common
Stockholders.............................................................................................4
Possible Cash Payments to Holders of Preferred Stock.....................................................6
We Rely Substantially on Our Cable Affiliates to Provide Our Internet Services to Subscribers............7
We Depend on Exclusive Access to Cable Subscribers.......................................................8
Impact of Research and Development Activities............................................................8
Management of Our Expanding Business.....................................................................8
Non-Exclusivity of Cable Franchises; Risk of Non-Renewal or Termination of Franchises....................9
We May Lose Cable Affiliates Through Acquisition by Unaffiliated Cable Operators.........................9
We Depend on Third-Party Technology......................................................................9
We Experience Intense Competition in Our Markets........................................................10
Increased Usage May Strain Our Capacity.................................................................11
Risk of System Failure..................................................................................12
Internet-Related Security Risks.........................................................................12
We Must Provide High-Quality Content and the Market for High-Quality Content Has Only Recently Begun to
Develop 13
We Will Depend in Part on Advertising Revenues..........................................................13
Risks Associated with Promoting the ISP Channel Brand...................................................13
Billing and Collections Risks...........................................................................14
We Depend on the Growth and Evolution of the Internet...................................................14
Potential Liability for Defamatory or Indecent Content..................................................14
Potential Liability for Information Retrieved and Replicated............................................15
Risks of Developing New Products and Services in the Face of Rapidly Evolving Technology................15
Risks Related to Our Purchase of Intelligent Communications, Inc........................................16
Acquisition-Related Risks...............................................................................18
We Depend on Certain Key Personnel......................................................................18
Impact of Direct and Indirect Government Regulation on Our Business.....................................18
Failure to Sell KCI and MTC.............................................................................19
Absence of Dividends....................................................................................19
Volatility of Stock Price...............................................................................20
Prospective Anti-Takeover Provisions....................................................................20
Year 2000 Issues........................................................................................20
USE OF PROCEEDS..................................................................................................23
THE SELLING SHAREHOLDERS.........................................................................................23
Description of Certain Provisions of the Preferred Stock................................................24
Relationships with the Company..........................................................................26
PLAN OF DISTRIBUTION.............................................................................................27
LEGAL............................................................................................................28
EXPERT...........................................................................................................28
</TABLE>
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and
other information with the Securities and Exchange Commission (the "SEC"). You
may read and copy any document we file at the public reference facilities of the
SEC located at 450 Fifth Street N.W., Washington D.C. 20549. You may obtain
information on the operation of the SEC's public reference facilities by calling
the SEC at 1-800-SEC-0330. You can also access copies of such material
electronically on the SEC's home page on the World Wide Web at
http://www.sec.gov.
This prospectus is part of a registration statement (Registration No.
333-65593) we filed with the SEC. The SEC permits us to "incorporate by
reference" the information we file with them, which means that we can disclose
important information to you by referring you to those documents. The
information incorporated by reference is considered to be part of this
prospectus, and information that we file with the SEC after the date of this
prospectus will automatically update and supersede this information. We
incorporate by reference the following documents filed by us with the SEC (File
No. 1-5270). We also incorporate by reference any future filings made with the
SEC under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of
1934, as amended, until the selling shareholders sell all of the shares of
common stock being registered or until such shares can be sold without being
registered.
1. Our Annual Report on Form 10-K for the fiscal year ended September 30,
1997.
2. Our Current Report on Form 8-K filed with the SEC on January 12, 1998.
3. Our Proxy Statement on Schedule 14A filed with the SEC on January 28,
1998.
4. Our Current Report on Form 8-K filed with the SEC on February 12, 1998.
5. Our Quarterly Report on Form 10-Q for the quarter ended December 31,
1997.
6. Our Current Report on Form 8-K filed with the SEC on April 24, 1998.
7. Our Quarterly Report on Form 10-Q for the quarter ended March 31, 1998.
8. Our Current Report on Form 8-K filed with the SEC on June 1, 1998.
9. Our Current Report on Form 8-K filed with the SEC on July 28, 1998.
10. Our Quarterly Report on Form 10-Q for the quarter ended June 30, 1998,
as amended.
11. Our Current Report on Form 8-K filed with the SEC on September 14,
1998.
If you request a copy of any or all of the documents incorporated by
reference, then we will send to you the copies you requested at no charge.
However, we will not send exhibits to such documents, unless such exhibits are
specifically incorporated by reference in such documents. You should direct
requests for such copies to Mr. Steven M. Harris, Secretary, SoftNet Systems,
Inc., 520 Logue Avenue, Mountain View, California 94043, (650) 962-7470.
You should rely only on the information contained in this prospectus
and incorporated by reference into this prospectus. We have not authorized
anyone to provide you with information different from that contained in this
prospectus. The selling shareholders are offering to sell, and seeking offers to
buy, shares of SoftNet common stock only in jurisdictions where offers and sales
are permitted. The information contained in this prospectus is accurate only as
of the date of this prospectus, regardless of the time of delivery of this
prospectus or of any sale of the shares.
In this prospectus, the "Company," "SoftNet," "we," "us" and "our"
refer to SoftNet Systems, Inc. In addition, we refer to certain of our
securities as follows:
o "Series A Preferred Stock" refers to our Series A Convertible Preferred Stock.
o "Series B Preferred Stock" refers to our Series B Convertible Preferred Stock.
o "Series C Preferred Stock" refers to our Series C Convertible Preferred Stock.
RISK FACTORS
You should carefully consider the risks described below before making
an investment decision. The risks and uncertainties described below are not the
only ones facing the Company. Additional risks and uncertainties not presently
known to us or that we currently deem immaterial may also impair our business
operations.
If any of the following risks actually occur, our business, financial
condition or results of operations could be materially adversely affected. In
such case, the trading price of our common stock could decline, and you may lose
all or part of your investment.
This prospectus also contains "forward-looking" statements that involve
risks and uncertainties. Our actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including the risks faced by us described below and elsewhere in this
prospectus.
Factors Affecting the Company's Operating Results
The risks and uncertainties described below are not the only ones
facing us. Additional risks and uncertainties not presently known to us or that
we currently deem immaterial may also impair our business operations. If any of
the following risks actually occur, our business, financial condition or results
of operations could be materially adversely affected. In such case, the trading
price of our common stock could decline.
This Annual Report on Form 10-K also contains "forward-looking"
statements that involve risks and uncertainties. Our actual results could differ
materially from those anticipated in these forward-looking statements as a
result of certain factors, including the risks faced by us described below and
elsewhere in this Annual Report on Form 10-K.
We Have Operated Our Internet Services Business Only For a Short Period of Time
We are in the process of selling our non-Internet related subsidiaries
to focus on substantial expansion of our Internet subsidiary (the "ISP
Channel"). We acquired the ISP Channel in June 1996. As such, we have very
limited operating history and experience in the Internet services business. The
successful expansion of our ISP Channel will require strategies and business
operations that differ from those historically employed in connection with our
two other businesses. To be successful, we must develop and market products and
services that are widely accepted by consumers and businesses at prices that
provide cash flow sufficient to meet our debt service, capital expenditures and
working capital requirements. Consequently, we cannot assure you that our
ability to develop or maintain strategies and business operations will achieve
positive cash flow and profitability for our ISP Channel.
There is No Proven Commercial Acceptance of the Internet Service Division's
Services
It has become feasible to offer Internet services over existing cable
lines and equipment on a broad scale only recently. There is no proven
commercial acceptance of cable-based Internet services. There are only a few
companies offering such services, and none of these companies are currently
profitable. Because this industry is in its early stages, it is currently very
difficult to predict whether providing cable-modem Internet services will become
a viable business model.
We have launched our ISP Channel service in 19 cable systems in the
United States, but we cannot assure you that it will achieve broad consumer or
commercial acceptance. We currently only have 1,600 subscribers to our ISP
Channel service. The success of our ISP Channel service will depend upon the
willingness of subscribers to pay the monthly fees and installation costs
associated with the service and to purchase or lease the equipment necessary to
access the Internet. Accordingly, we cannot predict whether our pricing model
will prove to be viable, whether demand for our services will materialize at the
prices we expect to charge, or whether current or future pricing levels will be
sustainable. If we do not achieve or sustain such pricing levels or if our
services do not achieve or sustain broad market acceptance, then our business,
financial condition, prospects and ability to repay our debts will be materially
adversely affected.
We Anticipate Having Negative Cash Flow, Net Losses and Accumulated
Stockholders' Deficits for the Foreseeable Future
We have sustained substantial losses over the last five fiscal years.
For the fiscal year ended September 30, 1998, we had net losses of $____ million
and for the fiscal year ended September 30, 1997, we had net losses of $2.6
million. As of September 30, 1998, we had an accumulated stockholders' deficit
of approximately $___ million. We expect to incur substantial additional losses
and experience substantial negative cash flows as we expand our ISP Channel. The
costs of expansion will include expenses incurred in connection with:
o installing the equipment necessary to enable our cable affiliates to offer our
services; o research and development of new product and service offerings; o the
continued development of our direct and indirect selling and marketing efforts;
and o possible charges related to acquisitions, divestitures, business alliances
or changing technologies, including the
possible acquisition of Intelligent Communications, Inc.
Our continued negative cash flow and net losses may result in depressed
market prices for our common stock. We cannot assure you that we will ever
achieve favorable operating results or profitability.
We Will Require Substantial Future Capital
The development of our business will require substantial capital
infusions as a result of (1) our need to enhance and expand product and service
offerings to maintain our competitive position and increase market share and (2)
the substantial investment in equipment and corporate resources required by the
continued national launching of the ISP Channel. In addition, we anticipate that
the majority of cable affiliates with one-way cable systems will eventually
upgrade their cable infrastructure to two-way cable systems, at which time we
will have to upgrade our equipment on any affected cable system to handle
two-way transmissions. We cannot accurately predict whether or when we will
ultimately achieve cash flow levels sufficient to support our operations,
development of new products and services, and expansion of our ISP Channel.
Unless we reach such cash flow levels, we will require additional financing to
provide funding for operations. In this regard, we have announced our intention
to seek up to $150 million in long-term debt financing. In the event we complete
such financing, we will be highly leveraged and such debt securities will have
rights or privileges senior to those of our current shareholders. In the event
that equity securities are issued to raise additional capital, the percentage
ownership of our shareholders will be reduced, shareholders may experience
additional dilution and such securities may have rights, preferences and
privileges senior to those of our common stock. In the event that we cannot
generate sufficient cash flow from operations, or are unable to borrow or
otherwise obtain additional funds on favorable terms to finance operations when
needed, our business, financial condition, prospects and ability to repay our
debts would be materially adversely affected.
Our Quarterly Results May Fluctuate
Our quarterly results have fluctuated and will likely continue to
fluctuate significantly from quarter to quarter. In addition, we are selling MTC
and KCI, our non-Internet subsidiaries, one of which has not been accounted for
as a discontinued operation. As a result, we believe that period-to-period
comparisons of our revenues and results of operations are not necessarily
meaningful and should not be relied upon as indicators of future performance.
Many of the factors that could cause our quarterly operating results to
fluctuate significantly in the future are beyond our control.
Factors attributable to the ISP Channel include, among others:
o the rate at which we enter into agreements with cable operators and the
exclusivity and term of such agreements;
o the rate of subscription to our Internet services and the prices
subscribers pay for such services;
o changes in the revenue sharing arrangements between us and our
affiliated cable operators;
o our ability and that of our cable affiliates to coordinate timely and
effective marketing strategies, in particular, our strategy for
marketing the ISP Channel service to subscribers in such affiliates'
local cable areas;
o the number of subscribers who retain our Internet services;
o the quality of our cable affiliates' cable infrastructure;
o the quality of customer and technical support we are able to provide;
o the rate at which our cable affiliates can complete the installations
required to initiate service for new subscribers;
o the amount and timing of capital expenditures and other costs relating
to the expansion of our ISP Channel;
o the introduction of new Internet services by us or our competitors and
customer acceptance of such services;
o price competition or pricing changes in the Internet or cable
industries; and o changes in law and regulation.
Factors attributable to our MTC business include, among others:
o the size and timing of customer orders and subsequent shipments;
o customer order deferrals in anticipation of new products and services;
o timing of product introductions or enhancements by us or our
competitors;
o market acceptance of new products and services;
o technological changes in the industry;
o competitive pricing pressures;
o accuracy of customer forecasts of end-user demand;
o changes in the mix of products sold;
o quality control of products sold; and
o the timing of our ultimate sale of the MTC business.
Additional factors that may affect our quarterly operating results in
general include, among others:
o changes in our operating expenses;
o expenses relating to potential acquisitions
o personnel changes;
o disruption in sources of supply;
o capital spending;
o delays of payments by customers; and
o general economic conditions.
Because of the foregoing factors, we cannot predict with any
significant degree of certainty our quarterly revenue and operating results. It
is likely that in one or more future quarters our results may fall below the
expectations of analysts and investors. In such event, the trading price of our
common stock would likely decrease.
Issuance of Common Stock Pursuant to Existing Obligations Will Result in
Dilution to the Common Stockholders
We have several obligations to issue common stock. The issuance of
common stock as a result of these obligations could result in significant
dilution to the holders of our common stock. We have reserved a total of
8,274,848 shares of common stock to provide for these obligations, although we
could issue materially less than all of such shares.
We have reserved 2,760,963 shares of common stock for issuance upon the
exercise of options and warrants or conversion of our convertible subordinated
debentures, 1,513,885 shares of common stock for issuance under our cable
affiliate incentive programs, and 4,000,000 shares of common stock for issuance
upon conversion of our outstanding series of preferred stock. In addition, we
currently plan to issue an additional 500,000 shares of common stock to the
shareholders of Intelligent Communications, Inc. as partial consideration for
the purchase of Intelligent Communications, Inc.
The 4,000,000 shares of common Stock reserved for issuance upon the
conversion of the preferred stock represent the maximum number of shares
issuable upon such conversion, subject to stock splits and similar events. The
number of shares of common stock that we will issue upon conversion of the
Series B Preferred Stock and Series C Preferred Stock cannot be determined, and
may change as the market price of the common stock changes. Generally, decreases
in the market price of the common stock below the initial conversion prices
would result in more shares of common stock being issued upon conversion of the
Series B Preferred Stock and Series C Preferred Stock.
The maximum conversion price of the Series B Preferred Stock is $13.20,
but may increase to $14.30 on February 28, 1999 if the market price of the
common stock on such date is at or above $14.30. The maximum conversion price of
the Series C Preferred Stock is $9.00, but may increase to $9.75 on May 31, 1999
if the market price of the common stock on such date is at or above $9.75.
The following table sets forth the number of shares of common stock
issuable upon conversion of the outstanding preferred stock assuming the market
price of the common stock is 25%, 50%, 75% and 100% of the market price of the
common stock on December 11, 1998, which was $14.81 per share.
Percent of Market
Price Series B Preferred Stock(1) Series C Preferred Stock(2)
------------------------ ------------------------
25% 2,000,000(3) 2,035,472(4)
50% 1,366,396 1,016,363
75% 911,341 836,805
100% 767,045 836,805
- ----------------
(1) There are 10,125 shares of Series B Preferred stock outstanding. Each
share has a stated value of $1,000. The conversion prices of the
Series B Preferred Stock at 25%, 50%, 75% and 100% of the market price
of $14.81 would be $3.70, $7.41, $11.11 and $13.20, respectively.
(2) There are 7,531.25 shares of Series C Preferred Stock outstanding.
Each share has a stated value of $1,000. The conversion prices of the
Series C Preferred Stock at 25%, 50%, 75% and 100% of the market price
of $14.81 would be $3.70, $7.41, $9.00 and $9.00, respectively.
(3) The Series B Preferred Stock cannot convert into more than 2,000,000
shares of our common stock. (4) In the event the 2,000,000 share cap
for the Series C Preferred Stock is reached, we must either honor
conversion requests over the 2,000,000 share cap or redeem the
remaining Series C Preferred Stock, at its stated value of $1,000 per
share plus accrued but unpaid dividends.
To the extent any of these shares of common stock are issued, the
market price of the common stock may decrease because of the additional shares
on the market. If the actual price of the common stock decreases, the holders of
such preferred stock could convert into greater amounts of common stock, the
sales of which could further depress the stock price. In addition, the
significant downward pressure on the market price of the common stock as the
holders of the preferred stock convert and sell material amounts of common stock
could encourage short sales by such holders or others. Such short sales would
place further downward pressure on the price of the common stock.
The conversion of the preferred stock and issuance of the common stock,
may result in substantial dilution to the interests of other holders of common
stock because each holder of preferred stock may ultimately convert and sell the
full amount issuable upon conversion. The 4.99% ownership limitation contained
in the preferred stock does not prevent the holders from converting into common
stock and then selling such common stock to stay below the limitation, except
that such holders cannot convert into more than 19.99% of our common stock
unless we have received shareholder approval. The Company intends to seek
shareholder approval for conversions in excess of 19.99% at the next Annual
Meeting. In any event, the Series B Preferred Stock and Series C Preferred Stock
each cannot convert into more than 2,000,000 shares of our common stock.
In the event the 2,000,000 share cap for the Series C Preferred Stock
is reached, we must either honor conversion requests over the 2,000,000 share
cap or redeem the remaining Series C Preferred Stock, at its stated value of
$1,000 per share plus accrued but unpaid dividends.
Possible Cash Payments to Holders of Preferred Stock.
We are required by our Certificate of Incorporation and the rules of
the American Stock Exchange to obtain shareholder approval prior to issuing more
than 19.99% of our Common Stock upon conversion of the Series A Preferred Stock,
Series B Preferred Stock and Series C Preferred Stock. If we do not obtain such
shareholder approval, we will be required to make cash payments to holders of
the Series B Preferred Stock, or Series C Preferred Stock who attempt to convert
over the 19.99% limit, unless the Company obtains a waiver from the American
Stock Exchange rule or otherwise ceases to be subject to such rule. The cash
payments would be equal to the number of shares of Common Stock than would have
been issued absent the 19.99% limit multiplied by the average closing bid price
to the attempted conversion.
In the event the 2,000,000 share cap is reached with respect to the
Series C Preferred Stock, the Company must either honor conversion requests or
redeem the remaining Series C Preferred Stock. The market price of our common
stock would have to fall to $3.75 or below for five days within a thirty day
trading period to reach the 2,000,000 share cap.
The following table sets forth the amount of such cash payment assuming
(i) the market price of such Common Stock is 25%, 50%, 75%, 100%, 125%, 150% and
175% of the market price of the Common Stock on December 18, 1998, which was
$14.81 per share; (ii) the floating rate mechanism of the Series B Preferred
Stock and Series C Preferred Stock was in effect; and (iii) the maximum
conversion price of the Series B Preferred Stock and Series C Preferred Stock
was not increased. The actual cash payments may be significantly greater than
those listed in the event the market price of our common stock increases above
$25.92.
Cash Payment for Attempted Conversions
-------------------------------------------------------
Percentage of Series B Preferred Series C Preferred Total Cash
Market Price(1) Stock(2) Stock(2) Payments
---------------- ------------------ ------------------ ------------
25% ($3.70) $4,879,072 $7,531,250 $12,410,322
50% ($7.41) 5,076,331 7,531,250 12,607,581
75% ($11.11) 10,125,000 1,727,312 11,852,312
100% ($14.81) 11,359,943 2,302,565 13,662,508
125% ($18.52) 14,205,682 2,879,372 17,085,054
150% ($22.22) 17,043,750 3,454,625 20,498,375
175% ($25.92) 19,881,818 4,029,877 23,911,695
- ----------
(1) The conversion prices of the Series B Preferred Stock at 25%, 50%, 75% of
$14.81 would be $3.70, $7.41 and $11.11, respectively. For market prices
greater than $13.20, the conversion price of the Series B Preferred Stock
would be $13.20. The conversion prices for the Series C Preferred Stock at
25% and 50% of $14.81 would be $3.70 and $7.41, respectively. For market
prices greater than $9.00, the conversion price of the Series C Preferred
Stock would be $9.00.
(2) The Series B Preferred Stock cannot convert into more than 2,000,000
shares of common stock. Accordingly, cash payments cease once the Series B
Preferred Stock has converted into, or received cash payments in lieu of
converting into, an aggregate of 2,000,000 shares of common stock. The
Series C Preferred Stock has a similar limitation. However, once the
2,000,000 share limit is reached, whether through cash payments or actual
conversions, the Company must either redeem the remaining Series C
Preferred Stock or continue to honor conversions.
Such cash payments will adversely effect the Company's financial
condition and ability to implement its business plan for ISP Channel, Inc. In
addition, the Company will be required to raise funds elsewhere, which could be
difficult in the event stockholder approval is not obtained. If the Company does
not receive stockholder approval, there can be no assurance that the Company
would be able to obtain adequate sources of additional capital. "Risk Factors -
Possible Cash Payments to Holders of Preferred Stock."
We Rely Substantially on Our Cable Affiliates to Provide Our Internet Services
to Subscribers
The success of our business depends upon our relationship with our
cable affiliates. Therefore, in addition to economic conditions, market
conditions and factors relating to Internet service providers and on-line
services specifically, our success and future business growth will also be
subject to economic and other factors affecting our cable affiliates.
We Do Not Have Direct Contact with Our Subscribers
Because subscribers to the ISP Channel must subscribe through a cable
affiliate, the cable affiliate (and not SoftNet) will substantially control the
customer relationship with the subscriber. For example, under our existing
contracts, cable affiliates are responsible for important functions, such as
billing for and collecting ISP Channel subscription fees and providing the labor
and costs associated with distribution of local marketing materials.
Failure or Delay by Cable Operators to Upgrade Their Systems
Certain ISP Channel services are dependent on the quality of the cable
networks of our cable affiliates. Currently, most cable systems are capable of
providing only information from the Internet to the subscribers, and require a
telephone line to carry information from the subscriber to the Internet. These
systems are called "one-way" cable systems. Cable operators have announced and
begun making major upgrades to their systems to increase the capacity of their
networks and to enable traffic both to and from the Internet over their
networks, so-called "two-way capability." However, cable system operators have
limited experience with implementing such upgrades. These investments have
placed a significant strain on the financial, managerial, operational and other
resources of cable system operators, most of which already maintain a
significant amount of debt.
Further, cable operators must periodically renew their franchises with
city, county or state governments. These governmental bodies may impose
technical and managerial conditions before granting a renewal, and these
conditions may cause the cable operator to delay such upgrades.
In addition, cable operators are primarily concerned with increasing
television programming capacity to compete with other forms of entertainment
delivery systems, such as direct broadcast satellite. Consequently, cable
operators may choose not to upgrade their networks for two-way Internet
capability. Such upgrades have been, and we expect will continue to be, subject
to change, delay or cancellation. Cable operators' failure to complete these
upgrades in a timely and satisfactory manner, or at all, would adversely affect
the market for our products and services in any such operators' franchise area.
In addition, cable operators may roll-out Internet access systems that are
incompatible with our high-speed Internet access services. If repeated on a
broad scale, such failures could have a material adverse effect on our business,
financial condition, prospects and ability to repay our debts.
Unavailability of Two-Way Capability in Certain Markets and Its Uncertain Effect
on Subscription Levels
We provide Internet services to cable systems irrespective of their
two-way capabilities. For "one-way" cable systems, we provide Internet services
over cable systems to homes with a telephone line return path for data from the
home. In those circumstances, our services may not provide the high speed
access, quality of experience and availability of certain applications, such as
video conferencing, necessary to attract and retain subscribers to the ISP
Channel service. Subscribers using a telephone line return path will experience
downstream data transmission speeds to the Internet that are provided by their
analog modems (typically 28.8 Kbps). It is not clear what impact the lack of
two-way capability will have on subscription levels for the ISP Channel.
We Depend on Exclusive Access to Cable Subscribers
The success of our ISP Channel is dependent, in part, on our ability to
gain exclusive access to cable consumers. Our ability to gain exclusive access
to cable customers depends upon our ability to develop exclusive relationships
with cable operators that are dominant within their geographic markets. We
cannot assure that affiliated cable operators will not face competition in the
future or that we will be able to establish and maintain exclusive relationships
with cable operators. Currently, a number of our contracts with cable operators
do not contain exclusivity provisions. Even if we are able to establish and
maintain exclusive relationships with cable operators, we cannot assure the
ability to do so on favorable terms or in sufficient quantities to be
profitable. In addition, we are seeking affiliations with a large number of
cable operators as quickly as possible because we will be excluded from
providing Internet over cable in those areas served by cable operators with
exclusive arrangements with other Internet service providers. Our contracts with
cable affiliates typically range from three to seven years, and we cannot assure
you that such contracts will be renewed on satisfactory terms. If the exclusive
relationship between either us and our cable affiliates or our cable affiliates
and their cable subscribers is impaired, if we do not become affiliated with a
sufficient number of cable operators, or if we are not able to continue our
relationship with a cable affiliate once the initial term of its contract has
expired, our business, financial condition, prospects and ability to repay our
debts could be materially adversely affected.
Impact of Research and Development Activities
We expect to continue extensive research and development activities and
to evaluate new product and service opportunities. These activities will require
our continued investment in research and development and sales and marketing,
which could adversely affect our short-term results of operations. We believe
that future revenue growth and profitability will depend in part on our ability
to develop and successfully market new products and services. Failure to
increase revenues from new products and services, whether due to lack of market
acceptance, competition, technological change or otherwise, would have a
material adverse effect on our business financial condition, prospects and
ability to repay our debts.
Management of Our Expanding Business
To exploit fully the market for our products and services, we must
rapidly execute our sales strategy while managing anticipated growth through the
use of effective planning and operating procedures. To manage our anticipated
growth, we must, among other things:
o continue to develop and improve our operational, financial and
management information systems;
o hire and train additional qualified personnel;
o continue to expand and upgrade core technologies; and
o effectively manage multiple relationships with various customers,
suppliers and other third parties.
Consequently, such expansion could place a significant strain on our
services and support operations, sales and administrative personnel and other
resources. We may, in the future, also experience difficulties meeting demand
for our products and services. Additionally, if we are unable to provide
training and support for our products, it will take longer to install our
products and customer satisfaction may be lower. We cannot assure that our
systems, procedures or controls will be adequate to support our operations or
that management will be able to exploit fully the market for our products and
services. Our failure to manage growth effectively could have a material adverse
effect on our business, financial condition, prospects and ability to repay our
debts.
Non-Exclusivity of Cable Franchises; Risk of Non-Renewal or Termination of
Franchises
Cable television companies operate under non-exclusive franchises
granted by local or state authorities that are subject to renewal and
renegotiation from time to time. A franchise is generally granted for a fixed
term ranging from five to 15 years, but in many cases the franchise may be
terminated if the franchisee fails to comply with the material provisions of the
franchise. The Cable Television Consumer Protection and Competition Act of 1992
prohibits franchising authorities from granting exclusive cable television
franchises and from unreasonably refusing to award additional competitive
franchises. This Act also permits municipal authorities to operate cable
television systems in their communities without franchises. We cannot assure
that cable television companies having contracts with us will retain or renew
their franchises. Non-renewal or termination of any such franchises would result
in the termination of our contract with the applicable cable operator. If an
affiliated cable operator were to lose its franchise, we would seek to affiliate
with the successor to the franchisee. We cannot, however, assure an affiliation
with such successor. In addition, affiliation with a successor could result in
additional costs to us. If we cannot affiliate with replacement cable operators,
our business, financial condition, prospects and ability to repay our debts
could be materially adversely affected.
We May Lose Cable Affiliates Through Acquisition by Unaffiliated Cable Operators
Under many of our initial contracts, if a cable affiliate is acquired
by an unaffiliated cable operator that already has a relationship with one of
our competitors or chooses not to enter into a contract with us, we may lose our
ability to offer Internet services in the area served by such former cable
affiliate entirely or on an exclusive basis. Such a loss could have a material
adverse effect on our business, financial condition, prospects and ability to
repay our debts.
We Depend on Third-Party Technology
The markets for the products and services we use are characterized by
the following:
o intense competition;
o rapid technological advances;
o evolving industry standards;
o changes in subscriber requirements;
o frequent new product introductions and enhancements; and
o alternative service offerings.
Because of these factors, we must rely upon third parties to develop
and introduce technologies that enhance our current product and service
offerings. Reliance on third parties enables us to develop and introduce our own
products and services on a timely and cost-effective basis to meet changing
customer needs and technological trends in our industries. If our relationship
with such third parties is impaired or terminated, then we would have to find
other developers on a timely basis or develop our own technology. We cannot
predict whether we will be able to obtain the third-party technology necessary
for continued development and introduction of new and enhanced products and
services. In addition, we cannot predict whether we will obtain third-party
technology on commercially reasonable terms or replace third-party technology in
the event such technology becomes unavailable, obsolete or incompatible with
future versions of our products or services. The absence of or any significant
delay in the replacement of third-party technology would have a material adverse
effect on our business, financial condition, prospects and ability to repay our
debts.
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We Depend on Third-Party Suppliers
We currently depend on a limited number of suppliers for certain key
products and services. In particular, we depend on Excite, Inc. for national
content aggregation, 3Com Corporation and Com21, Inc. for headend and cable
modem equipment, Cisco Systems, Inc. for specific network routing and switching
equipment, and, among others, MCI Communications Corporation ("MCI") for
national Internet backbone services. Certain of our cable modem and headend
equipment suppliers are in litigation over their patents. We could experience
disruptions in the delivery or increases in the prices of products and services
purchased from vendors as a result of this intellectual property litigation. We
cannot predict when delays in the delivery of key components and other products
may occur due to shortages resulting from the limited number of suppliers, the
financial or other difficulties of such suppliers or the possible limited
availability in the suppliers' underlying raw materials. In addition, we may not
have adequate remedies against such third parties as a result of breaches of
their agreements with us. The inability to obtain sufficient key components or
to develop alternative sources for such components could result in delays or
reductions in our product shipments. If that were to happen, it could have a
material adverse effect on our customer relationships, business, financial
condition, prospects and ability to repay our debts.
We depend on Third Party Carriers
Our success will depend upon the capacity, reliability and security of the
network used to carry data between our subscribers and the Internet. A
significant portion of such network is owned by third parties, and accordingly
we have no control over its quality and maintenance. We rely on cable operators
to maintain their cable systems. In addition, we rely on other third parties to
provide a connection from the cable system to the Internet. Currently, we have
transit agreements with MCI, WorldCom, Sprint Communications Company, and others
to support the exchange of traffic between our network operations center, cable
system and the Internet. The failure of any other link in the delivery chain
resulting in an interruption of our operations would have a material adverse
effect on our business, financial condition, prospects and ability to repay our
debts.
We Experience Intense Competition in Our Markets
The markets for our products and services are intensely competitive,
and we expect competition to increase in the future. Many of our competitors and
potential competitors have substantially greater financial, technical and
marketing resources, larger subscriber bases, longer operating histories,
greater name recognition and more established relationships with advertisers and
content and application providers than we do. Such competitors may be able to
undertake more extensive marketing campaigns, adopt more aggressive pricing
policies and devote substantially more resources to developing Internet services
or on-line content than we can. We cannot predict whether we will be able to
compete successfully against current or future competitors or that competitive
pressures faced by us will not materially adversely affect our business,
financial condition, prospects or ability to repay our debts. Any increase in
competition could reduce our gross margins, require increased spending by us on
research and development and sales and marketing, and otherwise materially
adversely affect our business, financial condition, prospects and ability to
repay our debts.
We face competition from many sources, which include:
o Other cable-based access providers;
o Telephony-based access providers; and
o Alternative technologies, such as telecom-related solutions
Cable-based Access Providers
In the cable-based segment of the Internet access industry, we compete
with other cable-based data services that are seeking to contract with cable
system operators. These competitors include (1) systems integrators such as
Convergence.com, Online System Services, HSAnet and Frontier Communications'
Global Center business, and (2) Internet service providers such as Earthlink
Network, Inc. ("Earthlink"), MindSpring Enterprises, Inc., and IDT Corporation.
Several cable system operators have begun to provide high-speed Internet access
services over their existing networks. The largest of these cable system
operators are CableVision Systems Corporation, Comcast Corporation ("Comcast"),
Cox Enterprise, Inc. ("Cox"), MediaOne Group, Inc., Tele-Communications, Inc.
("TCI") and Time Warner Inc. ("Time Warner"). TCI, Cox and Comcast market
through At Home Corporation ("@Home") while Time Warner plans to market the
RoadRunner service through Time Warner's own cable systems as well as to other
cable system operators nationwide.
Telephony-based Access Providers
Some of our most direct competitors in the access markets are
telephony-based access providers, including incumbent local exchange carriers,
national interexchange or long distance carriers, fiber-based competitive local
exchange carriers, ISPs, online service providers, wireless and satellite data
service providers, and competitive local exchange carriers that use digital
subscriber line technologies. Some of these competitors are among the largest
companies in the country, including AT&T Corp and WorldCom, Inc. Other
competitors include BBN Corporation, Earthlink, Netcom Online Communications
Services, Inc., Concentric Network, and PSInet Inc. Internet access via the
existing telephone infrastructure is widely available and inexpensive, and
barriers to entry are low. The result is a highly competitive and fragmented
market.
Some of our potential competitors are offering diversified packages of
telecommunications services to residential customers. If these companies bundle
Internet access service with other telecommunications services, then we would be
at a competitive disadvantage. Many of these companies are offering (or may soon
offer) technologies that will attempt to compete with some or all of our
Internet data service offerings. The bases of competition in these markets
include:
o transmission speed;
o reliability of service;
o ease of access;
o ratio of price to performance;
o ease of use;
o content quality;
o quality of presentation;
o timeliness of content;
o customer support;
o brand recognition; and
o operating experience and revenue sharing.
Alternative Technologies
In addition, the market for high-speed data transmission services is
characterized by several competing technologies that offer alternative
solutions. Competitive technologies include telecom-related wireline
technologies, such as integrated services digital network and digital subscriber
line technologies, and wireless technologies such as local multipoint
distribution service, multichannel multipoint distribution service and direct
broadcast satellite. Our prospects may be impaired by Federal Communications
Commission ("FCC") rules and regulations, which are designed, at least in part,
to increase competition in video and related services. The FCC has also created
a General Wireless Communications Service in which licensees are afforded broad
latitude in defining the nature and service area of the communications services
they offer. The full impact of the General Wireless Communications Service
remains to be seen. Nevertheless, all of these new technologies pose potential
competition to our business. Significant market acceptance of alternative
solutions for high-speed data transmission could decrease the demand for our
services if such alternatives are viewed as providing faster access, greater
reliability, increased cost-effectiveness or other advantages over cable
solutions.
Competition from telecom-related solutions is expected to be intense.
We cannot predict whether and to what extent technological developments
will have a material adverse effect on our competitive position. The rapid
development of new competing technologies and standards increases the risk that
current or new competitors could develop products and services that would reduce
the competitiveness of our products and services. If that were to happen, it
could have a material adverse effect on our business, financial condition,
prospects and ability to repay our debts.
Increased Usage May Strain Our Capacity
Because our ISP Channel service has been operational for a relatively
short period of time, our ability to connect and manage a substantial number of
on-line subscribers at high transmission speeds is unknown. In addition, we face
risks related to our ability to scale up to expected subscriber levels while
maintaining superior performance. While peak downstream data transmission speeds
across the cable network approaches 30 megabits per second ("Mbps") in each 6
MHz channel, the actual downstream data transmission speeds for each cable
subscriber will be significantly slower and will depend on a variety of factors,
including:
o actual speed provisioned for the subscriber's cable model (for example, 500
Kbps);
o quality of the server used to deliver content (for example, computer
CPU speed and memory)
o overall Internet traffic congestion; o the number of active subscibers
on a given 6 MHz channel at the same time;
o the capability of cable modems used; and
o the service quality of the cable affiliates' cable networks.
As the number of subscribers increases, it may be necessary for our
cable affiliates to add additional 6 MHz channels in order to maintain adequate
data transmission speeds from the Internet. These additions would render such
channels unavailable to such cable affiliates for video or other programming. We
cannot assure you that our cable affiliates will provide additional capacity for
this purpose. On two-way cable systems, the transmission data channel to the
Internet is located in a range not used for broadcast by traditional cable
networks and is more susceptible to interference than the transmission data
channel from the Internet, resulting in a slower peak transmission speed to the
Internet. In addition to the factors affecting data transmission speeds from the
Internet , the interference level in the cable affiliates' data broadcast range
to the Internet can materially affect actual data transmission speeds to the
Internet. The actual data delivery speeds realized by subscribers will be
significantly lower than peak data transmission speeds and will vary depending
on the subscriber's hardware, operating system and software configurations. We
cannot assure you that we will be able achieve or maintain data transmission
speeds high enough to attract and retain our planned numbers of subscribers,
especially as the number of subscribers to our services grows. Consequently, a
perceived or actual failure by us to achieve or maintain high speed data
transmission could significantly reduce consumer demand for our services and
have a material adverse effect on our business, financial condition, prospects
and ability to repay our debts.
Risk of System Failure
Our operations are dependent upon our ability to support a highly
complex network and avoid damages from fires, earthquakes, floods, power losses,
telecommunications failures, network software flaws, transmission cable cuts and
similar events. The occurrence of any one of these events could cause
interruptions in the services we provide. In addition, the failure of an
incumbent local exchange carrier or other service provider to provide the
communications capacity we require, as a result of a natural disaster,
operational disruption or any other reason, could cause interruptions in the
services we provide. Any damage or failure that causes interruptions in our
operations could have a material adverse effect on our business, financial
condition, prospects and ability to repay our debts.
Internet-Related Security Risks
While we have taken substantial security measures, our networks or
those of our cable affiliates may be vulnerable to unauthorized access, computer
viruses and other disruptive problems. Internet service providers and online
service providers have experienced in the past, and may experience in the
future, interruptions in service as a result of the accidental or intentional
actions of Internet users. Unauthorized access by current and former employees
or others could also potentially jeopardize the security of confidential
information stored in our computer systems and those of our subscribers. Such
events may result in our liability to our subscribers and may deter others from
becoming subscribers, which could have a material adverse effect on our
business, financial condition, prospects and ability to repay our debts.
Although we intend to continue using industry-standard security measures, such
measures have been circumvented in the past, and we cannot assure you that these
measures will not be circumvented in the future. Moreover, we have no control
over the security measures that our cable affiliates adopt. Eliminating computer
viruses and alleviating other security problems may cause our subscribers delays
due to interruptions or cessation of service. Such delays could have a material
adverse effect on our business, financial condition, prospects and ability to
repay our debts.
We Must Provide High-Quality Content and the Market for High-Quality Content Has
Only Recently Begun to Develop
A key part of our strategy is to provide Internet users a more
compelling interactive experience than the one currently available to customers
of dial-up Internet service providers and online service providers. We believe
that, in addition to providing high-speed, high-performance Internet access, to
be successful we must also develop and aggregate high-quality multimedia
content. Our success in providing and aggregating such content will depend in
part on:
o our ability to develop a customer base large enough to justify
investments in the development of such content;
o the ability of content providers to create and support high-quality
multimedia content; and
o our ability to aggregate content offerings in a manner subscribers
find attractive.
We cannot assure you that we will be successful in these endeavors.
In addition, the market for high-quality multimedia Internet content
has only recently begun to develop and is rapidly evolving, and there is
significant competition among Internet service providers and online service
providers for obtaining such content. If the market fails to develop, or
develops more slowly than expected, or if competition increases, or if our
content offerings do not achieve or sustain market acceptance, our business,
financial condition, prospects and ability to repay our debts will be materially
adversely affected.
We Will Depend in Part on Advertising Revenues
The success of our ISP Channel depends in part on our ability to draw
advertisers to the ISP Channel. We expect to derive significant revenues from
advertisements placed on co-branded and ISP Channel web pages and "click
through" revenues from products and services purchased through links from the
ISP Channel to vendors. We believe that we can leverage the ISP Channel to
provide demographic information to advertisers to help them better target
prospective customers. Nonetheless, we have not generated any significant
advertising revenue yet and we cannot assure you that advertisers will find such
information useful or will choose to advertise through the ISP Channel.
Therefore, we cannot assure you that we will be able to attract advertising
revenues in quantities and at rates that are satisfactory to us. The failure to
do so could have a material adverse effect on our business, financial condition,
prospects and ability to repay our debts.
Risks Associated with Promoting the ISP Channel Brand
We believe that establishing and maintaining the ISP Channel brand are
critical to attract and expand our subscriber base. Promotion of the ISP Channel
brand will depend on several factors, including:
o our success in providing high-speed, high-quality consumer and
business Internet products, services and content;
o the marketing efforts of our cable affiliates; and
o the reliability of our cable affiliates' networks and services.
We cannot assure you that any of these factors will be achieved. We
have little control over our cable affiliates' marketing efforts or the
reliability of their networks and services.
If consumers and businesses do not perceive our existing products and
services as high quality or we introduce new products or services or enter into
new business ventures that are not favorably received by consumers and
businesses, then we will be unsuccessful in building brand recognition and brand
loyalty in the marketplace. In addition, to the extent that the ISP Channel
service is unavailable, we risk frustrating potential subscribers who are unable
to access our products and services.
Furthermore, we may need to devote substantial resources to create and
maintain a distinct brand loyalty among customers, to attract and retain
subscribers, and to promote and maintain the ISP Channel brand in a very
competitive market. If we are unsuccessful in establishing or maintaining the
ISP Channel brand or if we incur excessive expenses in promoting and maintaining
our brand, our business, financial condition, prospects and ability to repay our
debts would be materially adversely affected.
Billing and Collections Risks
We have recently begun the process of designing and implementing our
billing and collections system for the ISP Channel. We intend to bill for our
services over the Internet and, in most cases, to collect these invoices through
payments received via the Internet. Such invoices and payments have security
risks. Given the complexities of such a system, we cannot assure you that we
will be successful in developing and launching the system in a timely manner or
that we will be able to scale the system quickly and efficiently if the number
of subscribers requiring such a billing format increases. Currently, our cable
affiliates are responsible for billing and collection for our Internet access
services. As a result, we have little or no control over the accuracy and
timeliness of the invoices or over collection efforts.
Given our relatively limited history with billing and collection for
Internet services, we cannot predict the extent to which we may experience bad
debts or our ability to minimize such bad debts. If we encounter significant
problems with our billing and collections process, our business, financial
condition, prospects and ability to repay our debts could be materially
adversely affected.
We Depend on the Growth and Evolution of the Internet
Market acceptance of our Internet services substantially depends upon
the growth and evolution of the Internet in ways that are best suited for our
products and services. High-speed cable-based Internet access is of greatest
value to consumers of multimedia and other bandwidth-intensive content. The
nature of the content available over the Internet and the technologies available
to access that content are evolving rapidly, and thus, we cannot assure you that
those applications most favorable to our services and technology will be widely
accepted by the marketplace.
Because the number of Internet users and level of use continue to grow
significantly, we cannot assure you that the Internet infrastructure will be
able to support this increased demand or that the performance or reliability of
the Internet will not be adversely affected. The Internet could lose its
commercial viability due to delays in the development or adoption of new
standards to handle increased levels of Internet activity. In addition, we
cannot assure you that the infrastructure or complementary services necessary to
make the Internet a viable commercial marketplace will be developed. In
particular, the Internet has only recently become a medium for advertising and
electronic commerce. If the necessary infrastructure or complementary services
or facilities are not developed, or if the Internet does not become a viable
commercial marketplace, our business, financial condition, prospects and ability
to repay our debts could be materially adversely affected.
Potential Liability for Defamatory or Indecent Content
The law relating to liability of Internet service providers and online
service providers for information carried on or disseminated through their
networks is currently unsettled. A number of lawsuits have sought to impose such
liability for defamatory speech and indecent materials. Congress has attempted
to impose such liability, in some circumstances, for transmission of obscene or
indecent materials. In one case, a court has held that an online service
providers could be found liable for defamatory matter provided through its
service, on the ground that the service provider exercised active editorial
control over postings to its service. Because of the potential liability for
materials carried on or disseminated through our systems, we may have to
implement measures to reduce our exposure to such liability. Such measures may
require the expenditure of substantial resources or the discontinuation of
certain products or services. Any imposition of liability on our company for
information carried on the Internet could have a material adverse effect on our
business, financial condition, prospects and ability to repay our debts.
Potential Liability for Information Retrieved and Replicated
Because subscribers download and redistribute materials that are cached
or replicated by us in connection with our Internet services, claims could be
made against us or our cable affiliates under both U.S. and foreign law for
defamation, negligence, copyright or trademark infringement, or other theories
based on the nature and content of such materials. You should know that these
types of claims have been successfully brought against online service providers.
In particular, copyright and trademark laws are evolving both domestically and
internationally, and it is uncertain how broadly the rights provided under these
laws will be applied to on-line environments. It is impossible for us to
determine who the potential rights holders may be with respect to all materials
available through our services. In addition, a number of third-party owners of
patents have claimed to hold patents that cover various forms of on-line
transactions or on-line technology. As with other online service providers,
patent claims could be asserted against us based upon our services or
technologies. Our liability insurance may not cover these types of potential
claims or may not be adequate to indemnify us for all liability that may be
imposed. Any liability not covered by insurance or in excess of insurance
coverage could have a material adverse effect on our business, financial
condition, prospects and ability to repay our debts.
Risks of Developing New Products and Services in the Face of Rapidly Evolving
Technology
Our Products and Services
Our future development efforts may not result in commercially
successful products and services or our products and services may be rendered
obsolete by changing technology, new industry standards or new product
announcements by competitors.
For example, we expect digital set-top boxes capable of supporting
high-speed Internet access services to be commercially available in the next 18
months. Set top boxes will enable subscribers to access the Internet without a
computer. Although the widespread availability of set-top boxes could increase
the demand for our Internet service, the demand for set-top boxes may never
reach the level we and industry experts have estimated. Even if set-top boxes do
reach this level of popularity, we cannot assure you that we will be able to
capitalize on such demand. If this scenario occurs or if other technologies or
standards applicable to our products or services become obsolete or fail to gain
widespread commercial acceptance, then our business, financial condition,
prospects and ability to repay our debts will be materially adversely affected.
Our ability to adapt to changes in technology and industry standards,
and to develop and introduce new and enhanced products and service offerings,
will determine whether we can maintain or improve our competitive position and
our prospects for growth. However, the following factors may hinder our efforts
to introduce and sell new products and services:
o rapid technological changes in the Internet and telecommunications
industries;
o the lengthy product approval and purchase process of our customers;
and
o our reliance on third-party technology for the development of new
products and services.
Suppliers' Products
The technology underlying our capital equipment, such as headends and
cable modems, continues to evolve and, accordingly, our equipment could become
out-of-date or obsolete prior to the time we originally intended to replace it.
If this occurs, we may need to purchase substantial amounts of new capital
equipment, which could have a material adverse effect on our business, financial
condition, prospects and ability to repay our debts.
Competitors' Products
The introduction by our competitors of products or services embodying,
or purporting to embody, new technology could also render our existing products
and services, as well as products or services under development, obsolete and
unmarketable. Internet, telecommunications and cable technologies are evolving
rapidly. Many large corporations, including large telecommunications providers,
Regional Bell Operating Companies ("RBOC's") and telecommunications equipment
providers, as well as large cable system operators, regularly announce new and
planned technologies and service offerings that could impact the market for our
services. The announcements can delay purchasing decisions by our customers and
confuse the marketplace regarding available alternatives. Such announcements
could, in the future, adversely impact our business, financial condition,
prospects and ability to repay our debts.
In addition, we cannot assure you that we will have the financial and
manufacturing resources necessary to continue successful development of new
products or services based on emerging technologies. Moreover, due to intense
competition, there may be a time-limited market opportunity for our cable-based
consumer and business Internet services. Our services may not achieve widespread
acceptance before competitors offer products and services with speed and
performance similar to our current offerings. In addition, the widespread
adoption of new Internet or telecommuting technologies or standards, cable-based
or otherwise, could require substantial and costly modifications to our
equipment, products and services and could fundamentally alter the character,
viability and frequency of Internet-based advertising, either of which could
have a material adverse effect on our business, financial condition, prospects
and ability to repay our debts.
Risks Related to Our Purchase of Intelligent Communications, Inc.
On November 23, 1998, we signed an agreement to purchase
Intelligent Communications, Inc., a provider of two-way satellite Internet
access options using very small aperture terminal ("VSAT") technology. We expect
to close the purchase of Intelligent Communications by June 30, 1999, although
we cannot assure you that the transaction will close on schedule, if at all.
Acquisitions involve many risks including potential negative effects on our
reported results of operations from acquisition-related charges and amortization
of goodwill and purchased technology. In addition, the Intelligent
Communications acquisition is structured as a purchase by us of all of the
outstanding stock of Intelligent Communications. As a result, upon completion of
the acquisition, we will assume all liabilities of Intelligent Communications.
It is possible that we are not aware of all of the liabilities of Intelligent
Communications and that upon completion of the acquisition, we will have assumed
greater liabilities that we expected.
As with mergers generally, this merger presents important
challenges and risks. Achieving the anticipated benefits of the merger will
depend, in part, upon whether the integration of the two companies' businesses
is achieved in an efficient, cost-effective and timely manner, but we cannot
assure that this will occur. The successful combination of the two businesses
will require, among other things, the timely integration of the companies'
product and service offerings and the coordination of the companies' research
and development efforts. We cannot assure you that integration will be
accomplished smoothly, on time or successfully. Although the management teams of
both SoftNet and Intelligent Communications believe that the merger will benefit
both companies, we cannot assure you that the merger will be successful. In
addition, the purchase of Intelligent Communications, Inc. presents new risks to
us, including the following:
Dependence on VSAT Market
One of the reasons we have agreed to purchase Intelligent
Communications was to be able to provide two-way satellite Internet access
options to our customers using VSAT satellite technology. However, the market
for VSAT communications networks and services may not continue to grow or VSAT
technology may be replaced by an alternative technology. A significant decline
in this market or the replacement of the existing VSAT technology by an
alternative technology could adversely affect our business, financial condition,
prospects and ability to repay our debts.
Risk of Damage, Loss or Malfunction of Satellite
The loss, damage or destruction of any of the satellites used
by Intelligent Communications as a result of military actions or acts of war,
anti-satellite devices, electrostatic storm or collision with space debris, or a
temporary or permanent malfunction of any of these satellites, would likely
result in interruption of Internet services we provide over the satellites which
could adversely affect our business, financial condition, prospects and ability
to repay our debts.
In addition, use of the satellites to provide Internet
services requires a direct line of sight between the satellite and the cable
headend and is subject to distance and rain attenuation. In certain markets
which experience heavy rainfall, transmission links must be engineered for
shorter distances and greater power to maintain transmission quality. Such
engineering changes may increase the cost of providing service.
Equipment Failure and Interruption of Service
Our operations will require that its network, including the
satellite connections operate on a continuous basis. It is not unusual for
networks, including switching facilities to experience periodic service
interruption and equipment failures. It is therefore possible that the network
facilities we use may from time to time experience interruptions or equipment
failures, which would negatively affect consumer confidence as well as our
business operations and reputation.
Dependence on Leases for Satellites
Intelligent Communications currently leases satellite space
from GE. If for any reason, the leases were to be terminated, we cannot assure
you that we could renew the leases for the satellites on favorable terms, if at
all. We have not identified alternative providers and believe that any new
leases would probably be more costly to us. In any case, we cannot assure you
that an alternative provider of satellite services would be available, or, if
available, would be available on terms favorable to us.
Government Regulation
The VSAT satellite industry is a highly regulated industry, both
domestically and internationally. In the United States, operation and use of
VSAT satellites requires licenses from the Department of Commerce and the
Federal Communications Commission. In addition, in order to operate
internationally, VSAT satellites generally require licenses from governments of
foreign countries in which imagery will be directly downlinked.
United States Regulation. The Department of Commerce is responsible for
granting commercial imaging satellite operating licenses, coordinating satellite
imaging applications among several governmental agencies to ensure that any
license addresses all U.S. national security concerns and complying with all
international obligations of the United States. The U.S. government generally
reserves the right to interrupt service during periods of national emergency
when U.S. national security interests are affected. The threat of such
interruptions or service could adversely affect our ability to market our
Internet services to certain end-user customers.
As a lessee of satellite space, we could in the future be indirectly
subject to new laws, policies or regulations or changes in the interpretation or
application of existing laws, policies or regulations, that modify the present
regulatory environment in the United States.
International Regulation. All satellite systems operating
internationally are subject to general international regulations and the
specific laws of the countries in which satellite imagery is downlinked.
Applicable regulations include:
International Telecommunications Union regulations, which define for
each service the technical operating parameters (including maximum
transmitter power, maximum interference to other services and users,
and the minimum interference the user must operate under for that
service);
the Intelsat and Inmarsat agreements which provide that in order to
conform with international treaties and obligations the operators of
international satellite systems must demonstrate that they will not
cause technical harm to Intelsat and Inmarsat; and
regulations of foreign countries that require that satellite operators
secure appropriate licenses and operational authority fir utilization
of the required spectrum in each country.
Within foreign countries, we expect that GE, as the lessor of the
satellite space, will secure appropriate licenses and operational authority for
utilization of the required spectrum in each country into which satellite
imagery will be downlinked.
While we believe that our lessors will be able to obtain all U.S. and
international licenses and authorizations necessary to operate effectively, we
cannot assure you that we our lessors will be successful in doing so. Our
failure to indirectly obtain some or all necessary licenses or approvals could
have a material adverse effect on our business, financial condition, prospects
and ability to repay our debts.
Acquisition-Related Risks
In addition to the recent acquisition of Intelligent Communications,
Inc., we may acquire other businesses that we believe will complement our
existing business. We cannot predict if or when any prospective acquisitions
will occur or the likelihood that they will be completed on favorable terms.
Acquiring a business involves many risks, including:
o potential disruption of our ongoing business and diversion of
resources and management time;
o incurrence of unforeseen obligations or liabilities
o possible inability of management to maintain uniform standards,
controls, procedures and policies;
o difficulty assimilating the acquired operations and personnel;
o risks of entering markets in which we have little or no direct prior
experience; and
o potential impairment of relationships with employees or customers as a
result of changes in management.
We cannot assure that we will make any acquisitions or that we will be
able to obtain additional financing for such acquisitions, if necessary. If any
acquisitions are made, we cannot assure that we will be able to successfully
integrate the acquired business into our operations or that the acquired
business will perform as expected.
We Depend on Certain Key Personnel
Our success depends, in large part, on our ability to attract and
retain qualified technical, marketing, sales and management personnel. With the
expansion of our ISP Channel, we are currently seeking new employees. However,
competition for such personnel is intense in our business, and thus, we may be
unsuccessful in our hiring efforts. To launch our ISP Channel concept on a
large-scale basis, we have recently assembled a new management team, most of
whom have been with us for less than six months. The loss of any member of the
new team, or failure to attract or retain other key employees, could have a
material adverse effect on our business, financial condition, prospects and
ability to repay our debts.
Impact of Direct and Indirect Government Regulation on Our Business
Currently, neither the FCC nor any other federal or state
communications regulatory agency directly regulates our services. However, any
changes in law or regulation relating to Internet connectivity and
telecommunications markets could affect the nature, scope and prices of our
services. Such changes include those that directly or indirectly affect costs,
limit usage of subscriber-related information or increase the likelihood or
scope of competition from the RBOCs or other telecommunications companies.
Possibility of Changes in Law or Regulation
For example, proceedings are pending at the FCC to determine whether,
and to what extent, ISPs should be considered "telecommunications carriers" and,
if so, whether they should be required to contribute to the Universal Service
Fund. Although the FCC has decided for the moment that ISPs are not
telecommunications carriers, that decision is not yet final and is being
challenged by various parties, including the RBOCs. Some members of Congress
have also challenged the FCC's conclusion. Congressional dissatisfaction with
the FCC's conclusions could lead to further changes to the FCC's governing law.
We cannot predict the impact, if any, that future legal or regulatory changes
might have on our business.
Regulations Affecting the Cable Industry May Discourage Cable Operators
from Upgrading Their Systems
In addition, regulation of cable television may affect the speed at
which our cable affiliates upgrade their cable infrastructures to two-way hybrid
fiber coaxial cable. Currently, our cable affiliates have generally elected to
classify the distribution of our services as "additional cable services" under
their respective franchise agreements, and accordingly pay franchise fees.
However, the election by cable operators to classify Internet access as an
additional cable service may be challenged before the FCC, the courts or
Congress, and any change in the classification of service could have a
potentially adverse impact on our company.
Our Cable Affiliates May Be Subject to Multiple Franchise Fees for
Distributing Our Services
Another possible risk is that local franchise authorities may subject
the cable affiliates to higher or additional franchise fees or taxes or
otherwise require them to obtain additional franchises in connection with
distribution of our services. There are thousands of franchise authorities in
the United States alone, and thus it will be difficult or impossible for us or
our cable affiliates to operate under a unified set of franchise requirements.
Possible Negative Consequences if Cable Operators are Classified as
Common Carriers
If the FCC or another governmental agency classifies cable system
operators as "common carriers" or "telecommunications carriers" because they
provide Internet services, or if cable system operators themselves seek such
classification as a means of limiting their liability, we could lose our rights
as the exclusive ISP for some of our cable affiliates. In addition, if we or our
cable affiliates are classified as common carriers, we could be subject to
government-regulated tariff schedules for the amounts we charge for our
services. To the extent we increase the number of foreign jurisdictions in which
we offer our services, we will be subject to further governmental regulation.
Import Restrictions May Affect the Delivery Schedules and Costs of
Supplies from Foreign Shippers
In addition, we obtain some of the components for our products and
services from foreign suppliers which may be subject to tariffs, duties and
other import restrictions. Any changes in law or regulation including those
discussed above, whether in the United States or elsewhere, could materially
adversely affect our business, financial condition, prospects and ability to
repay our debts.
Failure to Sell KCI and MTC
We have announced the planned sale of KCI and MTC to two separate
buyers. We intend to apply the proceeds of such a sale toward the repayment of
debt and the expansion of our ISP Channel. However, we cannot assure you that
these efforts will be successful. In the absence of such a sale, management's
attention could be substantially diverted to operate or otherwise dispose of KCI
and MTC. If a sale of KCI or MTC is delayed, its value could be diminished.
Moreover, KCI or MTC could incur losses and operate on a negative cash flow
basis in the future. Thus, any delay in finding a buyer or failure to sell these
divisions could have a material adverse effect on our business, financial
condition, prospects and ability to repay our debts.
Absence of Dividends
We have not historically paid any cash dividends on our common stock
and do not expect to declare any such dividends in the foreseeable future.
Payment of any future dividends will depend upon our earnings and capital
requirements, our debt obligations and other factors the Board of Directors
deems relevant. We currently intend to retain our earnings, if any, to finance
the development and expansion of our ISP Channel. Our Certificate of
Incorporation (1) prohibits the payment of cash dividends on our common stock,
without the approval of the holders of the convertible preferred stock and (2)
upon liquidation of our company, requires us to pay the holders of the
convertible preferred stock before we make any payments to the holders of our
common stock. You should also know that some of our financing agreements
restrict our ability to pay dividends on our common stock.
Volatility of Stock Price
The market price for our common stock has been volatile in the past,
and several factors could cause the price to fluctuate substantially in the
future. These factors include:
o announcements of developments related to our business;
o fluctuations in our results of operations;
o sales of substantial amounts of our securities into the marketplace;
o general conditions in our industries or the worldwide economy;
o an outbreak of war or hostilities;
o a shortfall in revenues or earnings compared to securities analysts'
expectations;
o changes in analysts' recommendations or projections;
o announcements of new products or services by us or our competitors; and
o changes in our relationships with our suppliers or customers.
The market price of our common stock may fluctuate significantly in the
future, and these fluctuations may be unrelated to our performance. General
market price declines or market volatility in the future could adversely affect
the price of our common stock, and thus, the current market price may not be
indicative of future market prices.
Prospective Anti-Takeover Provisions
We are a New York corporation. We intend to solicit shareholder
approval to reincorporate in Delaware. Both the New York Business Corporation
Law and the Delaware General Corporation Law contain certain provisions that may
discourage, delay or make a change in control of our company more difficult or
prevent the removal of incumbent directors. In addition, our proposed
Certificate of Incorporation and Bylaws for the Delaware corporation would have
certain provisions that have the same effect. These provisions may have a
negative impact on the price of our common stock and may discourage third-party
bidders from making a bid for our company or may reduce any premiums paid to
shareholders for their common stock.
Year 2000 Issues
Many computer programs have been written using two digits rather than
four to define the applicable year. This poses a problem at the end of the
century because such computer programs would not properly recognize a year that
begins with "20" instead of "19". This, in turn, could result in major system
failures or miscalculations, and is generally referred to as the "Year 2000
Issue" or "Y2K Issue". We have formulated a Y2K Plan to address our Y2K issues
and has created a Y2K Task Force headed by the Director of I/S and Data Services
to implement the plan. Our Y2K Plan has six phases:
Organizational Awareness - educate our employees, senior
management, and the board of directors about the Y2K issue.
Inventory - complete inventory of internal business systems
and their relative priority to continuing business operations. In
addition, this phase includes a complete inventory of critical
vendors/suppliers/services providers and their Y2K compliance status.
Assessment - assessment of internal business systems and
critical vendors/suppliers/service providers and their Y2K compliance
status.
Planning - preparing the individual project plans and project
teams and other required internal and external resources to implement
the required solutions for Y2K compliance.
Execution - implementation of the solutions and fixes.
Validation - testing the solutions for Y2K compliance.
Our Y2K Plan will be applied in four different areas: internal systems;
service/product offerings; vendors/suppliers/service providers; and existing
customers
Internal Business Systems
Our internal business systems and workstation business applications
will be a primary area of focus. We are in the unique position implementing new
enterprise wide business solutions to replace existing manual processes and/or
"home grown" applications. There are few (if any) "legacy" applications that
will need to be evaluated for Y2K compliance. These new enterprise business
solutions, all of which are in the process of being implemented or schedule for
implementation sometime in 1999, are Y2K compliant
We plan to have completed the Inventory and Assessment Phases of
substantially all critical internal business systems by January 30, 1999, with
the Planning Phase to be completed by March 30, 1999. The Execution and
Validation Phases will be completed by August 30, 1999. We expect to be Y2K
compliant on all critical systems, which rely on the calendar year before
December 31, 1999.
Some non-critical systems may not be addressed until after January
2000. However, we believe such systems will not cause significant disruptions in
our operations.
Service and Product Offerings
We are in the Assessment Phase regarding our service and product
offerings. At this time, we do not believe that there are any material Y2K
defects in our service and product offerings. With respect to service and
product offerings, which rely on third parties, including the satellite-based
Internet services we hope to offer once we complete the Intelligent
Communications acquisition, we are in the process of completing the Inventory
Phase and will be creating a list of potential exposures based on non-compliance
by third parties. We are in the process of contacting these third parties for
assurance regarding their Y2K compliance status and plans.
Vendors, Suppliers and Service Providers
We are heavily dependent on third party vendors, suppliers and service
providers to deliver our suite of products and services to our customers. These
vendors, suppliers and service providers include, but are not limited to:
o Telecommunications Vendors
o Cable Modem Vendors
o Web Partners
o Networking Equipment
Concerning vendors, suppliers and service providers, we are in the
process of completing the Inventory Phase of our Y2K Plan. It will be important
for us to determine the extent to which we are vulnerable to those vendors,
suppliers and service providers failure to remedy their own Y2K issues. We do
not currently believe that any Y2K compliance issues related to our vendors,
suppliers or service providers will result in a material adverse effect on our
business operations or financial performance.
Existing Products
With respect to service and product offerings that are being utilized
by existing customers, we are still in the Assessment Phase. We do not
anticipate significant Y2K issues with our existing customer base.
<PAGE>
Summary
We anticipate that the Y2K Issue will not have a material adverse
effect on our financial position or results of operations. There can be no
assurance, however, that the systems of other companies or government entities,
on which we rely for supplies, cash payments, and future business, will be
timely converted, or that a failure to convert by another company or government
entities, would not have a material adverse effect on our financial position or
results of operations. If third party service providers and vendors, due to Y2K
Issues, fail to provide us with components, materials, or services which are
necessary to deliver our service and product offerings, with sufficient
electrical power and transportation infrastructure, then any such failure could
have a material adverse effect on our ability to conduct business, as well as
our financial position and results of operations.
<PAGE>
USE OF PROCEEDS
We will not receive any proceeds from the sale of the Shares by the
selling shareholders.
THE SELLING SHAREHOLDERS
RGC International Investors, LDC obtained its shares of SoftNet common
stock upon conversion of SoftNet Series C Preferred Stock or upon exercise of
warrants to purchase SoftNet common stock that it held. Shoreline Pacific
Equity, Ltd. and Steven M. Lamar obtained their shares upon exercise of warrants
to purchase SoftNet common stock that they held. In partial compensation for
providing support services to Shoreline Pacific Institutional Finance, which
earned the right to receive such warrants for services rendered to the Company
as placement agent for the Series C Preferred Stock, Shoreline Pacific
Institutional Finance assigned its rights to obtain the warrants to Shoreline
Pacific Equity Ltd. and Steven M.
Lamar, an employee of Shoreline Pacific Equity Ltd.
As of December 11, 1998 RGC International Investors owned 9,112.5
shares of Series B Preferred Stock and 7,531.25 shares of Series C Preferred
Stock. None of the other selling shareholders own our preferred stock.
Each selling shareholder will determine the number of shares of common
stock that such selling shareholder will sell. We cannot estimate the number of
shares of common stock that will be held by the selling shareholders upon
termination of the offering because the selling shareholders may choose to sell
less than the number of common stock shares being offered.
The following table sets forth for each selling shareholder, and for
all selling shareholders in the aggregate, the number of shares of our common
stock underlying the preferred stock and warrants held by such selling
shareholder, the number of shares of our common stock that may be offered under
this prospectus, and the percentage of our outstanding common stock that each
represents as of December 11, 1998. Percentage ownership is based upon 8,631,087
shares of common stock outstanding on December 11, 1998.
<TABLE>
<CAPTION>
Series B
Preferred Series C Preferred Total Shares
Stock(1) Stock(1) Warrants(1) Common Stock(1)
- ----------------- ------------- ------------------------------ --------------------------- --------------------------------
Shares of Shares of Shares of Shares of Shares of Shares of
Common Common Common Stock Common Common Common Stock Shares of
Stock Stock Being Stock Stock Being Owned and Common Stock
Underlying(2) Underlying(2) Offered(3) Underlying(2) Offered Underlying(2) Being Offered
- ----------------- -------- ---- -------- ---- --------- ------ -------- ---- -------- ---- --------- ------ --------- -----
# % # % # % # % # % # % # %
- ----------------- -------- ---- -------- ---- --------- ------ -------- ---- -------- ---- --------- ------ --------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
RGC 690,340 7.4 836,805 8.8 2,000,000 18.8 423,750 4.7 93,750 1.1 2,314,241 21.9 2,093,750 19.5
International
Investors,
LDC(4)
- ----------------- -------- ---- -------- ---- --------- ------ -------- ---- -------- ---- --------- ------ --------- -----
Shoreline 0 0 0 0 0 0 23,625 * 23,625 * 23,625 * 23,625 *
Pacific Equity,
Ltd.(5)
- ----------------- -------- ---- -------- ---- --------- ------ -------- ---- -------- ---- --------- ------ --------- -----
Steven M. Lamar 0 0 0 0 0 0 10,025 * 2,625 * 10,025 * 2,625 *
- ----------------- -------- ---- -------- ---- --------- ------ -------- ---- -------- ---- --------- ------ --------- -----
Selling 690,340 7.4 836,805 8.8 2,000,000 18.8 457,400 5.0 120,000 1.4 2,347,891 22.9 2,120,000 19.7
Shareholders as
a group
<FN>
- --------------------
* Less than 1%
(1) None of the shares underlying the Series B Preferred Stock nor any of
the shares underlying the warrants issued in connection with the Series
B Preferred Stock are being offered under this prospectus. The number
of shares into which holders of the Series B Preferred Stock and Series
C Preferred Stock can convert is variable depending on the market price
of the common stock at the time of conversion but is subject to a
2,000,000 share limit for each series, as established by our
Certificate of Incorporation. In addition, our Certificate of
Incorporation limits the number of shares that may be beneficially
owned by holders of the Series B Preferred Stock and Series C Preferred
Stock. Accordingly, the number of shares of common stock and percentage
ownership set forth for the Series B Preferred Stock, Series C
Preferred Stock and warrants, and the total shares of common stock
owned and being offered may differ from the number of shares of our
common stock that the selling shareholders beneficially own as of the
date of this prospectus. In that regard, the table may not present the
beneficial ownership of the selling shareholders in accordance with
Rule 13d-3 under the Exchange Act. Please see "Description of Certain
Provisions of the Preferred Stock - Limitations on Conversion" at p.23
for a more detailed description of these limitations.
(2) The number presented is based on the conversion prices in effect as of
the date of this prospectus, which is $13.20 for the Series B Preferred
Stock and $9.00 for the Series C Preferred stock. The actual number of
shares of common stock that we will issue upon conversion of the Series
B Preferred Stock and Series C Preferred Stock is indeterminable as of
the date of this prospectus and is subject to adjustment. The number of
shares underlying the Series B Preferred Stock and Series C Preferred
Stock would increase if the conversion price decreased. See
"Description of Certain Provisions of the Preferred Stock--Conversion
Prices; Risk Factors--Issuance of Common Stock Pursuant to existing
obligations will result in Dilution to the Common Stockholders." For
RGC International Investors, this number includes 363,346 shares of
Common Stock.
(3) The number of shares being offered represents the maximum number of
shares into which the Series C Preferred Stock can be converted.
(4) RGC International Investors is a party to an investment management
agreement with Rose Glen Capital Management, L.P., a limited
partnership of which the general partner is RGC General Partner Corp.
Messrs. Wayne Bloch, Gary Kaminsky and Steve Katznelson own all of the
outstanding capital stock of RGC General Partner Corp., are the sole
officers and directors of RGC General Partner Corp. and are parties to
a shareholders' agreement pursuant to which they collectively control
RGC General Partner Corp. Through RGC General Partner Corp., such
individuals control Rose Glen Capital Management, L.P. Such individuals
disclaim beneficial ownership of the Company's common stock owned by
RGC International Investors.
(5) Shoreline Pacific Institutional Finance is a division of Financial West
Group. Shoreline Pacific Equity Ltd. is an affiliate of Shoreline
Pacific Institutional Finance. Shoreline Pacific Equity Ltd. provides
support services to Shoreline Pacific Institutional Finance, engaging
solely in unregulated activity. None of Shoreline Pacific Equity, Ltd.,
Shoreline Pacific Institutional Finance or the Financial West Group is
related to Shoreline Associates I, LLC, a holder of the Series B
Preferred Stock.
</FN>
</TABLE>
Description of Certain Provisions of the Preferred Stock
Dividends
The preferred stock is entitled to dividends of 5% per year, payable
quarterly in cash or additional shares of preferred stock. The dividends are
cumulative. The Company has paid non-cash dividends of 100.78 shares of Series A
Preferred Stock, 125 shares of Series B Preferred Stock and 31.25 shares of
Series C Preferred Stock.
Limitations on Conversion
Our Certificate of Incorporation defines the rights and privileges of
the preferred stock. These rights and privileges follow the preferred stock if
it is transferred, but do not affect common stock issued upon conversion.
Certain provisions of the Certificate of Incorporation are discussed below.
The Series A Preferred Stock has been converted, and there are no
shares outstanding.
A holder of the Series B Preferred Stock cannot convert its Series B
Preferred Stock in the event such conversion would result in its beneficially
owning more than 4.99% of our common stock, but they may waive this prohibition
by providing us a notice of election to convert at least 61 days prior to such
conversion. Similarly, a holder of the Series C Preferred Stock cannot convert
its Series C Preferred Stock in the event such conversion would result in
beneficially owning more than 4.99% of our common stock. However, the Series C
Preferred Stock does not include a waiver provision such as that included in the
terms of the Series B Preferred Stock. Notwithstanding this limitation, the
holders of the preferred stock cannot convert into an aggregate of more than
19.99% of our common stock without the approval of our common stock shareholders
or the American Stock Exchange. We have filed a proxy statement with the SEC to
solicit such approval. We anticipate holding the shareholder's meeting to obtain
such approval in the first calendar quarter of 1999. In addition, even if such
shareholder approval is obtained, the Series B Preferred Stock and Series C
Preferred Stock each cannot convert into more than 2,000,000 shares of common
stock without our consent. In the event the 2,000,000 share cap for the Series C
Preferred Stock is reached, we must either honor conversion requests over the
2,000,000 share cap or redeem the remaining Series C Preferred Stock of its
stated value of $1,000 per share plus accrued and unpaid dividends.
The rules of the American Stock Exchange require us to obtain
shareholder or AMEX approval to issue more than 20% of our outstanding common
stock. Shares of common stock issued upon conversion of the Series A Preferred
Stock, Series B Preferred Stock and Series C Preferred Stock or exercise of
warrants issued in connection with such preferred stock, would count toward this
20%. As such, the AMEX rule operates as a further restriction on the ability of
the holders of such preferred stock and warrants to convert their preferred
stock or exercise their warrants.
The 2,000,000 share cap provides common shareholders protection against
dilution upon conversion of the 5% Preferred stock. In the event we obtain
shareholder approval for issuance of more than 19.99% of our common stock upon
conversion of our preferred stock, the 4.99% restriction does not protect common
shareholders from dilution to the extent the selling shareholders convert and
sell shares to keep at or under these relevant limits, and the 2,000,000 share
cap would not provide protection against dilution in the event we decide to
continue to honor conversions of the Series C Preferred Stock after the
2,000,000 share cap is reached.
Conversion Prices
The stated value of each series of outstanding preferred stock is
$1,000 per share. The actual number of shares of common stock issuable upon
conversion of each series of Preferred Stock will be determined by the following
formula:
(The aggregate stated value of the shares of preferred stock
thus being converted at $1,000 per share)
divided by
(The applicable conversion price of the series of the
preferred stock being converted).
Prior to February 28, 1999, the conversion price of the Series B
Preferred Stock is equal to $13.20 per share. Thereafter, the conversion price
of the Series B Preferred Stock is equal to the lower of $13.20 per share and
the lowest five day average closing price of the common stock during the 20 day
trading period immediately prior to such conversion. The conversion price is
subject to adjustment as set forth in the Certificate of Incorporation.
Prior to May 31, 1999, the conversion price of the Series C Preferred
Stock is equal to $9.00 per share. Thereafter, the conversion price of the
Series C Preferred Stock is equal to the lower of $9.00 per share and the lowest
five day average closing price of the common stock during the 30 day trading
period immediately prior to such conversion. The conversion price is subject to
adjustment as set forth in the Certificate of Incorporation.
The following table sets forth the number of shares of common stock
issuable upon conversion of the outstanding preferred stock assuming the market
price of the common stock is 25%, 50%, 75% and 100% of the market price of the
common stock on December 18, 1998, which was $14.81 per share.
Percent of Market
Price Series B Preferred Stock(1) Series C Preferred Stock(2)
----- ------------------------ ------------------------
25% 2,000,000(3) 2,035,472(4)
50% 1,366,396 1,016,363
75% 911,341 836,805
100% 767,045 836,805
- ----------------
(1) There are 10,125 shares of Series B Preferred stock outstanding. Each
share has a stated value of $1,000. The conversion prices of the Series
B Preferred Stock at 25%, 50%, 75% and 100% of the market price of
$14.81 would be $3.70, $7.41, $11.11 and $13.20, respectively.
(2) There are 7,531.25 shares of Series C Preferred Stock outstanding. Each
share has a stated value of $1,000. The conversion prices of the Series
C Preferred Stock at 25%, 50%, 75% and 100% of the market price of
$14.81 would be $3.70, $7.41, $9.00 and $9.00, respectively.
(3) The Series B Preferred Stock cannot convert into more than 2,000,000
shares of our common stock.
(4) In the event the 2,000,000 share cap for the Series C Preferred Stock
is reached, we must either honor conversion requests over the 2,000,000
share cap or redeem the remaining Series C Preferred Stock at its
stated value of $1,000 per share plus accrued but unpaid dividends.
Redemption
We may redeem or automatically covert the Series B Preferred Stock at
the greater of 120% of stated value per share or the value of the common stock
into which the Series B Preferred Stock would convert. The Company is subject to
penalties under a variety of circumstances, including failure to list the
underlying common stock on the American Stock Exchange or NASDAQ and failure to
register the resale of the underlying common stock under the Securities Act. At
the Company's option, the Series B Preferred Stock may be redeemed on or after
the earlier of (1) an underwritten public offering or 144A offering in an amount
greater than $10,000,000 or (2) November 29, 1999, at the greater of the value
of the common stock into which the Series B Preferred Stock would convert or
120% of its stated value. The Series B 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 Series B Preferred Stock. Any Series B Preferred Stock
outstanding on May 29, 2001 will automatically convert into common stock.
We may redeem or automatically convert the Series C Preferred Stock at
the greater of 120% of stated value per share or the value of the common stock
into which the Series C Preferred Stock would convert. The Company is subject to
penalties under a variety of circumstances, including failure to list the
underlying common stock on the American Stock Exchange or NASDAQ and failure to
register the resale of the underlying common stock under the Securities Act. At
the Company's option, the Series C Preferred Stock may be redeemed on or after
the earlier of (1) an underwritten public offering or 144A offering in an amount
greater than $10,000,000 or (2) February 29, 2000, at a price equal to 110% of
its stated value if such redemption is made prior to September 1, 1999 and 120%
of the stated value thereafter. The Series C 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 Series C Preferred Stock. Any Series C
Preferred Stock outstanding on August 31, 2001 will automatically convert into
common stock.
Please see the Company's Current Report on Form 8-K filed with the SEC
on September 14, 1998 for a more complete description of the Preferred Stock.
Relationships with the Company
On December 31, 1997, we issued to RGC International Investors 5,000
shares of Series A Preferred Stock and warrants to purchase 150,000 shares of
common stock ("RGC Series A Warrants") pursuant to a Securities Purchase
Agreement. The RGC Series A Warrants are exercisable at $7.95 per share. The
Series A Warrants expire on December 31, 2001. As of the date of this prospectus
all of the shares of Series A Preferred Stock have been converted to our common
stock. The sale of the Series A Preferred Stock and the RGC Series A Warrants
was arranged by Shoreline Pacific Institutional Finance, the Institutional
Division of Financial West Group, which received a fee of $250,000 plus warrants
to purchase 20,000 shares of common stock, exercisable at $6.625 and expiring on
December 31, 2000. The warrants issued to Shoreline Pacific Institutional
Finance were allocated to Mr. Lamar, Harlan P. Kleiman and James L. Kropf, the
employees of Shoreline Pacific Institutional Finance at the time.
On May 29, 1998, we issued to RGC International Investors and Shoreline
Associates I, LLC, an aggregate of 10,000 shares of Series B Preferred Stock and
warrants to purchase an aggregate 200,000 shares of common stock ("Series B
Warrants") pursuant to a Securities Purchase Agreement. The Series B Warrants
are exercisable at $13.75 per share. The Series B Warrants expire on May 28,
2002. The exercise price and the number of shares of common stock issuable under
the Series B Warrants will change if we issue additional shares of common stock
at prices less than the then market price. These adjustments do not apply if we
issue common stock under warrants and convertible securities outstanding as of
May 29, 1998 or pursuant to the Company's stock option plans. As of the date of
this prospectus, there were 10,125 shares of Series B Preferred Stock
outstanding. The sale of the Preferred Stock and the Series B Warrants was
arranged by Shoreline Pacific Institutional Finance, which received a fee of
$500,000 plus warrants to purchase 50,000 shares of common stock, exercisable at
$11.00 and expiring on May 28, 2002. The warrants issued to Shoreline Pacific
Institutional Finance were allocated to Mr. Lamar, Harlan P. Kleiman and James
L. Kropf, the employees of Shoreline Pacific Institutional Finance at that time.
Shoreline Associates I, LLC is unrelated to Shoreline Pacific Institutional
Finance.
On August 31, 1998, we issued to RGC International Investors 7,500
shares of Series C Preferred Stock and warrants to purchase 93,750 shares of
common stock ("RGC Series C Warrants") pursuant to a Securities Purchase
Agreement. The RGC Series C Warrants are exercisable at $9.375 per share. The
RGC Series C Warrants expire on August 31, 2002. The exercise price and the
number of shares of common stock issuable under the Series C Warrants will
change if we issue additional shares of common stock at prices less than the
then market price. These adjustments do not apply if we issue common stock under
warrants and convertible securities outstanding as of August 31, 1998 or
pursuant to the Company's stock option plan. As of the date of this prospectus,
there were 7,531.25 shares of Series C Preferred Stock outstanding. The sale of
the Series C Preferred Stock and the Series C Warrants was arranged by Shoreline
Pacific Institutional Finance, which received a fee of $375,000 plus warrants to
purchase 26,250 shares of common stock, exercisable at $7.50 and expiring on
August 31, 2002. The warrants issued to Shoreline Pacific Institutional Finance
were allocated among Mr. Lamar and Shoreline Pacific Equity, Ltd.
Also on August 31, 1998, the Company agreed to issue to RGC
International Investors 7,500 shares of the Series D Preferred Stock and
warrants to purchase an additional 93,750 shares of common stock (the "Series D
Warrants") for an aggregate purchase price of $7,500,000 on terms similar to the
Series C and subject to shareholder approval and other closing conditions. As of
the date of this prospectus, there were no shares of Series D Preferred issued.
The sale of the Series D Preferred Stock and the Series D Warrants was arranged
by Shoreline Pacific Institutional Finance. Shoreline Pacific Institutional
Finance will receive a fee of $375,000, and warrants to purchase 26,250 shares
of common stock previously issued will vest, upon issuance of the Series D
Preferred Stock and Series D Warrants.
PLAN OF DISTRIBUTION
We will not receive any proceeds from the sale of the shares of our
common stock offered hereby. The selling shareholders have advised us:
1. that the shares offered by this prospectus may be sold by them or their
respective pledgees, donees, transferees or successors in interest, in one or
more of the following transactions (which may involve one or more block
transactions):
o on the American Stock Exchange;
o in sales occurring in the public market of such exchange;
o in privately negotiated transactions;
o through the writing of options on shares or short sales; or
o in a combination of such transactions.
2. that each sale may be made either at market prices prevailing at the time of
such sale or at negotiated prices or such other price as the selling
shareholders determine from time to time;
3. that some or all of the shares offered by this prospectus may be sold
directly to market makers acting as principals or through brokers acting on
behalf of the selling shareholders or as agents for themselves or their
customers or to dealers for resale by such dealers; and
4. that in connection with such sales such brokers and dealers may receive
compensation in the form of discounts and commissions from the selling
shareholders and may receive commissions from the purchasers of shares offered
by this prospectus for whom they act as broker or agent (which discounts and
commissions are not anticipated to exceed those customary in the types of
transactions involved).
The selling shareholders have sole discretion not to accept
any purchase offer or make any sale of shares offered by this prospectus if they
deem the purchase price to be unsatisfactory. Any broker or dealer participating
in any such sale may be deemed to be an "underwriter" within the meaning of the
Securities Act and will be required to deliver a copy of this prospectus to any
person who purchases any of the shares offered by this prospectus from or
through such broker or dealer. We have been advised that, as of the date hereof,
none of the selling shareholders have made any arrangements with any broker for
the sale of their shares offered by this prospectus. We cannot assure you that
all or any of the Shares being offered hereby will be issued to, or sold by the
selling shareholders. Any profits realized by the selling shareholders and the
compensation of such broker-dealers may be deemed underwriting discounts and
commissions. In addition, any Shares covered by this prospectus that qualify for
sale pursuant to Rule 144 may be sold under Rule 144 rather than pursuant to
this prospectus.
The selling shareholders may enter into hedging transactions with
broker-dealers in connection with distribution of the shares or otherwise. In
such transactions, broker-dealers may engage in short sales of the shares in the
course of hedging the positions they assume with selling shareholders. The
selling shareholders may also sell shares short and redeliver the shares to
close out such short positions. The selling shareholders may enter into option
or other transactions with broker-dealers which require the deliver to the
broker-dealer of the shares. The broker-dealer may then resell or otherwise
transfer such shores pursuant to this prospectus. The selling shareholders also
may loan or pledge the shares to a broker-dealer. The broker-dealer may sell the
shares so loaned, or upon a the broker-dealer may sell the pledged shares
pursuant to this prospectus.
To comply with certain states' securities laws, if applicable, the
shares offered by this prospectus will be sold in such jurisdictions only
through registered or licensed brokers or dealers. In certain states, the shares
offered by this prospectus may not be sold unless (1) the shares offered by this
prospectus have been registered or qualified for sale in such state or an
exemption from registration exists or (2) qualification is available and is
complied with. Under the applicable rules and regulations of Regulation M, any
person engaged in the distribution of the shares offered by this prospectus may
not simultaneously engage in market making activities, subject to certain
exceptions, with respect to the common stock of the Company for a period of five
business days prior to the commencement of such distribution and until its
completion. Also, each selling shareholder will be subject to the applicable
provisions of the Securities Act and Exchange Act and the rules and regulations
of both acts, including Regulation M. Regulation M's provisions may limit the
timing of purchases and sales of shares of the common stock by the selling
shareholders.
We will pay all expenses of the offering of the shares offered by this
prospectus, except that the selling shareholders will pay any applicable
underwriting commissions and expenses, brokerage fees and transfer taxes, as
well as the fees and disbursements of counsel to and experts for the selling
shareholders.
Pursuant to the terms of registration rights agreements with certain
selling shareholders, we have agreed to indemnify and hold harmless such selling
shareholders from certain liabilities under the Securities Act.
LEGAL
The validity of the securities of offered hereby will be passed upon
for the company by Brobeck, Phleger & Harrison LLP, Palo Alto, California.
EXPERTS
The financial statements incorporated in this Prospectus by reference
to the Annual Report on Form 10-K for the year ended September 30, 1997 have
been so incorporated in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
<PAGE>
II-8
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following are the expenses (estimated except for the SEC
registration fee) for the issuance and distribution of the securities being
registered, all of which will be paid by the Registrant.
SEC registration fee...............................................$ 4,347
Fees and expenses of counsel..........................................30,000
Fees and expenses of accountants......................................20,000
Listing fees..........................................................17,500
Transfer agent fees....................................................5,000
Miscellaneous.........................................................17,500
Total...................................................$94,347
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The New York Business Corporation Law and the By-laws of the Registrant
provide for indemnification of directors and officers for expenses (including
reasonable amounts paid in settlement) incurred in defending actions brought
against them.
The Company's Certificate of Incorporation provides that no contract or
other transaction between the corporation and any other corporation shall be
affected or invalidated by the fact that any one or more of the directors of the
Company is or are interested in or is a director or officer, or are directors or
officers, of such other corporation, and any director or directors, individually
or jointly, may be a party or parties to or may be interested in any contractor
transaction of the Company, or in which the Company is interested, and no
contract, act or transaction of the Company with any person or persons, firms or
corporations shall be affected or invalidated by the fact that any director or
directors of the Company is a party or are parties to, or interested in, such
contract, act or transaction, or in any way connected with such person or
persons, firms or corporations, and each and every person who may become a
director of the Company is hereby relieved from any liability that might
otherwise exist from contracting with the Company for the benefit of himself or
any firm or corporation in which he may be in anyway interested.
The Company's Bylaws provide that the Company may indemnify any person
made, or threatened to be made, a party to a civil or criminal action or
proceeding (other than one by or in the right of the Company to procure a
judgment in its favor), by reason of the fact that he was a director or officer
of the Company, or serves another entity in any capacity at the request of the
Company, against judgments, fines, settlement amounts and reasonable expenses,
including actual and necessary attorneys' fees, if such director or officer
acted, in good faith, for a purpose which he reasonably believed to be in, or,
in the case of service for any other entity, not opposed to, the best interest
of the Company, and, in criminal actions or proceedings, had no reasonable cause
to believe that his conduct was unlawful ("Good Faith"). The termination of any
such action or proceeding by judgment, settlement, conviction or upon a plea of
nolo contendere, or its equivalent, shall not in itself create a presumption
that any such director or officer did not act in Good Faith.
Under the Company's Bylaws, a person who has been successful, on the
merits or otherwise, in the defense of an action or proceeding described above
shall be entitled to indemnification. Except as provided in immediately
preceding sentence, any indemnification under the above paragraph or otherwise
permitted by Section 721 of the New York Business Corporation Law, unless
ordered by a court of competent jurisdiction, shall be made by the Company, only
if authorized in the specific case: (i) by the Board of Directors acting by a
quorum consisting of disinterested directors, or (ii) if a quorum is not
obtainable or a quorum of disinterested directors so directs, by the Board, upon
the opinion of independent legal counsel that indemnification is proper in the
circumstances, or by the shareholders.
Under the Company's Bylaws, the Company may indemnify any person made,
threatened or threatened to be made, a party to an action by or in the right of
the Company to procure a judgment in its favor by reason of this fact that he is
or was a director or officer of the Company, or is or was serving at the request
of the Company as a director or officer of any other entity against amounts paid
in settlement and reasonable expenses, including actual and necessary attorneys,
fees, if such director or officer acted, in good faith, for a purpose which he
reasonably believed to be in, or, in the case of service for any other entity,
not opposed to, the best interest of the Company, except, that no
indemnification under this paragraph shall be made in respect of (i) a
threatened action, or a pending action if settled or otherwise disposed of, or
(ii) any claim, issue or matter as to which such person shall have been adjudged
to be liable to the Company, unless the court in which the action was brought,
or, if no action was brought, any court of competent jurisdiction, determines
that the person is fairly and reasonably entitled to indemnity for such portion
of the settlement amount and expenses as the court deems proper.
Under the Company's Bylaws, the Company has the power to purchase and
maintain insurance to satisfy its indemnification obligations hereunder, or to
indemnify directors and officers in instances in which they may not otherwise be
indemnified by the Company under certain circumstances. No insurance may provide
for any payment, other than the cost of defense, to or on behalf of any director
or officer: (i) if it is established that his acts were committed in bad faith
or with deliberate dishonesty, were material to the cause of the adjudicated
action, or that he personally and illegally gained a financial profit or other
advantage, or (ii) in relation to any risk, the insurance of which is prohibited
under New York state insurance law.
Under the Company's Bylaws, the indemnification and advancement of
expenses shall not be deemed the exclusive right of any other rights to which a
director or officer may be entitled, provided that no indemnification may be
made to or on behalf of any director or officer if a judgment or other final
adjudication adverse to the director or officer establishes that his acts were
committed in bad faith or were the result of deliberate dishonesty and were
material to the cause of action so adjudicated, or that he personally and
illegally gained a financial profit or other advantage. No indemnification,
advancement or allowance shall be made in any circumstances if (i) the
indemnification would be inconsistent with a provision of the Company's
Certificate of Incorporation, By-laws, Board or shareholders resolutions, an
agreement or other proper corporate action, that is in effect at the time of the
accrual of the alleged cause of action, which prohibits or limits
indemnification, or (ii) the court states that indemnification would be
inconsistent with any condition with respect to indemnification expressly
imposed by the court in a court-approved settlement. If any amounts are paid by
indemnification, otherwise than by court order or action by the shareholders,
the Company shall mail to its voting shareholders, a statement describing the
terms of the indemnification and any corporate action taken with respect to the
indemnification.
The Registrant maintains directors and officers liability insurance
covering all directors and officers of the Registrant against claims arising out
of the performance of their duties.
ITEM 16. EXHIBITS.
Exhibit Number Description of Exhibit
4.1+ Amended and Restated Certificate of Incorporation.
4.2 Bylaws, as amended (incorporated herein by reference to Exhibit
3.2 to the Company's Annual Report
on Form 10-K for the year ended September 30, 1993).
5.1+ Opinion of Brobeck, Phleger & Harrison L.L.P.
23.1+ Consent of Brobeck, Phleger & Harrison L.L.P. (included as part
of Exhibit 5).
23.2* Consent of PricewaterhouseCoopers, L.L.P.
24.1+ Powers of Attorney (included on signature page of the
Registration Statement).
99.1* Common Stock Purchase Warrant Certificate issued to RGC
International Investors, LDC dated August 31, 1998 (Series C).
99.2* Common Stock Purchase Warrant Certificate issued to Shoreline
Pacific Equity, Ltd. dated August 31, 1998 (Series C).
99.3* Common Stock Purchase Warrant Certificate issued to Steven M.
Lamar dated August 31, 1998 (Series C).
99.4+ Securities Purchase Agreement by and among the Company and the
Buyers (as defined therein), dated as of August 31, 1998
(Series C and Series D).
99.5+ Registration Rights Agreement by and among the Company and the
Initial Investors (as defined therein) dated as of August 31,
1998 (Series C and Series D).
99.6+ Escrow Agreement by and among the Company, the Buyers (as
defined therein), Shoreline Pacific Institutional Finance and
the Escrow Holder (as defined therein), dated as of August 31,
1998 (Series C).
99.7* Common Stock Purchase Warrant Certificate issued to Shoreline
Pacific Equity, Ltd. dated August 31, 1998 (Series D).
99.8* Common Stock Purchase Warrant Certificate issued to Steven M.
Lamar dated August 31, 1998 (Series D).
99.9** Securities Purchase Agreement by and among the Company and the
Buyers(as defined therein), dated as of May 28, 1998 (Series B).
99.10** Registration Rights Agreement by and among the Company and the
Initial Investors (as defined therein), dated as of May 28, 1998
(Series B).
99.11** Escrow Agreement by and among the Buyers (as defined therein),
Shoreline Pacific Institutional Finance and the Escrow Holder
(as defined therein), dated as of May 28, 1998 (Series D).
99.12** Form of Common Stock Purchase Warrant Certificate issued to
purchasers of the Series B Preferred Stock, dated May 28, 1998.
99.13** Form of Common Stock Purchase Warrant Certificate issued to
assignees of Shoreline Pacific Institutional Finance, dated May
28, 1998 (Series B).
99.14* List of recipients of Common Stock Purchase Warrants issued in
connection with Series B Preferred Stock transaction.
99.15*** Securities Purchase Agreement by and among the Company and the
Buyers (as defined therein), dated as of December 31, 1997
(Series A).
99.16*** Registration Rights Agreement by and among the Company and the
Initial Investors (as defined therein), dated as of December 31,
1997 (Series A).
99.17*** Escrow Agreement by and among the Buyers (as defined therein),
Shoreline Pacific Institutional Finances and the Escrow Holder
(as defined therein), dated as of December 31, 1997 (Series A).
99.18*** Form of common Stock Purchase Warrant Certificate issued to
purchasers of the Series A Preferred Stock, dated December 31,
1997.
99.19*** Form of Common Stock Purchase Warrant Certificate issued to
assignees of Shoreline Pacific Institutional Finance, dated
December 31, 1997 (Series A).
99.20* List of recipients of Common Stock Purchase Warrants issued in
connection with Series A Preferred Stock transaction.
99.21* Action by Written Consent of the Sole Holder of the Series E
Convertible Preferred Stock of SoftNet Systems, Inc.
- ---------------
+ Previously filed.
* Filed herewith.
** Filed as exhibit to the Company's Registration Statement on Form S-3
(No. 333-57337)
*** Filed as exhibit to the Company's Registration Statement on Form S-3
(No. 333-45335)
ITEM 17. UNDERTAKINGS.
1. (a)......The undersigned Registrant hereby undertakes to file,
during any period in which offers or sales are being made, a post-effective
amendment to this Registration Statement:
(i) To include any prospectus required by Section 10
(a)(3) of the Securities Act of 1933 (the "Securities Act");
(ii) To reflect, in the prospectus any facts or
events arising after the date of the Registration Statement
(or the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in any information in the Registration Statement;
(iii) To include any material information with
respect to the plan of distribution not previously disclosed
in the Registration Statement or any material change to such
information in the Registration Statement;
provided, however, that the undertakings set forth in paragraph (i) and
(ii) above do not apply if the information required to be included in a
post-effective amendment by those paragraphs is contained in periodic reports
filed by the Registrant pursuant to section 13 or section 15(d) of the Exchange
Act that are incorporated by reference in this Registration Statement.
(b) The undersigned Registrant hereby undertakes that, for determining
any liability under the Securities Act, each post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(c) The undersigned Registrant hereby undertakes to file a
post-effective amendment to remove from registration any of the securities that
remain unsold at the termination of the offering.
(d) The undersigned Registrant hereby undertakes that for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to section 13(a) or section 15(d) of the
Exchange Act that- is incorporated by reference in this Registration Statement
shall be deemed to be a new registration statement relating to the securities
offered herein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
2. Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the undersigned Registrant pursuant to the foregoing provisions, or
otherwise, the undersigned Registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the undersigned Registrant of expenses incurred or paid by a
director, officer or controlling person of the undersigned Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the undersigned Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3, and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized in Mountain View, California on December 24, 1998
SOFTNET SYSTEMS, INC.
By: /s/ Mark A. Phillips
------------------------
Mark A. Phillips,
Chief Accounting Officer
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below does hereby constitute and appoint, jointly and severally, Dr.
Lawrence B. Brilliant and Mark A. Phillips, or either of them, as his or her
true and lawful attorneys-in-fact and agents, with full power of substitution
and resubstitution, for him or her and in his or her name, place and stead, in
any and all capacities, to sign the Registration Statement filed herewith and
any and all amendments to said Registration Statement (including post-effective
amendments and registration statements filed pursuant to Rule 462 and
otherwise), and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in connection therewith, as fully to all intents and purposes as he
or she might or could do in person, hereby ratifying and confirming all that
said attorneys-in-fact and agents, or any of them, or their substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, each of the undersigned has executed this Power of
Attorney as of the date indicated.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated.
Signature Title Date
/s/ Ronald I. Simon* Chairman of the Board October 8, 1998
- --------------------------------
Ronald I. Simon
/s/ Dr. Lawrence B. Brilliant* Vice Chairman of the Board, October 8, 1998
- -------------------------------- President and Chief
Dr. Lawrence B. Brilliant Executive Officer
/s/ Douglas S. Sinclair Chief Financial Officer December 24, 1998
- --------------------------------
Douglas S. Sinclair
/s/ Mark A. Phillips Treasurer and December 24, 1998
- -------------------------------- Chief Accounting Officer
Mark A. Phillips
/s/ Ian B. Aaron* Director October 8, 1998
- --------------------------------
Ian B. Aaron
/s/ John G. Hamm* Director October 8, 1998
- --------------------------------
John G. Hamm
/s/ Edward A. Bennett* Director October 8, 1998
- --------------------------------
Edward A. Bennett
/s/ Sean P. Doherty* Director October 8, 1998
- --------------------------------
Sean P. Doherty
/s/ Robert C. Harris, Jr.* Director October 8, 1998
- --------------------------------
Robert C. Harris, Jr.
BY: /s/ Mark A. Phillips
--------------------------------
Mark A. Phillips
Attorney-in-Fact
<PAGE>
Exhibit Number Description of Exhibit
- -------------- ----------------------------------------------------------------
4.1+ Amended and Restated Certificate of Incorporation.
4.2 Bylaws, as amended (incorporated herein by reference to Exhibit
3.2 to the Company's Annual Report
on Form 10-K for the year ended September 30, 1993).
5.1+ Opinion of Brobeck, Phleger & Harrison L.L.P.
23.1+ Consent of Brobeck, Phleger & Harrison L.L.P. (included as part
of Exhibit 5).
23.2* Consent of PricewaterhouseCoopers, L.L.P.
24.1+ Powers of Attorney (included on signature page of the
Registration Statement).
99.1* Common Stock Purchase Warrant Certificate issued to RGC
International Investors, LDC dated August 31, 1998 (Series C).
99.2* Common Stock Purchase Warrant Certificate issued to Shoreline
Pacific Equity, Ltd. dated August 31, 1998 (Series C).
99.3* Common Stock Purchase Warrant Certificate issued to Steven M.
Lamar dated August 31, 1998 (Series C).
99.4+ Securities Purchase Agreement by and among the Company and the
Buyers (as defined therein), dated as of August 31, 1998
(Series C and Series D).
99.5+ Registration Rights Agreement by and among the Company and the
Initial Investors (as defined therein) dated as of August 31,
1998 (Series C and Series D).
99.6+ Escrow Agreement by and among the Company, the Buyers (as
defined therein), Shoreline Pacific Institutional Finance and
the Escrow Holder (as defined therein), dated as of August 31,
1998 (Series C).
99.7* Common Stock Purchase Warrant Certificate issued to Shoreline
Pacific Equity, Ltd. dated August 31, 1998 (Series D).
99.8* Common Stock Purchase Warrant Certificate issued to Steven M.
Lamar dated August 31, 1998 (Series D).
99.9** Securities Purchase Agreement by and among the Company and the
Buyers(as defined therein), dated as of May 28, 1998 (Series B).
99.10** Registration Rights Agreement by and among the Company and the
Initial Investors (as defined therein), dated as of May 28, 1998
(Series B).
99.11** Escrow Agreement by and among the Buyers (as defined therein),
Shoreline Pacific Institutional Finance and the Escrow Holder
(as defined therein), dated as of May 28, 1998 (Series D).
99.12** Form of Common Stock Purchase Warrant Certificate issued to
purchasers of the Series B Preferred Stock, dated May 28, 1998.
99.13** Form of Common Stock Purchase Warrant Certificate issued to
assignees of Shoreline Pacific Institutional Finance, dated May
28, 1998 (Series B).
99.14* List of recipients of Common Stock Purchase Warrants issued in
connection with Series B Preferred Stock transaction.
99.15*** Securities Purchase Agreement by and among the Company and the
Buyers (as defined therein), dated as of December 31, 1997
(Series A).
99.16*** Registration Rights Agreement by and among the Company and the
Initial Investors (as defined therein), dated as of December 31,
1997 (Series A).
99.17*** Escrow Agreement by and among the Buyers (as defined therein),
Shoreline Pacific Institutional Finances and the Escrow Holder
(as defined therein), dated as of December 31, 1997 (Series A).
99.18*** Form of common Stock Purchase Warrant Certificate issued to
purchasers of the Series A Preferred Stock, dated December 31,
1997.
99.19*** Form of Common Stock Purchase Warrant Certificate issued to
assignees of Shoreline Pacific Institutional Finance, dated
December 31, 1997 (Series A).
99.20* List of recipients of Common Stock Purchase Warrants issued in
connection with Series A Preferred Stock transaction.
99.21* Action by Written Consent of the Sole Holder of the Series E
Convertible Preferred Stock of SoftNet Systems, Inc.
- ---------------
+ Previously filed.
* Filed herewith.
** Filed as exhibit to the Company's Registration Statement on Form S-3
(No. 333-57337)
*** Filed as exhibit to the Company's Registration Statement on Form S-3
(No. 333-45335)
Exhibit 23.2
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-3 of our report dated
December 24, 1997, which appears on page 22 of the 1997 Annual Report to
Shareholders of Softnet Systems, Inc., which is incorporated by reference in the
Company's Annual Report on Form 10-K for the year ended September 30, 1997. We
also consent to the reference to us under the heading "Experts" in such
Prospectus.
December 23, 1998
San Jose, California
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE OF
THE UNITED STATES. THE SECURITIES REPRESENTED HEREBY MAY NOT BE OFFERED OR SOLD
OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
FOR THE SECURITIES UNDER APPLICABLE SECURITIES LAWS OR UNLESS OFFERED, SOLD OR
TRANSFERRED PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THOSE LAWS.
COMMON STOCK PURCHASE WARRANT CERTIFICATE
Dated: August 31, 1998
to Purchase 93,750 Shares of Common Stock of
SOFTNET SYSTEMS, INC.
SOFTNET SYSTEMS, INC., a New York corporation (the "Company"),
hereby certifies that RGC INTERNATIONAL INVESTORS, LDC, its permissible
transferees, designees, successors and assigns (collectively, the "Holder"), for
value received, is entitled to purchase from the Company at any time commencing
on August 31, 1998 ("Issuance Date") and terminating on the fourth anniversary
of the Issuance Date (or such earlier date as is specified in a duly delivered
Call Notice (as defined below)) up to Ninety Three Thousand Seven Hundred and
Fifty (93,750) shares (each a "Share" and collectively the "Shares") of the
Company's common stock (the "Common Stock") at an exercise price per Share of
$9.375 (the "Exercise Price"). The number of Shares purchasable hereunder and
the Exercise Price are subject to adjustment as provided in Section 4 hereof.
1. Exercise of Warrants.
(a) Upon presentation and surrender of this Common Stock Purchase Warrant
Certificate ("Warrant Certificate" or "Certificate"), or a Lost Certificate
Affidavit (as defined below), accompanied by a completed Election to Purchase in
the form attached hereto as Exhibit A (the "Election to Purchase") duly
executed, at the principal office of the Company at 520 Logue Avenue, Mountain
View, CA 94043, Attn: Mark Philips, together with a check payable to the Company
in the amount of the Exercise Price multiplied by the number of Shares being
purchased, the Company or the Company's Transfer Agent as the case may be,
shall, within two (2) trading days of receipt of the foregoing, deliver to the
Holder hereof, certificates of fully paid and nonassessable Common Stock which
in the aggregate represent the number of Shares being purchased; provided,
however, that the Investor may elect, in accordance with paragraph (b), below,
to utilize the cashless exercise provisions set forth below in lieu of SoftNet
Systems, Inc.: Common Stock Purchase Warrant Certificate tendering the Exercise
Price in cash. The certificates so delivered shall be in such denominations as
may be reasonably requested by the Holder and shall be registered in the name of
the Holder or such other name as shall be designated by the Holder. All or less
than all of the Warrants represented by this Certificate may be exercised and,
in case of the exercise of less than all, the Company, upon surrender hereof,
will at the Company's expense deliver to the Holder a new Warrant Certificate or
Certificates (in such denominations as may be requested by the Holder) of like
tenor and dated the date hereof entitling said holder to purchase the number of
Shares represented by this Certificate which have not been exercised and to
receive Registration Rights with respect to such Shares, and all other rights
with respect to the shares which the Holder has on the date hereof.
(b) Cashless Exercise. Notwithstanding the foregoing provision regarding payment
of the Exercise Price in cash, the Holder may elect, in its sole discretion on a
case by case basis, to receive a reduced number of Shares in lieu of tendering
the Exercise Price in cash ("Cashless Exercise"). In such case, the number of
Shares to be issued to the Holder shall be computed using the following
formula;:
X = Y(A-B)
-----------
A
where: X = the number of Shares to be issued to the Holder;
Y = the number of Shares to be exercised under this Warrant
Certificate;
A = the Market Value (defined below) of one share of Common Stock
on the trading day immediately prior to the date that the Election
to Purchase is duly surrendered to the Company for full or partial
exercise; and B = the Exercise Price.
The term "Market Value" means, for any security as of any date, the last
reported sale price of such security on the principal securities exchange or
trading market where such security is listed or traded as reported by Bloomberg
Financial Markets or a comparable reporting service of national reputation
selected by the Company and reasonably acceptable to the Holder if Bloomberg
Financial Markets is not then reporting last reported sale prices of such
security (collectively, "Bloomberg"), or if the foregoing does not apply, the
last reported sale price of such security in the over-the-counter market or the
electronic bulletin board of such security as reported by Bloomberg, or, if no
sale price is reported for such security by Bloomberg, the average of the bid
prices of any market makers for such security that are listed in the "pink
sheets" by the National Quotation Bureau, Inc. If the Market Value cannot be
calculated for such security on such date on any of the foregoing bases, the
Market Value of such security on such date shall be the fair market value as
reasonably determined by an investment banking firm selected by the Company and
reasonably acceptable to the Holder with the costs of such appraisal to be borne
by the Company.
2. Exchange, Transfer and Replacement.
(a) Exchange. At any time prior to the exercise hereof, this Warrant Certificate
may be exchanged upon presentation and surrender to the Company, alone or with
other Warrant Certificates of like tenor of different denominations registered
in the name of the same Holder, together with a duly executed Assignment in
substantially the form and substance of the Form of Assignment which accompanies
this Warrant Certificate. The Warrant Certificate or Certificates shall be
exchanged for another Warrant Certificate or Certificates of like tenor in the
name of such Holder and/or the transferees named in such Assignment, exercisable
for the aggregate number of Shares as the Certificate or Certificates
surrendered, provided that the Company shall not be obligated to issue exchange
or transfer Certificates for an exchange or transfer of less than 10,000 shares.
The Company shall issue any Warrant Certificates reflecting such transfer or
assignment (including such portion of this Warrant Certificate, if any, as shall
not have been transferred or assigned) within three (3) business days after
receipt of the requisite Warrant Certificate(s) and duly completed Assignment.
(b) Replacement of Warrant Certificate. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction, or mutilation of
this Warrant Certificate 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 (collectively, a "Lost Certificate Affidavit"),
or, in the case of any such mutilation, upon surrender and cancellation of this
Warrant Certificate, the Company, at its expense, will execute and deliver in
lieu thereof, a new Warrant Certificate of like tenor.
(c) Cancellation; Payment of Expenses. Upon the surrender of this Warrant
Certificate in connection with any transfer, exchange or replacement as provided
in this Section 2, this Warrant Certificate shall be promptly canceled by the
Company. The Company shall pay all taxes (other than securities transfer taxes)
and all other 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 Warrant Certificates pursuant to this Section 2.
(d) Warrant Register. The Company shall maintain, at its principal executive
offices (or at the offices of the transfer agent for the Warrant Certificate or
such other office or agency of the Company as it may designate by notice to the
holder hereoq, a register for this Warrant Certificate (the "Warrant Register"),
in which the Company shall record the name and address of the person in whose
name this Warrant Certificate has been issued, as well as the name and address
of each permitted transferee and each prior owner of this Warrant Certificate.
(e) Company Call Right. Beginning on the business day following the first
anniversary of the Issuance Date, provided that the twenty consecutive trading
day average closing bid price of the Common Stock of the Company for the period
ending on the date prior to delivery of such notice (as reported by Bloomberg)
is equal to or greater than 150% of the Exercise Price, as adjusted pursuant to
Section 4 hereof, the Company shall have the ability to deliver a written notice
to the Holder hereof (a "Call Notice") that the Company is exercising its right
to call this Warrant Certificate. The Call Notice shall specify a date no less
than 30 days following the date of delivery of such Call Notice, and, unless
exercised prior to such date, this Certificate (or any unexercised portion
hereof) shall expire, and Holder shall have no further rights hereunder, on and
following such specified date. The Holder shall have the right to exercise its
rights hereunder during such 30 day notice period.
3. Rights and Obligations of Holders of this Certificate. The Holder of this
Certificate shall not, by virtue hereof, be entitled to any rights of a
stockholder in the Company, either at law or in equity; provided, however, that
in the event any certificate representing shares of Common Stock or other
securities is issued to the holder hereof upon exercise of some or all of the
Warrants, such holder shall, for all purposes, be deemed to have become the
holder of record of such Common Stock on the date on which this Certificate,
together with a duly executed Purchase Form, was surrendered and payment of the
aggregate Exercise Price was made, irrespective of the date of delivery of such
share certificate.
4. Adjustments.
(a) Stock Dividends, Reclassifications, Recapitalizations, Etc. In the event the
Company: (i) pays a dividend in Common Stock or makes a distribution in Common
Stock, (ii) subdivides its outstanding Common Stock into a greater number of
shares, (iii) combines its outstanding Common Stock into a smaller number of
shares or (iv) increases or decreases the number of shares of Common Stock
outstanding by reclassification of its Common Stock (including a
recapitalization in connection with a consolidation or merger in which the
Company is the continuing corporation), then (1) the Exercise Price on the
record date of such division or distribution or the effective date of such
action shall be adjusted by multiplying such Exercise Price by a fraction, the
numerator of which is the number of shares of Common Stock outstanding
immediately before such event and the denominator of which is the number of
shares of Common Stock outstanding immediately after such event, and (2) the
number of shares of Common Stock for which this Warrant Certificate may be
exercised immediately before such event shall be adjusted by multiplying such
number by a fraction, the numerator of which is the Exercise Price immediately
before such event and the denominator of which is the Exercise Price immediately
after such event.
(b) Cash Dividends and Other Distributions. In the event that at any time or
from time to time the Company shall distribute to all holders of Common Stock
(i) any dividend or other distribution of cash, evidences of its indebtedness,
shares of its capital stock or any other properties or securities or (ii) any
options, warrants or other rights to subscribe for or purchase any of the
foregoing (other than in each case, (w) the issuance of any rights under a
shareholder rights plan, (x) any dividend or distribution described in Section
4(a), (y) any rights, options, warrants or securities described in Section 4(c)
and (z) any cash dividends or other cash distributions from current earnings),
then the number of shares of Common Stock issuable upon the exercise of each
Warrant Certificate shall be increased to a number determined by multiplying the
number of shares of Common Stock issuable upon the exercise of such Warrant
Certificate immediately prior to the record date for any such dividend or
distribution by a fraction, the numerator of which shall be such Market Value
(as hereinafter defined) per share of Common Stock on the record date for such
dividend or distribution, and the denominator of which shall be such Market
Value per share of Common Stock on the record date for such dividend or
distribution less the sum of (x) the amount of cash, if any, distributed per
share of Common Stock and (y) the fair value (as determined in good faith by the
Board of Directors of the Company, whose determination shall be evidenced by a
board resolution, a copy of which will be sent to the Holders upon request) of
the portion, if any, of the distribution applicable to one share of Common Stock
consisting of evidences of indebtedness, shares of stock, securities, other
property, warrants, options or subscription or purchase rights; and the Exercise
Price shall be adjusted to a number determined by dividing the Exercise Price
immediately prior to such record date by the above fraction. Such adjustments
shall be made whenever any distribution is made and shall become effective as of
the date of distribution, retroactive to the record date for any such
distribution. No adjustment shall be made pursuant to this Section 4(b) which
shall have the effect of decreasing the number of shares of Common Stock
issuable upon exercise of each Warrant Certificate or increasing the Exercise
Price.
(c) Rights Issue. In the event that at any time, or from time to time, the
Company shall issue rights, options or warrants entitling the holders thereof to
subscribe for shares of Common Stock, or securities convertible into or
exchangeable or exercisable for Common Stock to all holders of Common Stock
(other than in connection with the adoption of a shareholder rights plan by the
Company) without any charge, entitling such holders to subscribe for or purchase
shares of Common Stock at a price per share that as of the record date for such
issuance is less than the then Market Value per share of Common Stock, the
number of shares of Common Stock issuable upon the exercise of each Warrant
Certificate shall be increased to a number determined by multiplying the number
of shares of Common Stock theretofore issuable upon exercise of each Warrant
Certificate by a fraction, the numerator of which shall be the number of shares
of Common Stock outstanding on the date of issuance of such rights, options,
warrant or securities plus the number of additional shares of Common Stock
offered for subscription or purchase or into or for which such securities that
are issued are convertible, exchangeable or exercisable' and the denominator of
which shall be the number of shares of Common Stock outstanding on the date of
issuance of such rights, option, warrants or securities plus the total number of
shares of Common Stock which the aggregate consideration expected to be received
by the Company (assuming the exercise or conversion of all such rights, options,
warrants or securities) would purchase at the then Market Value per share of
Common Stock. In the event of any such adjustment, the Exercise Price shall be
adjusted to a number determined by dividing the Exercise price immediately prior
to such date of issuance by the aforementioned fraction. Such adjustment shall
be made immediately after such rights, options or warrants are issued and shall
become effective, retroactive to the record date for the determination of
stockholders entitled to receive such rights, options, warrants or securities.
No adjustment shall be made pursuant to this Section 4(c) which shall have the
effect of decreasing the number of shares of Common Stock purchasable upon
exercise or each Warrant Certificate or of increasing the Exercise Price.
(d) Combination: Liquidation.
(i) Except as provided in Section 4(d)(ii) below, in the event of a Combination
(as defined below), each Holder shall have the right to receive upon exercise of
the Warrant Certificates the kind and amount of shares of capital stock or other
securities or property which such Holder would have been entitled to receive
upon or as a result of such Combination had such Warrant Certificate been
exercised immediately prior to such event (subject to further adjustment in
accordance with the terms hereof). Unless paragraph (ii) is applicable to a
Combination, the Company shall provide that the surviving or acquiring Person
(the "Successor Company") in such Combination will assume by written instrument
the obligations under this Section 4 and the obligations to deliver to the
Holder such shares of stock, securities or assets as, in accordance with the
foregoing provisions, the Holder may be entitled to acquire. The provisions of
this Section 4(d)(i) shall similarly apply to successive Combinations involving
any Successor Company. "Combination" means an event in which the Company
consolidates with, mergers with or into, or sells all or substantially all of
its assets to another Person, where "Person" means any individual, corporation,
partnership, joint venture, limited liability company, association, jointstock
company, trust, unincorporated organization, government or any agency or
political subdivision thereof or any other entity.
(ii) In the event of (x) a Combination where consideration to the holders of
Common Stock in exchange for their shares is payable solely in cash or (y) the
dissolution, liquidation or winding-up of the Company, the Holders shall be
entitled to receive, upon surrender of their Warrant Certificates, distributions
on an equal basis with the holders of Common Stock or other securities issuable
upon exercise of the Warrant Certificates, as if the Warrant Certificates had
been exercised immediately prior to such event, less the Exercise Price. In case
of any Combination described in this Section 4(d)(ii), the surviving or
acquiring Person and, in the event of any dissolution, liquidation or winding-up
of the Companv, the Company, shall deposit promptly following the consummation
of such combination or at the time of such dissolution, liquidation or
winding-up with an agent or trustee for the benefit of the Holders of the funds,
if any, necessary to pay to the Holders the amounts to which they are entitled
as described above. After such funds and the surrendered Warrant Certificates
are received, the Company is required to deliver a check in such amount as is
appropriate (or, in the case of consideration other than cash, such other
consideration as is appropriate) to such Person or Persons as it may be directed
in writing by the Holders surrendering such Warrant Certificates.
(e) Notice of Adjustment. Whenever the Exercise Price or the number of shares of
Common Stock and: other property, if any, issuable upon exercise of the Warrant
Certificates is adjusted, as herein provided, the Company shall deliver to the
holders of the Warrant Certificates in accordance with Section 10 a certificate
of the Company's Chief Financial Officer setting forth, in reasonable detail,
the event requiring the adjustment and the method by which such adjustment was
calculated (including a description of the basis on which (i) the Board of
Directors determined the fair value of any evidences of indebtedness, other
securities or property or warrants, options or other subscription or purchase
rights and (ii) the Market Value of the Common Stock was determined, if either
of such determinations were required), and specifying the Exercise Price and
number of shares of Common Stock issuable upon exercise of Warrant Certificates
after giving effect to such adjustment.
(f) Purchase Price Adjustment. In the event that the Company issues or sells any
Common Stock or securities which are convertible into or exchangeable, whether
or not immediately exchangeable or convertible, for its Common Stock or any
convertible securities, or any warrants or other rights to subscribe for or to
purchase or any options for the purchase of its Common Stock or any such
convertible securities (other than shares or options issued or which may be
issued pursuant to the Company's employee or director option plans or shares
issued upon exercise of options, warrants or rights outstanding on the date of
the Agreement and listed in the Company's most recent periodic report filed
under the Exchange Act) (collectively, "Options") at a purchase price per share
on the date of original issuance of such security which is less than 95% of the
Market Value of the Common Stock on the trading day immediately prior to such
issue or sale, then in each such case, the Exercise Price in effect immediately
prior to such issue or sale shall be reduced effective concurrently with such
issue or sale to an amount determined by multiplying the Exercise Price then in
effect by a fraction, (x) the numerator of which shall be the sum of (1) the
number of shares of Common Stock outstanding immediately prior to such issue or
sale, plus (2) the number of shares of Common Stock which the aggregate
consideration received by the Company for such additional shares would purchase
at such Market Value; and (y) the denominator of which shall be the number of
shares of Common Stock of the Company outstanding immediately after such issue
or sale.
For the purposes of the foregoing adjustment, in the case of the issuance of any
convertible securities, warrants, options or other rights to subscribe for or to
purchase or exchange for, shares of Common Stock ("Convertible Securities"), the
maximum number of shares of Common Stock that would be issuable upon exercise,
exchange or conversion of such Convertible Securities (assuming that shares of
Common Stock were trading at the then Market Value at the time of conversion)
shall be deemed to be outstanding, provided that no further adjustment shall be
made upon the actual issuance of Common Stock upon exercise, exchange or
conversion of such Convertible Securities.
(g) 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.
(h) Notice of Certain Transactions. In the event that the Company shall propose
(a) to pay any dividend payable in securities of any class to the holders of its
Common Stock or to make any other non-cash dividend or distribution to the
holders of its Common Stock, (b) to offer the holders of its Common Stock rights
to subscribe for or to purchase any securities convertible into shares of Common
Stock or shares of stock of any class or any other securities, rights or
options, (c) to effect any capital reorganization, reclassification,
consolidation or merger affecting the class of Common Stock, as a whole, or (d)
to effect the voluntary or involuntary dissolution, liquidation or winding-up of
the Company, the Company shall, within the time limits specified below, send to
each Holder a notice of such proposed action or offer. Such notice shall be
mailed to the Holders at their addresses as they appear in the Warrant Register
(as defined in Section 2(d)), which shall specify the record date for the
purposes of such dividend, distribution or rights, or the date such issuance or
event is to take place and the date of participation therein by the holders of
Common Stock, if any such date is to be fixed, and shall briefly indicate the
effect of such action on the number of shares of Common Stock and on the number
and kind of any other shares of stock and on other property, if any, and the
number of shares of Common Stock and other property, if any, issuable upon
exercise of each Warrant Certificate and the Exercise Price after giving effect
to any adjustment pursuant to Section 4 which will be required as a result of
such action. 'Such notice shall be given as promptly as possible and (x) in the
case of any action covered by clause (a) or (b) above, at least 10 days prior to
the record date for determining holders of the Common Stock for purposes of such
action or (y) in the case of any other such action, at least 20 days prior to
the date of the taking of such proposed action or the date of participation
therein by the holders of Common Stock, whichever shall be the earlier.
(i) Other Adjustments. In the event of any other transaction of the type
contemplated by this Section 4, but not expressly provided for by the provisions
hereof, the Board of Directors of the Company will make appropriate adjustment
in the Exercise Price so as to equitably protect the rights of the Holder.
(j) No Impairment of Holder's Rights. The Company will not, by amendment of its
articles of organization or bylaws or through any reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, except as contemplated hereby, avoid or seek to avoid
the observance or performance of any of the terms of this Warrant Certificate,
but will at all times in good faith assist in the carrying out of all such terms
and in the taking of all action as mav be necessary or appropriate in order to
protect the rights of the Holder against dilution or other impairment.
5. Company's Representations.
(a) The Company covenants and agrees that all shares of Common Stock issuable
upon exercise of this Warrant Certificate will, upon delivery, be duly and
validly authorized and issued, fully-paid and non-assessable and free from all
taxes, liens, claims and encumbrances.
(b) The Company covenants and agrees that it will at all times reserve and keep
available an authorized number of shares of its Common Stock and other
applicable securities sufficient to permit the exercise in full of all
outstanding options, warrants and rights, including this Warrant Certificate.
(c) The Company shall promptly secure the listing of the Shares 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 Certificate) and shall
maintain, so long as any other shares of Common Stock shall be so listed, such
listing of all shares of Common Stock from time to time issuable upon the
exercise of this Warrant Certificate; 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 Certificate if and so long as
any shares of the same class shall be listed on such national securities
exchange or automated quotation system.
(d) The Company has taken all necessary action and proceedings as required and
permitted by applicable law, rule and regulation, including, without limitation,
the notification of the principal market on which the Common Stock is traded,
for the legal and valid issuance of this Warrant Certificate to the Holder under
this Warrant Certificate.
(e) With a view to making available to Holder the benefits of Rule 144
promulgated under the Act and any other rule or regulation of the Securities and
Exchange Commission ("SEC") that may at any time permit Holder to sell
securities of the Company to the public without registration, the Company agrees
to use its reasonable best efforts to:
(i) make and keep public information available, as those terms are understood
and defined in Rule 144, at all times;
(ii) file with the SEC in a timely manner all reports and other documents
required of the Company under the Act and the Securities Exchange Act of 1934,
as amended (the "Exchange Act"); and
(iii) furnish to any Holder forthwith upon request a written statement by the
Company that it has complied with the reporting requirements of Rule 144 and of
the Act and the Exchange Act, a copy of the most recent annual or quarterly
report of the Company, and such other reports and documents so filed by the
Company as may be reasonably requested to permit any such Holder to take
advantage of any rule or regulation of the SEC permitting the selling of any
such securities without registration.
6. Registration Rights. The initial Holder is entitled to the benefit of such
registration rights in respect of the Shares as are set forth in the
Registration Rights Agreement dated as of August 31, 1998 by and between the
Company and the other investors parties thereto ("Registration Rights
Agreement") as if the Holder was a party thereto, 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. The Company acknowledges that the initial Holder may transfer some of
the Warrants to certain of its employees on or about December 31, 1999 and the
Company agrees to promptly amend the Registration Statement to include the
resale of shares by each new owner thereof.
7. Issuance of Certificates. Within two (2) trading days of receipt of a duly
completed Election to Purchase form, together with this Certificate and payment
of the Exercise Price, the Company, at its expense, will cause to be issued in
the name of and delivered to the Holder of this Warrant, a certificate or
certificates for the number of fully paid and non-assessable shares of Common
Stock to which that holder shall be entitled on such exercise. In the event the
shares of Common Stock are not timely delivered to the Holder, the Company
agrees to (a) indemnify Holder for all damages, including consequential and
special damages, lost profits and expenses, including legal fees, and (b)
beginning on the fifth (5th) day following the Company's receipt of a duly
completed Election to Purchase form, pay a default premium of 2% per day of the
value of underlying shares (based on the highest closing price during the two
(2) day period preceding the date of surrender of the Warrant Certificate). In
lieu of issuance of a fractional share upon any exercise hereunder, the Company
will pay the cash value of that fractional share, calculated on the basis of the
Exercise Price. Prior to registration of the resale of the shares of Common
Stock underlying this Warrant Certificate, and delivery of an Election to
Purchase to the Company, all such certificates shall bear a restrictive legend
to the effect that the Shares represented by such certificate have not been
registered under the 1933 Act, and that the Shares may not be sold or
transferred in the absence of such registration or an exemption therefrom, such
legend to be substantially in the form of the bold-face language appearing at
the top of Page 1 of this Warrant Certificate.
8. Disposition of Warrants or Shares. The Holder of this Warrant Certificate,
each transferee hereof and any holder and transferee of any Shares, by his or
its acceptance thereof, agrees that no public distribution of Warrants or Shares
will be made in violation of the provisions of the 1933 Act. Furthermore, it
shall be a condition to the transfer of the Warrants that any transferee thereof
deliver to the Company his or its written agreement to accept and be bound by
all of the relevant terms and conditions contained in this Warrant Certificate.
9. Notices. Except as otherwise specified herein to the contrary, all notices,
requests, demands and other communications required or desired to be given
hereunder shall only be effective if given in writing by certified or registered
U.S. mail with return receipt requested and postage prepaid; by private
overnight delivery service (e.g. Federal Express); by facsimile transmission (if
no original documents or instruments must accompany the notice); or by personal
delivery. Any such notice shall be deemed to have been given (a) on the business
day immediately following the mailing thereof, if mailed by certified or
registered U.S. mail as specified above; (b) on the business day immediately
following deposit with a private overnight delivery service if sent by said
service; (c) upon receipt of confirmation of transmission if sent by facsimile
transmission; or (d) upon personal delivery of the notice. All such notices
shall be sent to the following addresses (or to such other address or addresses
as a party may have advised the other in the manner provided in this Section
10):
If to the Company:
SoftNet Systems, Inc. 520 Logue Avenue
Mountain View, CA 94043
Attn: Chief Executive Officer
Phone: (650) 962-7451
Fax: (650) 962-7488
With a copy to:
Brobeck, Phleger & Harrison 2200 Geng Road
Two Embarcadero Place
Palo Alto, CA 94303
Attn: Thomas W. Kellerman, Esq.
Phone: (650) 496-2788
Fax: (650) 496-2777
If to Investor:
RGC International Investors, LDC
c/o Rose Glen Capital Management, L.P.
3 Bala Plaza East, Suite 200
251 St. Asaphs Road
Bala Cynyd, PA 19004
Telephone: (650) 962-7474
Fax: (610) 617-0570
Attn: Gary Kaminsky
and with a copy to:
Morgan Lewis & Bockius
2001 Logan Square
Philadelphia, PA 19103
Telephone: (215) 963-5083
Fax: (215) 963-5299
Attn: Keith Marlowe
in each case with a copy to:
Shoreline Pacific Institutional Finance
3 Harbor Drive, Suite 211
Sausalito, CA 94965
Telephone: (415) 332-7800
Telecopy: (415) 332-7808
Attention: General Counsel
Notwithstanding the time of effectiveness of notices set forth in this Section,
an Election to Purchase shall not be deemed effectively given until it has been
duly completed and submitted to the Company together with the original Warrant
Certificate to be exercised and payment of the Exercise Price in a manner set
forth in this Section.
10. Notwithstanding anything in this Warrant Certificate to the contrary, in no
event shall the holder of this Warrant Certificate be entitled to exercise with
respect to a number of shares of Common Stock to the extent that following such
exercise 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 Warrant
Certificates and unconverted shares of 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 Warrant
Certificates (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, shall be determined
in accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended, and Rules 13(d) -(g) thereunder, except as otherwise provided in clause
(i) hereof.
11. Governing Law. This Warrant Certificate and all rights and obligations
hereunder shall be deemed to be made under and governed by the laws of the State
of New York without giving effect to the conflicts of laws provisions. The
Holder hereby irrevocably consents to the venue and jurisdiction of the State
and Federal Courts located in the State of New York, County of New York.
12. Successors and Assigns. This Warrant Certificate shall be binding upon and
shall inure to the benefit of the parties hereto and their respective successors
and permitted assigns.
13. Headings. The headings of various sections of this Warrant Certificate have
been inserted for reference only and shall not affect the meaning or
construction of any of the provisions hereof.
14. Severability. If any provision of this Warrant Certificate is held to be
unenforceable under applicable law, such provision shall be excluded from this
Warrant Certificate, and the balance hereof shall be interpreted as if such
provision were so excluded.
15. Modification and Waiver. This Warrant Certificate and any provision hereof
may be amended, waived, discharged or terminated only by an instrument in
writing signed by the Company and the Holder.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
16. Specific Enforcement. The Company and the Holder acknowledge and agree that
irreparable damage would occur in the event that any of the provisions of this
Warrant Certificate were not performed in accordance with their specific terms
or were otherwise breached. It is accordingly agreed that the parties shall be
entitled to an injunction or injunctions to prevent or cure breaches of the
provisions of this Warrant Certificate and to enforce specifically the terms and
provisions hereof, this being in addition to any other remedy to which either of
them may be entitled by law or equity.
IN WITNESS WHEREOF, the Company has caused this Warrant
Certificate to be duly executed, manually or by facsimile, by one of its
officers thereunto duly authorized.
SOFTNET SYSTEMS, INC.
By: /s/ Mark A. Phillips
----------------------------
Name: Mark A. Phillips
Date: August 31, 1998 Title: Treasurer
<PAGE>
ELECTION TO PURCHASE
To Be Executed by the Holder
in Order to Exercise the Common Stock
Purchase Warrant Certificate
The undersigned Holder hereby elects to exercise of the
Warrants represented by the attached Common Stock Purchase Warrant Certificate,
and to purchase the shares of Common Stock issuable upon the exercise of such
Warrants, and requests that certificates for securities be issued in the name
of:
----------------------------------------------------------------
(Please type or print name and address)
----------------------------------------------------------------
----------------------------------------------------------------
----------------------------------------------------------------
(Social Security or Tax Identification Number)
and deliver to:
-------------------------------------------------------------------------------
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If such number of Warrants being exercised hereby shall not be all the Warrants
evidenced by the attached Common Stock Purchase Warrant Certificate, a new
Common Stock Purchase Warrant Certificate for the balance of such Warrants shall
be registered in the name of, and delivered to, the Holder at the address set
forth below.
[In full payment of the purchase price with respect to the
Warrants exercised and transfer taxes, if any, the undersigned hereby tenders
payment of $ by check, money order or wire transfer payable in United States
currency to the order of SoftNet Systems, Inc.] or [The undersigned elects
cashless exercise in accordance with Section l(b) of the Common Stock Purchase
Warrant Certificate.]
<PAGE>
Holder hereby represents and covenants that it has complied
with, or will comply with, any and all prospectus delivery requirements with
respect to its sale of the Common Stock of the Company being purchased herewith.
HOLDER:
By:
-------------------------------
Name:
Title:
Date:
<PAGE>
FORM OF ASSIGNMENT
(To be signed only on transfer of Warrant)
For value received, the undersigned hereby sells, assigns, and transfers unto
______________ the right represented by the within Warrant to purchase
___________ shares of Common Stock of SoftNet Systems, Inc., a New York
corporation, to which the within Warrant relates, and appoints
_____________Attorney to transfer such right on the books of SoftNet Systems,
Inc., a New York corporation, with full power of substitution of premises.
By:
-------------------------------
Name:
Title:
(signature must conform to name of holder as specified
on the face of the Warrant)
Address:
Date:
Signed in the presence of:
- -------------------------------
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE OF
THE UNITED STATES. THE SECURITIES REPRESENTED HEREBY MAY NOT BE OFFERED OR SOLD
OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
FOR THE SECURITIES UNDER APPLICABLE SECURITIES LAWS OR UNLESS OFFERED, SOLD OR
TRANSFERRED PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THOSE LAWS.
COMMON STOCK PURCHASE WARRANT CERTIFICATE
Dated: August 31, 1998
to Purchase 23,625 Shares of Common Stock of
SOFTNET SYSTEMS, INC.
SOFTNET SYSTEMS, INC., a New York corporation (the "Company"),
hereby certifies that SHORELINE PACIFIC EQUITY, LTD., its permissible
transferees, designees, successors and assigns (collectively, the "Holder"), for
value received, is entitled to purchase from the Company at any time commencing
on August 31, 1998 ("Issuance Date") and terminating on the fourth anniversary
of the Issuance Date (or such earlier date as is specified in a duly delivered
Call Notice (as defined below)) up to 23,625 shares (each a "Share" and
collectively the "Shares") of the Company's common stock (the "Common Stock") at
an exercise price per Share of $7.50 (the "Exercise Price"). The number of
Shares purchasable hereunder and the Exercise Price are subject to adjustment as
provided in Section 4 hereof.
1. Exercise of Warrants.
(a) Upon presentation and surrender of this Common Stock Purchase Warrant
Certificate ("Warrant Certificate" or "Certificate"), or a Lost Certificate
Affidavit (as defined below), accompanied by a completed Election to Purchase in
the form attached hereto as Exhibit A (the "Election to Purchase") duly
executed, at the principal office of the Company at 520 Logue Avenue, Mountain
View, CA 94043, Attn: Mark Philips, together with a check payable to the Company
in the amount of the Exercise Price multiplied by the number of Shares being
purchased, the Company or the Company's Transfer Agent as the case may be,
shall, within two (2) trading days of receipt of the foregoing, deliver to the
Holder hereof, certificates of fully paid and nonassessable Common Stock which
in the aggregate represent the number of Shares being purchased; provided,
however, that the Investor may elect, in accordance with paragraph (b), below,
to utilize the cashless exercise provisions set forth below in lieu of SoftNet
Systems, Inc.: Common Stock Purchase Warrant Certificate tendering the Exercise
Price in cash. The certificates so delivered shall be in such denominations as
may be reasonably requested by the Holder and shall be registered in the name of
the Holder or such other name as shall be designated by the Holder. All or less
than all of the Warrants represented by this Certificate may be exercised and,
in case of the exercise of less than all, the Company, upon surrender hereof,
will at the Company's expense deliver to the Holder a new Warrant Certificate or
Certificates (in such denominations as may be requested by the Holder) of like
tenor and dated the date hereof entitling said holder to purchase the number of
Shares represented by this Certificate which have not been exercised and to
receive Registration Rights with respect to such Shares, and all other rights
with respect to the shares which the Holder has on the date hereof.
(b) Cashless Exercise. Notwithstanding the foregoing provision regarding payment
of the Exercise Price in cash, the Holder may elect, in its sole discretion on a
case by case basis, to receive a reduced number of Shares in lieu of tendering
the Exercise Price in cash ("Cashless Exercise"). In such case, the number of
Shares to be issued to the Holder shall be computed using the following
formula;:
X = Y(A-B)
-----------
A
where: X = the number of Shares to be issued to the Holder;
Y = the number of Shares to be exercised under this Warrant
Certificate;
A = the Market Value (defined below) of one share of Common Stock
on the trading day immediately prior to the date that the Election
to Purchase is duly surrendered to the Company for full or partial
exercise; and B = the Exercise Price.
The term "Market Value" means, for any security as of any date, the last
reported sale price of such security on the principal securities exchange or
trading market where such security is listed or traded as reported by Bloomberg
Financial Markets or a comparable reporting service of national reputation
selected by the Company and reasonably acceptable to the Holder if Bloomberg
Financial Markets is not then reporting last reported sale prices of such
security (collectively, "Bloomberg"), or if the foregoing does not apply, the
last reported sale price of such security in the over-the-counter market or the
electronic bulletin board of such security as reported by Bloomberg, or, if no
sale price is reported for such security by Bloomberg, the average of the bid
prices of any market makers for such security that are listed in the "pink
sheets" by the National Quotation Bureau, Inc. If the Market Value cannot be
calculated for such security on such date on any of the foregoing bases, the
Market Value of such security on such date shall be the fair market value as
reasonably determined by an investment banking firm selected by the Company and
reasonably acceptable to the Holder with the costs of such appraisal to be borne
by the Company.
2. Exchange, Transfer and Replacement.
(a) Exchange. At any time prior to the exercise hereof, this Warrant Certificate
may be exchanged upon presentation and surrender to the Company, alone or with
other Warrant Certificates of like tenor of different denominations registered
in the name of the same Holder, together with a duly executed Assignment in
substantially the form and substance of the Form of Assignment which accompanies
this Warrant Certificate. The Warrant Certificate or Certificates shall be
exchanged for another Warrant Certificate or Certificates of like tenor in the
name of such Holder and/or the transferees named in such Assignment, exercisable
for the aggregate number of Shares as the Certificate or Certificates
surrendered, provided that the Company shall not be obligated to issue exchange
or transfer Certificates for an exchange or transfer of less than 10,000 shares.
The Company shall issue any Warrant Certificates reflecting such transfer or
assignment (including such portion of this Warrant Certificate, if any, as shall
not have been transferred or assigned) within three (3) business days after
receipt of the requisite Warrant Certificate(s) and duly completed Assignment.
(b) Replacement of Warrant Certificate. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction, or mutilation of
this Warrant Certificate 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 (collectively, a "Lost Certificate Affidavit"),
or, in the case of any such mutilation, upon surrender and cancellation of this
Warrant Certificate, the Company, at its expense, will execute and deliver in
lieu thereof, a new Warrant Certificate of like tenor.
(c) Cancellation; Payment of Expenses. Upon the surrender of this Warrant
Certificate in connection with any transfer, exchange or replacement as provided
in this Section 2, this Warrant Certificate shall be promptly canceled by the
Company. The Company shall pay all taxes (other than securities transfer taxes)
and all other 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 Warrant Certificates pursuant to this Section 2.
(d) Warrant Register. The Company shall maintain, at its principal executive
offices (or at the offices of the transfer agent for the Warrant Certificate or
such other office or agency of the Company as it may designate by notice to the
holder hereoq, a register for this Warrant Certificate (the "Warrant Register"),
in which the Company shall record the name and address of the person in whose
name this Warrant Certificate has been issued, as well as the name and address
of each permitted transferee and each prior owner of this Warrant Certificate.
(e) Company Call Right. Beginning on the business day following the first
anniversary of the Issuance Date, provided that the twenty consecutive trading
day average closing bid price of the Common Stock of the Company for the period
ending on the date prior to delivery of such notice (as reported by Bloomberg)
is equal to or greater than 150% of the Exercise Price, as adjusted pursuant to
Section 4 hereof, the Company shall have the ability to deliver a written notice
to the Holder hereof (a "Call Notice") that the Company is exercising its right
to call this Warrant Certificate. The Call Notice shall specify a date no less
than 30 days following the date of delivery of such Call Notice, and, unless
exercised prior to such date, this Certificate (or any unexercised portion
hereof) shall expire, and Holder shall have no further rights hereunder, on and
following such specified date. The Holder shall have the right to exercise its
rights hereunder during such 30 day notice period.
3. Rights and Obligations of Holders of this Certificate. The Holder of this
Certificate shall not, by virtue hereof, be entitled to any rights of a
stockholder in the Company, either at law or in equity; provided, however, that
in the event any certificate representing shares of Common Stock or other
securities is issued to the holder hereof upon exercise of some or all of the
Warrants, such holder shall, for all purposes, be deemed to have become the
holder of record of such Common Stock on the date on which this Certificate,
together with a duly executed Purchase Form, was surrendered and payment of the
aggregate Exercise Price was made, irrespective of the date of delivery of such
share certificate.
4. Adjustments.
(a) Stock Dividends, Reclassifications, Recapitalizations, Etc. In the event the
Company: (i) pays a dividend in Common Stock or makes a distribution in Common
Stock, (ii) subdivides its outstanding Common Stock into a greater number of
shares, (iii) combines its outstanding Common Stock into a smaller number of
shares or (iv) increases or decreases the number of shares of Common Stock
outstanding by reclassification of its Common Stock (including a
recapitalization in connection with a consolidation or merger in which the
Company is the continuing corporation), then (1) the Exercise Price on the
record date of such division or distribution or the effective date of such
action shall be adjusted by multiplying such Exercise Price by a fraction, the
numerator of which is the number of shares of Common Stock outstanding
immediately before such event and the denominator of which is the number of
shares of Common Stock outstanding immediately after such event, and (2) the
number of shares of Common Stock for which this Warrant Certificate may be
exercised immediately before such event shall be adjusted by multiplying such
number by a fraction, the numerator of which is the Exercise Price immediately
before such event and the denominator of which is the Exercise Price immediately
after such event.
(b) Cash Dividends and Other Distributions. In the event that at any time or
from time to time the Company shall distribute to all holders of Common Stock
(i) any dividend or other distribution of cash, evidences of its indebtedness,
shares of its capital stock or any other properties or securities or (ii) any
options, warrants or other rights to subscribe for or purchase any of the
foregoing (other than in each case, (w) the issuance of any rights under a
shareholder rights plan, (x) any dividend or distribution described in Section
4(a), (y) any rights, options, warrants or securities described in Section 4(c)
and (z) any cash dividends or other cash distributions from current earnings),
then the number of shares of Common Stock issuable upon the exercise of each
Warrant Certificate shall be increased to a number determined by multiplying the
number of shares of Common Stock issuable upon the exercise of such Warrant
Certificate immediately prior to the record date for any such dividend or
distribution by a fraction, the numerator of which shall be such Market Value
(as hereinafter defined) per share of Common Stock on the record date for such
dividend or distribution, and the denominator of which shall be such Market
Value per share of Common Stock on the record date for such dividend or
distribution less the sum of (x) the amount of cash, if any, distributed per
share of Common Stock and (y) the fair value (as determined in good faith by the
Board of Directors of the Company, whose determination shall be evidenced by a
board resolution, a copy of which will be sent to the Holders upon request) of
the portion, if any, of the distribution applicable to one share of Common Stock
consisting of evidences of indebtedness, shares of stock, securities, other
property, warrants, options or subscription or purchase rights; and the Exercise
Price shall be adjusted to a number determined by dividing the Exercise Price
immediately prior to such record date by the above fraction. Such adjustments
shall be made whenever any distribution is made and shall become effective as of
the date of distribution, retroactive to the record date for any such
distribution. No adjustment shall be made pursuant to this Section 4(b) which
shall have the effect of decreasing the number of shares of Common Stock
issuable upon exercise of each Warrant Certificate or increasing the Exercise
Price.
(c) Rights Issue. In the event that at any time, or from time to time, the
Company shall issue rights, options or warrants entitling the holders thereof to
subscribe for shares of Common Stock, or securities convertible into or
exchangeable or exercisable for Common Stock to all holders of Common Stock
(other than in connection with the adoption of a shareholder rights plan by the
Company) without any charge, entitling such holders to subscribe for or purchase
shares of Common Stock at a price per share that as of the record date for such
issuance is less than the then Market Value per share of Common Stock, the
number of shares of Common Stock issuable upon the exercise of each Warrant
Certificate shall be increased to a number determined by multiplying the number
of shares of Common Stock theretofore issuable upon exercise of each Warrant
Certificate by a fraction, the numerator of which shall be the number of shares
of Common Stock outstanding on the date of issuance of such rights, options,
warrant or securities plus the number of additional shares of Common Stock
offered for subscription or purchase or into or for which such securities that
are issued are convertible, exchangeable or exercisable' and the denominator of
which shall be the number of shares of Common Stock outstanding on the date of
issuance of such rights, option, warrants or securities plus the total number of
shares of Common Stock which the aggregate consideration expected to be received
by the Company (assuming the exercise or conversion of all such rights, options,
warrants or securities) would purchase at the then Market Value per share of
Common Stock. In the event of any such adjustment, the Exercise Price shall be
adjusted to a number determined by dividing the Exercise price immediately prior
to such date of issuance by the aforementioned fraction. Such adjustment shall
be made immediately after such rights, options or warrants are issued and shall
become effective, retroactive to the record date for the determination of
stockholders entitled to receive such rights, options, warrants or securities.
No adjustment shall be made pursuant to this Section 4(c) which shall have the
effect of decreasing the number of shares of Common Stock purchasable upon
exercise or each Warrant Certificate or of increasing the Exercise Price.
(d) Combination: Liquidation.
(i) Except as provided in Section 4(d)(ii) below, in the event of a Combination
(as defined below), each Holder shall have the right to receive upon exercise of
the Warrant Certificates the kind and amount of shares of capital stock or other
securities or property which such Holder would have been entitled to receive
upon or as a result of such Combination had such Warrant Certificate been
exercised immediately prior to such event (subject to further adjustment in
accordance with the terms hereof). Unless paragraph (ii) is applicable to a
Combination, the Company shall provide that the surviving or acquiring Person
(the "Successor Company") in such Combination will assume by written instrument
the obligations under this Section 4 and the obligations to deliver to the
Holder such shares of stock, securities or assets as, in accordance with the
foregoing provisions, the Holder may be entitled to acquire. The provisions of
this Section 4(d)(i) shall similarly apply to successive Combinations involving
any Successor Company. "Combination" means an event in which the Company
consolidates with, mergers with or into, or sells all or substantially all of
its assets to another Person, where "Person" means any individual, corporation,
partnership, joint venture, limited liability company, association, jointstock
company, trust, unincorporated organization, government or any agency or
political subdivision thereof or any other entity.
(ii) In the event of (x) a Combination where consideration to the holders of
Common Stock in exchange for their shares is payable solely in cash or (y) the
dissolution, liquidation or winding-up of the Company, the Holders shall be
entitled to receive, upon surrender of their Warrant Certificates, distributions
on an equal basis with the holders of Common Stock or other securities issuable
upon exercise of the Warrant Certificates, as if the Warrant Certificates had
been exercised immediately prior to such event, less the Exercise Price. In case
of any Combination described in this Section 4(d)(ii), the surviving or
acquiring Person and, in the event of any dissolution, liquidation or winding-up
of the Companv, the Company, shall deposit promptly following the consummation
of such combination or at the time of such dissolution, liquidation or
winding-up with an agent or trustee for the benefit of the Holders of the funds,
if any, necessary to pay to the Holders the amounts to which they are entitled
as described above. After such funds and the surrendered Warrant Certificates
are received, the Company is required to deliver a check in such amount as is
appropriate (or, in the case of consideration other than cash, such other
consideration as is appropriate) to such Person or Persons as it may be directed
in writing by the Holders surrendering such Warrant Certificates.
(e) Notice of Adjustment. Whenever the Exercise Price or the number of shares of
Common Stock and: other property, if any, issuable upon exercise of the Warrant
Certificates is adjusted, as herein provided, the Company shall deliver to the
holders of the Warrant Certificates in accordance with Section 10 a certificate
of the Company's Chief Financial Officer setting forth, in reasonable detail,
the event requiring the adjustment and the method by which such adjustment was
calculated (including a description of the basis on which (i) the Board of
Directors determined the fair value of any evidences of indebtedness, other
securities or property or warrants, options or other subscription or purchase
rights and (ii) the Market Value of the Common Stock was determined, if either
of such determinations were required), and specifying the Exercise Price and
number of shares of Common Stock issuable upon exercise of Warrant Certificates
after giving effect to such adjustment.
(f) Purchase Price Adjustment. In the event that the Company issues or sells any
Common Stock or securities which are convertible into or exchangeable, whether
or not immediately exchangeable or convertible, for its Common Stock or any
convertible securities, or any warrants or other rights to subscribe for or to
purchase or any options for the purchase of its Common Stock or any such
convertible securities (other than shares or options issued or which may be
issued pursuant to the Company's employee or director option plans or shares
issued upon exercise of options, warrants or rights outstanding on the date of
the Agreement and listed in the Company's most recent periodic report filed
under the Exchange Act) (collectively, "Options") at a purchase price per share
on the date of original issuance of such security which is less than 95% of the
Market Value of the Common Stock on the trading day immediately prior to such
issue or sale, then in each such case, the Exercise Price in effect immediately
prior to such issue or sale shall be reduced effective concurrently with such
issue or sale to an amount determined by multiplying the Exercise Price then in
effect by a fraction, (x) the numerator of which shall be the sum of (1) the
number of shares of Common Stock outstanding immediately prior to such issue or
sale, plus (2) the number of shares of Common Stock which the aggregate
consideration received by the Company for such additional shares would purchase
at such Market Value; and (y) the denominator of which shall be the number of
shares of Common Stock of the Company outstanding immediately after such issue
or sale.
For the purposes of the foregoing adjustment, in the case of the issuance of any
convertible securities, warrants, options or other rights to subscribe for or to
purchase or exchange for, shares of Common Stock ("Convertible Securities"), the
maximum number of shares of Common Stock that would be issuable upon exercise,
exchange or conversion of such Convertible Securities (assuming that shares of
Common Stock were trading at the then Market Value at the time of conversion)
shall be deemed to be outstanding, provided that no further adjustment shall be
made upon the actual issuance of Common Stock upon exercise, exchange or
conversion of such Convertible Securities.
(g) 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.
(h) Notice of Certain Transactions. In the event that the Company shall propose
(a) to pay any dividend payable in securities of any class to the holders of its
Common Stock or to make any other non-cash dividend or distribution to the
holders of its Common Stock, (b) to offer the holders of its Common Stock rights
to subscribe for or to purchase any securities convertible into shares of Common
Stock or shares of stock of any class or any other securities, rights or
options, (c) to effect any capital reorganization, reclassification,
consolidation or merger affecting the class of Common Stock, as a whole, or (d)
to effect the voluntary or involuntary dissolution, liquidation or winding-up of
the Company, the Company shall, within the time limits specified below, send to
each Holder a notice of such proposed action or offer. Such notice shall be
mailed to the Holders at their addresses as they appear in the Warrant Register
(as defined in Section 2(d)), which shall specify the record date for the
purposes of such dividend, distribution or rights, or the date such issuance or
event is to take place and the date of participation therein by the holders of
Common Stock, if any such date is to be fixed, and shall briefly indicate the
effect of such action on the number of shares of Common Stock and on the number
and kind of any other shares of stock and on other property, if any, and the
number of shares of Common Stock and other property, if any, issuable upon
exercise of each Warrant Certificate and the Exercise Price after giving effect
to any adjustment pursuant to Section 4 which will be required as a result of
such action. 'Such notice shall be given as promptly as possible and (x) in the
case of any action covered by clause (a) or (b) above, at least 10 days prior to
the record date for determining holders of the Common Stock for purposes of such
action or (y) in the case of any other such action, at least 20 days prior to
the date of the taking of such proposed action or the date of participation
therein by the holders of Common Stock, whichever shall be the earlier.
(i) Other Adjustments. In the event of any other transaction of the type
contemplated by this Section 4, but not expressly provided for by the provisions
hereof, the Board of Directors of the Company will make appropriate adjustment
in the Exercise Price so as to equitably protect the rights of the Holder.
(j) No Impairment of Holder's Rights. The Company will not, by amendment of its
articles of organization or bylaws or through any reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, except as contemplated hereby, avoid or seek to avoid
the observance or performance of any of the terms of this Warrant Certificate,
but will at all times in good faith assist in the carrying out of all such terms
and in the taking of all action as mav be necessary or appropriate in order to
protect the rights of the Holder against dilution or other impairment.
5. Company's Representations.
(a) The Company covenants and agrees that all shares of Common Stock issuable
upon exercise of this Warrant Certificate will, upon delivery, be duly and
validly authorized and issued, fully-paid and non-assessable and free from all
taxes, liens, claims and encumbrances.
(b) The Company covenants and agrees that it will at all times reserve and keep
available an authorized number of shares of its Common Stock and other
applicable securities sufficient to permit the exercise in full of all
outstanding options, warrants and rights, including this Warrant Certificate.
(c) The Company shall promptly secure the listing of the Shares 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 Certificate) and shall
maintain, so long as any other shares of Common Stock shall be so listed, such
listing of all shares of Common Stock from time to time issuable upon the
exercise of this Warrant Certificate; 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 Certificate if and so long as
any shares of the same class shall be listed on such national securities
exchange or automated quotation system.
(d) The Company has taken all necessary action and proceedings as required and
permitted by applicable law, rule and regulation, including, without limitation,
the notification of the principal market on which the Common Stock is traded,
for the legal and valid issuance of this Warrant Certificate to the Holder under
this Warrant Certificate.
(e) With a view to making available to Holder the benefits of Rule 144
promulgated under the Act and any other rule or regulation of the Securities and
Exchange Commission ("SEC") that may at any time permit Holder to sell
securities of the Company to the public without registration, the Company agrees
to use its reasonable best efforts to:
(i) make and keep public information available, as those terms are understood
and defined in Rule 144, at all times;
(ii) file with the SEC in a timely manner all reports and other documents
required of the Company under the Act and the Securities Exchange Act of 1934,
as amended (the "Exchange Act"); and
(iii) furnish to any Holder forthwith upon request a written statement by the
Company that it has complied with the reporting requirements of Rule 144 and of
the Act and the Exchange Act, a copy of the most recent annual or quarterly
report of the Company, and such other reports and documents so filed by the
Company as may be reasonably requested to permit any such Holder to take
advantage of any rule or regulation of the SEC permitting the selling of any
such securities without registration.
6. Registration Rights. The initial Holder is entitled to the benefit of such
registration rights in respect of the Shares as are set forth in the
Registration Rights Agreement dated as of August 31, 1998 by and between the
Company and the other investors parties thereto ("Registration Rights
Agreement") as if the Holder was a party thereto, 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. The Company acknowledges that the initial Holder may transfer some of
the Warrants to certain of its employees on or about December 31, 1999 and the
Company agrees to promptly amend the Registration Statement to include the
resale of shares by each new owner thereof.
7. Issuance of Certificates. Within two (2) trading days of receipt of a duly
completed Election to Purchase form, together with this Certificate and payment
of the Exercise Price, the Company, at its expense, will cause to be issued in
the name of and delivered to the Holder of this Warrant, a certificate or
certificates for the number of fully paid and non-assessable shares of Common
Stock to which that holder shall be entitled on such exercise. In the event the
shares of Common Stock are not timely delivered to the Holder, the Company
agrees to (a) indemnify Holder for all damages, including consequential and
special damages, lost profits and expenses, including legal fees, and (b)
beginning on the fifth (5th) day following the Company's receipt of a duly
completed Election to Purchase form, pay a default premium of 2% per day of the
value of underlying shares (based on the highest closing price during the two
(2) day period preceding the date of surrender of the Warrant Certificate). In
lieu of issuance of a fractional share upon any exercise hereunder, the Company
will pay the cash value of that fractional share, calculated on the basis of the
Exercise Price. Prior to registration of the resale of the shares of Common
Stock underlying this Warrant Certificate, and delivery of an Election to
Purchase to the Company, all such certificates shall bear a restrictive legend
to the effect that the Shares represented by such certificate have not been
registered under the 1933 Act, and that the Shares may not be sold or
transferred in the absence of such registration or an exemption therefrom, such
legend to be substantially in the form of the bold-face language appearing at
the top of Page 1 of this Warrant Certificate.
8. Disposition of Warrants or Shares. The Holder of this Warrant Certificate,
each transferee hereof and any holder and transferee of any Shares, by his or
its acceptance thereof, agrees that no public distribution of Warrants or Shares
will be made in violation of the provisions of the 1933 Act. Furthermore, it
shall be a condition to the transfer of the Warrants that any transferee thereof
deliver to the Company his or its written agreement to accept and be bound by
all of the relevant terms and conditions contained in this Warrant Certificate.
9. Notices. Except as otherwise specified herein to the contrary, all notices,
requests, demands and other communications required or desired to be given
hereunder shall only be effective if given in writing by certified or registered
U.S. mail with return receipt requested and postage prepaid; by private
overnight delivery service (e.g. Federal Express); by facsimile transmission (if
no original documents or instruments must accompany the notice); or by personal
delivery. Any such notice shall be deemed to have been given (a) on the business
day immediately following the mailing thereof, if mailed by certified or
registered U.S. mail as specified above; (b) on the business day immediately
following deposit with a private overnight delivery service if sent by said
service; (c) upon receipt of confirmation of transmission if sent by facsimile
transmission; or (d) upon personal delivery of the notice. All such notices
shall be sent to the following addresses (or to such other address or addresses
as a party may have advised the other in the manner provided in this Section
10):
If to the Company:
SoftNet Systems, Inc.
520 Logue Avenue
Mountain View, CA 94043
Attn: Chief Executive Officer
Phone: (650) 962-7451
Fax: (650) 962-7488
With a copy to:
Brobeck, Phleger & Harrison
2200 Geng Road
Two Embarcadero Place
Palo Alto, CA 94303
Attn: Thomas W. Kellerman, Esq.
Phone: (650) 496-2788
Fax: (650) 496-2777
If to Holder:
Shoreline Pacific Equity, Ltd.
3 Harbor Drive, Suite 211
Sausalito, CA 94965
Telephone: (415) 332-7800
Telecopy: (415) 332-7808
Attention: General Counsel
Notwithstanding the time of effectiveness of notices set forth in this Section,
an Election to Purchase shall not be deemed effectively given until it has been
duly completed and submitted to the Company together with the original Warrant
Certificate to be exercised and payment of the Exercise Price in a manner set
forth in this Section.
10. Notwithstanding anything in this Warrant Certificate to the contrary, in no
event shall the holder of this Warrant Certificate be entitled to exercise with
respect to a number of shares of Common Stock to the extent that following such
exercise 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 Warrant
Certificates and unconverted shares of 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 Warrant
Certificates (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, shall be determined
in accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended, and Rules 13(d) -(g) thereunder, except as otherwise provided in clause
(i) hereof.
11. Governing Law. This Warrant Certificate and all rights and obligations
hereunder shall be deemed to be made under and governed by the laws of the State
of New York without giving effect to the conflicts of laws provisions. The
Holder hereby irrevocably consents to the venue and jurisdiction of the State
and Federal Courts located in the State of New York, County of New York.
12. Successors and Assigns. This Warrant Certificate shall be binding upon and
shall inure to the benefit of the parties hereto and their respective successors
and permitted assigns.
13. Headings. The headings of various sections of this Warrant Certificate have
been inserted for reference only and shall not affect the meaning or
construction of any of the provisions hereof.
14. Severability. If any provision of this Warrant Certificate is held to be
unenforceable under applicable law, such provision shall be excluded from this
Warrant Certificate, and the balance hereof shall be interpreted as if such
provision were so excluded.
15. Modification and Waiver. This Warrant Certificate and any provision hereof
may be amended, waived, discharged or terminated only by an instrument in
writing signed by the Company and the Holder.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
16. Specific Enforcement. The Company and the Holder acknowledge and agree that
irreparable damage would occur in the event that any of the provisions of this
Warrant Certificate were not performed in accordance with their specific terms
or were otherwise breached. It is accordingly agreed that the parties shall be
entitled to an injunction or injunctions to prevent or cure breaches of the
provisions of this Warrant Certificate and to enforce specifically the terms and
provisions hereof, this being in addition to any other remedy to which either of
them may be entitled by law or equity.
IN WITNESS WHEREOF, the Company has caused this Warrant
Certificate to be duly executed, manually or by facsimile, by one of its
officers thereunto duly authorized.
SOFTNET SYSTEMS, INC.
By: /s/ Mark A. Phillips
----------------------------
Name: Mark A. Phillips
Date: August 31, 1998 Title: Treasurer
<PAGE>
ELECTION TO PURCHASE
To Be Executed by the Holder
in Order to Exercise the Common Stock
Purchase Warrant Certificate
The undersigned Holder hereby elects to exercise of the
Warrants represented by the attached Common Stock Purchase Warrant Certificate,
and to purchase the shares of Common Stock issuable upon the exercise of such
Warrants, and requests that certificates for securities be issued in the name
of:
----------------------------------------------------------------
(Please type or print name and address)
----------------------------------------------------------------
----------------------------------------------------------------
----------------------------------------------------------------
(Social Security or Tax Identification Number)
and deliver to:
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
If such number of Warrants being exercised hereby shall not be all the Warrants
evidenced by the attached Common Stock Purchase Warrant Certificate, a new
Common Stock Purchase Warrant Certificate for the balance of such Warrants shall
be registered in the name of, and delivered to, the Holder at the address set
forth below.
[In full payment of the purchase price with respect to the
Warrants exercised and transfer taxes, if any, the undersigned hereby tenders
payment of $ by check, money order or wire transfer payable in United States
currency to the order of SoftNet Systems, Inc.] or [The undersigned elects
cashless exercise in accordance with Section l(b) of the Common Stock Purchase
Warrant Certificate.]
Holder hereby represents and covenants that it has complied
with, or will comply with, any and all prospectus delivery requirements with
respect to its sale of the Common Stock of the Company being purchased herewith.
HOLDER:
By:
-------------------------------
Name:
Title:
Date:
<PAGE>
14
FORM OF ASSIGNMENT
(To be signed only on transfer of Warrant)
For value received, the undersigned hereby sells, assigns, and transfers unto
______________ the right represented by the within Warrant to purchase
___________ shares of Common Stock of SoftNet Systems, Inc., a New York
corporation, to which the within Warrant relates, and appoints
_____________Attorney to transfer such right on the books of SoftNet Systems,
Inc., a New York corporation, with full power of substitution of premises.
By:
-------------------------------
Name:
Title:
(signature must conform to name of holder as specified
on the face of the Warrant)
Address:
Date:
Signed in the presence of:
- -------------------------------
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE OF
THE UNITED STATES. THE SECURITIES REPRESENTED HEREBY MAY NOT BE OFFERED OR SOLD
OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
FOR THE SECURITIES UNDER APPLICABLE SECURITIES LAWS OR UNLESS OFFERED, SOLD OR
TRANSFERRED PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THOSE LAWS.
COMMON STOCK PURCHASE WARRANT CERTIFICATE
Dated: August 31, 1998
to Purchase 2,625 Shares of Common Stock of
SOFTNET SYSTEMS, INC.
SOFTNET SYSTEMS, INC., a New York corporation (the "Company"),
hereby certifies that Steve M. Lamar, his permissible transferees, designees,
successors and assigns (collectively, the "Holder"), for value received, is
entitled to purchase from the Company at any time commencing on August 31, 1998
("Issuance Date") and terminating on the fourth anniversary of the Issuance Date
(or such earlier date as is specified in a duly delivered Call Notice (as
defined below)) up to 2,625 shares (each a "Share" and collectively the
"Shares") of the Company's common stock (the "Common Stock") at an exercise
price per Share of $7.50 (the "Exercise Price"). The number of Shares
purchasable hereunder and the Exercise Price are subject to adjustment as
provided in Section 4 hereof.
1. Exercise of Warrants.
(a) Upon presentation and surrender of this Common Stock Purchase Warrant
Certificate ("Warrant Certificate" or "Certificate"), or a Lost Certificate
Affidavit (as defined below), accompanied by a completed Election to Purchase in
the form attached hereto as Exhibit A (the "Election to Purchase") duly
executed, at the principal office of the Company at 520 Logue Avenue, Mountain
View, CA 94043, Attn: Mark Philips, together with a check payable to the Company
in the amount of the Exercise Price multiplied by the number of Shares being
purchased, the Company or the Company's Transfer Agent as the case may be,
shall, within two (2) trading days of receipt of the foregoing, deliver to the
Holder hereof, certificates of fully paid and nonassessable Common Stock which
in the aggregate represent the number of Shares being purchased; provided,
however, that the Investor may elect, in accordance with paragraph (b), below,
to utilize the cashless exercise provisions set forth below in lieu of SoftNet
Systems, Inc.: Common Stock Purchase Warrant Certificate tendering the Exercise
Price in cash. The certificates so delivered shall be in such denominations as
may be reasonably requested by the Holder and shall be registered in the name of
the Holder or such other name as shall be designated by the Holder. All or less
than all of the Warrants represented by this Certificate may be exercised and,
in case of the exercise of less than all, the Company, upon surrender hereof,
will at the Company's expense deliver to the Holder a new Warrant Certificate or
Certificates (in such denominations as may be requested by the Holder) of like
tenor and dated the date hereof entitling said holder to purchase the number of
Shares represented by this Certificate which have not been exercised and to
receive Registration Rights with respect to such Shares, and all other rights
with respect to the shares which the Holder has on the date hereof.
(b) Cashless Exercise. Notwithstanding the foregoing provision regarding payment
of the Exercise Price in cash, the Holder may elect, in its sole discretion on a
case by case basis, to receive a reduced number of Shares in lieu of tendering
the Exercise Price in cash ("Cashless Exercise"). In such case, the number of
Shares to be issued to the Holder shall be computed using the following
formula;:
X = Y(A-B)
-----------
A
where: X = the number of Shares to be issued to the Holder;
Y = the number of Shares to be exercised under this Warrant
Certificate;
A = the Market Value (defined below) of one share of Common Stock
on the trading day immediately prior to the date that the Election
to Purchase is duly surrendered to the Company for full or partial
exercise; and B = the Exercise Price.
The term "Market Value" means, for any security as of any date, the last
reported sale price of such security on the principal securities exchange or
trading market where such security is listed or traded as reported by Bloomberg
Financial Markets or a comparable reporting service of national reputation
selected by the Company and reasonably acceptable to the Holder if Bloomberg
Financial Markets is not then reporting last reported sale prices of such
security (collectively, "Bloomberg"), or if the foregoing does not apply, the
last reported sale price of such security in the over-the-counter market or the
electronic bulletin board of such security as reported by Bloomberg, or, if no
sale price is reported for such security by Bloomberg, the average of the bid
prices of any market makers for such security that are listed in the "pink
sheets" by the National Quotation Bureau, Inc. If the Market Value cannot be
calculated for such security on such date on any of the foregoing bases, the
Market Value of such security on such date shall be the fair market value as
reasonably determined by an investment banking firm selected by the Company and
reasonably acceptable to the Holder with the costs of such appraisal to be borne
by the Company.
2. Exchange, Transfer and Replacement.
(a) Exchange. At any time prior to the exercise hereof, this Warrant Certificate
may be exchanged upon presentation and surrender to the Company, alone or with
other Warrant Certificates of like tenor of different denominations registered
in the name of the same Holder, together with a duly executed Assignment in
substantially the form and substance of the Form of Assignment which accompanies
this Warrant Certificate. The Warrant Certificate or Certificates shall be
exchanged for another Warrant Certificate or Certificates of like tenor in the
name of such Holder and/or the transferees named in such Assignment, exercisable
for the aggregate number of Shares as the Certificate or Certificates
surrendered, provided that the Company shall not be obligated to issue exchange
or transfer Certificates for an exchange or transfer of less than 10,000 shares.
The Company shall issue any Warrant Certificates reflecting such transfer or
assignment (including such portion of this Warrant Certificate, if any, as shall
not have been transferred or assigned) within three (3) business days after
receipt of the requisite Warrant Certificate(s) and duly completed Assignment.
(b) Replacement of Warrant Certificate. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction, or mutilation of
this Warrant Certificate 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 (collectively, a "Lost Certificate Affidavit"),
or, in the case of any such mutilation, upon surrender and cancellation of this
Warrant Certificate, the Company, at its expense, will execute and deliver in
lieu thereof, a new Warrant Certificate of like tenor.
(c) Cancellation; Payment of Expenses. Upon the surrender of this Warrant
Certificate in connection with any transfer, exchange or replacement as provided
in this Section 2, this Warrant Certificate shall be promptly canceled by the
Company. The Company shall pay all taxes (other than securities transfer taxes)
and all other 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 Warrant Certificates pursuant to this Section 2.
(d) Warrant Register. The Company shall maintain, at its principal executive
offices (or at the offices of the transfer agent for the Warrant Certificate or
such other office or agency of the Company as it may designate by notice to the
holder hereoq, a register for this Warrant Certificate (the "Warrant Register"),
in which the Company shall record the name and address of the person in whose
name this Warrant Certificate has been issued, as well as the name and address
of each permitted transferee and each prior owner of this Warrant Certificate.
(e) Company Call Right. Beginning on the business day following the first
anniversary of the Issuance Date, provided that the twenty consecutive trading
day average closing bid price of the Common Stock of the Company for the period
ending on the date prior to delivery of such notice (as reported by Bloomberg)
is equal to or greater than 150% of the Exercise Price, as adjusted pursuant to
Section 4 hereof, the Company shall have the ability to deliver a written notice
to the Holder hereof (a "Call Notice") that the Company is exercising its right
to call this Warrant Certificate. The Call Notice shall specify a date no less
than 30 days following the date of delivery of such Call Notice, and, unless
exercised prior to such date, this Certificate (or any unexercised portion
hereof) shall expire, and Holder shall have no further rights hereunder, on and
following such specified date. The Holder shall have the right to exercise its
rights hereunder during such 30 day notice period.
3. Rights and Obligations of Holders of this Certificate. The Holder of this
Certificate shall not, by virtue hereof, be entitled to any rights of a
stockholder in the Company, either at law or in equity; provided, however, that
in the event any certificate representing shares of Common Stock or other
securities is issued to the holder hereof upon exercise of some or all of the
Warrants, such holder shall, for all purposes, be deemed to have become the
holder of record of such Common Stock on the date on which this Certificate,
together with a duly executed Purchase Form, was surrendered and payment of the
aggregate Exercise Price was made, irrespective of the date of delivery of such
share certificate.
4. Adjustments.
(a) Stock Dividends, Reclassifications, Recapitalizations, Etc. In the event the
Company: (i) pays a dividend in Common Stock or makes a distribution in Common
Stock, (ii) subdivides its outstanding Common Stock into a greater number of
shares, (iii) combines its outstanding Common Stock into a smaller number of
shares or (iv) increases or decreases the number of shares of Common Stock
outstanding by reclassification of its Common Stock (including a
recapitalization in connection with a consolidation or merger in which the
Company is the continuing corporation), then (1) the Exercise Price on the
record date of such division or distribution or the effective date of such
action shall be adjusted by multiplying such Exercise Price by a fraction, the
numerator of which is the number of shares of Common Stock outstanding
immediately before such event and the denominator of which is the number of
shares of Common Stock outstanding immediately after such event, and (2) the
number of shares of Common Stock for which this Warrant Certificate may be
exercised immediately before such event shall be adjusted by multiplying such
number by a fraction, the numerator of which is the Exercise Price immediately
before such event and the denominator of which is the Exercise Price immediately
after such event.
(b) Cash Dividends and Other Distributions. In the event that at any time or
from time to time the Company shall distribute to all holders of Common Stock
(i) any dividend or other distribution of cash, evidences of its indebtedness,
shares of its capital stock or any other properties or securities or (ii) any
options, warrants or other rights to subscribe for or purchase any of the
foregoing (other than in each case, (w) the issuance of any rights under a
shareholder rights plan, (x) any dividend or distribution described in Section
4(a), (y) any rights, options, warrants or securities described in Section 4(c)
and (z) any cash dividends or other cash distributions from current earnings),
then the number of shares of Common Stock issuable upon the exercise of each
Warrant Certificate shall be increased to a number determined by multiplying the
number of shares of Common Stock issuable upon the exercise of such Warrant
Certificate immediately prior to the record date for any such dividend or
distribution by a fraction, the numerator of which shall be such Market Value
(as hereinafter defined) per share of Common Stock on the record date for such
dividend or distribution, and the denominator of which shall be such Market
Value per share of Common Stock on the record date for such dividend or
distribution less the sum of (x) the amount of cash, if any, distributed per
share of Common Stock and (y) the fair value (as determined in good faith by the
Board of Directors of the Company, whose determination shall be evidenced by a
board resolution, a copy of which will be sent to the Holders upon request) of
the portion, if any, of the distribution applicable to one share of Common Stock
consisting of evidences of indebtedness, shares of stock, securities, other
property, warrants, options or subscription or purchase rights; and the Exercise
Price shall be adjusted to a number determined by dividing the Exercise Price
immediately prior to such record date by the above fraction. Such adjustments
shall be made whenever any distribution is made and shall become effective as of
the date of distribution, retroactive to the record date for any such
distribution. No adjustment shall be made pursuant to this Section 4(b) which
shall have the effect of decreasing the number of shares of Common Stock
issuable upon exercise of each Warrant Certificate or increasing the Exercise
Price.
(c) Rights Issue. In the event that at any time, or from time to time, the
Company shall issue rights, options or warrants entitling the holders thereof to
subscribe for shares of Common Stock, or securities convertible into or
exchangeable or exercisable for Common Stock to all holders of Common Stock
(other than in connection with the adoption of a shareholder rights plan by the
Company) without any charge, entitling such holders to subscribe for or purchase
shares of Common Stock at a price per share that as of the record date for such
issuance is less than the then Market Value per share of Common Stock, the
number of shares of Common Stock issuable upon the exercise of each Warrant
Certificate shall be increased to a number determined by multiplying the number
of shares of Common Stock theretofore issuable upon exercise of each Warrant
Certificate by a fraction, the numerator of which shall be the number of shares
of Common Stock outstanding on the date of issuance of such rights, options,
warrant or securities plus the number of additional shares of Common Stock
offered for subscription or purchase or into or for which such securities that
are issued are convertible, exchangeable or exercisable' and the denominator of
which shall be the number of shares of Common Stock outstanding on the date of
issuance of such rights, option, warrants or securities plus the total number of
shares of Common Stock which the aggregate consideration expected to be received
by the Company (assuming the exercise or conversion of all such rights, options,
warrants or securities) would purchase at the then Market Value per share of
Common Stock. In the event of any such adjustment, the Exercise Price shall be
adjusted to a number determined by dividing the Exercise price immediately prior
to such date of issuance by the aforementioned fraction. Such adjustment shall
be made immediately after such rights, options or warrants are issued and shall
become effective, retroactive to the record date for the determination of
stockholders entitled to receive such rights, options, warrants or securities.
No adjustment shall be made pursuant to this Section 4(c) which shall have the
effect of decreasing the number of shares of Common Stock purchasable upon
exercise or each Warrant Certificate or of increasing the Exercise Price.
(d) Combination: Liquidation.
(i) Except as provided in Section 4(d)(ii) below, in the event of a Combination
(as defined below), each Holder shall have the right to receive upon exercise of
the Warrant Certificates the kind and amount of shares of capital stock or other
securities or property which such Holder would have been entitled to receive
upon or as a result of such Combination had such Warrant Certificate been
exercised immediately prior to such event (subject to further adjustment in
accordance with the terms hereof). Unless paragraph (ii) is applicable to a
Combination, the Company shall provide that the surviving or acquiring Person
(the "Successor Company") in such Combination will assume by written instrument
the obligations under this Section 4 and the obligations to deliver to the
Holder such shares of stock, securities or assets as, in accordance with the
foregoing provisions, the Holder may be entitled to acquire. The provisions of
this Section 4(d)(i) shall similarly apply to successive Combinations involving
any Successor Company. "Combination" means an event in which the Company
consolidates with, mergers with or into, or sells all or substantially all of
its assets to another Person, where "Person" means any individual, corporation,
partnership, joint venture, limited liability company, association, jointstock
company, trust, unincorporated organization, government or any agency or
political subdivision thereof or any other entity.
(ii) In the event of (x) a Combination where consideration to the holders of
Common Stock in exchange for their shares is payable solely in cash or (y) the
dissolution, liquidation or winding-up of the Company, the Holders shall be
entitled to receive, upon surrender of their Warrant Certificates, distributions
on an equal basis with the holders of Common Stock or other securities issuable
upon exercise of the Warrant Certificates, as if the Warrant Certificates had
been exercised immediately prior to such event, less the Exercise Price. In case
of any Combination described in this Section 4(d)(ii), the surviving or
acquiring Person and, in the event of any dissolution, liquidation or winding-up
of the Companv, the Company, shall deposit promptly following the consummation
of such combination or at the time of such dissolution, liquidation or
winding-up with an agent or trustee for the benefit of the Holders of the funds,
if any, necessary to pay to the Holders the amounts to which they are entitled
as described above. After such funds and the surrendered Warrant Certificates
are received, the Company is required to deliver a check in such amount as is
appropriate (or, in the case of consideration other than cash, such other
consideration as is appropriate) to such Person or Persons as it may be directed
in writing by the Holders surrendering such Warrant Certificates.
(e) Notice of Adjustment. Whenever the Exercise Price or the number of shares of
Common Stock and: other property, if any, issuable upon exercise of the Warrant
Certificates is adjusted, as herein provided, the Company shall deliver to the
holders of the Warrant Certificates in accordance with Section 10 a certificate
of the Company's Chief Financial Officer setting forth, in reasonable detail,
the event requiring the adjustment and the method by which such adjustment was
calculated (including a description of the basis on which (i) the Board of
Directors determined the fair value of any evidences of indebtedness, other
securities or property or warrants, options or other subscription or purchase
rights and (ii) the Market Value of the Common Stock was determined, if either
of such determinations were required), and specifying the Exercise Price and
number of shares of Common Stock issuable upon exercise of Warrant Certificates
after giving effect to such adjustment.
(f) Purchase Price Adjustment. In the event that the Company issues or sells any
Common Stock or securities which are convertible into or exchangeable, whether
or not immediately exchangeable or convertible, for its Common Stock or any
convertible securities, or any warrants or other rights to subscribe for or to
purchase or any options for the purchase of its Common Stock or any such
convertible securities (other than shares or options issued or which may be
issued pursuant to the Company's employee or director option plans or shares
issued upon exercise of options, warrants or rights outstanding on the date of
the Agreement and listed in the Company's most recent periodic report filed
under the Exchange Act) (collectively, "Options") at a purchase price per share
on the date of original issuance of such security which is less than 95% of the
Market Value of the Common Stock on the trading day immediately prior to such
issue or sale, then in each such case, the Exercise Price in effect immediately
prior to such issue or sale shall be reduced effective concurrently with such
issue or sale to an amount determined by multiplying the Exercise Price then in
effect by a fraction, (x) the numerator of which shall be the sum of (1) the
number of shares of Common Stock outstanding immediately prior to such issue or
sale, plus (2) the number of shares of Common Stock which the aggregate
consideration received by the Company for such additional shares would purchase
at such Market Value; and (y) the denominator of which shall be the number of
shares of Common Stock of the Company outstanding immediately after such issue
or sale.
For the purposes of the foregoing adjustment, in the case of the issuance of any
convertible securities, warrants, options or other rights to subscribe for or to
purchase or exchange for, shares of Common Stock ("Convertible Securities"), the
maximum number of shares of Common Stock that would be issuable upon exercise,
exchange or conversion of such Convertible Securities (assuming that shares of
Common Stock were trading at the then Market Value at the time of conversion)
shall be deemed to be outstanding, provided that no further adjustment shall be
made upon the actual issuance of Common Stock upon exercise, exchange or
conversion of such Convertible Securities.
(g) 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.
(h) Notice of Certain Transactions. In the event that the Company shall propose
(a) to pay any dividend payable in securities of any class to the holders of its
Common Stock or to make any other non-cash dividend or distribution to the
holders of its Common Stock, (b) to offer the holders of its Common Stock rights
to subscribe for or to purchase any securities convertible into shares of Common
Stock or shares of stock of any class or any other securities, rights or
options, (c) to effect any capital reorganization, reclassification,
consolidation or merger affecting the class of Common Stock, as a whole, or (d)
to effect the voluntary or involuntary dissolution, liquidation or winding-up of
the Company, the Company shall, within the time limits specified below, send to
each Holder a notice of such proposed action or offer. Such notice shall be
mailed to the Holders at their addresses as they appear in the Warrant Register
(as defined in Section 2(d)), which shall specify the record date for the
purposes of such dividend, distribution or rights, or the date such issuance or
event is to take place and the date of participation therein by the holders of
Common Stock, if any such date is to be fixed, and shall briefly indicate the
effect of such action on the number of shares of Common Stock and on the number
and kind of any other shares of stock and on other property, if any, and the
number of shares of Common Stock and other property, if any, issuable upon
exercise of each Warrant Certificate and the Exercise Price after giving effect
to any adjustment pursuant to Section 4 which will be required as a result of
such action. 'Such notice shall be given as promptly as possible and (x) in the
case of any action covered by clause (a) or (b) above, at least 10 days prior to
the record date for determining holders of the Common Stock for purposes of such
action or (y) in the case of any other such action, at least 20 days prior to
the date of the taking of such proposed action or the date of participation
therein by the holders of Common Stock, whichever shall be the earlier.
(i) Other Adjustments. In the event of any other transaction of the type
contemplated by this Section 4, but not expressly provided for by the provisions
hereof, the Board of Directors of the Company will make appropriate adjustment
in the Exercise Price so as to equitably protect the rights of the Holder.
(j) No Impairment of Holder's Rights. The Company will not, by amendment of its
articles of organization or bylaws or through any reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, except as contemplated hereby, avoid or seek to avoid
the observance or performance of any of the terms of this Warrant Certificate,
but will at all times in good faith assist in the carrying out of all such terms
and in the taking of all action as mav be necessary or appropriate in order to
protect the rights of the Holder against dilution or other impairment.
5. Company's Representations.
(a) The Company covenants and agrees that all shares of Common Stock issuable
upon exercise of this Warrant Certificate will, upon delivery, be duly and
validly authorized and issued, fully-paid and non-assessable and free from all
taxes, liens, claims and encumbrances.
(b) The Company covenants and agrees that it will at all times reserve and keep
available an authorized number of shares of its Common Stock and other
applicable securities sufficient to permit the exercise in full of all
outstanding options, warrants and rights, including this Warrant Certificate.
(c) The Company shall promptly secure the listing of the Shares 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 Certificate) and shall
maintain, so long as any other shares of Common Stock shall be so listed, such
listing of all shares of Common Stock from time to time issuable upon the
exercise of this Warrant Certificate; 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 Certificate if and so long as
any shares of the same class shall be listed on such national securities
exchange or automated quotation system.
(d) The Company has taken all necessary action and proceedings as required and
permitted by applicable law, rule and regulation, including, without limitation,
the notification of the principal market on which the Common Stock is traded,
for the legal and valid issuance of this Warrant Certificate to the Holder under
this Warrant Certificate.
(e) With a view to making available to Holder the benefits of Rule 144
promulgated under the Act and any other rule or regulation of the Securities and
Exchange Commission ("SEC") that may at any time permit Holder to sell
securities of the Company to the public without registration, the Company agrees
to use its reasonable best efforts to:
(i) make and keep public information available, as those terms are understood
and defined in Rule 144, at all times;
(ii) file with the SEC in a timely manner all reports and other documents
required of the Company under the Act and the Securities Exchange Act of 1934,
as amended (the "Exchange Act"); and
(iii) furnish to any Holder forthwith upon request a written statement by the
Company that it has complied with the reporting requirements of Rule 144 and of
the Act and the Exchange Act, a copy of the most recent annual or quarterly
report of the Company, and such other reports and documents so filed by the
Company as may be reasonably requested to permit any such Holder to take
advantage of any rule or regulation of the SEC permitting the selling of any
such securities without registration.
6. Registration Rights. The initial Holder is entitled to the benefit of such
registration rights in respect of the Shares as are set forth in the
Registration Rights Agreement dated as of August 31, 1998 by and between the
Company and the other investors parties thereto ("Registration Rights
Agreement") as if the Holder was a party thereto, 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. The Company acknowledges that the initial Holder may transfer some of
the Warrants to certain of its employees on or about December 31, 1999 and the
Company agrees to promptly amend the Registration Statement to include the
resale of shares by each new owner thereof.
7. Issuance of Certificates. Within two (2) trading days of receipt of a duly
completed Election to Purchase form, together with this Certificate and payment
of the Exercise Price, the Company, at its expense, will cause to be issued in
the name of and delivered to the Holder of this Warrant, a certificate or
certificates for the number of fully paid and non-assessable shares of Common
Stock to which that holder shall be entitled on such exercise. In the event the
shares of Common Stock are not timely delivered to the Holder, the Company
agrees to (a) indemnify Holder for all damages, including consequential and
special damages, lost profits and expenses, including legal fees, and (b)
beginning on the fifth (5th) day following the Company's receipt of a duly
completed Election to Purchase form, pay a default premium of 2% per day of the
value of underlying shares (based on the highest closing price during the two
(2) day period preceding the date of surrender of the Warrant Certificate). In
lieu of issuance of a fractional share upon any exercise hereunder, the Company
will pay the cash value of that fractional share, calculated on the basis of the
Exercise Price. Prior to registration of the resale of the shares of Common
Stock underlying this Warrant Certificate, and delivery of an Election to
Purchase to the Company, all such certificates shall bear a restrictive legend
to the effect that the Shares represented by such certificate have not been
registered under the 1933 Act, and that the Shares may not be sold or
transferred in the absence of such registration or an exemption therefrom, such
legend to be substantially in the form of the bold-face language appearing at
the top of Page 1 of this Warrant Certificate.
8. Disposition of Warrants or Shares. The Holder of this Warrant Certificate,
each transferee hereof and any holder and transferee of any Shares, by his or
its acceptance thereof, agrees that no public distribution of Warrants or Shares
will be made in violation of the provisions of the 1933 Act. Furthermore, it
shall be a condition to the transfer of the Warrants that any transferee thereof
deliver to the Company his or its written agreement to accept and be bound by
all of the relevant terms and conditions contained in this Warrant Certificate.
9. Notices. Except as otherwise specified herein to the contrary, all notices,
requests, demands and other communications required or desired to be given
hereunder shall only be effective if given in writing by certified or registered
U.S. mail with return receipt requested and postage prepaid; by private
overnight delivery service (e.g. Federal Express); by facsimile transmission (if
no original documents or instruments must accompany the notice); or by personal
delivery. Any such notice shall be deemed to have been given (a) on the business
day immediately following the mailing thereof, if mailed by certified or
registered U.S. mail as specified above; (b) on the business day immediately
following deposit with a private overnight delivery service if sent by said
service; (c) upon receipt of confirmation of transmission if sent by facsimile
transmission; or (d) upon personal delivery of the notice. All such notices
shall be sent to the following addresses (or to such other address or addresses
as a party may have advised the other in the manner provided in this Section
10):
If to the Company:
SoftNet Systems, Inc.
520 Logue Avenue
Mountain View, CA 94043
Attn: Chief Executive Officer
Phone: (650) 962-7451
Fax: (650) 962-7488
With a copy to:
Brobeck, Phleger & Harrison
2200 Geng Road
Two Embarcadero Place
Palo Alto, CA 94303
Attn: Thomas W. Kellerman, Esq.
Phone: (650) 496-2788
Fax: (650) 496-2777
If to Holder:
Steven M. Lamar
c/o Shoreline Pacific Equity, Ltd.
3 Harbor Drive, Suite 211
Sausalito, CA 94965
Telephone: (415) 332-7800
Telecopy: (415) 332-7808
Attention: General Counsel
Notwithstanding the time of effectiveness of notices set forth in this Section,
an Election to Purchase shall not be deemed effectively given until it has been
duly completed and submitted to the Company together with the original Warrant
Certificate to be exercised and payment of the Exercise Price in a manner set
forth in this Section.
10. Notwithstanding anything in this Warrant Certificate to the contrary, in no
event shall the holder of this Warrant Certificate be entitled to exercise with
respect to a number of shares of Common Stock to the extent that following such
exercise 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 Warrant
Certificates and unconverted shares of 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 Warrant
Certificates (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, shall be determined
in accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended, and Rules 13(d) -(g) thereunder, except as otherwise provided in clause
(i) hereof.
11. Governing Law. This Warrant Certificate and all rights and obligations
hereunder shall be deemed to be made under and governed by the laws of the State
of New York without giving effect to the conflicts of laws provisions. The
Holder hereby irrevocably consents to the venue and jurisdiction of the State
and Federal Courts located in the State of New York, County of New York.
12. Successors and Assigns. This Warrant Certificate shall be binding upon and
shall inure to the benefit of the parties hereto and their respective successors
and permitted assigns.
13. Headings. The headings of various sections of this Warrant Certificate have
been inserted for reference only and shall not affect the meaning or
construction of any of the provisions hereof.
14. Severability. If any provision of this Warrant Certificate is held to be
unenforceable under applicable law, such provision shall be excluded from this
Warrant Certificate, and the balance hereof shall be interpreted as if such
provision were so excluded.
15. Modification and Waiver. This Warrant Certificate and any provision hereof
may be amended, waived, discharged or terminated only by an instrument in
writing signed by the Company and the Holder.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
16. Specific Enforcement. The Company and the Holder acknowledge and agree that
irreparable damage would occur in the event that any of the provisions of this
Warrant Certificate were not performed in accordance with their specific terms
or were otherwise breached. It is accordingly agreed that the parties shall be
entitled to an injunction or injunctions to prevent or cure breaches of the
provisions of this Warrant Certificate and to enforce specifically the terms and
provisions hereof, this being in addition to any other remedy to which either of
them may be entitled by law or equity.
IN WITNESS WHEREOF, the Company has caused this Warrant
Certificate to be duly executed, manually or by facsimile, by one of its
officers thereunto duly authorized.
SOFTNET SYSTEMS, INC.
By: /s/ Mark A. Phillips
----------------------------
Name: Mark A. Phillips
Date: August 31, 1998 Title: Treasurer
<PAGE>
ELECTION TO PURCHASE
To Be Executed by the Holder
in Order to Exercise the Common Stock
Purchase Warrant Certificate
The undersigned Holder hereby elects to exercise of the
Warrants represented by the attached Common Stock Purchase Warrant Certificate,
and to purchase the shares of Common Stock issuable upon the exercise of such
Warrants, and requests that certificates for securities be issued in the name
of:
----------------------------------------------------------------
(Please type or print name and address)
----------------------------------------------------------------
----------------------------------------------------------------
----------------------------------------------------------------
(Social Security or Tax Identification Number)
and deliver to:
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
If such number of Warrants being exercised hereby shall not be all the Warrants
evidenced by the attached Common Stock Purchase Warrant Certificate, a new
Common Stock Purchase Warrant Certificate for the balance of such Warrants shall
be registered in the name of, and delivered to, the Holder at the address set
forth below.
[In full payment of the purchase price with respect to the
Warrants exercised and transfer taxes, if any, the undersigned hereby tenders
payment of $ by check, money order or wire transfer payable in United States
currency to the order of SoftNet Systems, Inc.] or [The undersigned elects
cashless exercise in accordance with Section l(b) of the Common Stock Purchase
Warrant Certificate.]
<PAGE>
Holder hereby represents and covenants that it has complied
with, or will comply with, any and all prospectus delivery requirements with
respect to its sale of the Common Stock of the Company being purchased herewith.
HOLDER:
By:
-------------------------------
Name:
Title:
Date:
<PAGE>
FORM OF ASSIGNMENT
(To be signed only on transfer of Warrant)
For value received, the undersigned hereby sells, assigns, and transfers unto
______________ the right represented by the within Warrant to purchase
___________ shares of Common Stock of SoftNet Systems, Inc., a New York
corporation, to which the within Warrant relates, and appoints
_____________Attorney to transfer such right on the books of SoftNet Systems,
Inc., a New York corporation, with full power of substitution of premises.
By:
-------------------------------
Name:
Title:
(signature must conform to name of holder as specified
on the face of the Warrant)
Address:
Date:
Signed in the presence of:
- -------------------------------
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE OF
THE UNITED STATES. THE SECURITIES REPRESENTED HEREBY MAY NOT BE OFFERED OR SOLD
OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
FOR THE SECURITIES UNDER APPLICABLE SECURITIES LAWS OR UNLESS OFFERED, SOLD OR
TRANSFERRED PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THOSE LAWS.
COMMON STOCK PURCHASE WARRANT CERTIFICATE
Dated: August 31, 1998
to Purchase 23,625 Shares of Common Stock of
SOFTNET SYSTEMS, INC.
SOFTNET SYSTEMS, INC., a New York corporation (the "Company"),
hereby certifies, as of August 31, 1998 (the "Issuance Date"), that SHORELINE
PACIFIC EQUITY, LTD., its permissible transferees, designees, successors and
assigns (collectively, the "Holder"), for value received, is entitled to
purchase from the Company at any time commencing on the date of the Second
Closing (as defined in the Securities Purchase Agreement dated August 31, 1998,
between SoftNet Systems, Inc. and Rose Glen International Investors, LDC) and
terminating on the fourth anniversary of the date of such Second Closing (or
such earlier date as is specified in a duly delivered Call Notice (as defined
below)) up to 23,625 shares (each a "Share" and collectively the "Shares") of
the Company's common stock (the "Common Stock") at an exercise price per Share
of $7.50 (the "Exercise Price"). The number of Shares purchasable hereunder and
the Exercise Price are subject to adjustment as provided in Section 4 hereof. If
the Second Closing has not occurred on or prior to September 1, 1999, this
Warrant Certificate shall automatically, without further action of the Company,
expire and be of no further force or effect.
1. Exercise of Warrants.
(a) Upon presentation and surrender of this Common Stock Purchase Warrant
Certificate ("Warrant Certificate" or "Certificate"), or a Lost Certificate
Affidavit (as defined below), accompanied by a completed Election to Purchase in
the form attached hereto as Exhibit A (the "Election to Purchase") duly
executed, at the principal office of the Company at 520 Logue Avenue, Mountain
View, CA 94043, Attn: Mark Philips, together with a check payable to the Company
in the amount of the Exercise Price multiplied by the number of Shares being
purchased, the Company or the Company's Transfer Agent as the case may be,
shall, within two (2) trading days of receipt of the foregoing, deliver to the
Holder hereof, certificates of fully paid and nonassessable Common Stock which
in the aggregate represent the number of Shares being purchased; provided,
however, that the Investor may elect, in accordance with paragraph (b), below,
to utilize the cashless exercise provisions set forth below in lieu of SoftNet
Systems, Inc.: Common Stock Purchase Warrant Certificate tendering the Exercise
Price in cash. The certificates so delivered shall be in such denominations as
may be reasonably requested by the Holder and shall be registered in the name of
the Holder or such other name as shall be designated by the Holder. All or less
than all of the Warrants represented by this Certificate may be exercised and,
in case of the exercise of less than all, the Company, upon surrender hereof,
will at the Company's expense deliver to the Holder a new Warrant Certificate or
Certificates (in such denominations as may be requested by the Holder) of like
tenor and dated the date hereof entitling said holder to purchase the number of
Shares represented by this Certificate which have not been exercised and to
receive Registration Rights with respect to such Shares, and all other rights
with respect to the shares which the Holder has on the date hereof.
(b) Cashless Exercise. Notwithstanding the foregoing provision regarding payment
of the Exercise Price in cash, the Holder may elect, in its sole discretion on a
case by case basis, to receive a reduced number of Shares in lieu of tendering
the Exercise Price in cash ("Cashless Exercise"). In such case, the number of
Shares to be issued to the Holder shall be computed using the following
formula;:
X = Y(A-B)
------------
A
where: X = the number of Shares to be issued to the Holder;
Y = the number of Shares to be exercised under this Warrant
Certificate;
A = the Market Value (defined below) of one share of Common Stock
on the trading day immediately prior to the date that the Election
to Purchase is duly surrendered to the Company for full or partial
exercise; and B = the Exercise Price.
The term "Market Value" means, for any security as of any date, the last
reported sale price of such security on the principal securities exchange or
trading market where such security is listed or traded as reported by Bloomberg
Financial Markets or a comparable reporting service of national reputation
selected by the Company and reasonably acceptable to the Holder if Bloomberg
Financial Markets is not then reporting last reported sale prices of such
security (collectively, "Bloomberg"), or if the foregoing does not apply, the
last reported sale price of such security in the over-the-counter market or the
electronic bulletin board of such security as reported by Bloomberg, or, if no
sale price is reported for such security by Bloomberg, the average of the bid
prices of any market makers for such security that are listed in the "pink
sheets" by the National Quotation Bureau, Inc. If the Market Value cannot be
calculated for such security on such date on any of the foregoing bases, the
Market Value of such security on such date shall be the fair market value as
reasonably determined by an investment banking firm selected by the Company and
reasonably acceptable to the Holder with the costs of such appraisal to be borne
by the Company.
2. Exchange, Transfer and Replacement.
(a) Exchange. At any time prior to the exercise hereof, this Warrant Certificate
may be exchanged upon presentation and surrender to the Company, alone or with
other Warrant Certificates of like tenor of different denominations registered
in the name of the same Holder, together with a duly executed Assignment in
substantially the form and substance of the Form of Assignment which accompanies
this Warrant Certificate. The Warrant Certificate or Certificates shall be
exchanged for another Warrant Certificate or Certificates of like tenor in the
name of such Holder and/or the transferees named in such Assignment, exercisable
for the aggregate number of Shares as the Certificate or Certificates
surrendered, provided that the Company shall not be obligated to issue exchange
or transfer Certificates for an exchange or transfer of less than 10,000 shares.
The Company shall issue any Warrant Certificates reflecting such transfer or
assignment (including such portion of this Warrant Certificate, if any, as shall
not have been transferred or assigned) within three (3) business days after
receipt of the requisite Warrant Certificate(s) and duly completed Assignment.
(b) Replacement of Warrant Certificate. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction, or mutilation of
this Warrant Certificate 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 (collectively, a "Lost Certificate Affidavit"),
or, in the case of any such mutilation, upon surrender and cancellation of this
Warrant Certificate, the Company, at its expense, will execute and deliver in
lieu thereof, a new Warrant Certificate of like tenor.
(c) Cancellation; Payment of Expenses. Upon the surrender of this Warrant
Certificate in connection with any transfer, exchange or replacement as provided
in this Section 2, this Warrant Certificate shall be promptly canceled by the
Company. The Company shall pay all taxes (other than securities transfer taxes)
and all other 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 Warrant Certificates pursuant to this Section 2.
(d) Warrant Register. The Company shall maintain, at its principal executive
offices (or at the offices of the transfer agent for the Warrant Certificate or
such other office or agency of the Company as it may designate by notice to the
holder hereoq, a register for this Warrant Certificate (the "Warrant Register"),
in which the Company shall record the name and address of the person in whose
name this Warrant Certificate has been issued, as well as the name and address
of each permitted transferee and each prior owner of this Warrant Certificate.
(e) Company Call Right. Beginning on the business day following the first
anniversary of the Issuance Date, provided that the twenty consecutive trading
day average closing bid price of the Common Stock of the Company for the period
ending on the date prior to delivery of such notice (as reported by Bloomberg)
is equal to or greater than 150% of the Exercise Price, as adjusted pursuant to
Section 4 hereof, the Company shall have the ability to deliver a written notice
to the Holder hereof (a "Call Notice") that the Company is exercising its right
to call this Warrant Certificate. The Call Notice shall specify a date no less
than 30 days following the date of delivery of such Call Notice, and, unless
exercised prior to such date, this Certificate (or any unexercised portion
hereof) shall expire, and Holder shall have no further rights hereunder, on and
following such specified date. The Holder shall have the right to exercise its
rights hereunder during such 30 day notice period.
3. Rights and Obligations of Holders of this Certificate. The Holder of this
Certificate shall not, by virtue hereof, be entitled to any rights of a
stockholder in the Company, either at law or in equity; provided, however, that
in the event any certificate representing shares of Common Stock or other
securities is issued to the holder hereof upon exercise of some or all of the
Warrants, such holder shall, for all purposes, be deemed to have become the
holder of record of such Common Stock on the date on which this Certificate,
together with a duly executed Purchase Form, was surrendered and payment of the
aggregate Exercise Price was made, irrespective of the date of delivery of such
share certificate.
4. Adjustments.
(a) Stock Dividends, Reclassifications, Recapitalizations, Etc. In the event the
Company: (i) pays a dividend in Common Stock or makes a distribution in Common
Stock, (ii) subdivides its outstanding Common Stock into a greater number of
shares, (iii) combines its outstanding Common Stock into a smaller number of
shares or (iv) increases or decreases the number of shares of Common Stock
outstanding by reclassification of its Common Stock (including a
recapitalization in connection with a consolidation or merger in which the
Company is the continuing corporation), then (1) the Exercise Price on the
record date of such division or distribution or the effective date of such
action shall be adjusted by multiplying such Exercise Price by a fraction, the
numerator of which is the number of shares of Common Stock outstanding
immediately before such event and the denominator of which is the number of
shares of Common Stock outstanding immediately after such event, and (2) the
number of shares of Common Stock for which this Warrant Certificate may be
exercised immediately before such event shall be adjusted by multiplying such
number by a fraction, the numerator of which is the Exercise Price immediately
before such event and the denominator of which is the Exercise Price immediately
after such event.
(b) Cash Dividends and Other Distributions. In the event that at any time or
from time to time the Company shall distribute to all holders of Common Stock
(i) any dividend or other distribution of cash, evidences of its indebtedness,
shares of its capital stock or any other properties or securities or (ii) any
options, warrants or other rights to subscribe for or purchase any of the
foregoing (other than in each case, (w) the issuance of any rights under a
shareholder rights plan, (x) any dividend or distribution described in Section
4(a), (y) any rights, options, warrants or securities described in Section 4(c)
and (z) any cash dividends or other cash distributions from current earnings),
then the number of shares of Common Stock issuable upon the exercise of each
Warrant Certificate shall be increased to a number determined by multiplying the
number of shares of Common Stock issuable upon the exercise of such Warrant
Certificate immediately prior to the record date for any such dividend or
distribution by a fraction, the numerator of which shall be such Market Value
(as hereinafter defined) per share of Common Stock on the record date for such
dividend or distribution, and the denominator of which shall be such Market
Value per share of Common Stock on the record date for such dividend or
distribution less the sum of (x) the amount of cash, if any, distributed per
share of Common Stock and (y) the fair value (as determined in good faith by the
Board of Directors of the Company, whose determination shall be evidenced by a
board resolution, a copy of which will be sent to the Holders upon request) of
the portion, if any, of the distribution applicable to one share of Common Stock
consisting of evidences of indebtedness, shares of stock, securities, other
property, warrants, options or subscription or purchase rights; and the Exercise
Price shall be adjusted to a number determined by dividing the Exercise Price
immediately prior to such record date by the above fraction. Such adjustments
shall be made whenever any distribution is made and shall become effective as of
the date of distribution, retroactive to the record date for any such
distribution. No adjustment shall be made pursuant to this Section 4(b) which
shall have the effect of decreasing the number of shares of Common Stock
issuable upon exercise of each Warrant Certificate or increasing the Exercise
Price.
(c) Rights Issue. In the event that at any time, or from time to time, the
Company shall issue rights, options or warrants entitling the holders thereof to
subscribe for shares of Common Stock, or securities convertible into or
exchangeable or exercisable for Common Stock to all holders of Common Stock
(other than in connection with the adoption of a shareholder rights plan by the
Company) without any charge, entitling such holders to subscribe for or purchase
shares of Common Stock at a price per share that as of the record date for such
issuance is less than the then Market Value per share of Common Stock, the
number of shares of Common Stock issuable upon the exercise of each Warrant
Certificate shall be increased to a number determined by multiplying the number
of shares of Common Stock theretofore issuable upon exercise of each Warrant
Certificate by a fraction, the numerator of which shall be the number of shares
of Common Stock outstanding on the date of issuance of such rights, options,
warrant or securities plus the number of additional shares of Common Stock
offered for subscription or purchase or into or for which such securities that
are issued are convertible, exchangeable or exercisable' and the denominator of
which shall be the number of shares of Common Stock outstanding on the date of
issuance of such rights, option, warrants or securities plus the total number of
shares of Common Stock which the aggregate consideration expected to be received
by the Company (assuming the exercise or conversion of all such rights, options,
warrants or securities) would purchase at the then Market Value per share of
Common Stock. In the event of any such adjustment, the Exercise Price shall be
adjusted to a number determined by dividing the Exercise price immediately prior
to such date of issuance by the aforementioned fraction. Such adjustment shall
be made immediately after such rights, options or warrants are issued and shall
become effective, retroactive to the record date for the determination of
stockholders entitled to receive such rights, options, warrants or securities.
No adjustment shall be made pursuant to this Section 4(c) which shall have the
effect of decreasing the number of shares of Common Stock purchasable upon
exercise or each Warrant Certificate or of increasing the Exercise Price.
(d) Combination: Liquidation.
(i) Except as provided in Section 4(d)(ii) below, in the event of a Combination
(as defined below), each Holder shall have the right to receive upon exercise of
the Warrant Certificates the kind and amount of shares of capital stock or other
securities or property which such Holder would have been entitled to receive
upon or as a result of such Combination had such Warrant Certificate been
exercised immediately prior to such event (subject to further adjustment in
accordance with the terms hereof). Unless paragraph (ii) is applicable to a
Combination, the Company shall provide that the surviving or acquiring Person
(the "Successor Company") in such Combination will assume by written instrument
the obligations under this Section 4 and the obligations to deliver to the
Holder such shares of stock, securities or assets as, in accordance with the
foregoing provisions, the Holder may be entitled to acquire. The provisions of
this Section 4(d)(i) shall similarly apply to successive Combinations involving
any Successor Company. "Combination" means an event in which the Company
consolidates with, mergers with or into, or sells all or substantially all of
its assets to another Person, where "Person" means any individual, corporation,
partnership, joint venture, limited liability company, association, jointstock
company, trust, unincorporated organization, government or any agency or
political subdivision thereof or any other entity.
(ii) In the event of (x) a Combination where consideration to the holders of
Common Stock in exchange for their shares is payable solely in cash or (y) the
dissolution, liquidation or winding-up of the Company, the Holders shall be
entitled to receive, upon surrender of their Warrant Certificates, distributions
on an equal basis with the holders of Common Stock or other securities issuable
upon exercise of the Warrant Certificates, as if the Warrant Certificates had
been exercised immediately prior to such event, less the Exercise Price. In case
of any Combination described in this Section 4(d)(ii), the surviving or
acquiring Person and, in the event of any dissolution, liquidation or winding-up
of the Companv, the Company, shall deposit promptly following the consummation
of such combination or at the time of such dissolution, liquidation or
winding-up with an agent or trustee for the benefit of the Holders of the funds,
if any, necessary to pay to the Holders the amounts to which they are entitled
as described above. After such funds and the surrendered Warrant Certificates
are received, the Company is required to deliver a check in such amount as is
appropriate (or, in the case of consideration other than cash, such other
consideration as is appropriate) to such Person or Persons as it may be directed
in writing by the Holders surrendering such Warrant Certificates.
(e) Notice of Adjustment. Whenever the Exercise Price or the number of shares of
Common Stock and: other property, if any, issuable upon exercise of the Warrant
Certificates is adjusted, as herein provided, the Company shall deliver to the
holders of the Warrant Certificates in accordance with Section 10 a certificate
of the Company's Chief Financial Officer setting forth, in reasonable detail,
the event requiring the adjustment and the method by which such adjustment was
calculated (including a description of the basis on which (i) the Board of
Directors determined the fair value of any evidences of indebtedness, other
securities or property or warrants, options or other subscription or purchase
rights and (ii) the Market Value of the Common Stock was determined, if either
of such determinations were required), and specifying the Exercise Price and
number of shares of Common Stock issuable upon exercise of Warrant Certificates
after giving effect to such adjustment.
(f) Purchase Price Adjustment. In the event that the Company issues or sells any
Common Stock or securities which are convertible into or exchangeable, whether
or not immediately exchangeable or convertible, for its Common Stock or any
convertible securities, or any warrants or other rights to subscribe for or to
purchase or any options for the purchase of its Common Stock or any such
convertible securities (other than shares or options issued or which may be
issued pursuant to the Company's employee or director option plans or shares
issued upon exercise of options, warrants or rights outstanding on the date of
the Agreement and listed in the Company's most recent periodic report filed
under the Exchange Act) (collectively, "Options") at a purchase price per share
on the date of original issuance of such security which is less than 95% of the
Market Value of the Common Stock on the trading day immediately prior to such
issue or sale, then in each such case, the Exercise Price in effect immediately
prior to such issue or sale shall be reduced effective concurrently with such
issue or sale to an amount determined by multiplying the Exercise Price then in
effect by a fraction, (x) the numerator of which shall be the sum of (1) the
number of shares of Common Stock outstanding immediately prior to such issue or
sale, plus (2) the number of shares of Common Stock which the aggregate
consideration received by the Company for such additional shares would purchase
at such Market Value; and (y) the denominator of which shall be the number of
shares of Common Stock of the Company outstanding immediately after such issue
or sale.
For the purposes of the foregoing adjustment, in the case of the issuance of any
convertible securities, warrants, options or other rights to subscribe for or to
purchase or exchange for, shares of Common Stock ("Convertible Securities"), the
maximum number of shares of Common Stock that would be issuable upon exercise,
exchange or conversion of such Convertible Securities (assuming that shares of
Common Stock were trading at the then Market Value at the time of conversion)
shall be deemed to be outstanding, provided that no further adjustment shall be
made upon the actual issuance of Common Stock upon exercise, exchange or
conversion of such Convertible Securities.
(g) 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.
(h) Notice of Certain Transactions. In the event that the Company shall propose
(a) to pay any dividend payable in securities of any class to the holders of its
Common Stock or to make any other non-cash dividend or distribution to the
holders of its Common Stock, (b) to offer the holders of its Common Stock rights
to subscribe for or to purchase any securities convertible into shares of Common
Stock or shares of stock of any class or any other securities, rights or
options, (c) to effect any capital reorganization, reclassification,
consolidation or merger affecting the class of Common Stock, as a whole, or (d)
to effect the voluntary or involuntary dissolution, liquidation or winding-up of
the Company, the Company shall, within the time limits specified below, send to
each Holder a notice of such proposed action or offer. Such notice shall be
mailed to the Holders at their addresses as they appear in the Warrant Register
(as defined in Section 2(d)), which shall specify the record date for the
purposes of such dividend, distribution or rights, or the date such issuance or
event is to take place and the date of participation therein by the holders of
Common Stock, if any such date is to be fixed, and shall briefly indicate the
effect of such action on the number of shares of Common Stock and on the number
and kind of any other shares of stock and on other property, if any, and the
number of shares of Common Stock and other property, if any, issuable upon
exercise of each Warrant Certificate and the Exercise Price after giving effect
to any adjustment pursuant to Section 4 which will be required as a result of
such action. 'Such notice shall be given as promptly as possible and (x) in the
case of any action covered by clause (a) or (b) above, at least 10 days prior to
the record date for determining holders of the Common Stock for purposes of such
action or (y) in the case of any other such action, at least 20 days prior to
the date of the taking of such proposed action or the date of participation
therein by the holders of Common Stock, whichever shall be the earlier.
(i) Other Adjustments. In the event of any other transaction of the type
contemplated by this Section 4, but not expressly provided for by the provisions
hereof, the Board of Directors of the Company will make appropriate adjustment
in the Exercise Price so as to equitably protect the rights of the Holder.
(j) No Impairment of Holder's Rights. The Company will not, by amendment of its
articles of organization or bylaws or through any reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, except as contemplated hereby, avoid or seek to avoid
the observance or performance of any of the terms of this Warrant Certificate,
but will at all times in good faith assist in the carrying out of all such terms
and in the taking of all action as mav be necessary or appropriate in order to
protect the rights of the Holder against dilution or other impairment.
5. Company's Representations.
(a) The Company covenants and agrees that all shares of Common Stock issuable
upon exercise of this Warrant Certificate will, upon delivery, be duly and
validly authorized and issued, fully-paid and non-assessable and free from all
taxes, liens, claims and encumbrances.
(b) The Company covenants and agrees that it will at all times reserve and keep
available an authorized number of shares of its Common Stock and other
applicable securities sufficient to permit the exercise in full of all
outstanding options, warrants and rights, including this Warrant Certificate.
(c) The Company shall promptly secure the listing of the Shares 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 Certificate) and shall
maintain, so long as any other shares of Common Stock shall be so listed, such
listing of all shares of Common Stock from time to time issuable upon the
exercise of this Warrant Certificate; 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 Certificate if and so long as
any shares of the same class shall be listed on such national securities
exchange or automated quotation system.
(d) The Company has taken all necessary action and proceedings as required and
permitted by applicable law, rule and regulation, including, without limitation,
the notification of the principal market on which the Common Stock is traded,
for the legal and valid issuance of this Warrant Certificate to the Holder under
this Warrant Certificate.
(e) With a view to making available to Holder the benefits of Rule 144
promulgated under the Act and any other rule or regulation of the Securities and
Exchange Commission ("SEC") that may at any time permit Holder to sell
securities of the Company to the public without registration, the Company agrees
to use its reasonable best efforts to:
(i) make and keep public information available, as those terms are understood
and defined in Rule 144, at all times;
(ii) file with the SEC in a timely manner all reports and other documents
required of the Company under the Act and the Securities Exchange Act of 1934,
as amended (the "Exchange Act"); and
(iii) furnish to any Holder forthwith upon request a written statement by the
Company that it has complied with the reporting requirements of Rule 144 and of
the Act and the Exchange Act, a copy of the most recent annual or quarterly
report of the Company, and such other reports and documents so filed by the
Company as may be reasonably requested to permit any such Holder to take
advantage of any rule or regulation of the SEC permitting the selling of any
such securities without registration.
6. Registration Rights. The initial Holder is entitled to the benefit of such
registration rights in respect of the Shares as are set forth in the
Registration Rights Agreement dated as of August 31, 1998 by and between the
Company and the other investors parties thereto ("Registration Rights
Agreement") as if the Holder was a party thereto, 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. The Company acknowledges that the initial Holder may transfer some of
the Warrants to certain of its employees on or about December 31, 1999 and the
Company agrees to promptly amend the Registration Statement to include the
resale of shares by each new owner thereof.
7. Issuance of Certificates. Within two (2) trading days of receipt of a duly
completed Election to Purchase form, together with this Certificate and payment
of the Exercise Price, the Company, at its expense, will cause to be issued in
the name of and delivered to the Holder of this Warrant, a certificate or
certificates for the number of fully paid and non-assessable shares of Common
Stock to which that holder shall be entitled on such exercise. In the event the
shares of Common Stock are not timely delivered to the Holder, the Company
agrees to (a) indemnify Holder for all damages, including consequential and
special damages, lost profits and expenses, including legal fees, and (b)
beginning on the fifth (5th) day following the Company's receipt of a duly
completed Election to Purchase form, pay a default premium of 2% per day of the
value of underlying shares (based on the highest closing price during the two
(2) day period preceding the date of surrender of the Warrant Certificate). In
lieu of issuance of a fractional share upon any exercise hereunder, the Company
will pay the cash value of that fractional share, calculated on the basis of the
Exercise Price. Prior to registration of the resale of the shares of Common
Stock underlying this Warrant Certificate, and delivery of an Election to
Purchase to the Company, all such certificates shall bear a restrictive legend
to the effect that the Shares represented by such certificate have not been
registered under the 1933 Act, and that the Shares may not be sold or
transferred in the absence of such registration or an exemption therefrom, such
legend to be substantially in the form of the bold-face language appearing at
the top of Page 1 of this Warrant Certificate.
8. Disposition of Warrants or Shares. The Holder of this Warrant Certificate,
each transferee hereof and any holder and transferee of any Shares, by his or
its acceptance thereof, agrees that no public distribution of Warrants or Shares
will be made in violation of the provisions of the 1933 Act. Furthermore, it
shall be a condition to the transfer of the Warrants that any transferee thereof
deliver to the Company his or its written agreement to accept and be bound by
all of the relevant terms and conditions contained in this Warrant Certificate.
9. Notices. Except as otherwise specified herein to the contrary, all notices,
requests, demands and other communications required or desired to be given
hereunder shall only be effective if given in writing by certified or registered
U.S. mail with return receipt requested and postage prepaid; by private
overnight delivery service (e.g. Federal Express); by facsimile transmission (if
no original documents or instruments must accompany the notice); or by personal
delivery. Any such notice shall be deemed to have been given (a) on the business
day immediately following the mailing thereof, if mailed by certified or
registered U.S. mail as specified above; (b) on the business day immediately
following deposit with a private overnight delivery service if sent by said
service; (c) upon receipt of confirmation of transmission if sent by facsimile
transmission; or (d) upon personal delivery of the notice. All such notices
shall be sent to the following addresses (or to such other address or addresses
as a party may have advised the other in the manner provided in this Section
10):
If to the Company:
SoftNet Systems, Inc. 520 Logue Avenue
Mountain View, CA 94043
Attn: Chief Executive Officer
Phone: (650) 962-7451
Fax: (650) 962-7488
With a copy to:
Brobeck, Phleger & Harrison 2200 Geng Road
Two Embarcadero Place
Palo Alto, CA 94303
Attn: Thomas W. Kellerman, Esq.
Phone: (650) 496-2788
Fax: (650) 496-2777
If to Holder:
Shoreline Pacific Equity, Ltd.
3 Harbor Drive, Suite 211
Sausalito, CA 94965
Telephone: (415) 332-7800
Telecopy: (415) 332-7808
Attention: General Counsel
Notwithstanding the time of effectiveness of notices set forth in this Section,
an Election to Purchase shall not be deemed effectively given until it has been
duly completed and submitted to the Company together with the original Warrant
Certificate to be exercised and payment of the Exercise Price in a manner set
forth in this Section.
10. Notwithstanding anything in this Warrant Certificate to the contrary, in no
event shall the holder of this Warrant Certificate be entitled to exercise with
respect to a number of shares of Common Stock to the extent that following such
exercise 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 Warrant
Certificates and unconverted shares of 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 Warrant
Certificates (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, shall be determined
in accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended, and Rules 13(d) -(g) thereunder, except as otherwise provided in clause
(i) hereof.
11. Governing Law. This Warrant Certificate and all rights and obligations
hereunder shall be deemed to be made under and governed by the laws of the State
of New York without giving effect to the conflicts of laws provisions. The
Holder hereby irrevocably consents to the venue and jurisdiction of the State
and Federal Courts located in the State of New York, County of New York.
12. Successors and Assigns. This Warrant Certificate shall be binding upon and
shall inure to the benefit of the parties hereto and their respective successors
and permitted assigns.
13. Headings. The headings of various sections of this Warrant Certificate have
been inserted for reference only and shall not affect the meaning or
construction of any of the provisions hereof.
14. Severability. If any provision of this Warrant Certificate is held to be
unenforceable under applicable law, such provision shall be excluded from this
Warrant Certificate, and the balance hereof shall be interpreted as if such
provision were so excluded.
15. Modification and Waiver. This Warrant Certificate and any provision hereof
may be amended, waived, discharged or terminated only by an instrument in
writing signed by the Company and the Holder.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
16. Specific Enforcement. The Company and the Holder acknowledge and agree that
irreparable damage would occur in the event that any of the provisions of this
Warrant Certificate were not performed in accordance with their specific terms
or were otherwise breached. It is accordingly agreed that the parties shall be
entitled to an injunction or injunctions to prevent or cure breaches of the
provisions of this Warrant Certificate and to enforce specifically the terms and
provisions hereof, this being in addition to any other remedy to which either of
them may be entitled by law or equity.
IN WITNESS WHEREOF, the Company has caused this Warrant
Certificate to be duly executed, manually or by facsimile, by one of its
officers thereunto duly authorized.
SOFTNET SYSTEMS, INC.
By: /s/ Mark A. Phillips
----------------------------
Name: Mark A. Phillips
Date: August 31, 1998 Title: Treasurer
<PAGE>
ELECTION TO PURCHASE
To Be Executed by the Holder
in Order to Exercise the Common Stock
Purchase Warrant Certificate
The undersigned Holder hereby elects to exercise of the
Warrants represented by the attached Common Stock Purchase Warrant Certificate,
and to purchase the shares of Common Stock issuable upon the exercise of such
Warrants, and requests that certificates for securities be issued in the name
of:
----------------------------------------------------------------
(Please type or print name and address)
----------------------------------------------------------------
----------------------------------------------------------------
----------------------------------------------------------------
(Social Security or Tax Identification Number)
and deliver to:
-------------------------------------------------------------------------------
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If such number of Warrants being exercised hereby shall not be all the Warrants
evidenced by the attached Common Stock Purchase Warrant Certificate, a new
Common Stock Purchase Warrant Certificate for the balance of such Warrants shall
be registered in the name of, and delivered to, the Holder at the address set
forth below.
[In full payment of the purchase price with respect to the
Warrants exercised and transfer taxes, if any, the undersigned hereby tenders
payment of $ by check, money order or wire transfer payable in United States
currency to the order of SoftNet Systems, Inc.] or [The undersigned elects
cashless exercise in accordance with Section l(b) of the Common Stock Purchase
Warrant Certificate.]
<PAGE>
Holder hereby represents and covenants that it has complied
with, or will comply with, any and all prospectus delivery requirements with
respect to its sale of the Common Stock of the Company being purchased herewith.
HOLDER:
By:
-------------------------------
Name:
Title:
Date:
<PAGE>
FORM OF ASSIGNMENT
(To be signed only on transfer of Warrant)
For value received, the undersigned hereby sells, assigns, and transfers unto
______________ the right represented by the within Warrant to purchase
___________ shares of Common Stock of SoftNet Systems, Inc., a New York
corporation, to which the within Warrant relates, and appoints
_____________Attorney to transfer such right on the books of SoftNet Systems,
Inc., a New York corporation, with full power of substitution of premises.
By:
-------------------------------
Name:
Title:
(signature must conform to name of holder as specified
on the face of the Warrant)
Address:
Date:
Signed in the presence of:
- -------------------------------
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE OF
THE UNITED STATES. THE SECURITIES REPRESENTED HEREBY MAY NOT BE OFFERED OR SOLD
OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
FOR THE SECURITIES UNDER APPLICABLE SECURITIES LAWS OR UNLESS OFFERED, SOLD OR
TRANSFERRED PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THOSE LAWS.
COMMON STOCK PURCHASE WARRANT CERTIFICATE
Dated: August 31, 1998
to Purchase 2,625 Shares of Common Stock of
SOFTNET SYSTEMS, INC.
SOFTNET SYSTEMS, INC., a New York corporation (the "Company"),
hereby certifies, as of August 31, 1998 (the "Issuance Date"), that Steven M.
Lamar, his permissible transferees, designees, successors and assigns
(collectively, the "Holder"), for value received, is entitled to purchase from
the Company at any time commencing on the date of the Second Closing (as defined
in the Securities Purchase Agreement dated August 31, 1998, between SoftNet
Systems, Inc. and Rose Glen International Investors, LDC) and terminating on the
fourth anniversary of the date of such Second Closing (or such earlier date as
is specified in a duly delivered Call Notice (as defined below)) up to 2,625
shares (each a "Share" and collectively the "Shares") of the Company's common
stock (the "Common Stock") at an exercise price per Share of $7.50 (the
"Exercise Price"). The number of Shares purchasable hereunder and the Exercise
Price are subject to adjustment as provided in Section 4 hereof. If the Second
Closing has not occurred on or prior to September 1, 1999, this Warrant
Certificate shall automatically, without further action of the Company, expire
and be of no further force or effect.
1. Exercise of Warrants.
(a) Upon presentation and surrender of this Common Stock Purchase Warrant
Certificate ("Warrant Certificate" or "Certificate"), or a Lost Certificate
Affidavit (as defined below), accompanied by a completed Election to Purchase in
the form attached hereto as Exhibit A (the "Election to Purchase") duly
executed, at the principal office of the Company at 520 Logue Avenue, Mountain
View, CA 94043, Attn: Mark Philips, together with a check payable to the Company
in the amount of the Exercise Price multiplied by the number of Shares being
purchased, the Company or the Company's Transfer Agent as the case may be,
shall, within two (2) trading days of receipt of the foregoing, deliver to the
Holder hereof, certificates of fully paid and nonassessable Common Stock which
in the aggregate represent the number of Shares being purchased; provided,
however, that the Investor may elect, in accordance with paragraph (b), below,
to utilize the cashless exercise provisions set forth below in lieu of SoftNet
Systems, Inc.: Common Stock Purchase Warrant Certificate tendering the Exercise
Price in cash. The certificates so delivered shall be in such denominations as
may be reasonably requested by the Holder and shall be registered in the name of
the Holder or such other name as shall be designated by the Holder. All or less
than all of the Warrants represented by this Certificate may be exercised and,
in case of the exercise of less than all, the Company, upon surrender hereof,
will at the Company's expense deliver to the Holder a new Warrant Certificate or
Certificates (in such denominations as may be requested by the Holder) of like
tenor and dated the date hereof entitling said holder to purchase the number of
Shares represented by this Certificate which have not been exercised and to
receive Registration Rights with respect to such Shares, and all other rights
with respect to the shares which the Holder has on the date hereof.
(b) Cashless Exercise. Notwithstanding the foregoing provision regarding payment
of the Exercise Price in cash, the Holder may elect, in its sole discretion on a
case by case basis, to receive a reduced number of Shares in lieu of tendering
the Exercise Price in cash ("Cashless Exercise"). In such case, the number of
Shares to be issued to the Holder shall be computed using the following
formula;:
X = Y(A-B)
------------
A
where: X = the number of Shares to be issued to the Holder;
Y = the number of Shares to be exercised under this Warrant
Certificate;
A = the Market Value (defined below) of one share of Common Stock
on the trading day immediately prior to the date that the Election
to Purchase is duly surrendered to the Company for full or partial
exercise; and B = the Exercise Price.
The term "Market Value" means, for any security as of any date, the last
reported sale price of such security on the principal securities exchange or
trading market where such security is listed or traded as reported by Bloomberg
Financial Markets or a comparable reporting service of national reputation
selected by the Company and reasonably acceptable to the Holder if Bloomberg
Financial Markets is not then reporting last reported sale prices of such
security (collectively, "Bloomberg"), or if the foregoing does not apply, the
last reported sale price of such security in the over-the-counter market or the
electronic bulletin board of such security as reported by Bloomberg, or, if no
sale price is reported for such security by Bloomberg, the average of the bid
prices of any market makers for such security that are listed in the "pink
sheets" by the National Quotation Bureau, Inc. If the Market Value cannot be
calculated for such security on such date on any of the foregoing bases, the
Market Value of such security on such date shall be the fair market value as
reasonably determined by an investment banking firm selected by the Company and
reasonably acceptable to the Holder with the costs of such appraisal to be borne
by the Company.
2. Exchange, Transfer and Replacement.
(a) Exchange. At any time prior to the exercise hereof, this Warrant Certificate
may be exchanged upon presentation and surrender to the Company, alone or with
other Warrant Certificates of like tenor of different denominations registered
in the name of the same Holder, together with a duly executed Assignment in
substantially the form and substance of the Form of Assignment which accompanies
this Warrant Certificate. The Warrant Certificate or Certificates shall be
exchanged for another Warrant Certificate or Certificates of like tenor in the
name of such Holder and/or the transferees named in such Assignment, exercisable
for the aggregate number of Shares as the Certificate or Certificates
surrendered, provided that the Company shall not be obligated to issue exchange
or transfer Certificates for an exchange or transfer of less than 10,000 shares.
The Company shall issue any Warrant Certificates reflecting such transfer or
assignment (including such portion of this Warrant Certificate, if any, as shall
not have been transferred or assigned) within three (3) business days after
receipt of the requisite Warrant Certificate(s) and duly completed Assignment.
(b) Replacement of Warrant Certificate. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction, or mutilation of
this Warrant Certificate 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 (collectively, a "Lost Certificate Affidavit"),
or, in the case of any such mutilation, upon surrender and cancellation of this
Warrant Certificate, the Company, at its expense, will execute and deliver in
lieu thereof, a new Warrant Certificate of like tenor.
(c) Cancellation; Payment of Expenses. Upon the surrender of this Warrant
Certificate in connection with any transfer, exchange or replacement as provided
in this Section 2, this Warrant Certificate shall be promptly canceled by the
Company. The Company shall pay all taxes (other than securities transfer taxes)
and all other 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 Warrant Certificates pursuant to this Section 2.
(d) Warrant Register. The Company shall maintain, at its principal executive
offices (or at the offices of the transfer agent for the Warrant Certificate or
such other office or agency of the Company as it may designate by notice to the
holder hereoq, a register for this Warrant Certificate (the "Warrant Register"),
in which the Company shall record the name and address of the person in whose
name this Warrant Certificate has been issued, as well as the name and address
of each permitted transferee and each prior owner of this Warrant Certificate.
(e) Company Call Right. Beginning on the business day following the first
anniversary of the Issuance Date, provided that the twenty consecutive trading
day average closing bid price of the Common Stock of the Company for the period
ending on the date prior to delivery of such notice (as reported by Bloomberg)
is equal to or greater than 150% of the Exercise Price, as adjusted pursuant to
Section 4 hereof, the Company shall have the ability to deliver a written notice
to the Holder hereof (a "Call Notice") that the Company is exercising its right
to call this Warrant Certificate. The Call Notice shall specify a date no less
than 30 days following the date of delivery of such Call Notice, and, unless
exercised prior to such date, this Certificate (or any unexercised portion
hereof) shall expire, and Holder shall have no further rights hereunder, on and
following such specified date. The Holder shall have the right to exercise its
rights hereunder during such 30 day notice period.
3. Rights and Obligations of Holders of this Certificate. The Holder of this
Certificate shall not, by virtue hereof, be entitled to any rights of a
stockholder in the Company, either at law or in equity; provided, however, that
in the event any certificate representing shares of Common Stock or other
securities is issued to the holder hereof upon exercise of some or all of the
Warrants, such holder shall, for all purposes, be deemed to have become the
holder of record of such Common Stock on the date on which this Certificate,
together with a duly executed Purchase Form, was surrendered and payment of the
aggregate Exercise Price was made, irrespective of the date of delivery of such
share certificate.
4. Adjustments.
(a) Stock Dividends, Reclassifications, Recapitalizations, Etc. In the event the
Company: (i) pays a dividend in Common Stock or makes a distribution in Common
Stock, (ii) subdivides its outstanding Common Stock into a greater number of
shares, (iii) combines its outstanding Common Stock into a smaller number of
shares or (iv) increases or decreases the number of shares of Common Stock
outstanding by reclassification of its Common Stock (including a
recapitalization in connection with a consolidation or merger in which the
Company is the continuing corporation), then (1) the Exercise Price on the
record date of such division or distribution or the effective date of such
action shall be adjusted by multiplying such Exercise Price by a fraction, the
numerator of which is the number of shares of Common Stock outstanding
immediately before such event and the denominator of which is the number of
shares of Common Stock outstanding immediately after such event, and (2) the
number of shares of Common Stock for which this Warrant Certificate may be
exercised immediately before such event shall be adjusted by multiplying such
number by a fraction, the numerator of which is the Exercise Price immediately
before such event and the denominator of which is the Exercise Price immediately
after such event.
(b) Cash Dividends and Other Distributions. In the event that at any time or
from time to time the Company shall distribute to all holders of Common Stock
(i) any dividend or other distribution of cash, evidences of its indebtedness,
shares of its capital stock or any other properties or securities or (ii) any
options, warrants or other rights to subscribe for or purchase any of the
foregoing (other than in each case, (w) the issuance of any rights under a
shareholder rights plan, (x) any dividend or distribution described in Section
4(a), (y) any rights, options, warrants or securities described in Section 4(c)
and (z) any cash dividends or other cash distributions from current earnings),
then the number of shares of Common Stock issuable upon the exercise of each
Warrant Certificate shall be increased to a number determined by multiplying the
number of shares of Common Stock issuable upon the exercise of such Warrant
Certificate immediately prior to the record date for any such dividend or
distribution by a fraction, the numerator of which shall be such Market Value
(as hereinafter defined) per share of Common Stock on the record date for such
dividend or distribution, and the denominator of which shall be such Market
Value per share of Common Stock on the record date for such dividend or
distribution less the sum of (x) the amount of cash, if any, distributed per
share of Common Stock and (y) the fair value (as determined in good faith by the
Board of Directors of the Company, whose determination shall be evidenced by a
board resolution, a copy of which will be sent to the Holders upon request) of
the portion, if any, of the distribution applicable to one share of Common Stock
consisting of evidences of indebtedness, shares of stock, securities, other
property, warrants, options or subscription or purchase rights; and the Exercise
Price shall be adjusted to a number determined by dividing the Exercise Price
immediately prior to such record date by the above fraction. Such adjustments
shall be made whenever any distribution is made and shall become effective as of
the date of distribution, retroactive to the record date for any such
distribution. No adjustment shall be made pursuant to this Section 4(b) which
shall have the effect of decreasing the number of shares of Common Stock
issuable upon exercise of each Warrant Certificate or increasing the Exercise
Price.
(c) Rights Issue. In the event that at any time, or from time to time, the
Company shall issue rights, options or warrants entitling the holders thereof to
subscribe for shares of Common Stock, or securities convertible into or
exchangeable or exercisable for Common Stock to all holders of Common Stock
(other than in connection with the adoption of a shareholder rights plan by the
Company) without any charge, entitling such holders to subscribe for or purchase
shares of Common Stock at a price per share that as of the record date for such
issuance is less than the then Market Value per share of Common Stock, the
number of shares of Common Stock issuable upon the exercise of each Warrant
Certificate shall be increased to a number determined by multiplying the number
of shares of Common Stock theretofore issuable upon exercise of each Warrant
Certificate by a fraction, the numerator of which shall be the number of shares
of Common Stock outstanding on the date of issuance of such rights, options,
warrant or securities plus the number of additional shares of Common Stock
offered for subscription or purchase or into or for which such securities that
are issued are convertible, exchangeable or exercisable' and the denominator of
which shall be the number of shares of Common Stock outstanding on the date of
issuance of such rights, option, warrants or securities plus the total number of
shares of Common Stock which the aggregate consideration expected to be received
by the Company (assuming the exercise or conversion of all such rights, options,
warrants or securities) would purchase at the then Market Value per share of
Common Stock. In the event of any such adjustment, the Exercise Price shall be
adjusted to a number determined by dividing the Exercise price immediately prior
to such date of issuance by the aforementioned fraction. Such adjustment shall
be made immediately after such rights, options or warrants are issued and shall
become effective, retroactive to the record date for the determination of
stockholders entitled to receive such rights, options, warrants or securities.
No adjustment shall be made pursuant to this Section 4(c) which shall have the
effect of decreasing the number of shares of Common Stock purchasable upon
exercise or each Warrant Certificate or of increasing the Exercise Price.
(d) Combination: Liquidation.
(i) Except as provided in Section 4(d)(ii) below, in the event of a Combination
(as defined below), each Holder shall have the right to receive upon exercise of
the Warrant Certificates the kind and amount of shares of capital stock or other
securities or property which such Holder would have been entitled to receive
upon or as a result of such Combination had such Warrant Certificate been
exercised immediately prior to such event (subject to further adjustment in
accordance with the terms hereof). Unless paragraph (ii) is applicable to a
Combination, the Company shall provide that the surviving or acquiring Person
(the "Successor Company") in such Combination will assume by written instrument
the obligations under this Section 4 and the obligations to deliver to the
Holder such shares of stock, securities or assets as, in accordance with the
foregoing provisions, the Holder may be entitled to acquire. The provisions of
this Section 4(d)(i) shall similarly apply to successive Combinations involving
any Successor Company. "Combination" means an event in which the Company
consolidates with, mergers with or into, or sells all or substantially all of
its assets to another Person, where "Person" means any individual, corporation,
partnership, joint venture, limited liability company, association, jointstock
company, trust, unincorporated organization, government or any agency or
political subdivision thereof or any other entity.
(ii) In the event of (x) a Combination where consideration to the holders of
Common Stock in exchange for their shares is payable solely in cash or (y) the
dissolution, liquidation or winding-up of the Company, the Holders shall be
entitled to receive, upon surrender of their Warrant Certificates, distributions
on an equal basis with the holders of Common Stock or other securities issuable
upon exercise of the Warrant Certificates, as if the Warrant Certificates had
been exercised immediately prior to such event, less the Exercise Price. In case
of any Combination described in this Section 4(d)(ii), the surviving or
acquiring Person and, in the event of any dissolution, liquidation or winding-up
of the Companv, the Company, shall deposit promptly following the consummation
of such combination or at the time of such dissolution, liquidation or
winding-up with an agent or trustee for the benefit of the Holders of the funds,
if any, necessary to pay to the Holders the amounts to which they are entitled
as described above. After such funds and the surrendered Warrant Certificates
are received, the Company is required to deliver a check in such amount as is
appropriate (or, in the case of consideration other than cash, such other
consideration as is appropriate) to such Person or Persons as it may be directed
in writing by the Holders surrendering such Warrant Certificates.
(e) Notice of Adjustment. Whenever the Exercise Price or the number of shares of
Common Stock and: other property, if any, issuable upon exercise of the Warrant
Certificates is adjusted, as herein provided, the Company shall deliver to the
holders of the Warrant Certificates in accordance with Section 10 a certificate
of the Company's Chief Financial Officer setting forth, in reasonable detail,
the event requiring the adjustment and the method by which such adjustment was
calculated (including a description of the basis on which (i) the Board of
Directors determined the fair value of any evidences of indebtedness, other
securities or property or warrants, options or other subscription or purchase
rights and (ii) the Market Value of the Common Stock was determined, if either
of such determinations were required), and specifying the Exercise Price and
number of shares of Common Stock issuable upon exercise of Warrant Certificates
after giving effect to such adjustment.
(f) Purchase Price Adjustment. In the event that the Company issues or sells any
Common Stock or securities which are convertible into or exchangeable, whether
or not immediately exchangeable or convertible, for its Common Stock or any
convertible securities, or any warrants or other rights to subscribe for or to
purchase or any options for the purchase of its Common Stock or any such
convertible securities (other than shares or options issued or which may be
issued pursuant to the Company's employee or director option plans or shares
issued upon exercise of options, warrants or rights outstanding on the date of
the Agreement and listed in the Company's most recent periodic report filed
under the Exchange Act) (collectively, "Options") at a purchase price per share
on the date of original issuance of such security which is less than 95% of the
Market Value of the Common Stock on the trading day immediately prior to such
issue or sale, then in each such case, the Exercise Price in effect immediately
prior to such issue or sale shall be reduced effective concurrently with such
issue or sale to an amount determined by multiplying the Exercise Price then in
effect by a fraction, (x) the numerator of which shall be the sum of (1) the
number of shares of Common Stock outstanding immediately prior to such issue or
sale, plus (2) the number of shares of Common Stock which the aggregate
consideration received by the Company for such additional shares would purchase
at such Market Value; and (y) the denominator of which shall be the number of
shares of Common Stock of the Company outstanding immediately after such issue
or sale.
For the purposes of the foregoing adjustment, in the case of the issuance of any
convertible securities, warrants, options or other rights to subscribe for or to
purchase or exchange for, shares of Common Stock ("Convertible Securities"), the
maximum number of shares of Common Stock that would be issuable upon exercise,
exchange or conversion of such Convertible Securities (assuming that shares of
Common Stock were trading at the then Market Value at the time of conversion)
shall be deemed to be outstanding, provided that no further adjustment shall be
made upon the actual issuance of Common Stock upon exercise, exchange or
conversion of such Convertible Securities.
(g) 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.
(h) Notice of Certain Transactions. In the event that the Company shall propose
(a) to pay any dividend payable in securities of any class to the holders of its
Common Stock or to make any other non-cash dividend or distribution to the
holders of its Common Stock, (b) to offer the holders of its Common Stock rights
to subscribe for or to purchase any securities convertible into shares of Common
Stock or shares of stock of any class or any other securities, rights or
options, (c) to effect any capital reorganization, reclassification,
consolidation or merger affecting the class of Common Stock, as a whole, or (d)
to effect the voluntary or involuntary dissolution, liquidation or winding-up of
the Company, the Company shall, within the time limits specified below, send to
each Holder a notice of such proposed action or offer. Such notice shall be
mailed to the Holders at their addresses as they appear in the Warrant Register
(as defined in Section 2(d)), which shall specify the record date for the
purposes of such dividend, distribution or rights, or the date such issuance or
event is to take place and the date of participation therein by the holders of
Common Stock, if any such date is to be fixed, and shall briefly indicate the
effect of such action on the number of shares of Common Stock and on the number
and kind of any other shares of stock and on other property, if any, and the
number of shares of Common Stock and other property, if any, issuable upon
exercise of each Warrant Certificate and the Exercise Price after giving effect
to any adjustment pursuant to Section 4 which will be required as a result of
such action. 'Such notice shall be given as promptly as possible and (x) in the
case of any action covered by clause (a) or (b) above, at least 10 days prior to
the record date for determining holders of the Common Stock for purposes of such
action or (y) in the case of any other such action, at least 20 days prior to
the date of the taking of such proposed action or the date of participation
therein by the holders of Common Stock, whichever shall be the earlier.
(i) Other Adjustments. In the event of any other transaction of the type
contemplated by this Section 4, but not expressly provided for by the provisions
hereof, the Board of Directors of the Company will make appropriate adjustment
in the Exercise Price so as to equitably protect the rights of the Holder.
(j) No Impairment of Holder's Rights. The Company will not, by amendment of its
articles of organization or bylaws or through any reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, except as contemplated hereby, avoid or seek to avoid
the observance or performance of any of the terms of this Warrant Certificate,
but will at all times in good faith assist in the carrying out of all such terms
and in the taking of all action as mav be necessary or appropriate in order to
protect the rights of the Holder against dilution or other impairment.
5. Company's Representations.
(a) The Company covenants and agrees that all shares of Common Stock issuable
upon exercise of this Warrant Certificate will, upon delivery, be duly and
validly authorized and issued, fully-paid and non-assessable and free from all
taxes, liens, claims and encumbrances.
(b) The Company covenants and agrees that it will at all times reserve and keep
available an authorized number of shares of its Common Stock and other
applicable securities sufficient to permit the exercise in full of all
outstanding options, warrants and rights, including this Warrant Certificate.
(c) The Company shall promptly secure the listing of the Shares 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 Certificate) and shall
maintain, so long as any other shares of Common Stock shall be so listed, such
listing of all shares of Common Stock from time to time issuable upon the
exercise of this Warrant Certificate; 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 Certificate if and so long as
any shares of the same class shall be listed on such national securities
exchange or automated quotation system.
(d) The Company has taken all necessary action and proceedings as required and
permitted by applicable law, rule and regulation, including, without limitation,
the notification of the principal market on which the Common Stock is traded,
for the legal and valid issuance of this Warrant Certificate to the Holder under
this Warrant Certificate.
(e) With a view to making available to Holder the benefits of Rule 144
promulgated under the Act and any other rule or regulation of the Securities and
Exchange Commission ("SEC") that may at any time permit Holder to sell
securities of the Company to the public without registration, the Company agrees
to use its reasonable best efforts to:
(i) make and keep public information available, as those terms are understood
and defined in Rule 144, at all times;
(ii) file with the SEC in a timely manner all reports and other documents
required of the Company under the Act and the Securities Exchange Act of 1934,
as amended (the "Exchange Act"); and
(iii) furnish to any Holder forthwith upon request a written statement by the
Company that it has complied with the reporting requirements of Rule 144 and of
the Act and the Exchange Act, a copy of the most recent annual or quarterly
report of the Company, and such other reports and documents so filed by the
Company as may be reasonably requested to permit any such Holder to take
advantage of any rule or regulation of the SEC permitting the selling of any
such securities without registration.
6. Registration Rights. The initial Holder is entitled to the benefit of such
registration rights in respect of the Shares as are set forth in the
Registration Rights Agreement dated as of August 31, 1998 by and between the
Company and the other investors parties thereto ("Registration Rights
Agreement") as if the Holder was a party thereto, 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. The Company acknowledges that the initial Holder may transfer some of
the Warrants to certain of its employees on or about December 31, 1999 and the
Company agrees to promptly amend the Registration Statement to include the
resale of shares by each new owner thereof.
7. Issuance of Certificates. Within two (2) trading days of receipt of a duly
completed Election to Purchase form, together with this Certificate and payment
of the Exercise Price, the Company, at its expense, will cause to be issued in
the name of and delivered to the Holder of this Warrant, a certificate or
certificates for the number of fully paid and non-assessable shares of Common
Stock to which that holder shall be entitled on such exercise. In the event the
shares of Common Stock are not timely delivered to the Holder, the Company
agrees to (a) indemnify Holder for all damages, including consequential and
special damages, lost profits and expenses, including legal fees, and (b)
beginning on the fifth (5th) day following the Company's receipt of a duly
completed Election to Purchase form, pay a default premium of 2% per day of the
value of underlying shares (based on the highest closing price during the two
(2) day period preceding the date of surrender of the Warrant Certificate). In
lieu of issuance of a fractional share upon any exercise hereunder, the Company
will pay the cash value of that fractional share, calculated on the basis of the
Exercise Price. Prior to registration of the resale of the shares of Common
Stock underlying this Warrant Certificate, and delivery of an Election to
Purchase to the Company, all such certificates shall bear a restrictive legend
to the effect that the Shares represented by such certificate have not been
registered under the 1933 Act, and that the Shares may not be sold or
transferred in the absence of such registration or an exemption therefrom, such
legend to be substantially in the form of the bold-face language appearing at
the top of Page 1 of this Warrant Certificate.
8. Disposition of Warrants or Shares. The Holder of this Warrant Certificate,
each transferee hereof and any holder and transferee of any Shares, by his or
its acceptance thereof, agrees that no public distribution of Warrants or Shares
will be made in violation of the provisions of the 1933 Act. Furthermore, it
shall be a condition to the transfer of the Warrants that any transferee thereof
deliver to the Company his or its written agreement to accept and be bound by
all of the relevant terms and conditions contained in this Warrant Certificate.
9. Notices. Except as otherwise specified herein to the contrary, all notices,
requests, demands and other communications required or desired to be given
hereunder shall only be effective if given in writing by certified or registered
U.S. mail with return receipt requested and postage prepaid; by private
overnight delivery service (e.g. Federal Express); by facsimile transmission (if
no original documents or instruments must accompany the notice); or by personal
delivery. Any such notice shall be deemed to have been given (a) on the business
day immediately following the mailing thereof, if mailed by certified or
registered U.S. mail as specified above; (b) on the business day immediately
following deposit with a private overnight delivery service if sent by said
service; (c) upon receipt of confirmation of transmission if sent by facsimile
transmission; or (d) upon personal delivery of the notice. All such notices
shall be sent to the following addresses (or to such other address or addresses
as a party may have advised the other in the manner provided in this Section
10):
If to the Company:
SoftNet Systems, Inc.
520 Logue Avenue
Mountain View, CA 94043
Attn: Chief Executive Officer
Phone: (650) 962-7451
Fax: (650) 962-7488
With a copy to:
Brobeck, Phleger & Harrison
2200 Geng Road
Two Embarcadero Place
Palo Alto, CA 94303
Attn: Thomas W. Kellerman, Esq.
Phone: (650) 496-2788
Fax: (650) 496-2777
If to Holder:
Steven M. Lamar
c/o Shoreline Pacific Equity, Ltd.
3 Harbor Drive, Suite 211
Sausalito, CA 94965
Telephone: (415) 332-7800
Telecopy: (415) 332-7808
Attention: General Counsel
Notwithstanding the time of effectiveness of notices set forth in this Section,
an Election to Purchase shall not be deemed effectively given until it has been
duly completed and submitted to the Company together with the original Warrant
Certificate to be exercised and payment of the Exercise Price in a manner set
forth in this Section.
10. Notwithstanding anything in this Warrant Certificate to the contrary, in no
event shall the holder of this Warrant Certificate be entitled to exercise with
respect to a number of shares of Common Stock to the extent that following such
exercise 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 Warrant
Certificates and unconverted shares of 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 Warrant
Certificates (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, shall be determined
in accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended, and Rules 13(d) -(g) thereunder, except as otherwise provided in clause
(i) hereof.
11. Governing Law. This Warrant Certificate and all rights and obligations
hereunder shall be deemed to be made under and governed by the laws of the State
of New York without giving effect to the conflicts of laws provisions. The
Holder hereby irrevocably consents to the venue and jurisdiction of the State
and Federal Courts located in the State of New York, County of New York.
12. Successors and Assigns. This Warrant Certificate shall be binding upon and
shall inure to the benefit of the parties hereto and their respective successors
and permitted assigns.
13. Headings. The headings of various sections of this Warrant Certificate have
been inserted for reference only and shall not affect the meaning or
construction of any of the provisions hereof.
14. Severability. If any provision of this Warrant Certificate is held to be
unenforceable under applicable law, such provision shall be excluded from this
Warrant Certificate, and the balance hereof shall be interpreted as if such
provision were so excluded.
15. Modification and Waiver. This Warrant Certificate and any provision hereof
may be amended, waived, discharged or terminated only by an instrument in
writing signed by the Company and the Holder.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
16. Specific Enforcement. The Company and the Holder acknowledge and agree that
irreparable damage would occur in the event that any of the provisions of this
Warrant Certificate were not performed in accordance with their specific terms
or were otherwise breached. It is accordingly agreed that the parties shall be
entitled to an injunction or injunctions to prevent or cure breaches of the
provisions of this Warrant Certificate and to enforce specifically the terms and
provisions hereof, this being in addition to any other remedy to which either of
them may be entitled by law or equity.
IN WITNESS WHEREOF, the Company has caused this Warrant
Certificate to be duly executed, manually or by facsimile, by one of its
officers thereunto duly authorized.
SOFTNET SYSTEMS, INC.
By: /s/ Mark A. Phillips
----------------------------
Name: Mark A. Phillips
Date: August 31, 1998 Title: Treasurer
<PAGE>
ELECTION TO PURCHASE
To Be Executed by the Holder
in Order to Exercise the Common Stock
Purchase Warrant Certificate
The undersigned Holder hereby elects to exercise of the
Warrants represented by the attached Common Stock Purchase Warrant Certificate,
and to purchase the shares of Common Stock issuable upon the exercise of such
Warrants, and requests that certificates for securities be issued in the name
of:
----------------------------------------------------------------
(Please type or print name and address)
----------------------------------------------------------------
----------------------------------------------------------------
----------------------------------------------------------------
(Social Security or Tax Identification Number)
and deliver to:
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
If such number of Warrants being exercised hereby shall not be all the Warrants
evidenced by the attached Common Stock Purchase Warrant Certificate, a new
Common Stock Purchase Warrant Certificate for the balance of such Warrants shall
be registered in the name of, and delivered to, the Holder at the address set
forth below.
[In full payment of the purchase price with respect to the
Warrants exercised and transfer taxes, if any, the undersigned hereby tenders
payment of $ by check, money order or wire transfer payable in United States
currency to the order of SoftNet Systems, Inc.] or [The undersigned elects
cashless exercise in accordance with Section l(b) of the Common Stock Purchase
Warrant Certificate.]
<PAGE>
Holder hereby represents and covenants that it has complied
with, or will comply with, any and all prospectus delivery requirements with
respect to its sale of the Common Stock of the Company being purchased herewith.
HOLDER:
By:
-------------------------------
Name:
Title:
Date:
<PAGE>
FORM OF ASSIGNMENT
(To be signed only on transfer of Warrant)
For value received, the undersigned hereby sells, assigns, and transfers unto
______________ the right represented by the within Warrant to purchase
___________ shares of Common Stock of SoftNet Systems, Inc., a New York
corporation, to which the within Warrant relates, and appoints
_____________Attorney to transfer such right on the books of SoftNet Systems,
Inc., a New York corporation, with full power of substitution of premises.
By:
-------------------------------
Name:
Title:
(signature must conform to name of holder as specified
on the face of the Warrant)
Address:
Date:
Signed in the presence of:
- -------------------------------
Exhibit 99.14
List of Recipients of Common Stock Purchase Warrants Issued in Connection With
the Series B Preferred Transactions
Number of Shares
Underlying
Name Warrant Type of Warrant(1)
- ------------------------------- ---------------------- ----------------------
RGC Institutional Investors 180,000 Investors
Shoreline Associates I, LLC 20,000 Investors
Steven M. Lamar 5,000 SPIF
Harlan P. Kleiman 40,000 SPIF
James L. Kropf 5,000 SPIF
- ------------------------------------- ----------------- ---------------------
(1) Investors warrants were issued to investor. SPIF warrants were issued
to nominees of Shoreline Pacific Institutional Finance, which received
warrants for services rendered to the Company as placement agent for
the Series B Preferred Stock transactions.
Exhibit 99.20
List of Recipients of Common Stock Purchase Warrants Issued in Connection With
the Series A Preferred Transactions
Number of Shares
Underlying
Name Warrant Type of Warrant(1)
- ------------------------------- ---------------------- ----------------------
RGC Institutional Investors 180,000 Investors
Thomas Griesel 800 SPIF
Steven M. Lamar 2,400 SPIF
Harlan P. Kleiman 12,800 SPIF
James L. Kropf 3,000 SPIF
- ------------------------------------- ----------------- ---------------------
(1) Investors warrants were issued to investor. SPIF warrants were issued
to nominees of Shoreline Pacific Institutional Finance, which received
warrants for services rendered to the Company as placement agent for
the Series A Preferred Stock transactions.
Exhibit 99.21
ACTION BY WRITTEN CONSENT OF
THE SOLE HOLDER OF THE SERIES E CONVERTIBLE PREFERRED STOCK
OF SOFTNET SYSTEMS, INC.
In accordance with Section 615 of the Business Corporation
Law, RGC International Investors, LDC ("RGC"), being the only holder of the
Series E Preferred Stock of SoftNet Systems, Inc., a New York corporation
("SoftNet"), hereby approves the following resolution by written consent:
WHEREAS, SoftNet has proposed to rename the Series E
Convertible Preferred Stock the "Series C Convertible Preferred Stock" without
changing any of the other terms of the Series E Convertible Preferred Stock; and
WHEREAS, such action will require amendments to the Company's
Restated Certificate of Incorporation (the "Certificate").
NOW, THEREFORE, BE IT RESOLVED, that RGC hereby consents to
the redesignation of the Series E Convertible Preferred Stock to the "Series C
Convertible Preferred Stock."
RESOLVED FURTHER; that RGC hereby consents to the amendment of
the Certificate to reflect such name change and all action by the Company to
make such amendments effective.
RESOLVED FURTHER, that all references in that certain
Securities Purchase Agreement beytween the Company and RGC dated August 31,
1998, that certain Registration Rights Agreement between the Company and RGC
dated August 31, 1998, and all documents related thereto, to the "Series E
Convertible Preferred Stock" shall hereafter be references to the "Sereis C
Convertible Preferred Stock."
IN WITNESS WHEREOF, the undersigned shareholder has duly
authorized and executed this consent to be effective as of Septembet 30, 1998.
RGC INTERNATIONAL INVESTORS, LDC
By: Rose Glen Capital Management,
L.P., Investment Manager
By: RGC General Partner Corp.
By: /s/ Gary S. Kaminsky
--------------------------------
Name: Gary S. Kaminsky
Its: Managing Director
