SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) January 26, 1999
SoftNet Systems, Inc.
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(Exact name of registrant as specified in charter)
New York 1-5270 11-1817252
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(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
520 Logue Avenue, Mountain View, CA 94043
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (650) 962-7470
None
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(Former name or former address, if changed since last report.)
<PAGE>
Item 5. Other Events.
Private Placement
On January 12, 1999, SoftNet Systems, Inc. (the "Company")
received a $12 million investment from funds affiliated with two investors (the
"Buyers").
In the investment, the Company sold its 9% Senior Subordinated
Convertible Notes due January 1, 2001 (the "Convertible Notes") and warrants to
purchase 300,000 shares of the Company's Common Stock (the "Warrants"), for an
aggregate of $12 million. The offer and sale of these securities in the United
States was completed pursuant to the exemption from registration provided by
Regulation D under the Securities Act of 1933, as amended (the "Act"). In
addition to the Convertible Notes and the Warrants, and in connection with the
investment, the Company and the Buyers have entered into a Securities Purchase
Agreement and a Registration Rights Agreement (these documents, together with
the Convertible Notes and the Warrants, are referred to collectively herein as
the "Transaction Documents").
The Convertible Notes are convertible at the election of the
holder into shares of Common Stock, at a conversion price of $17.00 per share
(the "Fixed Conversion Price") until July 1, 1999. Thereafter, the Convertible
Notes shall be convertible at the lesser of (a) $17.00, or (b) a price per share
equaling 100% of the average of any five (5) closing bid prices during the
thirty (30) trading day period ending one day prior to the conversion date (the
"Variable Conversion Price"). The foregoing conversion prices are subject to
adjustment upon the occurrence of certain other events, including but not
limited to the Company's failure to have declared effective a registration
statement (as described below) for the Common Stock underlying the Convertible
Notes and the Warrants prior to the 180th day after the investment; failure to
timely deliver Common Stock upon a Holder's submission of a notice of
conversion; a Senior Debt Default (as defined in the Convertible Notes); and
failure to perform or observe any term or condition contained in any transaction
document. In the event the Company fails to pay principal or interest
when due, the interest rate would increase to 18% until such payment is made.
In addition, if an Event of Default (as defined in the Convertible Note) should
occur, the outstanding principal and any accrued but unpaid dividends would
become immediately payable.
In cases where the Company merges or consolidates with a
public company meeting certain threshold criteria (among other triggering
events), the Holders will be entitled to receive, following consummation of such
merger or consolidation, the consideration that such Holder would have received
if such Holder had converted its Convertible Notes on the trading day
immediately preceding the public announcement of such merger or consolidation.
The Warrants are exercisable at any time until January 1,
2003. The exercise price for the Common Stock underlying the Warrants is $17.00
(subject to adjustment). The number of shares issuable upon exercise of the
Warrants is subject to anti-dilution adjustment upon certain events, including
the Company's sale of its Common Stock or securities convertible into or
exercisable for Common Stock (excluding certain issuances, including Common
Stock issued under employee, director or consultant benefit plans) at a price
per share less than the exercise price of the Warrants.
Pursuant to the Registration Rights Agreement, the Company is
obligated, within 15 business days of the issuance date, to file with the
Securities and Exchange Commission (the "Commission") a "shelf" registration
statement covering the resale of all shares of Common Stock issuable upon
conversion of the Convertible Notes and exercise of the Warrants. Such
registration statement must be declared effective by the Commission by the 90th
day following the investment (with a 30 day extension if Commission comments
cause delay despite the Company's best efforts to cause the registration
statement to become effective). If the registration statement is not effective
within the prescribed time frame, or if, once effective, the registration
statement cannot be used for more then a predetermined period, the Company is
subject to a variable penalty depending upon the amount of time the registration
statement is unusable. In addition to the foregoing, the Company is obligated to
allow the Buyers to inspect certain Company records, to maintain the listing of
its Common Stock on AMEX or Nasdaq, or another market acceptable to the Buyers,
and to indemnify the Holders for all claims arising out of the Transaction
Documents or the registration statement(s).
The foregoing description is only a summary and is qualified
in its entirety by reference to the Securities Purchase Agreement dated as of
January 12, 1999 by and among the Company and the Buyers listed therein, the
Convertible Notes, the Registration Rights Agreement each dated as of the same
date by and among the Company and the Buyers listed therein, and the Warrants
issued by the Company to the Buyers, the forms of which are attached to this
Current Report as Exhibits 10.38, 10.39, 10.40, and 10.41, respectively, and
incorporated herein by reference.
The proceeds from this investment will be used for working
capital and general corporate purposes.
The convertibility and other terms of the Convertible Notes
and Warrants could result in substantial dilution to the holders of the
Company's Common Stock. Cross default provisions to the Company's debt
instruments and other terms of the Convertible Notes, under certain
circumstances, could materially adversely affect the Company's business, results
of operations and condition. The convertibility feature of such Convertible
Notes and subsequent sales by the Buyers could materially adversely affect the
Company's valuation and market trading price. In addition, the existence of the
Convertible Notes and the terms thereof could render future financings and loans
and merger and acquisition activities more difficult.
<PAGE>
Item 7. Exhibits.
Exhibit No. Description
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10.38 Securities Purchase Agreement dated as of January 12, 1999
by and among the Company and the Buyers listed therein
10.39 Form of 9% Senior Subordinated Convertible Note due January
12, 2001, issued by the Company to each of Buyers
10.40 Registration Rights Agreement dated as of January 12, 1999
by and among the Company and the Buyers listed therein
10.41 Form of Warrant to purchase shares of Common Stock, dated
as of January 12, 1999, issued by the Company to each of
Buyers
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SOFTNET SYSTEMS, INC.
DATE: January 26, 1999 By: /s/ Douglas S. Sinclair
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Name: Douglas S. Sinclair
Title: Chief Financial Officer
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
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10.38 Securities Purchase Agreement dated as of January 12, 1999
by and among the Company and the Buyers listed therein
10.39 Form of 9% Senior Subordinated Convertible Note due January
12, 2001, issued by the Company to each of Buyers
10.40 Registration Rights Agreement dated as of January 12, 1999
by and among the Company and the Buyers listed therein
10.41 Form of Warrant to purchase shares of Common Stock, dated
as of January 12, 1999, issued by the Company to each of
Buyers
Exhibit 10.38
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (the "Agreement"), dated as of
January 12, 1999, by and among SoftNet Systems, Inc., a New York corporation,
with headquarters located at 520 Logue Avenue, Mountain View, CA 94043 (the
"Company"), and the investors listed on the Schedule of Buyers attached hereto
(individually, a "Buyer" and collectively, the "Buyers").
WHEREAS:
A. The Company and the Buyers are executing and delivering
this Agreement in reliance upon the exemption from securities registration
afforded by Rule 506 of Regulation D ("Regulation D") as promulgated by the
United States Securities and Exchange Commission (the "SEC") under the
Securities Act of 1933, as amended (the "1933 Act");
B. The Company shall authorize as of the Closing (as defined
below) the issuance of an aggregate of $12 million of its 9% Senior Subordinated
Convertible Notes due January 1, 2001 (the "Convertible Notes") in the form
attached hereto as Exhibit A, which shall be convertible into shares of the
Company's Common Stock, $.01 par value per share (the "Common Stock") (as
converted, the "Conversion Shares"), in accordance with the terms of the
Convertible Notes;
C. The Company shall authorize as of the Closing the issuance
of Common Stock Purchase Warrants (the "Warrants"), in the form attached hereto
as Exhibit B, to acquire shares of Common Stock (such shares of Common Stock
issued upon exercise of the Warrants are hereinafter referred to as the "Warrant
Shares", and together with the Convertible Notes, the Warrants and the
Conversion Shares, the "Securities");
D. The Buyers wish to purchase, upon the terms and conditions
stated in this Agreement, an aggregate of $12 million of Convertible Notes in
the respective amounts set forth opposite each Buyer's name on the Schedule of
Buyers; and to receive, in consideration for such purchase, the Warrants, to
purchase an aggregate of up to 300,000 shares of Common Stock in the respective
amounts set forth opposite each Buyer's name in the Schedule of Buyers, subject
to adjustment as provided in the Warrants; and
E. Contemporaneously with the execution and delivery of this
Agreement, the parties hereto are executing and delivering a Registration Rights
Agreement in the form attached hereto as Exhibit C (the "Registration Rights
Agreement") pursuant to which the Company has agreed to provide certain
registration rights under the 1933 Act and the rules and regulations promulgated
thereunder, and applicable state securities laws.
NOW, THEREFORE, the Company and the Buyers hereby agree as
follows:
1. PURCHASE AND SALE OF CONVERTIBLE NOTES.
a. Purchase of Convertible Notes. Subject to the
satisfaction (or waiver) of the conditions set forth in Sections 6 and 7 below,
the Company shall issue and sell to the Buyers and the Buyers shall purchase
from the Company an aggregate of $12 million of Convertible Notes, in the
respective amounts set forth opposite each Buyer's name on the Schedule of
Buyers (the "Closing"). On the Closing Date (as defined below) the Company shall
deliver to each Buyer a Convertible Note in the principal amount which such
Buyer is then purchasing (as indicated opposite such Buyer's name on the
Schedule of Buyers), duly executed on behalf of the Company and registered in
the name of such Buyer or its designee.
b. Closing Date. The date and time of the Closing
(the "Closing Date") shall be 10:00 a.m. Eastern Standard Time on January 12,
1999, subject to notification of satisfaction (or waiver) of the conditions to
the Closing set forth in Sections 6 and 7 below (or such later date as is
mutually agreed to by the Company and the Buyers). The Closing shall occur on
the Closing Date at the offices of Schulte Roth & Zabel LLP, 900 Third Avenue,
New York, New York 10022.
c. Form of Payment. On the Closing Date, each Buyer
shall pay the Company for the principal face amount of the Convertible Notes to
be issued and sold to such Buyer at the Closing, by wire transfer of immediately
available funds in accordance with the Company's written wire instructions
provided in writing to the Buyers at least two days prior to the Closing Date.
d. Warrants. In consideration of the purchase of the
Convertible Notes, the Company shall on the Closing Date issue and deliver to
each Buyer, Warrants to purchase in the aggregate 300,000 additional shares of
Common Stock in the respective amounts set forth opposite each Buyer's name on
the Schedule of Buyers..
2. BUYER'S REPRESENTATIONS AND WARRANTIES.
Each Buyer represents and warrants with respect to only itself
that:
a. Investment Purpose. Such Buyer (i) is purchasing
the Convertible Notes and the Warrants and (ii) upon conversion of the
Convertible Notes and exercise of the Warrants, will acquire the Conversion
Shares and Warrant Shares, respectively, then issuable for its own account for
investment only and not with a present view towards or for resale in connection
with, the public sale or distribution thereof, except pursuant to sales
registered or exempted under the 1933 Act; provided, however, that by making the
representations herein, such Buyer does not agree to hold any Securities for any
minimum or other specific term and reserves the right to dispose of the
Securities at any time in accordance with or pursuant to a registration
statement or an exemption under the 1933 Act. Buyer understands that Buyer must
bear the economic risk of this investment until such time as the Securities may
be registered for resale or an exemption from such registration is available and
the Company has no present intention of registering such Securities other than
as contemplated in the Registration Rights Agreement.
b. Accredited Investor Status. Such Buyer is an
"accredited investor" as that term is defined in Rule 501(a) of Regulation D.
c Reliance on Exemptions. Such Buyer understands
that the Convertible Notes and Warrants are being offered and sold to it in
reliance on specific exemptions from the registration requirements of United
States federal and state securities laws and that the Company is relying in part
upon the truth and accuracy of, and such Buyer's compliance with, the
representations, warranties, agreements, acknowledgments and understandings of
such Buyer set forth herein in order to determine the availability of such
exemptions and the eligibility of such Buyer to acquire the Convertible Notes
and the Warrants.
d. Information. Such Buyer and its advisors, if any,
have been furnished with or given access to all materials relating to the
business, finances and operations of the Company and materials relating to the
offer and sale of the Convertible Notes and the Warrants which have been
specifically requested by such Buyer. Such Buyer and its advisors, if any, have
been afforded the opportunity to ask questions of the Company and has received
what Buyer believes to be satisfactory answers to such inquiries. Neither such
inquiries nor any other due diligence investigations conducted by such Buyer or
its advisors, if any, or its representatives shall modify, amend or affect such
Buyer's right to rely on the Company's representations and warranties contained
in Section 3 below. Buyer understands that Buyer's purchase of the Securities
involves a high degree of risk. Buyer acknowledges that all documents available
via the Securities and Exchange Commission's EDGAR document retrieval system as
of the date hereof shall be deemed to have been available to Buyer.
e. No Governmental Review. Such Buyer understands
that no United States federal or state agency or any other government or
governmental agency has passed on or made any recommendation or endorsement of
the Convertible Notes and the Warrants or the fairness or suitability of the
investment in the Securities nor have such authorities passed upon or endorsed
the merits of the offering of the Convertible Notes and the Warrants.
f. Transfer or Resale. Such Buyer understands that
except as provided in the Registration Rights Agreement: (i) Securities have not
been and are not being registered under the 1933 Act or any state securities
laws, and may not be offered for sale, sold, assigned or transferred unless (A)
subsequently registered thereunder, (B) such Buyer shall have delivered to the
Company an opinion of counsel, in a generally acceptable form, to the effect
that such Securities to be sold, assigned or transferred may be sold, assigned
or transferred pursuant to an exemption from such registration, or (C) such
securities can be sold, assigned or transferred pursuant to Rule 144 promulgated
under the 1933 Act (or a successor rule thereto) ("Rule 144"); (ii) any sale of
such securities made in reliance on Rule 144 may be made only in accordance with
the terms of Rule 144 and further, if Rule 144 is not applicable, any resale of
such securities under circumstances in which the seller (or the person through
whom the sale is made) may be deemed to be an underwriter (as that term is
defined in the 1933 Act) may require compliance with some other exemption under
the 1933 Act or the rules and regulations of the SEC thereunder; and (iii)
neither the Company nor any other person is under any obligation to register
such securities under the 1933 Act or any state securities laws or to comply
with the terms and conditions of any exemption thereunder. The Company may issue
stop transfer instructions in the event that a Buyer fails to comply with the
provisions hereof.
g. Legends. Such Buyer understands that the
certificates or other instruments representing the Convertible Notes and the
Warrants, and, until such time as the sale of the Conversion Shares and the
Warrant Shares have been registered under the 1933 Act as contemplated by the
Registration Rights Agreement, the stock certificates representing the
Conversion Shares and the Warrant Shares, except as set forth below, shall bear
a restrictive legend in substantially the following form (and a stop-transfer
order may be placed against transfer of such stock certificates):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES
LAWS. THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE
OFFERED FOR SALE, SOLD, OR OTHERWISE TRANSFERRED OR ASSIGNED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES
LAWS, OR AN OPINION OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT
REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE STATE
SECURITIES LAWS OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT.
The legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of any Securities upon which it is
stamped, if (i) any such Securities are registered for sale under the 1933 Act,
(ii) in connection with a sale transaction, such holder provides the Company
with an opinion of counsel, in a generally acceptable form, to the effect that a
public sale, assignment or transfer of any of the Securities may be made without
registration under the 1933 Act, or (iii) any of the Securities can be sold
pursuant to Rule 144 without any restriction as to the number of securities
acquired as of a particular date that can then be immediately sold. Each Buyer
acknowledges, covenants and agrees to sell any of the Securities represented by
a certificate(s) from which the legend has been removed, only pursuant to (i) a
registration statement effective under the 1933 Act, or (ii) advice of counsel
that such sale is exempt from registration required by Section 5 of the 1933
Act. In the event the above legend is removed from any of the Securities, the
Company may, upon reasonable advance notice to the holder, require that the
above legend be placed on any of the Securities that cannot then be sold
pursuant to an effective registration statement or Rule 144(k) under the 1933
Act (or any successor rule thereto).
h. Authorization; Enforcement. This Agreement has
been duly and validly authorized, executed and delivered on behalf of such Buyer
and is a valid and binding agreement of such Buyer enforceable in accordance
with its terms, subject as to enforceability to general principles of equity and
to applicable bankruptcy, insolvency, reorganization, moratorium, liquidation
and other similar laws relating to, or affecting generally, the enforcement of
applicable creditors' rights and remedies.
i. Residency. Such Buyer is a resident of that
country specified in the Schedule of Buyers.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to each of the
Buyers that:
a. Organization and Qualification. The Company and
its subsidiaries (a complete list of which is set forth in Schedule 3(a)) are
corporations duly organized and validly existing in good standing under the laws
of the jurisdiction in which they are incorporated, and have the requisite
corporate power to own their properties and to carry on their business as now
being conducted. Each of the Company and its subsidiaries is duly qualified as a
foreign corporation to do business and is in good standing in every jurisdiction
in which the nature of the business conducted by it makes such qualification
necessary, except to the extent that the failure to be so qualified or be in
good standing would not have a Material Adverse Effect. Communicate Direct,
Inc., a subsidiary of the Company, does not (i) own any material assets, (ii)
have any liabilities or (iii) conduct any business or operations; and any
absence of good standing with respect to such subsidiary of the Company will not
have a Material Adverse Effect. "Material Adverse Effect" means any material
adverse effect on (i) the business, properties, operations, condition (financial
or otherwise), results of operations or prospects of the Company or its
subsidiaries, individually or taken as a whole, (ii) on the ability of the
Company to perform its obligations hereunder, under the Convertible Notes or
under the agreements or instruments to be entered into or filed in connection
herewith or therewith, or (iii) the Securities.
b. Authorization; Enforcement; Compliance with Other
Instruments. (i) The Company has the requisite corporate power and authority to
enter into and perform its obligations under this Agreement and the Registration
Rights Agreement, to issue, sell and perform its obligations with respect to the
Convertible Notes and the Warrants in accordance with the terms hereof, the
Convertible Notes and the Warrants, as applicable, and to issue the Conversion
Shares and the Warrant Shares upon conversion of the Convertible Notes and the
exercise of the Warrants, respectively, in accordance with the Convertible Notes
and the Warrants, respectively, (ii) the execution and delivery of this
Agreement, the Convertible Notes, the Warrants and the Registration Rights
Agreement by the Company and the consummation by it of the transactions
contemplated hereby and thereby, including, without limitation, the issuance of
the Convertible Notes and the Warrants and the reservation for issuance and the
issuance of the Conversion Shares issuable upon conversion of the Convertible
Notes and the Warrant Shares upon exercise of the Warrants have been duly
authorized by the Company's Board of Directors and no further consent or
authorization is required by the Company, its Board of Directors or its
stockholders, (iii) this Agreement, the Registration Rights Agreement, the
Convertible Notes and the Warrants have been duly executed and delivered by the
Company, and (iv) this Agreement, the Registration Rights Agreement, the
Convertible Notes and the Warrants constitute the valid and binding obligations
of the Company enforceable against the Company in accordance with their terms,
except as such enforceability may be limited by general principles of equity or
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or
similar laws relating to, or affecting generally, the enforcement of creditors'
rights and remedies.
c. Capitalization and Indebtedness. As of the date
hereof, the authorized capital stock of the Company consists of 25,000,000
shares of Common Stock, of which as of December 31, 1998, 8,631,087 shares were
issued and outstanding, and four (4) million shares of Preferred Stock par value
$.01 per share (the "Preferred Stock"), of which as of the date hereof, 10,252
shares of Series B Preferred Stock and 7,625 shares of Series C Preferred Stock
were issued and outstanding. All of such outstanding shares have been validly
issued and are fully paid and nonassessable. Except as disclosed in Schedule
3(c), no shares of Common Stock or Preferred Stock are subject to preemptive
rights or any other similar rights or any liens or encumbrances suffered or
permitted by the Company. Except as disclosed in Schedule 3(c), as of the date
hereof, (i) there are no outstanding options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into, any shares of capital stock of the
Company or any of its subsidiaries, or contracts, commitments, understandings or
arrangements by which the Company or any of its subsidiaries is or may become
bound to issue additional shares of capital stock of the Company or any of its
subsidiaries or options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into, any shares of capital stock of the Company or any of its
subsidiaries, (ii) there are no outstanding debt securities, notes, credit
agreements, or other agreements, documents or instruments evidencing
indebtedness of the Company or any of its subsidiaries or by which the Company
or any of its subsidiaries is or may become bound and (iii) there are no
agreements or arrangements under which the Company or any of its subsidiaries is
obligated to register the sale of any of their securities under the 1933 Act
(except the Registration Rights Agreement). Except as disclosed in Schedule
3(c), there are no securities or instruments containing anti-dilution or similar
provisions that will be triggered by the issuance of any of the Securities as
described in this Agreement. The Company has furnished to the Buyer true and
correct copies of the Company's Certificate of Incorporation, as amended and as
in effect on the date hereof (the "Certificate of Incorporation"), and the
Company's By-laws, as in effect on the date hereof (the "By-laws"), and the
terms of all securities convertible into or exercisable for Common Stock and the
material rights of the holders thereof in respect thereto.
d. Issuance of Securities. The Securities are duly
authorized and, upon issuance in accordance with the terms hereof, the
Convertible Notes and the Warrants shall be (i) validly issued, fully paid and
non-assessable, (ii) free from all taxes, liens and charges with respect to the
issue thereof and shall not be subject to preemptive rights or other similar
rights of stockholders of the Company and (iii) entitled to the rights and
preferences set forth in the Convertible Notes and the Warrants, respectively.
Not less than 1,717,587 shares of Common Stock have been duly authorized and
reserved for issuance upon conversion of the Convertible Notes and exercise of
the Warrants. Upon conversion or exercise in accordance with the Convertible
Notes and the Warrants, as applicable, the Conversion Shares and Warrant Shares
will be validly issued, fully paid and nonassessable and free from all taxes,
liens and charges with respect to the issue thereof, with the holders being
entitled to all rights accorded to a holder of Common Stock.
e. No Conflicts. The execution, delivery and
performance of this Agreement, the Registration Rights Agreement, the
Convertible Notes and the Warrants by the Company, and the consummation by the
Company of the transactions contemplated hereby and thereby (including, without
limitation, the issuance of the Securities) will not (i) result in a violation
of the Certificate of Incorporation, any Certificate of Designations,
Preferences and Rights of any outstanding series of Preferred Stock of the
Company or By-laws or (ii) except as disclosed in Schedule 3(e), violate or
conflict with, or result in a breach of any provision of, or constitute a
default (or an event which with notice or lapse of time or both would become a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any material agreement, indenture or instrument
to which the Company or any of its subsidiaries is a party, or result in a
violation of any law, rule, regulation, order, judgment or decree (including
U.S. federal and state securities laws and regulations and the rules and
regulations of the principal market or exchange on which the Common Stock is
traded or listed) applicable to the Company or any of its subsidiaries or by
which any property or asset of the Company or any of its subsidiaries is bound
or affected. Neither the Company nor its subsidiaries is in violation of any
material term of or in default under its Certificate of Incorporation, any
Certificate of Designations, Preferences and Rights of any outstanding series of
Preferred Stock of the Company or By-laws or their organizational charter or
by-laws, respectively, or in violation of any term of or in default under any
material contract, agreement, mortgage, indebtedness, indenture, instrument,
judgment, decree or order or any statute, rule or regulation applicable to the
Company or its subsidiaries. The business of the Company and its subsidiaries is
not being conducted, in violation of any law, ordinance or regulation of any
governmental entity. Except as specifically contemplated by this Agreement and
as required under the 1933 Act, the Company is not required to obtain any
consent, authorization or order of, or make any filing or registration with, any
court or governmental or regulatory or self-regulatory agency in order for it to
execute, deliver or perform any of its obligations under or contemplated by this
Agreement, the Convertible Notes, the Registration Rights Agreement or the
Warrants in accordance with the terms hereof or thereof. Except as disclosed in
Schedule 3(e), all consents, authorizations, orders, filings and registrations
which the Company is required to obtain pursuant to the preceding sentence have
been obtained or effected on or prior to the date hereof. The Company is not in
violation of the listing requirements of the American Stock Exchange (the
"AMEX") or, if applicable, the Nasdaq National Market and does not reasonably
anticipate that the Common Stock will be delisted by the AMEX or the Nasdaq
National Market in the foreseeable future. The Company and its subsidiaries are
unaware of any facts or circumstances which might give rise to any of the
foregoing.
f. SEC Documents; Financial Statements. Since
October 1, 1996 and except as provided on Schedule 3(f), the Company has filed
all reports, schedules, forms, statements and other documents required to be
filed by it with the SEC pursuant to the reporting requirements of the
Securities Exchange Act of 1934, as amended (the "1934 Act") (all of the
foregoing filed prior to the date hereof and all exhibits included therein and
financial statements and schedules thereto and documents incorporated by
reference therein being hereinafter referred to as the "SEC Documents"). The
Company (i) has delivered or made available to each Buyer or its representative
true and complete copies of the SEC Documents as each Buyer or its
representative has requested from the Company and (ii) agrees to deliver or make
available to each Buyer or its representative true and complete copies of any
additional SEC Documents, upon request. As of their respective dates, the SEC
Documents complied in all material respects with the requirements of the 1934
Act and the rules and regulations of the SEC promulgated thereunder applicable
to the SEC Documents, and none of the SEC Documents, at the time they were filed
with the SEC, contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading. As of their respective dates, the financial statements of
the Company included in the SEC Documents complied as to form in all material
respects with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto. Such financial statements have been
prepared in accordance with generally accepted accounting principles,
consistently applied during the periods involved (except (i) as may be otherwise
indicated in such financial statements or the notes thereto, or (ii) in the case
of unaudited interim statements, to the extent they may exclude footnotes or may
be condensed or summary statements) and fairly present in all material respects
the financial position of the Company as of the dates thereof and the results of
its operations and cash flows for the periods then ended (subject, in the case
of unaudited statements, to normal year-end audit adjustments). No other
information provided by or on behalf of the Company to the Buyer which is not
included in the SEC Documents, including, without limitation, information
referred to in Section 2(d) of this Agreement, contains any untrue statement of
a material fact or omits to state any material fact necessary in order to make
the statements therein, in the light of the circumstances under which they are
or were made, not misleading. The Company has not provided and will not provide
to any Buyer any material non-public information which, according to applicable
law, rule or regulation should have been disclosed publicly by the Company but
which has not been so disclosed as of the date hereof.
g. Absence of Certain Changes. Except as expressly
set forth in Schedule 3(g) and the draft Form 10-K of the Company for the year
ended September 30, 1998 which is attached to said Schedule 3(g), since October
1, 1997, there has been no material adverse change and no material adverse
development in the business, properties, operations, condition (financial or
otherwise), results of operations or prospects of the Company and its
subsidiaries individually or taken as a whole. The Company has not taken any
steps, and does not currently expect to take any steps, to seek protection
pursuant to any bankruptcy law nor does the Company or its subsidiaries have any
knowledge or reason to believe that its creditors intend to initiate involuntary
bankruptcy proceedings.
h. Absence of Litigation. Except as set forth in
Schedule 3(h), there is no action, suit, proceeding, inquiry or investigation
before or by any court, public board, government agency, self-regulatory
organization or body pending or, to the knowledge of the Company or any of its
subsidiaries, threatened against or affecting the Company or its subsidiaries or
their respective directors or officers, or the Common Stock, wherein an
unfavorable decision, ruling or finding would individually or in the aggregate
have a Material Adverse Effect. Schedule 3(h) contains a complete list and
summary description of any pending, or to the knowledge of the Company,
threatened proceeding against or affecting the Company or any of its
subsidiaries involving a claim exceeding $50,000 , without regard to whether it
could have a Material Adverse Effect.
i. Acknowledgment Regarding Buyers' Purchase of the
Securities. The Company acknowledges and agrees that each of the Buyers is
acting solely in the capacity of arm's length purchaser with respect to this
Agreement and the transactions contemplated hereby. The Company further
acknowledges that each Buyer is not acting as a financial advisor or fiduciary
of the Company (or in any similar capacity) with respect to this Agreement and
the transactions contemplated hereby and any advice given by any of the Buyers
or any of their respective representatives or agents in connection with this
Agreement and the transactions contemplated hereby is merely incidental to such
Buyer's purchase of the Convertible Notes. The Company further represents to
each Buyer that the Company's decision to enter into this Agreement has been
based solely on the independent evaluation by the Company and its
representatives.
j. No General Solicitation. Neither the Company, nor
any of its affiliates, nor any person acting on its or their behalf, has engaged
in any form of general solicitation or general advertising (within the meaning
of Regulation D under the 1933 Act) in connection with the offer or sale of any
of the Securities offered hereby.
k. No Integrated Offering. Neither the Company, nor
any of its affiliates, nor any person acting on its or their behalf has,
directly or indirectly, made any offers or sales of any security or solicited
any offers to buy any security, under circumstances that would require
registration of any of the Securities under the 1933 Act or cause the offering
of any of the Securities to be integrated with prior offerings by the Company
for purposes of the 1933 Act or any applicable stockholder approval provisions,
including, without limitation, under the rules and regulations of the AMEX or
National Association of Securities Dealers Automated Quotations ("NASDAQ").
l. Employment Matters; ERISA Matters. The Company
and its subsidiaries are in compliance with all federal, state, local and
foreign laws and regulations respecting employment and employment practices,
terms and conditions of employment and wages and hours except where failure to
be in compliance would not have a Material Adverse Effect. There are no pending
investigations involving the Company or any of its subsidiaries by the U.S.
Department of Labor or any other governmental agency responsible for the
enforcement of such federal, state, local or foreign laws and regulations. There
is no unfair labor practice charge or complaint against the Company or any of
its subsidiaries pending before the National Labor Relations Board or any
strike, picketing, boycott, dispute, slowdown or stoppage pending or threatened
against or involving the Company or any of its subsidiaries. Except as set forth
in Schedule 3(l), no representation question exists respecting the employees of
the Company or any of its subsidiaries, and no collective bargaining agreement
or modification thereof is currently being negotiated by the Company or any of
its subsidiaries. No grievance or arbitration proceeding is pending under any
expired or existing collective bargaining agreements of the Company or any of
its subsidiaries. No material labor dispute with the employees of the Company or
any of its subsidiaries exists or, to the knowledge of the Company, is imminent.
The Company has no employee benefit plans subject to the Employee Retirement
Income Security Act of 1974, as amended.
m. Intellectual Property Rights. The Company and its
subsidiaries own or possess the requisite rights or licenses to use all
trademarks, trade names, service marks, service mark registrations, service
names, patents, patent rights, copyrights, inventions, licenses, approvals,
governmental authorizations, trade secrets and rights (collectively
"Intellectual Property Rights") necessary to conduct their respective businesses
as now conducted and as presently contemplated to be operated in the future.
None of the Intellectual Property Rights or other intellectual property rights
have expired or terminated, or are expected to expire or terminate in the near
future. The Company and its subsidiaries do not have any knowledge of any event,
fact or circumstance relating to (i) any infringement by the Company or its
subsidiaries of any trademarks, trade names, service marks, service mark
registrations, service names, patents, patent rights, copyrights, inventions,
licenses, approvals, governmental authorizations, trade secrets or other similar
rights of others, or of any such development of similar or identical trade
secrets or technical information by others or (ii) any person or entity now
infringing any Intellectual Property Rights or other similar rights or any such
development of similar or identical trade secrets or technical information owned
or used by the Company or any of its subsidiaries and, except as set forth on
Schedule 3(m), there is no claim, action or proceeding being made or brought
against, or to the Company's knowledge, being threatened against, the Company or
its subsidiaries regarding any trademarks, trade names, service marks, service
mark registrations, service names, patents, patent rights, copyrights,
inventions, licenses, approvals, governmental authorizations, trade secrets or
other similar rights of others, or of any such development of similar or
identical trade secrets or technical information by others or (ii) any person or
entity now infringing any Intellectual Property Rights or other similar rights
or any such development of similar or identical trade secrets or other
infringement; and the Company and its subsidiaries are unaware of any facts or
circumstances which might give rise to any of the foregoing. The Company and its
subsidiaries have taken reasonable security measures to protect the secrecy,
confidentiality and value of all of their Intellectual Property Rights.
n. Environmental Laws. (i) The Company and its
subsidiaries (A) are in compliance with any and all Environmental Laws, (B) have
received all permits, licenses or other approvals required of them under
applicable Environmental Laws to conduct their respective businesses, and (C)
are in compliance with all terms and conditions of any such permit, license or
approval. With respect to the Company and/or its subsidiaries (A) there are no
past or present releases of any material into the environment, actions,
activities, circumstances, conditions, events, incidents, or contractual
obligations which may give rise to any common law environmental liability or any
liability under any Environmental Law and (B) neither the Company nor any of its
subsidiaries has received any notice with respect to the foregoing, nor is any
action pending or to the Company's knowledge, threatened in connection with the
foregoing. The term "Environmental Laws" means all federal, state, local or
foreign laws relating to pollution or protection of human health or the
environment (including, without limitation, ambient air, surface water,
groundwater, land surface or subsurface strata), including, without limitation,
laws relating to emissions, discharges, releases or threatened releases of
chemicals, pollutants, contaminants, or toxic or hazardous substances or wastes
(collectively, "Hazardous Materials") into the environment, or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Hazardous Materials, as well as all
authorizations, codes, decrees, demands or demand letters, injunctions,
judgments, licenses, notices or notice letters, orders, permits, plans or
regulations issued, entered, promulgated or approved thereunder.
(ii) Other than those that are or were stored, used or
disposed of in compliance with applicable law, no Hazardous Materials are
contained on or about any real property currently owned, leased or used by the
Company or any of its Subsidiaries, and no Hazardous Materials were released on
or about any real property previously owned, leased or used by the Company or
any of its subsidiaries during the period the property was owned, leased or used
by the Company or any of its subsidiaries.
(iii) Except as set forth in Schedule 3(n), there are no
underground storage tanks on or under any real property owned, leased or used by
the Company or any of its subsidiaries that are not in compliance with
applicable law.
o. Title. The Company and its subsidiaries have good
and marketable title in fee simple to all real property and good and marketable
title to all personal property owned by them which is material to the business
of the Company and its subsidiaries, in each case free and clear of all liens,
encumbrances and defects except such as are described in Schedule 3(o) or such
as do not materially affect the value of such property and do not interfere with
the use made and proposed to be made of such property by the Company and its
subsidiaries. Any real property and facilities held under lease by the Company
and its subsidiaries are held by them under valid, subsisting and enforceable
leases with such exceptions as are not material and do not interfere with the
use made and proposed to be made of such property and buildings by the Company
and its subsidiaries.
p. Insurance. The Company and each of its
subsidiaries are insured by insurers of recognized financial responsibility
against such losses and risks and in such amounts as is prudent and customary in
the businesses in which the Company and its subsidiaries are engaged. Neither
the Company nor any such subsidiary has any reason to believe that it will not
be able to renew its existing insurance coverage as and when such coverage
expires or to obtain similar coverage from similar insurers as may be necessary
to continue its business at a cost that would not individually or in the
aggregate have a Material Adverse Effect.
q. Regulatory Permits; Compliance. The Company and
its subsidiaries possess all franchises, grants, authorizations, licenses
permits, easements, consents, certificates, approvals and orders necessary to
own, lease and operate its properties and to conduct their respective businesses
as currently being conducted (collectively, the "Company Permits"). There is no
action pending, or to the knowledge of the Company, threatened regarding the
suspension or cancellation of any of the Company Permits. Neither the Company
nor any of its subsidiaries is in conflict with, or in default or violation of,
any of the Company Permits. Neither the Company nor any of its subsidiaries has
received any notification with respect to possible conflicts, defaults, or
violations of applicable laws.
r. Internal Accounting Controls. The Company and
each of its subsidiaries maintain a system of internal accounting controls
sufficient, in the judgment of the Company's board of directors, to provide
reasonable assurance that (i) transactions are executed in accordance with
management's general or specific authorizations, (ii) transactions are recorded
as necessary to permit preparation of financial statements in conformity with
generally accepted accounting principles and to maintain asset accountability,
(iii) access to assets is permitted only in accordance with management's general
or specific authorization and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate action
is taken with respect to any differences.
s. No Materially Adverse Contracts, Etc. Neither the
Company nor any of its subsidiaries is subject to any charter, corporate or
other legal restriction, or any judgment, decree, order, rule or regulation
which in the reasonable judgment of the Company's officers has or is expected in
the future individually or in the aggregate to have a Material Adverse Effect.
Neither the Company nor any of its subsidiaries is a party to any contract or
agreement which in the reasonable judgment of the Company's officers has or
based upon past, current or reasonably foreseeable circumstances is expected to
have a Material Adverse Effect.
t. Tax Status. Except as set forth on Schedule 3(t),
the Company and each of its subsidiaries has made or filed all federal, state
and foreign income and all other tax returns, reports and declarations required
by any jurisdiction to which it is subject (unless and only to the extent that
the Company and each of its subsidiaries has set aside on its books provisions
reasonably adequate for the payment of all unpaid and unreported taxes) and has
paid all taxes and other governmental assessments and charges that are material
in amount, shown or determined to be due on such returns, reports and
declarations, except those being contested in good faith and has set aside on
its books provision reasonably adequate for the payment of all taxes for periods
subsequent to the periods to which such returns, reports or declarations apply.
There are no unpaid taxes in any material amount claimed to be due by the taxing
authority of any jurisdiction, and the officers of the Company know of no basis
for any such claim. The Company has not executed a waiver with respect to the
statute of limitations relating to the assessment or collection of any foreign,
federal, state or local tax.. The Company has not been notified that any of its
tax returns is currently being audited by any taxing authority.
u. Certain Transactions. Except as set forth on
Schedule 3(u) and except for arm's length transactions pursuant to which the
Company makes payments in the ordinary course of business upon terms no less
favorable than the Company could obtain from third parties and other than the
grant of stock options disclosed on Schedule 3(c), none of the officers,
directors or employees of the Company is presently a party to any transaction
with the Company (other than for services as employees, officers and directors),
including any contract, agreement or other arrangement providing for the
furnishing of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any officer,
director or such employee or, to the knowledge of the Company, any corporation,
partnership, trust or other entity in which any officer, director or any such
employee has a substantial interest or is an officer, director, trustee or
partner.
v. S-3 Registration. Except as provided on Schedule
3(v), the Company is currently eligible to register securities, including the
resale of Conversion Shares and the Warrant Shares, on a registration statement
on Form S-3 under the 1933 Act.
w. Disclosure. All information relating to or
concerning the Company or any of its subsidiaries set forth in this Agreement
and provided to the Buyer pursuant to Section 2(d) hereof and otherwise in
connection with the transactions contemplated hereby is true and correct in all
material respects and the Company has not omitted to state any material fact
necessary in order to make the statements made herein or therein, in light of
the circumstances under which they were made, not misleading. No event or
circumstance has occurred or information exists with respect to the Company or
any of its subsidiaries or its or their business, properties, operations or
financial conditions, which, under applicable law, rule or regulation, requires
public disclosure or announcement by the Company but which has not been so
publicly announced or disclosed (assuming for this purpose that the Company's
reports filed under the 1934 Act are being incorporated into an effective
registration statement filed by the Company under the 1933 Act). The Company has
not provided any Buyer with any material non-public information nor any
projections or assurance regarding the future financial performance of the
Company.
x. No Qualified Opinion. The Company has not
received an opinion, report or letter from its auditors qualified in any
respect, including as to the Company's ability to proceed as a going concern in
connection with the Company's financial statements for the fiscal year ended
September 30, 1998 and provided that the transactions contemplated hereby are
consummated, does not anticipate or know of any basis upon which its auditors
might issue any such opinion, report or letter.
y. Investment Company Status. The Company is not and
upon consummation of the sale of the Securities will not be an "investment
company," a company controlled by an "investment company" or an "affiliated
person" of, or "promoter" or "principal underwriter" for, an "investment
company" as such terms are defined in the Investment Company Act of 1940, as
amended.
z. Foreign Corrupt Practices. Neither the Company
nor any of its subsidiaries, nor any director, officer, agent, employee or other
person acting on behalf of the Company or any subsidiary has, in the course of
his actions for, or on behalf of, the Company used any corporate funds for any
unlawful contribution, gift, entertainment or other unlawful expenses relating
to political activity; made any direct or indirect unlawful payment to any
foreign or domestic government official or employee from corporate funds;
violated or is in violation of any provision of the U.S. Foreign Corrupt
Practices Act of 1977; or made any bribe, rebate, payoff, influence payment,
kickback or other unlawful payment to any foreign or domestic government
official or employee.
aa. Year 2000. Any reprogramming required to permit
the proper functioning, in and following the year 2000, of the Company's and its
subsidiaries' (i) computer systems and (ii) equipment containing embedded
microchips (including systems and equipment supplied by others to the Company or
with which are sold as an integral part of Company's or any of its subsidiaries'
systems) and the testing of such systems and equipment, as so reprogrammed will
be completed by September 30, 1999. The cost to the Company and its subsidiaries
of such reprogramming and testing and of the reasonably foreseeable consequences
of year 2000 to the Company and its subsidiaries with respect to the matters
referred to in the previous sentence (including without limitation,
reprogramming errors and the failure of systems or equipment supplied by others
to the Company or which are sold as an integral part of the Company's or any of
its subsidiaries' systems) will not have a Material Adverse Effect. Except for
the reprogramming referred to herein as may be necessary, the computer and
management information systems of the Company and each of its subsidiaries are
and, with ordinary course upgrading and maintenance, will continue to be,
sufficient to permit the Company and each subsidiary to conduct its business
without a Material Adverse Effect.
4. COVENANTS AND AGREEMENTS.
a. Best Efforts. Each party shall use its best
efforts timely to satisfy each of the conditions to be satisfied by it as
provided in Sections 6 and 7 of this Agreement.
b. Form D. The Company agrees to file a Form D with
respect to the Securities as required under Regulation D and to provide a copy
thereof to each Buyer promptly after such filing. The Company shall, on or
before the Closing Date, take such action as the Company shall reasonably
determine is necessary to qualify the Securities for, or obtain exemption for
the Securities for, sale to the Buyers at the Closing pursuant to this Agreement
under applicable securities or "Blue Sky" laws of the states of the United
States, and shall provide evidence of any such action so taken to the Buyers on
or prior to the Closing Date.
c. Reporting Status. Until the earlier of (i) six
months after the date as of which the Investors (as that term is defined in the
Registration Rights Agreement) may sell all of the Conversion Shares and Warrant
Shares without restriction pursuant to Rule 144(k) promulgated under the 1933
Act (or successor thereto) or (ii) the date which is six months after the date
on which none of the Convertible Notes or Warrants are outstanding (the
"Registration Period"), the Company (x) shall timely file all reports required
to be filed with the SEC pursuant to the 1934 Act, and the Company shall not
terminate its status as an issuer required to file reports under the 1934 Act
even if the 1934 Act or the rules and regulations thereunder would otherwise
permit such termination and (y) will use its best efforts and take all necessary
action to maintain its ability and eligibility to register securities on Form
S-3.
d. Use of Proceeds. The Company will use the
proceeds from the sale of the Convertible Notes and Warrants for working capital
and general corporate purposes and shall not otherwise, directly or indirectly,
use such proceeds for any loan to or investment in any other corporation,
partnership, enterprise or other person (except in connection with its direct or
indirect subsidiaries).
e. Financial Information. The Company agrees to file
all reports, schedules, forms, statements and other documents required to be
filed by it with the SEC pursuant to the reporting requirements of the 1934 Act.
The financial statements of the Company will be prepared in accordance with
generally accepted accounting principles, consistently applied, and will fairly
present in all material respects the consolidated financial position of the
Company and its consolidated subsidiaries and results of their operations and
cash flows for the periods then ended (subject, in the case of unaudited
statements, to normal year-end audit adjustments). The Company agrees to send
the following to each Investor (as that term is defined in the Registration
Rights Agreement) during the Registration Period: (i) within fifteen (15) days
after the filing thereof with the SEC, a copy of its Annual Reports on Form
10-K, its Quarterly Reports on Form 10-Q, any Current Reports on Form 8-K and
any registration statements or amendments filed pursuant to the 1933 Act; (ii)
within five (5) days after release thereof, copies of all press releases issued
by the Company or any of its subsidiaries; and (iii) copies of any notices and
other information made available or given to the stockholders of the Company
generally, contemporaneously with the making available or giving thereof to the
stockholders.
f. Reservation of Shares. The Company shall take all
action necessary to at all times have authorized, and reserved for the purpose
of issuance, no less than the number of shares of Common Stock necessary to
provide for the issuance of the Conversion Shares and Warrant Shares upon
conversion of the Convertible Notes and the exercise of the Warrants,
respectively, in accordance with the terms of this Agreement, the Convertible
Notes and the Warrants; provided that the number of shares of Common Stock so
reserved shall initially be 1,717,587 and if the Common Share Limit (as defined
in the Convertible Notes) is no longer applicable as set forth in Section 3(a)
of the Convertible Notes, shall at no time be less than 200% of the number of
shares of Common Stock necessary to provide for issuance of the Conversion
Shares and the Warrant Shares, upon conversion of the Convertible Notes and
exercise of the Warrants, respectively, in accordance with the terms of this
Purchase Agreement, the Convertible Notes and the Warrants.
g. Listing. The Company shall promptly secure the
listing of the Conversion Shares and Warrant Shares upon the AMEX or the Nasdaq
National Market ("Nasdaq") (subject to official notice of issuance) and shall
maintain, so long as Buyer owns any of the Securities, the listing of all
Conversion Shares and Warrant Shares from time to time issuable under the terms
of this Agreement, the Convertible Notes and the Warrants on each national
securities exchange and automated quotation system (including the AMEX and the
Nasdaq National Market System and Nasdaq SmallCap), if any, upon which shares of
Common Stock are then listed. The Company shall promptly provide to each Buyer
copies of any notices it receives from AMEX or NASDAQ regarding the continued
eligibility of the Common Stock for listing on AMEX or Nasdaq or other principal
exchange or quotation system on which the Common Stock is listed or traded
except to the extent that such notices would constitute material non-public
information which, according to applicable law, rule or regulation should have
been disclosed publicly by the Company but which has not been so disclosed as
such date. The Company shall pay all fees and expenses in connection with
satisfying its obligations under this Section 4(g).
h. Expenses. Each of the Company and the Buyers
shall each pay its respective costs and expenses incurred by such party in
connection with the negotiation, investigation, preparation, execution, delivery
and performance of this Agreement or the Convertible Notes, the Warrants and the
Registration Rights Agreement; provided, that at the Closing as the Buyers may
request, the Company shall reimburse the Buyers for Buyers' accountable
attorneys' fees and expenses incurred in connection with the preparation of this
Agreement, the Convertible Notes, the Warrants and the Registration Rights
Agreement up to an aggregate of $50,000. In addition to the foregoing, the
Company agrees to pay on demand (i) all reasonable costs and expenses
(including, without limitation, reasonable fees and expenses of counsel to the
Buyers) incurred by the Buyers in connection with the enforcement of the Buyer's
rights and/or the collection of all amounts due under this Agreement, the
Warrants, the Registration Rights Agreement or the Notes.
i. Additional Issuances of Securities.
(a) Right of First Refusal. If at any time on or
before the earlier of (i) the six-month anniversary of the Closing Date and (ii)
the time that the Buyers no longer hold any Convertible Notes or Warrants, the
Company shall desire to issue any Common Stock or any security convertible,
exchangeable or exercisable for Common Stock or any other right to acquire any
Common Stock (the "Convertible Securities") pursuant to Section 4(2) of the 1933
Act or an offering under Regulation D or Regulation S of the 1933 Act or in any
other private placement in any such case with an acquisition price for each
share of Common Stock that is proposed to be less than the Market Price (as
defined in the Convertible Notes) of the Common Stock on the date of such
issuance (other than pursuant to Company authorized stock option plans or future
equity financing whereby Common Stock or Convertible Securities are issued to
any person or entity which has or is proposed to have a material business,
technology or commercial relationship with the Company in addition to any equity
financing provided by such person or entity), then the Company shall first
comply with the terms of this Section 4(i).
(b) Notice Requirements. The Company shall notify,
or cause to be notified, the Buyers not less than twenty (20) business days
prior to the time the Company intends to consummate such issuance (the "Issuance
Notice"). The Issuance Notice shall set forth all of the terms of such proposed
issuance.
(c) Exercise of Right of First Refusal. The right of
first refusal provided for in this Section 4(i) may be exercised by the Buyers
by delivery of a written notice to the Company (the "Exercise Notice"), within
ten (10) business days following receipt of the Issuance Notice (the "Refusal
Period"). The Exercise Notice shall state that the Buyers agree to purchase all
or any specified part of the proposed issuance of such Common Stock or
Convertible Securities on terms substantially equal to the terms set forth in
the Issuance Notice.
(d) Right to Issue Securities. After expiration of
the Refusal Period, if the provisions of this Section 4(i) have been complied
with in all respects by the Company and no Exercise Notice has been given, or if
given, the Buyers have not agreed to purchase all of the securities set forth in
the Issuance Notice, the Company shall have the right for forty-five (45)
calendar days following the termination of the Refusal Period to issue such
securities, or any portion thereof not being purchased by the Buyers, specified
in the Issuance Notice on the terms described in the Issuance Notice without
further notice to the Buyers, but after such forty-five (45) calendar days, no
such issuance may be made without again giving notice to the Buyers and
complying with all of the requirements of this Section 4(i).
(e) For so long as any Buyer beneficially owns any
Securities, the Company will not issue any Convertible Notes other than to the
Buyers as contemplated hereby.
j. Dilutive Effect. The Company understands and
acknowledges that the number of Conversion Shares and Warrant Shares issuable
upon conversion of the Convertible Notes and exercise of the Warrants,
respectively, will increase in certain circumstances. The Company further
acknowledges and agrees that its obligation to issue Conversion Shares and
Warrant Shares upon conversion of the Convertible Notes and exercise of the
Warrants, respectively, in accordance with this Agreement, the Convertible
Notes, and the Warrants, as applicable, is absolute and unconditional regardless
of the dilutive effect that such issuance may have on the ownership interests of
other stockholders of the Company.
k. Disclosure. From and after the date hereof, the
Company will not provide to any Buyer any material non-public information which,
according to applicable law, rule or regulation should be disclosed publicly by
the Company but which has not been so disclosed.
l. Corporate Existence. So long as any Buyer
beneficially owns any Securities, the Company shall maintain its corporate
existence in good standing under the laws of the jurisdiction in which it is
incorporated and shall not sell all or substantially all of the Company's
assets, except in the event of a merger or consolidation or sale of all or
substantially all of the Company's assets, where the surviving or successor
entity in such transaction either (i) repays the Convertible Notes in full in
accordance with the terms of the Convertible Notes applicable to such
transaction or (ii) (A) assumes the Company's obligations hereunder and under
the agreements and instruments entered into or filed in connection herewith and
(B) is a publicly traded corporation whose Common Stock is listed for trading on
AMEX, Nasdaq NMS or NYSE.
m. Solvency; Compliance with Law. The Company (both
before and after giving effect to the transactions contemplated by this
Agreement) is solvent (i.e., its assets have a fair market value in excess of
the amount required to pay its probable liabilities on its existing debts as
they become absolute and matured) and currently the Company has no information
that would lead it to reasonably conclude that the Company would not have, nor
does it intend to take any action that would impair, its ability to pay its
debts from time to time incurred in connection therewith as such debts mature.
The Company will conduct its business in compliance with all applicable laws,
rules, ordinances and regulations of the jurisdictions in which it is conducting
business, including, without limitation, all applicable local, state and federal
environmental laws and regulations the failure to comply with which would have a
Material Adverse Effect.
n. Insurance. The Company shall maintain liability,
casualty and other insurance (subject to customary deductions and retentions)
with responsible insurance companies against such risk of the types and in the
amounts customarily maintained by companies of comparable size to the Company.
o. No Integration. The Company will not conduct any
future offering that will be integrated with the issuance of the Securities for
purposes of the rules promulgated by the SEC or AMEX.
p. Year 2000. Take all actions reasonably necessary
to assure that the Company's and its subsidiaries' computer systems and
equipment containing embedded microchips (including systems and equipment
supplied by others to the Company or which are sold as an integral part of the
Company's or any of its subsidiaries' systems) will operate and effectively
process data including datafields requiring references to dates on and after
January 1, 2000 and the testing of such systems and equipment.
5. TRANSFER AGENT INSTRUCTIONS.
The Company shall issue irrevocable instructions to its
transfer agent (in the form attached hereto as Exhibit D) to issue certificates,
or at a Buyer's request, to electronically issue such shares (e.g., through DWAC
or DTC), registered in the name of each Buyer or its respective nominee(s), for
the Conversion Shares or Warrant Shares in such amounts as specified from time
to time by each Buyer to the Company in accordance with the terms of and upon
conversion of the Convertible Notes or exercise of the Warrants, respectively
(the "Irrevocable Transfer Agent Instructions"). Prior to registration of the
Conversion Shares and Warrant Shares under the 1933 Act, such certificates shall
bear the restrictive legend specified in Section 2(g) of this Agreement. The
Company warrants that no instruction with respect to the Securities other than
(i) the Irrevocable Transfer Agent Instructions referred to in this Section 5,
and (ii) stop transfer instructions (a) to give effect to Section 2(f) hereof
(in the case of the Conversion Shares and Warrant Shares, prior to registration
of the Conversion Shares and Warrant Shares under the 1933 Act), (b) to comply
with any SEC or court order, or (c) to suspend use of a then effective
registration statement in the event an amendment or supplement thereto is
necessary, will be given by the Company to its transfer agent and that the
Securities shall otherwise be freely transferable on the books and records of
the Company as and to the extent provided in this Agreement, the Registration
Rights Agreement, the Convertible Notes and the Warrants. Nothing in this
Section 5 shall affect in any way each Buyer's obligations and agreement to
comply with all applicable securities laws upon resale of any of the Securities.
If a Buyer provides the Company with an opinion of counsel, reasonably
satisfactory in form and substance to the Company, that registration of a resale
by such Buyer of any of the Securities is not required under the 1933 Act, the
Company shall permit the transfer, and, in the case of the Conversion Shares or
Warrant Shares, promptly instruct its transfer agent to issue one or more
certificates in such name and in such denominations as specified by such Buyer.
The Company acknowledges that a breach by it of its obligations hereunder will
cause irreparable harm to the Buyers by vitiating the intent and purpose of the
transaction contemplated hereby. Accordingly, the Company acknowledges that the
remedy at law for a breach of its obligations under this Section 5 will be
inadequate and agrees, in the event of a breach or threatened breach by the
Company of the provisions of this Section 5, that the Buyers shall be entitled,
in addition to all other available remedies, to an injunction restraining any
breach and requiring immediate issuance and transfer, without the necessity of
showing economic loss and without any bond or other security being required.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
The obligation of the Company hereunder to issue and sell the
Convertible Notes and Warrants to each Buyer at the Closing is subject to the
satisfaction, with respect to each Buyer, at or before the Closing Date, of each
of the following conditions, provided that these conditions are for the
Company's sole benefit and may be waived by the Company at any time in its sole
discretion:
a. Such Buyer shall have executed this Agreement and
the Registration Rights Agreement and delivered the same to the Company.
b. Such Buyer shall have delivered to the Company
the purchase price for the Convertible Notes being purchased by such Buyer at
the Closing by wire transfer of immediately available funds pursuant to the wire
instructions provided by the Company.
c. The representations and warranties of such Buyer
shall be true and correct in all material respects as of the date when made and
as of the Closing Date as though made at that time (except for representations
and warranties that speak as of a specific date), and such Buyer shall have
performed, satisfied and complied in all material respects with the covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by such Buyer at or prior to the Closing Date.
7. CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE.
The obligation of each Buyer hereunder to purchase the
Convertible Notes and Warrants at the Closing is subject to the satisfaction, at
or before the Closing Date, of each of the following conditions, provided that
these conditions are for each Buyer's sole benefit and may be waived by such
Buyer at any time in its sole discretion:
a. The Company shall have executed this Agreement,
the Convertible Notes and the Registration Rights Agreement, and delivered the
same to such Buyer.
b. The Common Stock shall be listed and authorized
for trading on the AMEX or the Nasdaq National Market, trading in the Common
Stock issuable upon conversion of the Convertible Notes and exercise of the
Warrants to be traded on the AMEX or the Nasdaq National Market shall not have
been suspended by the SEC or the AMEX or Nasdaq.
c. The representations and warranties of the Company
shall be true and correct in all material respects (except to the extent that
any of such representations and warranties is already qualified as to
materiality in Section 3 above, in which case such representations and
warranties shall be true and correct without further qualification) as of the
date when made and as of the Closing Date as though made at that time (except
for representations and warranties that speak as of a specific date) and the
Company shall have performed, satisfied and complied in all material respects
with the covenants, agreements and conditions required by this Agreement to be
performed, satisfied or complied with by the Company at or prior to the Closing
Date. Such Buyer shall have received a certificate, executed by the Chief
Financial Officer of the Company, dated as of the Closing Date, to the foregoing
effect and as to such other matters as may be reasonably requested by such Buyer
including, without limitation, an update as of the Closing Date regarding the
representation contained in Section 3(c) above.
d. Each Buyer shall have received the opinion of the
Company's counsel dated as of the Closing Date, in form, scope and substance
reasonably satisfactory to such Buyer and in substantially the form of Exhibit E
attached hereto.
e. The Company shall have executed and delivered to
such Buyer the Warrants being purchased by such
Buyer at the Closing.
f. The Board of Directors of the Company shall have
adopted the resolutions in substantially the form
of Exhibit F attached hereto.
g. As of the Closing Date, the Company shall have
reserved out of its authorized and unissued Common Stock, solely for the purpose
of effecting the conversion of the Convertible Notes and the exercise of the
Warrants, 1,717,587 shares of Common Stock to provide for the issuance of the
Conversion Shares and Warrant Shares in accordance with the terms of this
Agreement, the Convertible Notes and the Warrants.
h. The Irrevocable Transfer Agent Instructions, in
the form of Exhibit D attached hereto, shall have been delivered to and
acknowledged in writing by the Company's transfer agent.
i. The transactions contemplated hereby shall not
violate any law, regulation or order then in effect and applicable to Buyers or
the Company.
8. INDEMNIFICATION.
In consideration of each Buyer's execution and
delivery of this Agreement and acquiring the Securities hereunder and in
addition to all of the Company's other obligations under this Agreement, the
Company shall defend, protect, indemnify and hold harmless each Buyer and each
other holder of Securities and all of their officers, directors, employees and
agents (including, without limitation, those retained in connection with the
transactions contemplated by this Agreement) (collectively, the "Buyer
Indemnitees") from and against any and all actions, causes of action, suits,
claims, losses, costs, penalties, fees, liabilities and damages, and expenses in
connection therewith (irrespective of whether any such Buyer Indemnitee is a
party to the action for which indemnification hereunder is sought), and
including reasonable attorneys' fees and disbursements (the "Buyer Indemnified
Liabilities"), incurred by any Buyer Indemnitee (and shall advance the same) as
a result of, or arising out of, or relating to (a) subject to Section 9(i), any
misrepresentation or breach of any representation or warranty made by the
Company in this Agreement, the Convertible Notes, the Warrants, the Registration
Rights Agreement or any other certificate, instrument or document contemplated
hereby or thereby, (b) any breach of any covenant, agreement or obligation of
the Company contained in this Agreement, the Convertible Notes, the Warrants or
the Registration Rights Agreement or any other certificate, instrument or
document contemplated hereby or thereby, or (c) the execution, delivery,
performance or enforcement of this Agreement or any other instrument, document
or agreement executed pursuant hereto by any of the Buyer Indemnitees, any
transaction financed or to be financed in whole or in part, directly or
indirectly, with the proceeds of the issuance of the Convertible Notes and
Warrants or the status of such Buyer or holder of any of the Securities as an
investor in the Company except to the extent that such Buyer Indemnified
Liabilities are incurred directly as a result of a breach by such Buyer
Indemnitee of any covenant, agreement or obligation of such Buyer Indemnitee
contained in this Agreement. To the extent that the foregoing undertaking by the
Company may be unenforceable for any reason, the Company shall make the maximum
contribution to the payment and satisfaction of each of the Buyer Indemnified
Liabilities which is permissible under applicable law.
9. GOVERNING LAW; MISCELLANEOUS.
a. Governing Law. This Agreement shall be governed
by and interpreted in accordance with the laws of the State of New York without
regard to the principles of conflict of laws.
b. Counterparts. This Agreement may be executed in
two or more identical counterparts, all of which shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party. In the event any signature page is
delivered by facsimile transmission, the party using such means of delivery
shall cause four (4) additional original executed signature pages to be
physically delivered to the other party within five (5) days of the execution
and delivery hereof.
c. Headings. The headings of this Agreement are for
convenience of reference and shall not form part of, or affect the
interpretation of, this Agreement.
d. Severability. If any provision of this Agreement
shall be invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement in that jurisdiction or the validity or
enforceability of any provision of this Agreement in any other jurisdiction.
e. Entire Agreement; Amendments. This Agreement
supersedes all other prior oral or written agreements between the Buyers, the
Company, their affiliates and persons acting on their behalf with respect to the
matters discussed herein, and this Agreement and the documents referenced herein
contain the entire understanding of the parties with respect to the matters
covered herein and therein and, except as specifically set forth herein or
therein, neither the Company nor any Buyer makes any representation, warranty,
covenant or undertaking with respect to such matters. No provision of this
Agreement may be waived or amended other than by an instrument in writing signed
by the party to be charged with enforcement.
f. Notices. Any notices, consents, waivers or other
communications required or permitted to be given under the terms of this
Agreement shall be in writing and will be deemed to have been delivered (i) upon
receipt, when delivered personally; (ii) upon receipt, when sent by facsimile;
(iii) three (3) days after being sent by U.S. certified mail, return receipt
requested, or (iv) one (1) day after deposit with a nationally recognized
overnight delivery service, in each case properly addressed to the party to
receive the same. The addresses and facsimile numbers for such communications
shall be:
If to the Company:
SoftNet Systems, Inc.
520 Logue Avenue
Mountain View, CA 94043
Telephone: (650) 962-7490
Facsimile: (650) 962-7488
Attention: Chief Financial Officer
With a copy to:
Brobeck, Phleger & Harrison LLP
Two Embarcadero Place
2200 Geng Road
Palo Alto, CA 94303-0913
Telephone: (650) 424-0160
Facsimile: (650) 496-2777
Attention: Thomas W. Kellerman, Esq.
If to the Transfer Agent:
Chase Mellon Shareholders Services LLC
111 Founders Plaza, Suite 1100
East Hartford, CT 06108
Telephone: (860) 282-3500
Facsimile: (860) 528-6472
Attention: Compliance Department
If to a Buyer, to its address and facsimile number on the
Schedule of Buyers, with copies to such Buyer's counsel as set forth on the
Schedule of Buyers. Each party shall provide five (5) days' prior written notice
to the other party of any change in address or facsimile number.
g. Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of the parties and their respective
successors and assigns, including any purchasers of the Securities. The Company
shall not assign this Agreement or any rights or obligations hereunder without
the prior written consent of the Buyers, except pursuant to a Major Transaction
(as defined in the Convertible Notes) with respect to which the Company is in
compliance with the Convertible Notes. A Buyer may assign some or all of its
rights hereunder without the consent of the Company, provided, however, that (i)
any such assignment shall not release such Buyer from its obligations hereunder
unless such obligations are assumed by such assignee and the Company has
consented to such assignment and assumption, (ii) no Buyer may assign its rights
hereunder in a manner that would cause the offering of Securities hereunder to
be required to be registered under the 1933 Act and (iii) no Buyer may knowingly
assign the Convertible Notes to a then existing competitor of the Company known
to the Buyer.
h. No Third Party Beneficiaries. This Agreement is
intended for the benefit of the parties hereto and their respective permitted
successors and assigns, and is not for the benefit of, nor may any provision
hereof be enforced by, any other person.
i. Survival. The representations and warranties of
the Company and the Buyers contained in Sections 3 and 2, respectively, shall
survive the Closing until two years after the Closing Date, including, without
limitation, all financial statements thereto. The agreements and covenants set
forth in Sections 4, 5 and 9, and the indemnification provisions set forth in
Section 8, shall survive the Closing. Each Buyer shall be responsible only for
its own representations, warranties, agreements and covenants hereunder.
j. Publicity. The Company and each Buyer shall have
the right to approve before issuance any press releases or any other public
statements with respect to the transactions contemplated hereby; provided,
however, that the Company shall be entitled, without the prior approval of any
Buyer, to make any press release or other public disclosure with respect to such
transactions as is required by applicable law and regulations (although each
Buyer shall be consulted by the Company in connection with any such press
release or other public disclosure prior to its release and shall be provided
with a copy thereof), but only to the extent required by such law or regulation.
k. Further Assurances. Each party shall do and
perform, or cause to be done and performed, all such further acts and things,
and shall execute and deliver all such other agreements, certificates,
instruments and documents, as the other party may reasonably request in order to
carry out the intent and accomplish the purposes of this Agreement and the
consummation of the transactions contemplated hereby.
l. No Strict Construction. The language used in this
Agreement will be deemed to be the language chosen by the parties to express
their mutual intent, and no rules of strict construction will be applied against
any party.
m. Equitable Relief. The Company recognizes that in
the event that it fails to perform, observe, or discharge any or all of its
obligations under this Agreement, any remedy at law may prove to be inadequate
relief to the Buyers. The Company therefore agrees that the Buyers shall be
entitled to temporary and permanent injunctive relief in any such case without
the necessity of proving actual damages.
<PAGE>
IN WITNESS WHEREOF, the Buyers and the Company have caused
this Securities Purchase Agreement to be duly executed as of the date first
written above.
COMPANY: BUYERS:
SOFTNET SYSTEMS, INC. STARK INTERNATIONAL
By: By:
--------------------------- -------------------------------
Name: Name:
--------------------------- -------------------------------
Its: Its:
--------------------------- -------------------------------
SHEPHERD INVESTMENTS
INTERNATIONAL, LTD.
By:
-------------------------------
Name:
-------------------------------
Its:
-------------------------------
<PAGE>
SCHEDULE OF BUYERS
<TABLE>
<CAPTION>
Investor's Advisor
Investor Address and Principal Amount of and Legal Counsel
Investor Name Facsimile Number Convertible Notes Amount of Warrants Address
- -------------------- -------------------- ------------------- ------------------ ---------------------
<S> <C> <C> <C> <C>
Stark International c/o Staro Asset $8 million 200,000 Eleazer Klein, Esq.
(Bermuda) Management Schulte Roth & Zabel
1500 West Market LLP
Street New York, NY 10022
Mequon, Wisconsin Fax: (212) 593-5955
53092
Fax: (414) 241-1888
Shepherd c/o Staro Asset $4million 100,000 Eleazer Klein, Esq.
Investments Management Schulte Roth & Zabel
International, Ltd. 1500 West Market LLP
(British Virgin Street New York, NY 10022
Islands) Mequon, Wisconsin Fax: (212) 593-5955
53092
Fax: (414) 241-1888
</TABLE>
Exhibit 10.39
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS OF
THE UNITED STATES, AND MAY NOT BE OFFERED FOR SALE EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER THE SECURITIES ACT
OR APPLICABLE STATE SECURITIES LAW, OR AN EXEMPTION FROM SUCH REGISTRATION.
[8,000,000][4,000,000]
SOFTNET SYSTEMS, INC.
9% Senior Subordinated Convertible Note Due 2001
FOR VALUE RECEIVED, SOFTNET SYSTEMS, INC., a New York
corporation (the "Company"), HEREBY PROMISES TO PAY to the order of [STARK
INTERNATIONAL] [SHEPHERD INVESTMENTS INTERNATIONAL, LTD.] (the "Holder") the
principal sum of [EIGHT MILLION][FOUR MILLION] DOLLARS ($[8,000,000]
[4,000,000]) on January 1, 2001 (the "Maturity Date") and to pay interest on the
principal amount outstanding from time to time under this note (the "Outstanding
Principal Amount"), at the rate of 9% per annum, payable quarterly in arrears on
the last day of each calendar quarter during the term hereof and on the final
day when such principal amount becomes due (each such date, an "Interest Payment
Date").
This note is one of two senior subordinated convertible
promissory notes (the "Note" and collectively, the "Notes") of the Company
referred to in the Securities Purchase Agreement, dated as of January 12, 1999
by and among the Company, Holder and [Stark International] [Shepherd Investments
International, Ltd.] (the "Purchase Agreement").
1. Definitions. For purposes hereof the following definitions
shall apply:
"Acceleration Price" shall have the meaning set forth in
Section 5(b).
"Additional Shares of Common Stock" shall mean, all shares
(including treasury shares) of Common Stock issued or sold or deemed to be
issued by the Company after the date hereof, whether or not subsequently
reacquired or retired by the Company other than (i) shares of Common Stock
issued upon conversion of the Notes, (ii) shares of Common Stock issued upon
exercise of the Warrants, (iii) shares of Common Stock issued pursuant to
Approved Stock Plans and (iv) shares issued upon exercise of options and
warrants outstanding as of December 31, 1998.
"Adjusting Closing Bid Prices" shall have the meaning set
forth in Section 3(c).
"Approved Stock Plan" shall mean any contract, plan or
agreement which has been or shall be approved by the Board of Directors of the
Company, pursuant to which the Company's securities may be issued to any
employee, officer, director, consultant or other service provider of the Company
in an aggregate amount that does not exceed 110% of the number of securities
issuable as of December 31, 1998 pursuant to any currently existing Approved
Stock Plan.
"Average Market Price" shall mean the average of the Closing
Bid Prices of the Common Stock for the five (5) trading days immediately
preceding the applicable date.
"Blockage Notice" shall have the meaning set forth in Section
18(b).
"Business Day" shall have the meaning set forth in Section
2(c).
"Buy in Actual Damages" shall have the meaning set forth in
Section 3(d)(v).
"Closing Bid Price" shall mean, for any security as of any
date, the last closing bid price on the American Stock Exchange ("AMEX") as
reported by Bloomberg, L.P. ("Bloomberg"), or, if the AMEX is not the principal
securities exchange for such security, the last closing bid price of such
security on the principal securities exchange or trading market where such
security is listed or traded as reported by Bloomberg, or if the foregoing do
not apply, the last closing bid price of such security in the over-the-counter
market on the electronic bulletin board for such security as reported by
Bloomberg, or, if no closing bid price is reported for such security by
Bloomberg, the last closing trade price of such security as reported by
Bloomberg, or, if no last closing trade price is reported for such security by
Bloomberg, the average of the bid prices of any market makers for such security
as reported in the "pink sheets" by the National Quotation Bureau, Inc. If the
Closing Bid Price cannot be calculated for such security on such date, as set
forth above, the Closing Bid Price of such security shall be the fair market
value as determined in good faith by an investment banking firm selected jointly
by the Company and the Holders, with the fees and expenses of such determination
borne solely by the Company.
"Common Share Limit" shall have the meaning set forth in
Section 3(a).
"Common Share Limit Acceleration Price" shall have the meaning
set forth in Section 5(h).
"Common Stock" shall mean, the common stock of the Company,
$.01 par value per share.
"Company" shall have the meaning set forth in the Preamble.
"Company 144A Offering" shall mean an offering of debt
securities of the Company pursuant to Rule 144A of the Act; provided that the
aggregate principal amount of such indebtedness is not less than $100 million
and any equity issued in connection therewith does not represent and is not
convertible into or exchangeable for more than twelve percent (12%) of the then
outstanding Common Stock of the Company calculated on a fully diluted basis.
"Conversion Date" shall have the meaning set forth in Section
3(d)(i).
"Conversion Notice" shall have the meaning set forth in
Section 3(d)(i).
"Conversion Price" shall mean, the lesser of (i) the Fixed
Conversion Price and (ii) the Variable Conversion Price; provided, that, for any
conversion effected prior to July 1, 1999, the Conversion Price shall be the
Fixed Conversion Price; and, provided, further that the applicable "Conversion
Price" shall be subject to certain adjustments as described in Section 3(c).
"Conversion Shares" shall have the meaning set forth in
Section 5(d)(i)
"Convertible Securities" shall have the meaning set forth in
Section 3(c)(iv).
"Default" shall have the meaning set forth in Section 19.
"Default Rate" shall have the meaning set forth in Section
2(a)(i).
"Delisting Period" shall have the meaning set forth in Section
5(d)(ii).
"Document" or "Documents" shall have the meaning set forth in
Section 7(a).
"Fixed Conversion Price" shall mean $17.00
"Holder" shall have the meaning set forth in the Preamble.
"Holders" shall mean the Holder and [Stark International]
[Shepherd Investments International, Ltd.]
"Inability to Fully Convert Notice" shall have the meaning set
forth in Section 6(b).
"Indebtedness" shall have the meaning set forth in Section
19(a).
"Interest Payment Date" shall have the meaning set forth in
the Preamble.
"Issuance Date" shall mean January 12, 1999.
"Lien" shall have the meaning set forth in Section 8(g).
"Major Transaction Acceleration Price" shall have the meaning
set forth in Section 5(a).
"Major Transaction" shall have the meaning set forth in
Section 5(c).
"Mandatory Payment" shall have the meaning set forth in
Section 6(a)(i).
"Mandatory Payment Price" shall have the meaning set forth in
Section 6(a)(i).
"Market Price" shall mean, on any date specified herein, the
amount per share of the Common Stock equal to (i) the last reported sale price
of such Common Stock, regular way, on such date or, in case no such sale takes
place on such date, the average of the closing bid and asked prices thereof,
regular way, on such date, in either case as officially reported on the
principal national securities exchange on which such Common Stock is then listed
or admitted for trading, (ii) if such Common Stock is not then listed or
admitted for trading on any national securities exchange but is designated as a
national market system security by the NASD, the last reported trading price of
the Common Stock on such date, or in case no such sale takes place on such date,
or if the Common Stock is not so designated, the average of the closing bid and
asked prices of the Common Stock on such date as shown by the NASD automated
quotations system, or (iii) if such Common Stock is not then listed or admitted
for trading on any national exchange or quoted in the over-the-counter market,
the fair value thereof (as of a date which is within 20 days of the date as of
which the determination is to be made) determined in good faith jointly by the
Board of Directors of the Company and the Holder, provided, however, that if
such parties are unable to reach agreement within a reasonable period of time,
the Market Price shall be determined in good faith by an independent investment
banking firm selected jointly by the Company and the Holder or, if that
selection cannot be made within ten days, by an independent investment banking
firm selected by the American Arbitration Association in accordance with its
rules, and provided further, that the Company shall pay all of the fees and
expenses of any third parties incurred in connection with determining the Market
Price.
"Maturity Date" shall have the meaning set forth in the
Preamble.
"New Option Issuance Price" shall have the meaning set forth
in Section 3(c)(iv).
"Note" or "Notes" shall have the meaning set forth in the
Preamble.
"Note Register" shall have the meaning set forth in Section
17(b).
"Notice of Acceleration at Option of Holder Upon Triggering
Event" shall have the meaning set forth in Section 5(e).
"Notice of Major Transaction" shall have the meaning set forth
in Section 5(e).
"Notice in Response to Inability to Convert" shall have the
meaning set forth in Section 6(b).
"Notice of Triggering Event" shall have the meaning set forth
in Section 5(f.)
"Options" shall have the meaning set forth in Section
3(c)(iv).
"Organic Change" shall mean, any recapitalization,
reorganization, reclassification, consolidation, merger, sale of all or
substantially all of the Company's assets to another Person or other transaction
which is effected in such a way that holders of Common Stock are entitled to
receive (either directly or upon subsequent liquidation) stock, securities or
assets with respect to or in exchange for Common Stock.
"Other Taxes" shall have the meaning set forth in Section 20.
"Outstanding Common Amount" shall have the meaning set forth
in Section 3(a).
"Outstanding Principal Amount" shall have the meaning set
forth in the Preamble.
"Permitted Debt" shall mean (a) indebtedness existing on the
Issuance Date and set forth on Schedule 3(c) to the Purchase Agreement, and
extensions, renewals and refinancing of such indebtedness; provided that such
extension, renewal or refinancing (i) is pursuant to terms that are not less
favorable to the Holders than the terms of the indebtedness being extended,
renewed or refinanced, (ii) after giving effect to the extension, renewal or
refinancing, such indebtedness is not greater than the amount of indebtedness
outstanding immediately prior to such extension, renewal or refinancing and
(iii) the extension, renewal or refinancing and does not change the persons
liable for such indebtedness; (b) indebtedness of wholly owned Subsidiaries of
the Company to the Company or to other wholly owned Subsidiaries of the Company;
(c) accounts payable to trade creditors for goods and services and current
operating liabilities (not the result of the borrowing of money) incurred in the
ordinary course of the Company's or its Subsidiaries' business, in accordance
with customary terms and paid within a specified time, unless contested in good
faith by appropriate proceedings and reserved in accordance with generally
accepted accounting principles, consistently applied, and (d) indebtedness of
the Company or its Subsidiaries under any capital leases now outstanding or
thereafter entered into provided that the sole recourse for such indebtedness is
limited to the property leased under such capital lease.
"Person" shall mean, an individual, a limited liability
company, a partnership, a joint venture, a corporation, a trust, an
unincorporated organization and a government or any department or agency
thereof.
"Prepayment Amount" shall have the meaning set forth in
Section 4.
"Prepayment Date" shall have the meaning set forth in Section
4.
"Prepayment Notice" shall have the meaning set forth in
Section 4.
"Proceeding" shall mean, with respect to the Company or any of
its Subsidiaries, (i) any insolvency, bankruptcy, receivership, liquidation,
reorganization, readjustment, composition or other similar proceeding relating
to such Person or its properties as such, (ii) any proceeding for any
liquidation, dissolution or other winding up of such Person, voluntary or
involuntary, or (iii) any assignment for the benefit of creditors or marshaling
of the assets of such Person.
"Purchase Agreement" shall have the meaning set forth in the
Preamble.
"Registration Rights Agreement" shall mean, the Registration
Rights Agreement, dated as of January 12, 1999, by and among the Company, the
Holder and [Stark International][Shepherd Investments International, Ltd.].
"Securities Act" means the Securities Act of 1933, as amended
from time to, and the rules and regulations thereunder, or any successor
statute.
"Senior Debt" shall mean, (a) all senior indebtedness of the
Company for borrowed money now or hereafter existing in favor of a bank,
insurance company or other financial institution under a Senior Loan Document,
for principal and interest (including interest accruing subsequent to the
commencement of any Proceeding) unless the Senior Loan Document expressly
provides that it is not senior or superior in right of payment to this Note, and
provided that such senior indebtedness shall not exceed $12 million at any time
outstanding and (b) all senior indebtedness of the Company for borrowed money,
pursuant to a Company 144A Offering under a Senior Loan Document, for principal
and interest (including interest accruing subsequent to the commencement of any
Proceeding) unless the Senior Loan Document expressly provides that it is not
senior or superior in right of payment to this Note; excluding, however, in each
case the principal of and interest on this Note, and provided that any such
senior indebtedness (i) shall have a stated maturity date no sooner than twelve
(12) months after the Maturity Date and (ii) shall not be convertible into or
exchangeable for any equity securities of the Company. Notwithstanding the
foregoing, "Senior Debt" shall not include (i) any indebtedness of the Company
to any of its Subsidiaries or its affiliates, or (ii) any indebtedness that is
expressly subordinated to any other indebtedness of the Company.
"Senior Debt Default" shall have the meaning set forth in
Section 18(b).
"Senior Loan Document" shall mean, a credit agreement, loan
agreement, indenture or other agreement, document or instrument evidencing or
governing any Senior Debt, including any extensions or renewals thereof, whether
outstanding on the date hereof or hereafter created.
"Solvent" shall mean, with respect to any Person on a
particular date, that on such date (i) the fair value of the property of such
Person is not less than the total amount of the liabilities of such Person, (ii)
the present fair salable value of the assets of such Person is not less than the
amount required to pay the probable liability on such Person's existing debts as
they become absolute and matured, (iii) such Person is able to realize upon its
assets and pay its debts and other liabilities, contingent obligations and other
commitments as they mature in the normal course of business, (iv) such Person
does not intend to, and does not believe that it will, incur debts or
liabilities beyond such Person's ability to pay as such debts and liabilities
mature and (v) such Person's property does not constitute unreasonably small
capital for such Person to carry out its business as currently conducted and as
proposed to be conducted including the capital needs of such Person taking into
account the capital requirements of the business conducted by such Person and
projected capital requirements and capital availability thereof.
"Subordinated Debt" shall mean, all indebtedness of the
Company now or hereafter evidenced by the Notes and all interest thereon.
"Subsidiary" shall mean, any entity of which securities or
other ownership interests having ordinary voting power to elect a majority of
the board of directors or other Persons performing similar functions are at the
time directly or indirectly owned by the Company.
"Suspension Days" shall have the meaning set forth in Section
5(d)(i).
"Suspension Period" shall have the meaning set forth in
Section 5(d)(i).
"Taxes" shall have the meaning set forth in Section 20.
"Transfer Agent" shall have the meaning set forth in Section
3(d)(i).
"Triggering Event" shall have the meaning set forth in Section
5(d).
"Triggering Event Acceleration Price" shall have the meaning
set forth in Section 5(b).
"Variable Conversion Price" shall mean, the average of the
Closing Bid Prices for any five (5) trading days during a period of thirty (30)
trading days ending one day prior to the applicable Conversion Date.
"Warrants" shall mean, the Common Stock Purchase Warrants to
purchase up to an aggregate of 300,000 shares of the Company's Common Stock,
issued to the Holders by the Company pursuant to the terms of the Purchase
Agreement.
"Warrant Shares" shall have the meaning set forth in Section
5(d)(i).
2. General Provisions. (a) Any amount of principal hereof that
is not paid when due (whether upon demand, by acceleration or otherwise) shall
bear interest from the day when due until such principal amount is paid in full,
payable on demand, at an interest rate per annum equal at all times to 18% per
annum (the "Default Rate"). All interest shall be computed on the basis of a
year of 360 days for the actual number of days (including the first day but
excluding the last day) elapsed. Notwithstanding any other provision of this
Note, interest paid or becoming due hereunder shall in no event exceed the
maximum rate permitted by applicable law. All regularly scheduled interests
payments made hereunder shall be made in cash.
(b) All payments made to the Holder in accordance with the
terms hereof on account of principal hereof shall be noted by the Holder on
Schedule I attached hereto and hereby made a part hereof and shall be binding
absent manifest error; provided, however, that any error or omission by the
Holder in this regard shall not affect the obligation of the Company to pay the
full amount of the principal and interest due hereunder.
(c) If any amount payable hereunder shall be due on a Saturday
or a Sunday or a day on which commercial banking institutions in the City of New
York are authorized by law to be closed (any other day being a "Business Day"),
such payment may be made on the next succeeding Business Day, and such extension
of time shall in such case be included in the computation of interest payable
hereon.
(d) Both principal and interest are payable in lawful money of
the United States and in immediately available funds at the offices of Holder,
c/o Staro Asset Management, 1500 West Market Street, Mequon, Wisconsin 53092, or
at such other place as the Holder shall designate in writing to the Company.
(e) This Note may be transferred in whole or in part only by
registration of such transfer on the Note Register maintained for such purpose
by the Company as provided in Section 17(b) hereof.
3. Holder's Conversion of Note.
(a) Conversion Right. The Holder shall have the right, at its
option, to convert the Note, in whole or in part, into fully paid, validly
issued and nonassessable shares of the Company's Common Stock at any time and
from time to time (including, without limitation, during the continuance of a
Senior Debt Default) that this Note is outstanding, provided, however, that in
no event shall the aggregate number of shares of Common Stock issuable upon
conversion of the Notes exceed 1,717,587 (the "Common Share Limit"), unless the
Company (i) has obtained approval of the issuance of the Convertible Notes by a
majority of the total votes eligible to be cast on such proposal, in person or
by proxy, by the holders of the then - outstanding Common Stock, or (ii) shall
have otherwise obtained permission to allow such issuances from AMEX or NASDAQ,
as applicable, or (iii) is no longer governed by a rule promulgated by a stock
exchange, NASDAQ or other applicable body prohibiting the issuance of Common
Stock upon conversion of the Convertible Notes in excess of 19.99% of the number
of shares of Common Stock outstanding on the Issuance Date (the "Outstanding
Common Amount") without shareholder approval; and in any case, except as
otherwise provided in this Note. If this Note is converted in part, the
remaining portion of this Note not so converted shall remain entitled to the
conversion and other rights provided herein.
(b) Conversion Rate. The number of shares of Common Stock
issuable upon conversion of the Note pursuant to Section 3(a) shall be
determined in accordance with the following formula:
P
---------------------
Conversion Price
P = Outstanding Principal Amount submitted for
conversion plus accrued but unpaid
interest thereon.
(c) Anti-Dilution. In order to prevent dilution of
the rights granted under this
Note, the Fixed Conversion Price , the Common Share Limit and the Closing Bid
Prices for any days during any measuring period prior to any of the events set
forth below (the "Adjusting Closing Bid Prices") will be subject to adjustment
from time to time as provided in this Section 3(c):
(i) Dividends and Distributions. If the Company shall
declare or pay to the holders of the Common Stock a dividend or other
distribution payable in shares of Common Stock or any other security
convertible into or exchangeable for shares of Common Stock, the Holder
of the Note thereafter surrendered for conversion shall be entitled to
receive the number of shares of Common Stock or other securities
convertible into or exchangeable for shares of Common Stock, as
applicable, which such Holder would have owned or been entitled to
receive after the declaration and payment of such dividend or other
distribution as if the Note had been converted immediately prior to the
record date for the determination of stockholders entitled to receive
such dividend or other distribution.
(ii) Stock Splits and Combinations. If the Company
shall subdivide (by means of any stock split, stock dividend,
recapitalization or otherwise) the outstanding shares of Common Stock
into a greater number of shares of Common Stock, or combine (by means
of any combination, reverse stock split or otherwise) the outstanding
shares of Common Stock into a lesser number of shares, or issue by
reclassification of shares of Common Stock any shares of the Company,
the Common Share Limit, the Fixed Conversion Price and the Adjusting
Closing Bid Prices in effect immediately prior thereto shall be
adjusted so that the Holder shall receive the number of shares of
Common Stock which the Holder would have owned or been entitled to
receive after the happening of any and each of the events described
above if the Note had been converted immediately prior to the happening
of each such event on the day upon which such subdivision or
combination, as the case may be, becomes effective.
(iii) Organic Changes. In case the Company shall
effect an Organic Change, then the Holder shall be given a written
notice from the Company informing such Holder of the terms of such
Organic Change and of the record date thereof for any distribution
pursuant thereto, at least twenty (20) days in advance of such record
date, and, if such record date shall precede the Maturity Date, the
Holder shall have the right thereafter to receive, upon conversion of
the Note, the number of shares of stock or other securities, property
or assets of the Company, or of its successor or transferee or any
affiliate thereof, or cash receivable upon or as a result of such
Organic Change that would have been received by a holder of the number
of shares of Common Stock equal to the number of shares the Holder
would have received had such Holder converted the Note prior to such
event at the Conversion Price immediately prior to such event. In any
such case, the Company will make appropriate provision (in form and
substance reasonably satisfactory to the Holder) with respect to such
Holders' rights and interests to insure that the provisions of this
Section 3(c)(iii) will thereafter be applicable to the Note (including,
in the case of any such Organic Change in which the successor entity or
purchasing entity is other than the Company, an immediate adjustment of
the Conversion Price to the value for the Common Stock reflected by the
terms of such Organic Change, if the value so reflected is less than
the Conversion Price in effect immediately prior to such Organic
Change). The Company will not effect any such Organic Change unless
prior to the consummation thereof the successor entity (if other than
the Company) resulting from such Organic Change assumes, by written
instrument (in form and substance satisfactory to the Holder), the
obligation to deliver to Holder such shares of stock, securities or
assets as, in accordance with the foregoing provisions, such Holder may
be entitled to acquire. The provisions of this subparagraph (iii) shall
similarly apply to successive Organic Changes.
(iv) Adjustment upon Issuance of Options and
Convertible Securities. If the Company in any manner grants any rights
or options to subscribe for or to purchase one or more classes of its
Common Stock (other than pursuant to an Approved Stock Plan or upon
conversion of the Notes) or any stock or other securities convertible
into or exchangeable for Common Stock (such rights or options being
herein called "Options" and such convertible or exchangeable stock or
securities being herein called "Convertible Securities") and the price
per share for which Common Stock is issuable upon the exercise of such
Options or upon conversion or exchange of such Convertible Securities
(the "New Option Issuance Price") is less than the Average Market Price
immediately prior to such time, then, from and after the time of such
issue or sale, the Fixed Conversion Price shall be reduced, if
necessary, so that it shall not exceed the New Option Issuance Price.
For purposes of this Section 3(c)(iv), the New Option Issuance Price
shall mean the amount determined by dividing (A) the total amount, if
any, received or receivable by the Company as consideration for the
granting of such Options, plus the minimum aggregate amount of
additional consideration payable to the Company upon the exercise of
all such Options, plus in the case of such Options which relate to
Convertible Securities, the minimum aggregate amount of additional
consideration, if any, payable to the Company upon the issuance or sale
of such Convertible Securities and the conversion or exchange thereof,
by (B) the total maximum number of shares of Common Stock issuable upon
exercise of such Options or upon the conversion or exchange of all such
Convertible Securities issuable upon the exercise of such Options. No
further adjustment of the Conversion Price shall be made upon the
actual issuance of such Common Stock or of such Convertible Securities
upon the exercise of such Options or upon the actual issuance of such
Common Stock upon conversion or exchange of such Convertible
Securities.
(v) Change in Option Price or Rate of Conversion. If
the purchase price provided for in any Options, the additional
consideration, if any, payable upon the issue, conversion or exchange
of any Convertible Securities, or the rate at which any Convertible
Securities are convertible into or exchangeable for any class of Common
Stock change at any time, the Fixed Conversion Price at the time of
such change shall be readjusted, effective on and after the date of
such change, to the Fixed Conversion Price which would have been in
effect on the date of such change had such Options or Convertible
Securities still outstanding provided for such changed purchase price,
additional consideration or changed conversion rate, as the case may
be, at the time initially granted, issued or sold; provided that no
adjustment shall be made if such adjustment would result in an increase
of the Fixed Conversion Price then in effect.
(vi) Issuance of Additional Shares of Common Stock.
In case the Company at any time or from time to time after the date
hereof shall issue or sell Additional Shares of Common Stock (including
Additional Shares of Common Stock deemed to be issued pursuant to
Section 3(c)(ii), (iv) or (v)), without consideration or for a
consideration per share less than the Average Market Price in effect
immediately prior to such issue or sale, then, and in each such case,
the Fixed Conversion Price shall be reduced, to a price determined by
multiplying such Fixed Conversion Price by a fraction
(A) the numerator of which shall be the sum of
(i) the number of shares of Common Stock outstanding immediately
prior to such issue or sale and (ii) the number of shares of
Common Stock which the aggregate consideration received by the
Company for the total number of such Additional Shares of Common
Stock so issued or sold would purchase at the Market Price, and
(B) the denominator of which shall be the number
of shares of Common Stock outstanding immediately after such
issue or sale, provided that, for the purposes of this Section
3(c)(vi), immediately after any Additional Shares of Common Stock
are deemed to have been issued pursuant to Section 3(c)(ii), (iv)
or (v), such Additional Shares of Common Stock shall be deemed to
be outstanding, and (y) treasury shares of Common Stock shall not
be deemed to be outstanding.
(vii) Other Dilutive Events. In case any event shall
occur as to which the provisions of this Section 3(c) are not strictly
applicable or if strictly applicable would not fairly protect the
conversion rights of the Holder in accordance with the essential intent
and principles of this Section 3(c), then, in each such case, the Board
of Directors of the Company shall make an adjustment in the application
of such provisions, in accordance with such essential intent and
principles, so as to preserve, without dilution, the conversion rights
represented by this Note.
(viii) No Dilution or Impairment. The Company shall
not, by amendment of its certificate of incorporation or through any
Organic Change or any other voluntary action, avoid or seek to avoid
the observance or performance of any of the terms of this Note, but
will at all times in good faith assist in the carrying out of all such
terms and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the Holder against
dilution or other impairment. Without limiting the generality of the
foregoing, the Company (i) shall take all such action as may be
necessary or appropriate in order that the Company may validly and
legally issue fully paid and nonassessable shares of Common Stock, free
from all taxes, liens, security interests, encumbrances, preemptive
rights and charges on the conversion of this Note from time to time
outstanding, (ii) shall not take any action which results in any
adjustment of the Fixed Conversion Price or the Adjusting Closing Bid
Prices if the total number of shares of Common Stock issuable after the
action upon the conversion of this Note would exceed the total number
of shares of Common Stock then authorized by the Company's certificate
of incorporation and available for the purpose of issue upon such
exercise, (iii) shall not permit the par value of any shares of stock
receivable upon the conversion of this Note to exceed the amount
payable therefor upon such exercise, and (iv) shall not issue any
capital stock of any class which, as to the Holders, is preferred as to
dividends or as to the distribution of assets upon voluntary or
involuntary dissolution, liquidation or winding-up, unless the rights
of the holders thereof shall be limited to a fixed sum or percentage of
par value or a sum determined by reference to a formula based on a
published index of interest rates, an interest rate publicly announced
by a financial institution or a similar indicator of interest rates in
respect of participation in dividends and to a fixed sum or percentage
of par value in any such distribution of assets.
(ix) Notices.
(A) Immediately upon any adjustment pursuant
hereto of the Common Share Limit, the Fixed Conversion Price or
the Adjusting Closing Bid Prices, the Company will give written
notice thereof to the Holder, setting forth in reasonable detail
and certifying the calculation of such adjustment.
(B) The Company will give written notice to the
Holder at least twenty (20) days prior to the date on which the
Company closes its books or takes a record (I) with respect to
any dividend or distribution upon the Common Stock, or (II) for
determining rights to vote with respect to any Organic Change,
dissolution or liquidation; provided that in no event shall such
notice be provided to the Holder prior to such information being
made known to the public.
(C) The Company will also give written notice to
the Holder at least fifteen (15) days prior to the date on which
any Organic Change, dissolution or liquidation will take place.
(x) Further Adjustments. Successive adjustments in
the Conversion Price and Adjusting Closing Bid Prices shall be made
whenever any event specified above shall occur. All calculations under
this Section 3(c) shall be made to the nearest cent. No adjustment in
the Common Share Limit, the Fixed Conversion Price or the Adjusting
Closing Bid Prices shall be made if the amount of such adjustment would
be less than $0.01, but any such amount shall be carried forward and an
adjustment with respect thereto shall be made at the time of and
together with any subsequent adjustment which, together with such
amount and any other amount or amounts so carried forward, shall
aggregate $0.01 or more.
(d) Mechanics of Conversion. Subject to the Company's
inability to fully satisfy its obligations under a Conversion Notice as provided
for in Section 6 below:
(i) Holder's Delivery Requirements. To convert the
Note into full shares of Common Stock on any date (the "Conversion
Date"), the Holder shall (A) deliver or transmit by facsimile, for
receipt on or prior to 11:59 p.m., Pacific Time on such date, a copy of
a fully executed notice of conversion in the form attached hereto as
Exhibit A (the "Conversion Notice"), to the Company or its designated
transfer agent (the "Transfer Agent") to the effect that the Holder
elects to convert a specified amount of the Outstanding Principal
Amount of this Note (plus accrued interest) and (B) surrender to a
common carrier for delivery to the Company or the Transfer Agent as
soon as practicable following such date, the originally executed
Conversion Notice.
(ii) Company's Response. Upon receipt by the Company
of a facsimile copy of a Conversion Notice, the Company shall
immediately send, via facsimile, a confirmation of receipt of such
Conversion Notice to the Holder provided, however, in the event that
the Conversion Notice is received by the Company after the end of its
normal business hours, such confirmation may be sent on the next
Business Day but this right shall in no way affect the date of delivery
of the Conversion Notice or the determination of the Conversion Price.
Upon receipt by the Company or the Transfer Agent of the originally
executed Conversion Notice, the Company or the Transfer Agent (as
applicable) shall, on the next Business Day following the date of
receipt (or the second Business Day following the date of receipt if
received after 11:00 a.m. local time of the Company or Transfer Agent,
as applicable), (A) issue and surrender to a common carrier for
overnight delivery to the address as specified in the Conversion
Notice, a certificate(s), registered in the name of the Holder or its
designee, for the number of shares of Common Stock to which the Holder
shall be entitled, (B) credit such aggregate number of shares of Common
Stock to which the Holder shall be entitled to the Holder's or its
designee's balance account with The Depository Trust Company or (C) if
the Holder requests, issue shares in electronic format (e.g. via DWAC).
(iii) Dispute Resolution. In the case of a dispute as
to the determination of the Conversion Price, the Company shall
promptly issue to the Holder the number of shares of Common Stock that
is not disputed and shall submit the disputed determinations or
arithmetic calculations to the Holder via facsimile within two (2)
Business Days of receipt of such Holder's Conversion Notice. If such
Holder and the Company are unable to agree upon the determination of
the Conversion Price within two (2) Business Days of such disputed
determination or arithmetic calculation being submitted to the Holder,
then the Company shall within two (2) Business Days submit via
facsimile the disputed determination of the Conversion Price to an
independent, reputable accounting firm of national standing acceptable
to the Company and the Holder. The Company shall cause such accounting
firm to perform the determinations or calculations and notify the
Company and the Holder of the results no later than forty-eight (48)
hours from the time it receives the disputed determinations or
calculations. Such accounting firm's determination shall be binding
upon all parties absent manifest error. If as a result of such
determination by the accounting firm the Company is required to issue
additional shares of Common Stock to the Holder, the Company shall on
the next Business Day following the date such determination is made,
issue such shares of Common Stock in accordance with the options set
forth in the last sentence of Section 3(d)(ii) above.
(iv) Record Holder. The Person or Persons entitled to
receive the shares of Common Stock issuable upon a conversion of the
Note shall be treated for all purposes as the record holder or holders
of such shares of Common Stock on the applicable Conversion Date.
(v) Company's Failure to Timely Convert. If the
Company shall fail (other than as a result of the situations described
in Section 6(a) with respect to which the Holder has elected, and the
Company has satisfied its obligations under, one of the options set
forth in subparagraphs (i) through (iv) of Section 6(a)) to issue to
the Holder on a timely basis as described in this Section 3(d), a
certificate(s) for the aggregate number of shares of Common Stock to
which the Holder is entitled upon the Holder's conversion of the Note
as reflected in the applicable Conversion Notice, the Company shall pay
damages to the Holder equal to the greater of (A) actual damages
incurred by the Holder as a result of the Holder's needing to "buy in"
shares of Common Stock to the extent necessary to satisfy its
securities delivery requirements ("Buy In Actual Damages") and (B) if
the Company fails to deliver such certificates within five days after
the last possible date which the Company could have issued such Common
Stock to the Holder without violating this Section 3(d), on each date
such conversion is not timely effected in an amount equal to 1% of the
product of (I) the number of shares of Common Stock not issued to the
Holder on a timely basis and to which the Holder is entitled and (II)
the Closing Bid Price of the Common Stock on the last possible date
which the Company could have issued such Common Stock to the Holder
without violating this Section 3(d).
(e) Fractional Shares. The Company shall not issue any
fraction of a share of Common Stock upon any conversion. All shares of Common
Stock (including fractions thereof) issuable upon any conversion shall be
rounded up or down, whichever is closest, to the nearest whole share.
(f) Taxes. The Company shall pay any and all taxes which may
be imposed upon it with respect to the issuance and delivery of Common Stock
upon any conversion.
4. Prepayment at the Option of the Company.
The Company may, upon irrevocable written notice (the
"Prepayment Notice") to the Holder specifying a date for mandatory prepayment
which is ten (10) Business Days after the Holder's receipt of the Prepayment
Notice (the "Prepayment Date"), prepay the Note in an amount equal to the
Prepayment Amount. If the Prepayment Date set forth in the Prepayment Notice is
prior to July 1, 1999, the Company shall pay the Holder on such Prepayment Date,
in immediately available funds, an amount equal to 108% of the then Outstanding
Principal Amount, plus accrued and unpaid interest to the date of such
prepayment. If the Prepayment Date set forth in the Prepayment Notice is on or
after July 1, 1999, then the Company shall pay the Holder on such Prepayment
Date, in immediately available funds, an amount equal to 112% of the then
Outstanding Principal Amount, plus accrued and unpaid interest to the date of
such prepayment. Upon receipt of such funds (the "Prepayment Amount"), the
Holder shall surrender the Note, duly endorsed for cancellation, to the Company
or the Transfer Agent. No Person shall thereafter have any rights in respect of
the Note, except the right to receive the payment set forth in this Section 4
and except as otherwise provided in the Documents. The provisions of this
Section 4 shall not be deemed to restrict the ability of the Holder to convert
the Note pursuant to the provisions of Section 3 at any time prior to the
Prepayment Date. The Company shall not be entitled to send a Prepayment Notice
unless (a) it has (i) the full amount of the applicable Prepayment Amount, in
cash, available in a demand or other immediately available account in a bank or
similar financial institution or (ii) immediately available credit facilities,
in the full amount of the applicable Prepayment Amount, with a bank or similar
financial institution on the date that the Prepayment Notice is sent and (b) the
Registration Statement (as defined in the Registration Rights Agreement)
covering the Conversion Shares and the Warrant Shares is in full force and
effect and has not been suspended by the SEC or any self-regulatory agency. In
addition, in no event may the Company effect any such prepayment unless on the
Prepayment Date the Registration Statement (as defined in the Registration
Rights Agreement) covering the Conversion Shares and the Warrant Shares is in
full force and effect and has not been suspended by the SEC or any
self-regulatory agency.
5. Acceleration Provisions.
(a) Acceleration Upon Major Transaction. In addition to all
other rights of the Holder contained herein (including, without limitation, the
provisions of Section 3), after a Major Transaction, the Holder shall have the
right, at the Holder's option, to require that the Company prepay the then
Outstanding Principal Amount of the Note in an amount equal to the greater of
(i) the Prepayment Amount as if the Prepayment Date occurred on the date the
Major Transaction was consummated and (ii) the product of (A) the number of
shares of Common Stock that would be issued upon conversion of this Note in
accordance with Section 3(b) hereof provided that the applicable Conversion
Price shall be the lower of (I) the Conversion Price on the date the Major
Transaction was announced and (II) the Conversion Price that would otherwise be
in effect and (B) the Market Price ("Major Transaction Acceleration Price"). The
provisions of this Section 5(a) shall not be deemed to restrict the ability of
the Holder to convert the Note pursuant to the provisions of Section 3 at any
time and from time to time before the consummation of a Major Transaction.
(b) Acceleration Option Upon Triggering Event. In addition to
all other rights of the Holder contained herein (including, without limitation,
the provisions of Section 3), after a Triggering Event, the Holder shall have
the right, at the Holder's option, to declare all or a portion of the
Outstanding Principal Amount of the Note to be due and payable at a price equal
to the greater of (i) the Prepayment Amount as if the Prepayment Date occurred
on the date the Triggering Event occurred and (ii) the product of (A) the
aggregate number of shares of Common Stock for which the amount of the Note
being converted would be converted into as of the date immediately preceding
such Triggering Event on which the exchange or market on which the Common Stock
is traded is open multiplied by (B) the greater of (x) the Conversion Price
calculated as if the Conversion Date were the date immediately preceding such
Triggering Event and (y) the Market Price of the Common Stock on such date
("Triggering Event Acceleration Price" and, collectively with "Major Transaction
Acceleration Price," the "Acceleration Price"). The provisions of this Section
5(b) shall not be deemed to restrict the ability of the Holder to convert the
Note pursuant to the provisions of Section 3 at any time and from time before
the Holder receives the Triggering Event Acceleration Price.
(c) "Major Transaction". A "Major Transaction" shall be deemed
to have occurred at such time as any of the following events:
(i) the consolidation or merger of the Company with
or into another Person (other than pursuant to a migratory merger
effected solely for the purpose of changing the jurisdiction of
incorporation of the Company or pursuant to a merger after which the
holders of the Company's outstanding capital stock immediately prior to
the merger own a number of shares of the resulting company's
outstanding capital stock sufficient to elect a majority of the
resulting company's board of directors);
(ii) the sale, transfer, lease, disposal or
abandonment of (whether in one transaction or in a series of
transactions) substantially all of the Company's assets (other than a
sale or transfer to an entity controlling, controlled by or under
common control with the Company); or
(iii) a purchase, tender or exchange offer for more
than 50% of the outstanding shares of Common Stock is made and accepted
by the holders thereof.
(d) "Triggering Event". A "Triggering Event" shall be deemed
to have occurred at such time as any of the following events:
(i) notice from the Company that Common Stock issued
or issuable upon conversion of the Note (the "Conversion Shares") or
the Warrants (the "Warrant Shares") cannot be sold under the
Registration Statement covering such Common Stock (the "Suspension
Period"), for any period of forty-five (45) consecutive days or any
seventy-five (75) non-consecutive days during any period of twelve (12)
months that is (A) after the date the Registration Statement has been
declared effective by the SEC and (B) prior to the time that the
Conversion Shares may be sold without limitation in accordance with
Rule 144(k) under the Securities Act; provided that any demand for
acceleration under this Section 5(d)(i) must be made by the Holder
within 15 days after receipt of notice from the Company of the
termination of the Suspension Period; and, provided further that if the
aggregate number of days in all Suspension Periods (the "Suspension
Days") is equal to or greater than forty-five (45) days, then the
Maturity Date may, at the option of the Holder, be extended by the
aggregate number of Suspension Days;
(ii) the failure of the Common Stock, Conversion
Shares, or Warrant Shares to be listed on the AMEX, The New York Stock
Exchange or the Nasdaq National Market System for a period of ten (10)
days during any period of twelve (12) months (the "Delisting Period")
(i) provided, however, that any demand for acceleration under this
Section 5(d)(ii) must be made by the Holder within 30 days after
receipt of the Notice of Triggering Event (as defined in Section 5(f));
or
(iii) the Company's notice to the Holder, including
by way of public announcement, at any time, of its intention not to
comply with proper requests for conversion of the Notes or exercise of
the Warrants into shares of Common Stock, including due to any of the
reasons set forth in Section 6(a) below, except in any case in which
the basis for such intention by the Company is a bona fide dispute as
to the right of the Holder to such conversion.
(e) Mechanics of Acceleration Upon Major Transaction. No
sooner than fifteen (15) days nor later than ten (10) days prior to the
consummation of a Major Transaction, but not prior to the public announcement of
such Major Transaction, the Company shall deliver written notice thereof via
facsimile and overnight courier ("Notice of Major Transaction") to the Holder.
(f) Mechanics of Acceleration at Option of Holder Upon
Triggering Event. Within one (1) day after the occurrence of a Triggering Event,
the Company shall deliver written notice thereof via facsimile and overnight
courier ("Notice of Triggering Event") to the Holder. After receipt of a Notice
of Triggering Event, the Holder may require the Company to prepay the Note in
accordance with Sections 5(b) and 5(d) hereof by delivering written notice
thereof via facsimile and overnight courier ("Notice of Acceleration at Option
of Holder Upon Triggering Event") to the Company, which Notice of Acceleration
at Option of Holder Upon Triggering Event shall indicate the applicable
Acceleration Price, as calculated pursuant to Section 5(b) above.
(g) Payment of Acceleration Price. Promptly after the
occurrence of a Major Transaction or upon the Company's receipt of a Notice of
Acceleration at Option of Holder Upon Triggering Event from the Holder, the
Company shall immediately notify the Holder by facsimile of the mechanics of the
delivery of the Holder's Note. The Company shall deliver the applicable
Acceleration Price to the Holder within the later of (i) twenty (20) days after
the Company's delivery of a Notice of Major Transaction or the Company's receipt
of the applicable notice to affect an acceleration, and (ii) the closing of the
Major Transaction upon which such Notice of Major Transaction was predicated. In
the event of a dispute as to the determination of the arithmetic calculation of
the Acceleration Price, such dispute shall be resolved pursuant to Section
3(d)(iii) above. Promptly after receipt of the applicable Acceleration Price in
cash by wire transfer of immediately available funds, the Holder shall deliver
the Note to the Company or its Transfer Agent. Payments provided for in this
Section 5 shall have priority to payments to other stockholders in connection
with a Major Transaction.
(h) Acceleration Upon Reaching Common Share Limit. In addition
to all other rights of the Holder contained herein (including, without
limitation, the provisions of Section 3), after the Common Share Limit has been
reached (unless it is no longer applicable as contemplated by Section 3(a)), the
Company shall prepay this Note in an amount equal to the greater of (i) 130% of
the then Outstanding Principal Amount plus accrued and unpaid interest to the
date of such prepayment and (ii) the product of (A) the aggregate number of
shares of Common Stock for which the amount of the Note being converted would be
converted into as of the date that the Common Share Limit was reached and (B)
the greater of (I) the Conversion Price calculated as if the Conversion Date
were the date such Common Share Limit was reached and (II) the Market Price
("Common Share Limit Acceleration Price"). The provisions of this Section 5(h)
shall not be deemed to restrict the ability of the Holder to convert the Note
pursuant to the provisions of Section 3 at any time and from time to time before
the Common Share Limit is reached or if the Common Share Limit is no longer
applicable.
6. Inability to Fully Convert Note.
(a) Holder's Option if Company Cannot Fully Convert. If, upon
the Company's receipt of a Conversion Notice, the Company cannot issue shares of
Common Stock registered for resale under the Registration Statement for any
reason, including, without limitation, because the Company (x) does not have a
sufficient number of shares of Common Stock authorized and available, (y) is
otherwise prohibited by applicable law or by the rules or regulations of any
stock exchange, interdealer quotation system or other self-regulatory
organization with jurisdiction over the Company or its securities, including
without limitation the AMEX or NASDAQ, from issuing all of the Common Stock
which is to be issued to the Holder pursuant to a Conversion Notice or (z) fails
to have a sufficient number of shares of Common Stock registered for resale
under the Registration Statement, then the Company shall issue as many shares of
Common Stock as it is able to issue in accordance with the Holder's Conversion
Notice and pursuant to Section 3(d) above and, with respect to the unconverted
portion of the Note, the Holder, solely at its option, can elect to (unless the
Company issues and delivers the Conversion Shares underlying the unconverted
portion of the Note prior to the Holder's election hereunder, in which case the
Holder shall only be entitled to receive Buy In Actual Damages under Section
3(d)(v)):
(i) require the Company to pay the Holder for the
portion of Outstanding Principal Amount of the Note plus accrued
interest thereon for which the Company is unable to issue Common Stock
in accordance with the Holder's Conversion Notice ("Mandatory Payment")
in an amount (the "Mandatory Payment Price") equal to the Triggering
Event Acceleration Price as of such Conversion Date;
(ii) if the Company's inability to fully convert the
Note is pursuant to Section 6(a)(z) above, require the Company to issue
restricted shares of Common Stock in accordance with the Holder's
Conversion Notice and pursuant to Section 3(d) above;
(iii) void its Conversion Notice and retain or have
returned, as the case may be, the nonconverted portion of the Note that
was to be converted pursuant to the Holder's Conversion Notice; or
(iv) if the Company's inability to fully convert the
Note is pursuant to the AMEX or the NASDAQ rules and regulations
described in Section 6(a)(y) above, require the Company to issue shares
of Common Stock in accordance with the Holder's Conversion Notice and
pursuant to Section 3(d) above at a Conversion Price equal to the
Average Market Price of the Common Stock on the date preceding the
Holder's Notice in Response to Inability to Convert.
(b) Mechanics of Fulfilling Holder's Election. The Company
shall as soon as possible send via facsimile to the Holder, upon receipt of a
facsimile copy of a Conversion Notice from the Holder which cannot be fully
satisfied as described in Section 6(a) above, a notice of the Company's
inability to fully satisfy the Holder's Conversion Notice (the "Inability to
Fully Convert Notice"). Such Inability to Fully Convert Notice shall indicate
(i) the reason why the Company is unable to fully satisfy the Holder's
Conversion Notice, (ii) the portion of the Outstanding Principal Amount of the
Note plus accrued interest thereon which cannot be converted and (iii) the
applicable Mandatory Payment Price. The Holder must within five (5) Business
Days after receipt of such Inability to Fully Convert Notice deliver written
notice via facsimile to the Company ("Notice in Response to Inability to
Convert") of its election pursuant to Section 6(a) above.
(c) Payment. If the Holder shall elect to have its Note
prepaid pursuant to Section 6(a)(i) above, the Company shall pay the Mandatory
Payment Price in immediately available funds to the Holder within fifteen (15)
days of the Company's receipt of the Holder's Notice in Response to Inability to
Convert. If the Company shall fail to pay the applicable Mandatory Payment Price
to the Holder on a timely basis as described in this Section 6(c) (other than
pursuant to a dispute as to the determination of the arithmetic calculation of
the Acceleration Price), in addition to any remedy the Holder may have under
this Note, such unpaid amount shall bear interest at the Default Rate until paid
in full. Until the full Mandatory Payment Price is paid in full to the Holder,
the Holder may void the request for the Mandatory Payment with respect to the
portion of the Note for which the full Mandatory Payment Price has not been paid
and in no event shall such voidance be deemed forgiveness of any amounts due
under this Note. Notwithstanding the foregoing, if the Company fails to pay the
applicable Mandatory Payment Price within such fifteen (15) day time period due
to a dispute as to the determination of the arithmetic calculation of the
Acceleration Price, such dispute shall be resolved pursuant to Section 3(d)(iii)
above.
(d) Pro-rata Conversion and Acceleration. In the event the
Company receives a Conversion Notice from more than one Holder on the same day
and the Company can convert and redeem some, but not all, of the Notes pursuant
to this Section 6, the Company shall convert and purchase from each Holder
electing to have such Note converted and purchased at such time an amount equal
to such Holder's pro-rata amount (based on the Outstanding Principal Amount of
the Note held by such Holder relative to aggregate Outstanding Principal Amount
of Notes outstanding) of all Notes being converted and redeemed at such time.
7. Representations and Warranties.
(a) The Company represents and warrants as follows: (i) the
Company is a corporation duly organized, validly existing and in good standing
under the laws of the State of New York; (ii) the execution, delivery and
performance by the Company of this Note and each other instrument, agreement and
document executed and delivered by the Company to the Holder whether now
existing or hereinafter executed and delivered in connection with this Note
(together with the Purchase Agreement, the other Note, the Warrants, the
Registration Rights Agreement and the other agreements, instruments and
documents heretofore or hereafter furnished in connection therewith are
hereinafter referred to individually as a "Document" and collectively as the
"Documents") are within the Company's corporate powers, have been duly
authorized by all necessary corporate action, and do not contravene (A) the
Company's charter or by-laws or (B) any law or any contractual restriction
binding on or affecting the Company; (iii) no authorization or approval or other
action by, and no notice to or filing with, any governmental authority,
regulatory body or third Person is required for the due execution, delivery and
performance by the Company of any Document; (iv) each Document constitutes the
legal, valid and binding obligation of the Company, enforceable against the
Company in accordance with its terms; (v) the Company has all requisite
corporate power and authority to conduct its business as now conducted and to
consummate the transactions contemplated by the Documents; (vi) the Company is
duly qualified to conduct its business and is in good standing in each
jurisdiction in which the character of the properties owned or leased by it, or
in which the transaction of its business makes such qualification necessary
except where such failure to qualify would not have a Material Adverse Effect
(as defined in the Purchase Agreement); (vii) the Company's most recent 10-K or
10-Q filed with the Securities and Exchange Commission, whichever contains the
Company's most recent financial statements, fairly represents the financial
condition of the Company and the results of operations of the Company for the
period ended on the date thereof, all in accordance with generally accepted
accounting principles consistently applied, and since the date thereof there has
been no material adverse change in the operations, business, property, assets or
condition of the Company; (viii) there is no pending or to the Company's
knowledge threatened action or proceeding affecting the Company before any
governmental agency or arbitrator which challenges or relates to the Documents
or any transactions contemplated in connection therewith or which may materially
adversely affect the financial condition or operations of the Company; (ix) no
fact is known to the Company which is reasonably likely to have a material
adverse effect on the business, operations, condition, financial or otherwise,
performance or prospects of the Company and has not been disclosed in the
Company's most recent 10-K or 10-Q filed with the Securities and Exchange
Commission; and (x) after giving effect to the transactions contemplated by this
Note and the other Documents, the Company is, individually and with its
Subsidiaries on a consolidated basis, Solvent.
(b) Each of the representations and warranties made by the
Company in the Purchase Agreement as in effect on the date hereof, without
regard to any amendment, modification or waiver of such provisions, is true and
correct on the date hereof as if made on the date hereof (except for those
representations and warranties that speak as of a specific date), which
representations and warranties (together with all related definitions and
ancillary provisions) are hereby incorporated by reference as if set forth
herein in their entirety, provided, that: (i) references to "this Agreement",
"herein", "hereunder", and words of similar import shall mean and be a reference
to this Note; (ii) references to an "Exhibit" and "Schedule" shall mean and be a
reference to the applicable Exhibit and Schedule to the Purchase Agreement (as
in effect on the date hereof, without regard to any amendment, modification or
waiver of such provisions and without regard to whether or not the Purchase
Agreement remains in effect); and (iii) references to Sections in such
representations and warranties shall be references to Sections of the Purchase
Agreement, provided that to the extent such referenced Sections are themselves
incorporated in this Note by reference, references herein to such Sections shall
be to such Sections as they are incorporated.
8. Covenants. So long as any principal or interest is due
hereunder and shall remain unpaid, the Company will, unless the Holder shall
otherwise consent in writing:
(a) Furnish to the Holder: (i) as soon as possible and in any
event within five days after the occurrence of a Default or any event that, with
the giving of notice or the lapse of time or both, would constitute a Default,
the written statement of the chief financial officer of the Company, setting
forth the details of such Default or event and the action that the Company
proposes to take with respect thereto and (ii) promptly upon request, such other
information
concerning the condition or operations, financial or otherwise, of the Company
or any of its Subsidiaries as the Holder from time to time may reasonably
request;
(b) Comply, and cause each of its Subsidiaries to comply, in
all material respects with all applicable laws, rules, regulations and orders,
such compliance to include, without limitation, payment before the same become
delinquent all taxes, assessments and governmental charges imposed upon it or
upon its property except to the extent contested in good faith and for which
adequate reserves (as determined in accordance with generally accepted
accounting principles consistently applied) have been set aside, except where
the failure to comply would not individually or in the aggregate constitute a
Material Adverse Effect;
(c) Maintain and preserve its existence, rights and
privileges, and obtain, maintain and preserve all permits, licenses,
authorizations and approvals that are necessary in the proper conduct of its
business;
(d) Keep adequate and proper records and books of account, in
which complete and correct entries will be made in accordance with generally
accepted accounting principals consistently applied, reflecting all financial
transactions of the Company;
(e) Comply with each of the affirmative and negative covenants
contained in the Purchase Agreement (as in effect on the date hereof, without
regard to any amendment, modification or waiver of such provisions and without
regard to whether or not the Purchase Agreement remains in effect) which
covenants are hereby incorporated by reference as if set forth herein in their
entirety provided that any reference changes provided for in Section 7(b) hereof
shall also be applicable to this Section 8(e);
(f) Not incur nor permit any of its Subsidiaries to incur any
indebtedness except Senior Debt, Subordinated Debt and Permitted Debt; and
(g) Not create or suffer to exist, or permit any of its
subsidiaries to create or suffer to exist, any lien, mortgage, security
interest, charge or other encumbrance (each, a "Lien") upon or with respect to
any of their properties, rights or other assets, whether now owned or hereafter
acquired, or assign or otherwise transfer or permitted any of its Subsidiaries
to assign or otherwise transfer, any right to receive income, other than Liens
under any Senior Loan Document.
9. Reservation of Shares. The Company shall, so long as any
principal or interest is due hereunder, reserve and keep available out of its
authorized and unissued Common Stock, solely for the purpose of effecting the
conversion of the Note, such number of shares of Common Stock as shall from time
to time be sufficient to effect the conversion of the Note; provided that the
number of shares of Common Stock so reserved shall initially be 1,717,587 and if
the Common Share Limit is no longer applicable as set forth in Section 3(a),
shall at no time be less than 200% of the number of shares of Common Stock for
which the Note is at any time convertible.
10. No Impairment. The Company shall not intentionally take
any action which would impair the rights and privileges of the Note set forth
herein or the Holder.
11. Limitation on Number of Conversion Shares. Notwithstanding
any provision to the contrary contained herein, in no event shall the Holder be
entitled to convert this Note such that upon giving effect to such conversion,
the aggregate number of shares of Common Stock then beneficially owned by the
Holder and its "affiliates" as defined in Rule 144 of the Act would exceed 4.99%
of the total issued and outstanding shares of the Common Stock following such
conversion; provided, however, that Holder may elect to waive this restriction
upon not less than sixty-one (61) days prior written notice to the Company. For
purposes of this Section, beneficial ownership shall be calculated in accordance
with Section 13(d) of the Securities Exchange Act of 1934, as amended.
12. Obligations Absolute. No provision of this Note shall
alter or impair the obligation of the Company, which is absolute and
unconditional, to convert this Note pursuant to the provisions of Section 3, and
to pay the principal of, and interest on, this Note at the time, place and rate,
and in the manner, herein prescribed.
13. Waivers of Demand, Etc. The Company hereby expressly
waives demand and presentment for payment, notice of nonpayment, protest, notice
of protest, notice of dishonor, notice of acceleration or intent to accelerate
(other than a Notice of Acceleration at Option of Holder Upon Triggering Event
as required by Section 5(f)), bringing of suit and diligence in taking any
action to collect amounts called for hereunder and will be directly and
primarily liable for the payment of all sums owing and to be owing hereon,
regardless of and without any notice, diligence, act or omission as or with
respect to the collection of any amount called for hereunder.
14. Replacement Note. In the event that the Holder notifies
the Company that its Note has been lost, stolen or destroyed, a replacement Note
identical in all respects to the original Note (except for registration number
and Outstanding Principal Amount, if different than that shown on the original
Note) shall be issued by the Company to the Holder, provided that the Holder
executes and delivers to the Company an agreement reasonably satisfactory to the
Company to indemnify the Company from any loss incurred by it in connection with
such Note, but in no event shall the aggregate amount of such indemnification
exceed the Outstanding Principal Amount of the Note.
15. Payment of Expenses; Indemnification. The Company agrees
to pay on demand (a) all accountable costs and expenses (including, without
limitation, fees and expenses of one counsel to the Holders) incurred by the
Holders in connection with the preparation, execution and delivery of this Note
and the other Documents, up to $50,000 (b) all reasonable costs and expenses,
including, without limitation, fees and expenses of counsel to the Holder
incurred by the Holder in connection with the administration and amendment of
this Note and the other Documents and (c) all reasonable costs and expenses
(including, without limitation, reasonable fees and expenses of counsel to the
Holder) incurred by the Holder in connection with the enforcement of the
Holder's rights and/or the collection of all amounts due under this Note. The
Company hereby agrees to indemnify and hold harmless the Holder and its members,
partners, agents, employees, affiliates and advisors from and against any and
all claims, damages, losses, liabilities and expenses (including without
limitation, all fees and other client charges of counsel to the Holder) which
may be incurred by or asserted against the Holder or any such member, partner,
agent, employee, affiliate or advisor in connection with or arising out of any
investigation, litigation or proceeding related to or arising out of this Note
or any other Document or any transaction contemplated hereby or thereby. The
obligations of the Company under this paragraph shall survive the payment in
full of this Note.
16. [Intentionally Omitted]
17. Assignment and Transfer of Note.
(a) Subject to the restrictions on transfer contained herein,
if applicable, this Note and all rights hereunder are transferable in whole or
in part, without charge to the Holder hereof, upon surrender of this Note with a
properly executed Form of Assignment attached hereto as Exhibit B at the
principal office of the Company (or at such office or agency as the Company may
designate in writing to the Holder).
(b) This Note shall be registered in a register (the "Note
Register") as it is issued and transferred, which Note Register shall be
maintained by the Company at its principal office or, at the Company's election
and expense, by the Company's Transfer Agent. The Company shall be entitled to
treat the registered holder of the Note on the Note Register as the owner in
fact thereof for all purposes and shall not be bound to recognize any equitable
or other claim to or interest in such Note on the part of any other Person, and
shall not be affected by any notice to the contrary, except that, if and when
any Note is properly assigned in blank, the Company may (but shall not be
obligated to) treat the bearer thereof as the owner of such Note for all
purposes. All of the rights provided to the Holder under this Note, if properly
assigned, may be exercised by a new holder without a new note first having been
issued.
18. Subordination.
(a) Agreement to Subordinate. The Subordinated Debt is and
shall be subordinate, to the extent and in the manner hereinafter set forth, in
right of payment to the prior payment in full of the Senior Debt.
(b) Restrictions on Payment of the Subordinated Debt. All
Senior Debt shall first be paid in full, or such payment shall have been
provided for, before any payment shall be made to the Holder in respect of the
Subordinated Debt; provided, however, that the Holder may receive, and the
Company may pay, principal of and interest on the Subordinated Debt evidenced by
the Note in the stated amounts and on the stated dates of payment hereof (and
the Company agrees to cause the Senior Debt Documents evidencing the Senior Debt
to permit such payments be made in accordance with the terms of this Note),
unless (i) a default in connection with the Senior Debt (a "Senior Debt
Default") arising out of the failure by the Company to make a payment on account
of principal of or interest on Senior Debt has occurred and is continuing and
(ii) the Company and the Holder have received written notice of such occurrence
(a "Blockage Notice") from one or more holders of the Senior Debt in the
aggregate principal amount of at least 50% of the Senior Debt outstanding;
provided, further, however, that the Company may resume making payments on
account of Subordinated Debt if at the time of any such payment 90 days shall
have elapsed since the occurrence of such Senior Debt Default, or on such
earlier date, if any, on which the Senior Debt has been paid in full in cash, in
other property or securities or such Senior Debt Default is cured or is waived
in writing by the applicable holders of the Senior Debt or such Blockage Notice
has been withdrawn or rescinded by the holders of the Senior Debt. Not more than
one Blockage Notice may be provided with respect to the Subordinated Debt during
any period of 365 consecutive days.
(c) Subordination.
(i) Except to the extent that the Holder has authorized the
Company, and the Company has bound itself, not to make any payment on the
Subordinated Debt other than in accordance with this Note, as set forth in the
Company's undertaking appearing in this Note, nothing contained herein shall
impair, as between the Company and the Holder, the obligation of the Company,
which is absolute and unconditional, to convert this Note pursuant to the
provisions of Section 3 and to pay the principal amount of and interest on the
Subordinated Debt in accordance with the terms hereof, or affect the relative
rights of the Holder and creditors of the Company other than the holders of the
Senior Debt, nor shall anything herein prevent the Holder from exercising all
remedies otherwise permitted by applicable law upon default, subject to the
rights, if any, under this Note of the holders of the Senior Debt. In no event
shall any term, covenant, condition or restriction in this Section 18 of this
Note affect in any way any right, power or privilege of the Holder in respect of
principal of or interest on the Note, or any related obligation.
(ii) The Holder shall not at any time be charged with
knowledge of theexistence of any facts which would prohibit the making of any
payment to it or the taking of any other action under this Note, unless and
until the Holder and the Company shall have received a notice thereof from the
applicable holders of the Senior Debt and, prior to the receipt of any such
notice, the Holder shall be entitled to assume that no such facts exist.
19. Events of Default. If any of the following shall occur
(each a "Default"):
(a) the Company shall fail to pay any principal of or interest
on this Note when due (whether by scheduled maturity, acceleration, demand or
otherwise); or (b) any representation or warranty made by the Company in this
Note, in any other Document heretofore or hereafter furnished by or on behalf of
the Company (including, without limitation, the Purchase Agreement) or in any
document or certificate in connection with the execution and delivery of this
Note shall have been incorrect in any respect when made, except where such
incorrect statement would not, individually or in the aggregate, result in a
Material Adverse Effect; or (c) the Company shall fail to perform or observe any
term, covenant or agreement contained in any Document (including, without
limitation, the failure to honor any Conversion Notice or an Election to
Purchase Shares (as defined in the Warrants)) to be performed or observed by the
Company, or (d) the Company shall fail to pay any debt for borrowed money or
other similar obligation or liability ("Indebtedness") (excluding Indebtedness
evidenced by this Note), or any interest or premium thereon, when due (whether
by scheduled maturity, required prepayment, acceleration, demand or otherwise)
and such failure shall continue after the applicable grace period, if any,
specified in the agreement or instrument relating to such Indebtedness, or any
other default under any agreement or instrument relating to any such
Indebtedness, or any other event, shall occur and shall continue after the
applicable grace period, if any, specified in such agreement or instrument, if
the effect of such default or event is to accelerate, or to permit the
acceleration of, the maturity of such Indebtedness, unless such default or
failure to pay has been waived by the party to which enforcement would be
charged; or any such Indebtedness shall be declared to be due and payable, or
required to be prepaid (other than by a regularly scheduled required
prepayment), prior to the stated maturity thereof; or (e) one or more judgments
or orders for the payment of money exceeding any applicable insurance coverage
shall be rendered against the Company, and either (i) enforcement proceedings
shall have been commenced by any creditor upon any such judgment or order, or
(ii) there shall be any period of ten (10) consecutive days during which a stay
of enforcement of any such judgment or order, by reason of a pending appeal or
otherwise, shall not be in effect; or (f) the Company shall be generally not
paying its debts as such debts become due, or shall admit in writing its
inability to pay its debts generally, or shall make a general assignment for the
benefit of creditors; or any proceeding shall be instituted by or against the
Company seeking to adjudicate it a bankrupt or insolvent, or seeking
dissolution, liquidation, winding up, reorganization, arrangement, adjustment,
protection, relief or composition of it or its debts under any law relating to
bankruptcy, insolvency or reorganization or relief of debtors, or seeking the
entry of an order for relief or the appointment of a receiver, trustee,
custodian or other similar official for the Company or for any substantial part
of its property and such proceeding shall remain undismissed or unstayed for a
period of thirty (30) days; or the Company shall take any action to authorize or
effect any of the actions set forth above in this clause (f); or (g) any
provision of this Note or any other Document (including, without limitation, the
Purchase Agreement) shall at any time for any reason be declared to be null and
void by a court of competent jurisdiction, or the validity or enforceability
thereof shall be contested by the Company, or a proceeding shall be commenced by
the Company seeking to establish the invalidity or unenforceability thereof, or
the Company shall deny that it has any liability or obligation hereunder or
thereunder; or (h) a material adverse change in the condition or operations,
financial or otherwise, of the Company, as determined by the Holder in its sole
discretion, shall occur and written notice thereof shall have been given to the
Company by the Holder; or (i) a Senior Debt Default shall have occurred and be
continuing; or (j) the Registration Statement (as defined in the Registration
Rights Agreement) covering the Conversion Shares and Warrant Shares shall not
have been declared effective by the Securities and Exchange Commission within
180 days after the Issuance Date; or (k) the Company shall not be eligible to
register securities, including the resale of the Conversion Shares and Warrant
Shares on a registration statement on Form S-3 under the Act on the fifteenth
(15th) Business Day following the Issuance Date;
then the Holder may (i) declare the Outstanding Principal Amount of this Note
and all other amounts due hereunder to be immediately due and payable, whereupon
the Outstanding Principal Amount of this Note and all such other amounts shall
become and shall be forthwith due and payable, without diligence, presentment,
demand, protest or other notice of any kind, all of which are hereby expressly
waived and all such amounts, if unpaid, shall bear interest at the Default Rate,
(ii) notwithstanding any provision to the contrary contained herein, convert
this Note at the Variable Conversion Price then in effect, and (iii) exercise
any and all of its other rights under applicable law, hereunder and under the
other Documents. In such event, this Note shall be prepaid at a prepayment price
equal to 125% of the Outstanding Principal Amount of the Note plus accrued but
unpaid interest thereon.
20. Taxes, etc. All payments made by the Company hereunder
will be made without setoff, counterclaim or other defense. All such payments
shall be made free and clear of and without deduction for any present or future
income, stamp or other taxes, levies, imposts, deductions, charges, fees,
withholding, restrictions or conditions of any nature now or hereafter imposed,
levied, collected, withheld or assessed by any jurisdiction or by any political
subdivision or taxing authority thereof or therein, and all interest, penalties
or similar liabilities, excluding taxes on the overall net income of the Holder
(such non-excluded taxes are hereinafter collectively referred to as the
"Taxes"). If the Company shall be required by law to deduct or to withhold any
Taxes from or in respect of any amount payable hereunder, (i) the amount so
payable shall be increased to the extent necessary so that after making all
required deductions and withholdings (including Taxes on amounts payable to the
Holder pursuant to this sentence) the Holder receives an amount equal to the sum
it would have received had no such deductions or withholdings been made, (ii)
the Company shall make such deductions or withholdings and (iii) the Company
shall pay the full amount deducted or withheld to the relevant taxation
authority in accordance with applicable law. Whenever any Taxes are payable by
the Company, as promptly as possible thereafter the Company shall send the
Holder an official receipt showing payment. In addition, the Company agrees to
pay any present or future taxes, charges or similar levies which arise from any
payment made hereunder or from the execution, delivery, performance, recordation
or filing of, or otherwise with respect to, this Note or any other Document
(hereinafter referred to as "Other Taxes"). The Company will indemnify the
Holder for the full amount of Taxes or Other Taxes (including, any Taxes or
Other Taxes on amounts payable to the Holder under this paragraph) paid by the
Holder and any liability (including penalties, interest and expenses) arising
therefrom or with respect thereto, upon written demand by the Holder therefor.
21. Miscellaneous.
(a) The Company agrees that all notices or other
communications provided for hereunder shall be in writing (including
telecommunications) and shall be mailed, telecopied or delivered to the Company
at the address of the Company set forth next to its signature, or at such other
address as may hereafter be specified by the Company to the Holder in writing.
All notices and communications shall be effective (i) upon receipt, if delivered
personally, (ii) upon receipt, when sent by facsimile, (iii) three (3) days
after being sent by U.S. certified mail, return receipt requested, or (iv) one
(1) day after deposit with a nationally recognized overnight delivery service,
in each case properly addressed to the party to receive same.
(b) No failure on the part of the Holder to exercise, and no
delay in exercising, any right, power, privilege or remedy hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise thereof by
the Holder preclude any other or further exercise thereof or the exercise of any
other right, power, privilege or remedy of the Holder. No amendment or waiver of
any provision of this Note, nor consent to any departure by the Company
therefrom, shall in any event be effective unless the same shall be in writing
and signed by the Holder, and then such waiver or consent shall be effective
only in the specific instance and for the specific purpose for which given.
(c) Any provision hereof which is prohibited or unenforceable
in any jurisdiction shall, as to such jurisdiction, be ineffective only to the
extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof or affecting the validity or enforceability of such
provision in any other jurisdiction.
(d) The Company hereby (i) irrevocably submits to the
jurisdiction of the courts of the State of New York or the United States for the
Southern District of New York, in each case, sitting in New York County in any
action or proceeding arising out of or relating to this Note, (ii) waives any
defense based on doctrines of venue or forum non conveniens, or similar rules or
doctrines, and (iii) irrevocably agrees that all claims in respect of such an
action or proceeding may be heard and determined in such courts. The Company (by
its acceptance hereof) waives any right to trial by jury in any action,
proceeding or counterclaim arising out of or relating to this Note.
<PAGE>
(e) This Note shall be governed by, and construed in
accordance with, the laws of the State of New York without regard to conflicts
of law principles.
SOFTNET SYSTEMS, INC.
By: __________________________________
Name:
Title:
Address:
520 Logue Avenue
Mountain View, CA 94043
Attention: Chief Financial Officer
Telephone: (650) 962-7490
Telecopier: (650) 962-7488
<PAGE>
SCHEDULE I
PAYMENTS OF PRINCIPAL
Principal Principal Notation
Paid or Prepaid Balance Made By
<PAGE>
EXHIBIT A
SOFTNET SYSTEMS, INC.
CONVERSION NOTICE
Reference is made to the 9% Senior Subordinated Convertible Note due January 1,
2001 (the "Note"), made by SoftNet Systems, Inc., a New York corporation (the
"Company"), to the order of [Stark International][Shepherd Investments
International, Ltd.]. In accordance with and pursuant to the Note, the
undersigned hereby elects to convert the amount under this Note indicated below
into shares of Common Stock, $.01 par value per share of the Company (the
"Common Stock"), as of the date specified below.
Date of Conversion:
---------------------------------------------------------
Outstanding Principal Amount of Note to be converted:
----------------------
Please confirm the following information:
Conversion Price:
---------------------------------------------------------
Number of shares of Common Stock to be issued:
----------------------------
Please issue the Common Stock and, if applicable, any check drawn on an account
of the Company into which Note is being converted in the following name and to
the following address:
Issue to:
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Facsimile Number:
----------------------------------------------------
Authorization:
----------------------------------------------------
By:
Title:
Dated:
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<PAGE>
Exhibit B
FORM OF ASSIGNMENT
[To be executed only upon assignment of the Note]
For value received, the undersigned registered Holder of the within Note hereby
sells, assigns and transfers unto ________________ the right represented by such
Note, and appoints _____________________ Attorney to make such transfer on the
Note Register of SoftNet Systems, Inc., maintained for such purpose, with full
power of substitution in the premises.
Dated:
----------------------
(Signature must conform in all respects to the name of
holder as specified on the face of the Note)
---------------------------------------------------
(Street Address)
---------------------------------------------------
(City) (State) Zip Code)
Signed in the presence of:
Exhibit 10.40
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of
January 12, 1999, by and among SoftNet Systems, Inc., a New York corporation,
with headquarters located at 520 Logue Avenue, Mountain View, CA 94043 (the
"Company"), and the undersigned buyers (each, a "Buyer" and collectively, the
"Buyers").
WHEREAS:
A. In connection with the Securities Purchase Agreement by and
among the Company and the Buyers and dated of even date herewith (the
"Securities Purchase Agreement"), the Company has agreed, upon the terms and
subject to the conditions of the Securities Purchase Agreement, to issue and
sell to the Buyers the Company's 9% Senior Subordinated Convertible Notes Due
January 1, 2001 in the aggregate principal amount of $12 million (the
"Convertible Notes"), which will be convertible into shares of the Company's
common stock, $.01 par value per share (the "Common Stock") (as converted, the
"Conversion Shares") in accordance with the terms of the Convertible Notes;
B. In consideration for the Buyers agreeing to purchase the
Convertible Notes, the Company shall issue and deliver to the Buyers common
stock purchase warrants (the "Warrants") to purchase additional shares of Common
Stock pursuant to the terms of the Securities Purchase Agreement (the shares of
Common Stock issued or issuable upon exercise of the Warrants are hereinafter
referred to as the "Warrant Shares"); and
C. To induce the Buyers to execute and deliver the Securities
Purchase Agreement, the Company has agreed to provide certain registration
rights under the Securities Act of 1933, as amended, and the rules and
regulations thereunder, or any similar successor statute (collectively, the
"1933 Act"), and applicable state securities laws;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and the
Buyers hereby agree as follows:
1. DEFINITIONS.
As used in this Agreement, the following terms shall have the
following meanings:
a. "Investor" means a Buyer and any transferee or assignee
thereof to whom a Buyer assigns its rights under this Agreement and who agrees
to become bound by the provisions of this Agreement in accordance with Section
9.
b. "Person" means a corporation, a limited liability company,
an association, a partnership, an organization, a business, an individual, an
entity, a governmental or political subdivision thereof or a governmental
agency.
c. "register," "registered," and "registration" refer to a
registration effected by preparing and filing one or more Registration
Statements in compliance with the 1933 Act and pursuant to Rule 415 under the
1933 Act or any successor rule providing for offering securities on a continuous
basis ("Rule 415"), and the declaration or ordering of effectiveness of such
Registration Statement(s) by the United States Securities and Exchange
Commission (the "SEC").
d. "Registrable Securities" means (i) the Conversion Shares
issued or issuable upon conversion of the Convertible Notes, (ii) the Warrant
Shares issued or issuable upon exercise of the Warrants and (iii) any shares of
capital stock issued or issuable with respect to the Conversion Shares, the
Convertible Notes, the Warrant Shares or the Warrants as a result of any stock
split, stock dividend, recapitalization, exchange or similar event.
e. "Registration Statement" means a registration statement of
the Company filed under the 1933 Act, subject to Section 2 hereof or any other
provision of this Agreement, as applicable
Capitalized terms used herein and not otherwise defined herein shall
have the respective meanings set forth in the Securities Purchase Agreement.
2. REGISTRATION.
a. Mandatory Registration. The Company shall prepare, and, on
or prior to fifteen (15) Business Days after the date of the initial issuance of
the Convertible Notes, file with the SEC a Registration Statement or
Registration Statements (as is necessary) on Form S-3 (or, if such form is
unavailable for such a registration, on such other form as is available for such
a registration, subject to the consent of each Buyer and the provisions of
Section 2(c), which consent will not be unreasonably withheld), covering the
resale of all of the Registrable Securities, which Registration Statement(s)
shall state that, in accordance with Rule 416 promulgated under the 1933 Act,
such Registration Statement(s) also covers such indeterminate number of
additional shares of Common Stock as may become issuable upon conversion of the
Convertible Notes to prevent dilution resulting from stock splits, stock
dividends or similar transactions. Such Registration Statement shall initially
register for resale 1,717,587 shares of Common Stock, subject to adjustment as
provided in Section 3(b). Such registered shares of Common Stock shall be
allocated among the Investors pro rata based on the total number of Registrable
Securities issued or issuable as of each date that a Registration Statement, as
amended, relating to the resale of the Registrable Securities is declared
effective by the SEC. The Company shall use its best efforts to have the
Registration Statement declared effective by the SEC within sixty (60) days
after the date of the initial issuance of the Convertible Notes.
b. Counsel and Investment Bankers. Subject to Section 5
hereof, in connection with any offering pursuant to Section 2, the Buyers shall
have the right to select legal counsel and an investment banker or bankers and
manager or managers to administer their interest in the offering, which
investment banker or bankers or manager or managers shall be reasonably
satisfactory to the Company. The Company shall reasonably cooperate with any
such counsel and investment bankers.
c. Eligibility for Form S-3. The Company represents, warrants
and covenants that it will meet the requirements for the use of Form S-3 for
registration of the sale by the Buyers and any other Investor of the Registrable
Securities on and after the twentieth (20) day following the date of issuance of
the Convertible Notes and the Company has filed and shall file all reports
required to be filed by the Company with the SEC in a timely manner so as to
obtain and maintain such eligibility for the use of Form S-3. In the event that
Form S-3 is not available for sale by the Investors of the Registrable
Securities, then the Company (i) with the consent of each Investor pursuant to
Section 2(a) (which consent shall not be unreasonably withheld), shall register
the sale of the Registrable Securities on another appropriate form and not more
than twenty (20) days after being notified that Form S-3 is not available and
(ii) the Company shall undertake to register the Registrable Securities on Form
S-3 as soon as such form is available, provided that the Company shall maintain
the effectiveness of the Registration Statement then in effect until such time
as a Registration Statement on Form S-3 covering the Registrable Securities has
been declared effective by the SEC.
3. RELATED OBLIGATIONS.
At such time as the Company is obligated to file a
Registration Statement with the SEC pursuant to Section 2(a), the Company will
use its best efforts to effect the registration of the Registrable Securities in
accordance with the intended method of disposition thereof and, pursuant
thereto, the Company shall have the following obligations:
a. The Company shall promptly prepare and file with the SEC a
Registration Statement with respect to the Registrable Securities (on or prior
to the fifteenth (15) Business Day after the date of issuance of the Convertible
Notes and solely (unless otherwise consented to by the Investors) for the
registration of Registrable Securities pursuant to Section 2(a)) and use its
best efforts to cause such Registration Statement(s) relating to Registrable
Securities to become effective as soon as possible after such filing (but no
later than sixty (60) days after the issuance of the Convertible Notes for the
registration of Registrable Securities pursuant to Section 2(a)), and keep the
Registration Statement(s) effective pursuant to Rule 415 at all times until the
earlier of (i) six months after the date as of which the Investors may sell all
of the Registrable Securities without restriction pursuant to Rule 144(k)
promulgated under the 1933 Act (or successor thereto) or (ii) the date on which
(A) the Investors shall have sold all the Registrable Securities and (B) none of
the Convertible Notes is outstanding (the "Registration Period"), which
Registration Statement(s) (including any amendments or supplements thereto and
prospectuses contained therein) shall not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein, or
necessary to make the statements therein, in light of the circumstances in which
they were made, not misleading. In the event that such Registration Statement is
not declared effective by the SEC within 120 days after the issuance of the
Convertible Notes, until the Registration Statement is declared effective by the
SEC, the Company will incur a cash penalty of 1.5% of the original principal
amount of the Notes as of the Issuance Date (as defined in the Notes) for the
first 30 days thereafter (pro rated for any partial period thereof), payable at
the earlier of the end of such 30-day period or on the declared effectiveness of
the Registration Statement, and 1.5% of the original principal amount of the
Notes as of the Issuance Date for each additional 30 days thereafter (pro rated
for any partial period thereof), payable at the earlier of the end of each such
30-day period or the declared effectiveness of the Registration Statement.
b. The Company shall prepare and file with the SEC such
amendments (including post-effective amendments) and supplements to the
Registration Statement(s) and the prospectus(es) used in connection with the
Registration Statement(s), which prospectus(es) are to be filed pursuant to Rule
424 promulgated under the 1933 Act, as may be necessary to keep the Registration
Statement(s) effective at all times during the Registration Period, and, during
such period, comply with the provisions of the 1933 Act with respect to the
disposition of all Registrable Securities of the Company covered by the
Registration Statement(s) until such time as all of such Registrable Securities
shall have been disposed of in accordance with the intended methods of
disposition by the seller or sellers thereof as set forth in the Registration
Statement(s). In the event the number of shares available under a Registration
Statement filed pursuant to this Agreement is insufficient to cover all of the
Registrable Securities, the Company shall amend the Registration Statement, or
file a new Registration Statement (on the short form available therefor, if
applicable), or both, so as to cover all of the Registrable Securities, in each
case, as soon as practicable, but in any event within fifteen (15) Business Days
after the necessity therefor arises (based on the market price of the Common
Stock and other relevant factors on which the Company reasonably elects to
rely). The Company shall use it best efforts to cause any such necessary
amendment and/or new Registration Statement to become effective as soon as
practicable following the filing thereof. In addition any such amendment or new
Registration Statement shall for purposes of Section 3(a) above be deemed to be
a "Registration Statement". For purposes of the foregoing provisions, if
applicable, the number of shares available under a Registration Statement shall
be deemed "insufficient to cover all of the Registrable Securities" (i) if at
any time the number of Registrable Securities issued or issuable upon conversion
and redemption of the Convertible Notes and exercise of the Warrants is greater
than 1,717,587, or (ii) if the Common Share Limit (as defined in the Convertible
Notes) is no longer applicable as set forth in Section 3(a) of the Convertible
Notes, the quotient determined by dividing (A) the number of shares of Common
Stock available for resale under such Registration Statement by (B) 2.0. For
purposes of the calculation set forth in the foregoing sentence, any
restrictions on the convertibility of the Convertible Notes shall be disregarded
and such calculation shall assume that the Convertible Notes are then
convertible into shares of Common Stock at the then prevailing Conversion Rate
(as defined in the Convertible Note).
c. The Company shall furnish to each Investor whose
Registrable Securities are included in the Registration Statement(s) and its
legal counsel without charge (i) promptly after the same is prepared and filed
with the SEC at least one copy of the Registration Statement and any amendment
thereto, including financial statements and schedules, all documents
incorporated therein by reference and all exhibits, the prospectus(es) included
in such Registration Statement(s) (including each preliminary prospectus) and,
with regards to the Registration Statement referred to in Section 2(a), upon
request of an Investor, any correspondence by or on behalf of the Company to the
SEC or the staff of the SEC and any correspondence from the SEC or the staff of
the SEC to the Company or its representatives (other than any portion thereof
which contains information for which the Company has sought and received
approval for confidential treatment with the SEC, copies of such correspondence
shall be deemed confidential and the Investor shall not publicly disclose any
information contained therein for so long as such confidential treatment is
effective or such information is not otherwise publicly available), (ii) upon
the effectiveness of any Registration Statement, ten (10) copies of the
prospectus included in such Registration Statement and all amendments and
supplements thereto (or such other number of copies as such Investor may
reasonably request) and (iii) such other documents, including any preliminary
prospectus, as such Investor may reasonably request in order to facilitate the
disposition of the Registrable Securities owned by such Investor. The Company
will promptly respond to any and all comments received from the SEC, with a view
towards causing any Registration Statement or any amendment thereto to be
declared effective by the SEC as soon as practicable and shall, subject to
Section 3(h), promptly file an acceleration request as soon as practicable
following the resolution or clearance of all SEC comments or, if applicable,
following notification by the SEC that the Registration Statement or any
amendment thereto will not be subject to review.
d. The Company shall use reasonable efforts to (i) register
and qualify the Registrable Securities covered by the Registration Statement(s)
under such other securities or "blue sky" laws of such jurisdictions in the
United States as any Investor reasonably requests, (ii) prepare and file in
those jurisdictions, such amendments (including post-effective amendments) and
supplements to such registrations and qualifications as may be necessary to
maintain the effectiveness thereof during the Registration Period, (iii) take
such other actions as may be necessary to maintain such registrations and
qualifications in effect at all times during the Registration Period, and (iv)
take all other actions reasonably necessary or advisable to qualify the
Registrable Securities for sale in such jurisdictions; provided, however, that
the Company shall not be required in connection therewith or as a condition
thereto to (v) qualify to do business in any jurisdiction where it would not
otherwise be required to qualify but for this Section 3(d), (w) subject itself
to general taxation in any such jurisdiction, or (x) file a general consent to
service of process in any such jurisdiction, (y) provide any undertakings that
cause the Company material expense or burden, or (z) make any change in its
charter or bylaws that would cause a material expense or burden to the Company,
which in each case, the Board of Directors of the Company determines to be
contrary to the best interests of the Company and its stockholders. The Company
shall promptly notify each Investor who holds Registrable Securities of the
receipt by the Company of any notification with respect to the suspension of the
registration or qualification of any of the Registrable Securities for sale
under the securities or "blue sky" laws of any jurisdiction in the United States
or its receipt of actual notice of the initiation or threatening of any
proceeding for such purpose.
e. In the event Investors who hold a majority of the
Registrable Securities being offered in the offering select underwriters for the
offering, the Company shall, subject to Section 2(b) hereof, enter into and
perform its obligations under an underwriting agreement, in usual and customary
form, including, without limitation, customary indemnification and contribution
obligations, with the underwriters of such offering.
f. As promptly as practicable after becoming aware of such
event, the Company shall notify each Investor in writing of the happening of any
event as a result of which the prospectus included in a Registration Statement,
as then in effect, includes an untrue statement of a material fact or omission
to state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, and promptly prepare a supplement or amendment to the
Registration Statement to correct such untrue statement or omission if required
by law or not otherwise satisfied through the filing of a report on Form 8-K
filed with the SEC, and deliver ten (10) copies of such supplement or amendment
to each Investor (or such other number of copies as such Investor may reasonably
request). The Company shall also promptly notify each Investor in writing (i)
when a prospectus or any prospectus supplement or post-effective amendment has
been filed, and when a Registration Statement or any post-effective amendment
has become effective (notification of such effectiveness shall be delivered to
each Investor by facsimile on the same day of such effectiveness and by
overnight mail), (ii) of any request by the SEC for amendments or supplements to
a Registration Statement or related prospectus or related information, and (iii)
of the Company's reasonable determination that a post-effective amendment to a
Registration Statement would be appropriate.
g. The Company shall use its best efforts to prevent the
issuance of any stop order or other suspension of effectiveness of a
Registration Statement, or the suspension of the qualification of any of the
Registrable Securities for sale in any jurisdiction and, if such an order or
suspension is issued, to obtain the withdrawal of such order or suspension at
the earliest practicable time and to notify each Investor who holds Registrable
Securities being sold (and, in the event of an underwritten offering, the
managing underwriters) of the issuance of such order and the resolution thereof
or its receipt of actual notice of the initiation or threat of any proceeding
for such purpose.
h. The Company shall permit each Investor and a single firm of
counsel, initially Schulte Roth & Zabel LLP or such other counsel as thereafter
designated as selling stockholders' counsel by the Investors who hold a majority
of the Registrable Securities being sold, to review and comment upon the
Registration Statement(s) and all amendments and supplements thereto at least
seven (7) days prior to their filing with the SEC, and not file any document in
a form to which such counsel reasonably objects. The Company shall not submit a
request for acceleration of the effectiveness of a Registration Statement(s) or
any amendment or supplement thereto without the prior approval of such counsel,
which consent shall not be unreasonably withheld.
i. At the written request of the Investors who hold a majority
of the Registrable Securities being sold, the Company shall furnish, on the date
that Registrable Securities are delivered to an underwriter, if any, for sale in
connection with the Registration Statement (i) if required by an underwriter, a
letter, dated such date, from the Company's independent certified public
accountants in form and substance as is customarily given by independent
certified public accountants to underwriters in an underwritten public offering,
addressed to the underwriters, and (ii) an opinion, dated as of such date, of
counsel representing the Company for purposes of such Registration Statement, in
form, scope and substance as is customarily given in an underwritten public
offering, addressed to the underwriters and the Investors.
j. The Company shall make available for inspection by (i) any
Investor, (ii) any underwriter participating in any disposition pursuant to a
Registration Statement, (iii) one firm of attorneys and one firm of accountants
or other agents retained by the Investors, and (iv) one firm of attorneys
retained by all such underwriters (collectively, the "Inspectors") all pertinent
financial and other records, and pertinent corporate documents and properties of
the Company (collectively, the "Records"), during normal business hours, as
shall be reasonably deemed necessary by each Inspector to enable each Inspector
to exercise its due diligence responsibility (with such Inspector to be
responsible for its own fees and expenses in connection with such due diligence
except (x) as otherwise provided herein or (y) if an Event of Default (as
defined in the Convertible Notes) has occurred under the Convertible Notes), and
cause the Company's officers, directors and employees to supply all information
which any Inspector may reasonably request for purposes of such due diligence;
provided, however, that each Inspector shall hold in strict confidence and shall
not make any disclosure (except to an Investor) or use of any Record or other
information which the Company determines in good faith to be confidential, and
of which determination the Inspectors are so notified, unless (a) the disclosure
of such Records is necessary to avoid or correct a misstatement or omission in
any Registration Statement or is otherwise required under the 1933 Act, (b) the
release of such Records is ordered pursuant to a final, non-appealable subpoena
or order from a court or government body of competent jurisdiction, or (c) the
information in such Records has been made generally available to the public
other than by disclosure in violation of this agreement. Each Investor agrees
that it shall, upon learning that disclosure of such Records is sought in or by
a court or governmental body of competent jurisdiction or through other means,
give prompt notice to the Company and allow the Company, at its expense, to
undertake appropriate action to prevent disclosure of, or to obtain a protective
order for, the Records deemed confidential. Nothing herein (or in any other
confidentiality agreement between the Company and any Investor) shall be deemed
to limit the Investors' ability to sell Registrable Securities in a manner which
is otherwise consistent with applicable laws and regulations.
k. The Company shall hold in confidence and not make any
disclosure of information concerning an Investor provided to the Company by an
Investor or on its behalf unless (i) disclosure of such information is necessary
to comply with federal or state securities laws, (ii) the disclosure of such
information is necessary to avoid or correct a misstatement or omission in any
Registration Statement, (iii) the release of such information is ordered
pursuant to a subpoena or other final, non-appealable order from a court or
governmental body of competent jurisdiction, or (iv) such information has been
made generally available to the public other than by disclosure in violation of
this or any other agreement. The Company agrees that it shall, upon learning
that disclosure of such information concerning an Investor is sought in or by a
court or governmental body of competent jurisdiction or through other means,
give prompt written notice to such Investor and allow such Investor, at the
Investor's expense, to undertake appropriate action to prevent disclosure of, or
to obtain a protective order for, such information.
l. The Company shall use its best efforts either to (i) cause
all the Registrable Securities covered by a Registration Statement to be listed
on each securities exchange on which securities of the same class or series
issued by the Company are then listed, if any, if the listing of such
Registrable Securities is then permitted under the rules of such exchange, or
(ii) secure designation and quotation of all the Registrable Securities covered
by the Registration Statement on the Nasdaq National Market System or the Nasdaq
SmallCap Market for such Registrable Securities and, without limiting the
generality of the foregoing, to arrange for at least two market makers to
register with the AMEX or, if applicable, the National Association of Securities
Dealers, Inc. as such with respect to such Registrable Securities. The Company
shall pay all fees and expenses in connection with satisfying its obligation
under this Section 3(l).
m. The Company shall cooperate with the Investors who hold
Registrable Securities being offered and, to the extent applicable, any managing
underwriter or underwriters, to facilitate the timely preparation and delivery
of certificates (not bearing any restrictive legend) representing the
Registrable Securities to be offered pursuant to a Registration Statement and
enable such certificates to be in such denominations or amounts, as the case may
be, as the managing underwriter or underwriters, if any, or, if there is no
managing underwriter or underwriters, the Investors may reasonably request and
registered in such names as the managing underwriter or underwriters, if any, or
the Investors may request. Not later than the date on which any Registration
Statement registering the resale of Registrable Securities is declared
effective, the Company shall deliver to its transfer agent instructions,
accompanied by any reasonably required opinion of counsel, that permit sales of
unlegended securities in a timely fashion that complies with then mandated
securities settlement procedures for regular way market transactions.
n. The Company shall take all other reasonable actions
necessary to expedite and facilitate disposition by the Investors of Registrable
Securities pursuant to a Registration Statement.
o. The Company shall provide a CUSIP number, a transfer agent
and registrar of all such Registrable Securities not later than the effective
date of such Registration Statement.
p. If requested by the managing underwriters or an Investor,
the Company shall immediately incorporate in a prospectus supplement or
post-effective amendment such information as the managing underwriters and the
Investors agree should be included therein relating to the sale and distribution
of Registrable Securities, including, without limitation, information with
respect to the number of Registrable Securities being sold to such underwriters,
the purchase price being paid therefor by such underwriters and with respect to
any other terms of the underwritten (or best efforts underwritten) offering of
the Registrable Securities to be sold in such offering; make all required
filings of such prospectus supplement or post-effective amendment as soon as
notified of the matters to be incorporated in such prospectus supplement or
post-effective amendment; and supplement or make amendments to any Registration
Statement if requested by a shareholder or any underwriter of such Registrable
Securities.
q. The Company shall use its best efforts to cause the
Registrable Securities covered by the applicable Registration Statement to be
registered with or approved by such other governmental agencies or authorities
as may be necessary to consummate the disposition of such Registrable
Securities.
r. The Company shall otherwise use its best efforts to comply
with all applicable rules and regulations of the SEC in connection with any
registration hereunder.
4. OBLIGATIONS OF THE INVESTORS.
a. At least seven (7) days prior to the first anticipated
filing date of the Registration Statement, the Company shall notify each
Investor or its counsel in writing of the information the Company requires from
each such Investor if such Investor elects to have any of such Investor's
Registrable Securities included in the Registration Statement. It shall be a
condition precedent to the obligations of the Company to complete the
registration pursuant to this Agreement with respect to the Registrable
Securities of a particular Investor that such Investor shall as soon as
practicable furnish to the Company such information as may be requested in
writing by the Company regarding itself, the Registrable Securities held by it
and the intended method of disposition of the Registrable Securities held by it
as shall be reasonably required to effect the registration of such Registrable
Securities and shall execute such documents in connection with such registration
as the Company may reasonably request.
b. Each Investor by such Investor's acceptance of the
Registrable Securities agrees to cooperate with the Company as reasonably
requested by the Company in connection with the preparation and filing of the
Registration Statement(s) hereunder unless such Investor has notified the
Company in writing of such Investor's election to exclude all of such Investor's
Registrable Securities from the Registration Statement.
c. After receiving the draft Registration Statement from the
Company in accordance with Section 3(h) hereof, each Investor shall provide the
Company or its counsel with either its approval of the Registration Statement or
its comments or corrections to such Registration Statement within five (5)
Business Days of receipt of the draft Registration Statement.
d. Each Investor agrees that, upon receipt of any notice from
the Company of the happening of any event of the kind described in Section 3(g)
or the first sentence of 3(f), such Investor will immediately discontinue
disposition of Registrable Securities pursuant to the Registration Statement(s)
covering such Registrable Securities until such Investor's receipt of the copies
of the supplemented or amended prospectus contemplated by Section 3(g) or the
first sentence of 3(f) and, if so directed by the Company, such Investor shall
deliver to the Company (at the expense of the Company) or destroy all copies in
such Investor's possession, of the prospectus covering such Registrable
Securities current at the time of receipt of such notice.
e. No Investor may participate in any underwritten
registration hereunder unless such Investor (i) agrees to sell such Investor's
Registrable Securities on the basis provided in any underwriting arrangements
approved by the Investors entitled hereunder to approve such arrangements, (ii)
completes and executes all questionnaires, powers of attorney, indemnities,
underwriting agreements and other documents reasonably required under the terms
of such underwriting arrangements, and (iii) agrees to pay its pro rata share of
all underwriting discounts and commissions.
f. Each Investor agrees to use reasonable efforts to cooperate
(as may be appropriate under the circumstances) with the Company (at the
Company's expense) in responding to comments of the staff of the SEC, provided
that nothing in this Section 4(f) shall affect deadlines for the Registration
Statement filing or any obligations of the Company under this Agreement.
5. EXPENSES OF REGISTRATION.
All reasonable expenses, other than underwriting discounts and
commissions, incurred in connection with registrations, filings or
qualifications pursuant to Sections 2 and 3, including, without limitation, all
registration, listing and qualifications fees, printers and accounting fees, and
fees and disbursements of counsel for the Company and fees and disbursements of
one counsel for the Investors shall be paid by the Company. In addition, the
Company shall pay all of the Investors' reasonable costs (including legal fees)
incurred in connection with the successful enforcement of the Investors' rights
hereunder.
6. INDEMNIFICATION.
In the event any Registrable Securities are included in a
Registration Statement under this Agreement:
a. To the fullest extent permitted by law, the Company will,
and hereby does, indemnify, hold harmless and defend each Investor who holds
such Registrable Securities, the directors, officers, partners, employees,
agents and each Person, if any, who controls any Investor within the meaning of
the 1933 Act or the Securities Exchange Act of 1934, as amended (the "1934
Act"), and any underwriter (as defined in the 1933 Act) for the Investors, and
the directors and officers of, and each Person, if any, who controls any such
underwriter within the meaning of the 1933 Act or the 1934 Act (each, an
"Indemnified Person"), against any losses, claims, damages, liabilities,
judgments, fines, penalties, charges, costs, attorneys' fees, amounts paid in
settlement or expenses, joint or several (collectively, "Claims"), incurred in
investigating, preparing or defending any action, claim, suit, inquiry,
proceeding, investigation or appeal taken from the foregoing by or before any
court or governmental, administrative or other regulatory agency, body or the
SEC, whether pending or threatened, whether or not an indemnified party is or
may be a party thereto ("Indemnified Damages"), to which any of them may become
subject insofar as such Claims (or actions or proceedings, whether commenced or
threatened, in respect thereof) arise out of or are based upon: (i) any untrue
statement or alleged untrue statement of a material fact in a Registration
Statement or any post-effective amendment thereto or in any filing made in
connection with the qualification of the offering under the securities or other
"blue sky" laws of any jurisdiction in which Registrable Securities are offered,
or the omission or alleged omission to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which the statements therein were made, not misleading, (ii)
any untrue statement or alleged untrue statement of a material fact contained in
any preliminary prospectus if used prior to the effective date of such
Registration Statement, or contained in the final prospectus (as amended or
supplemented, if the Company files any amendment thereof or supplement thereto
with the SEC) or the omission or alleged omission to state therein any material
fact necessary to make the statements made therein, in light of the
circumstances under which the statements therein were made, not misleading, or
(iii) any violation or alleged violation by the Company of the 1933 Act, the
1934 Act, any other law, including, without limitation, any state securities
law, or any rule or regulation thereunder relating to the offer or sale of the
Registrable Securities pursuant to a Registration Statement (the matters in the
foregoing clauses (i) through (iii) being, collectively, "Violations"). Subject
to the restrictions set forth in Section 6(d) with respect to the number of
legal counsel, the Company shall reimburse the Investors and each such
underwriter or controlling person, promptly as such expenses are incurred and
are due and payable, for any legal fees or other reasonable expenses incurred by
them in connection with investigating or defending any such Claim.
Notwithstanding anything to the contrary contained herein, the indemnification
agreement contained in this Section 6(a): (i) shall not apply to a Claim arising
out of or based upon a Violation which occurs in reliance upon and in conformity
with information furnished in writing to the Company by any Indemnified Person
or underwriter for such Indemnified Person expressly for use in connection with
the preparation of the Registration Statement or any such amendment thereof or
supplement thereto, if such prospectus was timely made available by the Company
pursuant to Section 3(c); (ii) with respect to any preliminary prospectus, shall
not inure to the benefit of any such person from whom the person asserting any
such Claim purchased the Registrable Securities that are the subject thereof (or
to the benefit of any person controlling such person) if the untrue statement or
omission of material fact contained in the preliminary prospectus was corrected
in the prospectus, as then amended or supplemented, if such prospectus was
timely made available by the Company pursuant to Section 3(c), and the
Indemnified Person was promptly advised in writing not to use the incorrect
prospectus prior to the use giving rise to a Violation and such Indemnified
Person, notwithstanding such advice, used it; and (iii) shall not apply to
amounts paid in settlement of any Claim if such settlement is effected without
the prior written consent of the Company, which consent shall not be
unreasonably withheld. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of the Indemnified Person
and shall survive the transfer of the Registrable Securities by the Investors
pursuant to Section 9.
b. In connection with any Registration Statement in which an
Investor is participating, each such Investor agrees to severally and not
jointly indemnify, hold harmless and defend, to the same extent and in the same
manner as is set forth in Section 6(a), the Company, each of its directors, each
of its officers who signs the Registration Statement, each Person, if any, who
controls the Company within the meaning of the 1933 Act or the 1934 Act
(collectively and together with an Indemnified Person, an "Indemnified Party"),
against any Claim or Indemnified Damages to which any of them may become
subject, under the 1933 Act, the 1934 Act or otherwise, insofar as such Claim or
Indemnified Damages arise out of or are based upon any Violation, in each case
to the extent, and only to the extent, that such Violation occurs in reliance
upon and in conformity with written information furnished to the Company by such
Investor expressly for use in connection with such Registration Statement; and,
subject to Section 6(d), such Investor will reimburse any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such Claim; provided, however, that the indemnity agreement
contained in this Section 6(b) and the agreement with respect to contribution
contained in Section 7 shall not apply to amounts paid in settlement of any
Claim if such settlement is effected without the prior written consent of such
Investor, which consent shall not be unreasonably withheld; provided, further,
however, that the Investor shall be liable under this Section 6(b) for only that
amount of a Claim or Indemnified Damages as does not exceed the net proceeds to
such Investor as a result of the sale of Registrable Securities pursuant to such
Registration Statement. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of such Indemnified Party
and shall survive the transfer of the Registrable Securities by the Investors
pursuant to Section 9. Notwithstanding anything to the contrary contained
herein, the indemnification agreement contained in this Section 6(b) with
respect to any preliminary prospectus shall not inure to the benefit of any
Indemnified Party if the untrue statement or omission of material fact contained
in the preliminary prospectus was corrected on a timely basis in the prospectus,
as then amended or supplemented.
c. The Company shall be entitled to receive indemnities from
underwriters, selling brokers, dealer managers and similar securities industry
professionals participating in any distribution, to the same extent as provided
above, with respect to information such persons so furnished in writing
expressly for inclusion in the Registration Statement.
d. Promptly after receipt by an Indemnified Person or
Indemnified Party under this Section 6 of notice of the commencement of any
action or proceeding (including any governmental action or proceeding) involving
a Claim, such Indemnified Person or Indemnified Party shall, if a Claim in
respect thereof is to be made against any indemnifying party under this Section
6, deliver to the indemnifying party a written notice of the commencement
thereof, and the indemnifying party shall have the right (at its expense) to
participate in, and, to the extent the indemnifying party so desires, jointly
with any other indemnifying party similarly noticed, to assume control of the
defense thereof with counsel mutually satisfactory to the indemnifying party and
the Indemnified Person or the Indemnified Party, as the case may be; provided,
however, that such indemnifying party shall diligently pursue such defense and
that an Indemnified Person or Indemnified Party shall have the right to retain
its own counsel with the fees and expenses to be paid by the indemnifying party,
if, in the reasonable opinion of counsel retained by the Indemnified Person or
Indemnified Party, as the case may be, the representation by such counsel of the
Indemnified Person or Indemnified Party and the indemnifying party would be
inappropriate due to actual or potential differing interests between such
Indemnified Person or Indemnified Party and any other party represented by such
counsel in such proceeding. The Company shall pay reasonable fees for only one
separate legal counsel for the Investors, and such legal counsel shall be
selected by the Investors holding a majority in interest of the Registrable
Securities included in the Registration Statement to which the Claim relates.
The Indemnified Party or Indemnified Person shall cooperate fully with the
indemnifying party in connection with any negotiation or defense of any such
action or claim by the indemnifying party and shall furnish to the indemnifying
party all information reasonably available to the Indemnified Party or
Indemnified Person which relates to such action or claim. The indemnifying party
shall keep the Indemnified Party or Indemnified Person fully apprised at all
times as to the status of the defense or any settlement negotiations with
respect thereto. No indemnifying party shall be liable for any settlement of any
action, claim or proceeding effected without its written consent, provided,
however, that the indemnifying party shall not unreasonably withhold, delay or
condition its consent. No indemnifying party shall, without the consent of the
Indemnified Party or Indemnified Person, consent to entry of any judgment or
enter into any settlement or other compromise which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party or Indemnified Person of a release from all liability in
respect to such claim or litigation. Following indemnification as provided for
hereunder, the indemnifying party shall be subrogated to all rights of the
Indemnified Party or Indemnified Person with respect to all third parties, firms
or corporations relating to the matter for which indemnification has been made.
The failure to deliver written notice to the indemnifying party within a
reasonable time of the commencement of any such action shall not relieve such
indemnifying party of any liability to the Indemnified Person or Indemnified
Party under this Section 6, except to the extent that the indemnifying party is
prejudiced in its ability to defend such action.
e. The indemnification required by this Section 6 shall be
made by periodic payments of the amount thereof during the course of the
investigation or defense, as and when bills are received or Indemnified Damages
are incurred.
f. The indemnity agreements contained herein shall be in
addition to (i) any cause of action or similar right of the Indemnified Party or
Indemnified Person against the indemnifying party or others, and (ii) any
liabilities the indemnifying party may be subject to pursuant to the law.
7. CONTRIBUTION.
To the extent any indemnification by an indemnifying party is
prohibited or limited by law, the indemnifying party agrees to make the maximum
contribution with respect to any amounts for which it would otherwise be liable
under Section 6 to the fullest extent permitted by law; provided, however, that:
(i) no contribution shall be made under circumstances where the maker would not
have been liable for indemnification under the fault standards set forth in
Section 6; (ii) no seller of Registrable Securities guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be
entitled to contribution from any seller of Registrable Securities who was not
guilty of fraudulent misrepresentation; and (iii) contribution (together with
any indemnification or other obligations under this Agreement) by any seller of
Registrable Securities shall be limited in amount to the net amount of proceeds
received by such seller from the sale of such Registrable Securities.
8. REPORTS UNDER THE 1934 ACT.
With a view to making available to the Investors the benefits
of Rule 144 promulgated under the 1933 Act or any other similar rule or
regulation of the SEC that may at any time permit the Investors to sell
securities of the Company to the public without registration ("Rule 144"), the
Company agrees that so long as any Investor owns any Securities, the Company
shall:
a. make and keep public information available, as those terms
are understood and defined in Rule 144;
b. file with the SEC in a timely manner all reports and other
documents required of the Company under the 1933 Act and the 1934 Act so long as
the Company remains subject to such requirements (it being understood that
nothing herein shall limit the Company's obligations under Section 4(c) of the
Securities Purchase Agreement) and the filing of such reports and other
documents is required for the applicable provisions of Rule 144; and
c. furnish to each Investor so long as such Investor owns
Registrable Securities, promptly upon written request, (i) a written statement
by the Company that it has complied with the reporting requirements of Rule 144,
the 1933 Act and the 1934 Act, (ii) a copy of the most recent annual or
quarterly report of the Company and such other reports and documents so filed by
the Company, and (iii) such other information as may be reasonably requested to
permit the Investors to sell such securities pursuant to Rule 144 without
registration.
9. ASSIGNMENT OF REGISTRATION RIGHTS.
The rights to have the Company register Registrable Securities
pursuant to this Agreement shall be automatically assignable by the Investors to
any transferee or assignee (a "Transferee") of all or any portion of Registrable
Securities if: (i) the Investor agrees in writing with the Transferee to assign
such rights, and a copy of such agreement is furnished to the Company within a
reasonable time after such assignment; (ii) the Company is, within a reasonable
time after such transfer or assignment, furnished with written notice of (a) the
name and address of such Transferee, and (b) the securities with respect to
which such registration rights are being transferred or assigned; (iii)
immediately following such transfer or assignment the further disposition of
such securities by the Transferee is restricted under the 1933 Act and
applicable state securities laws; (iv) at or before the time the Company
receives the written notice contemplated by clause (ii) of this sentence the
Transferee agrees in writing with the Company to be bound by all of the
provisions contained herein; (v) such transfer shall have been made in
accordance with the applicable requirements of the Securities Purchase
Agreement; (vi) such Transferee shall be an "accredited investor" as that term
is defined in Rule 501 of Regulation D promulgated under the 1933 Act; and (vii)
in the event the assignment occurs subsequent to the date of effectiveness of
the Registration Statement required to be filed pursuant to Section 2(a), the
Transferee agrees to pay all reasonable expenses of amending or supplementing
such Registration Statement to reflect such assignment.
10. AMENDMENT OF REGISTRATION RIGHTS.
Provisions of this Agreement may be amended and the observance
thereof may be waived (either generally or in a particular instance and either
retroactively or prospectively), only with the written consent of the Company
and Investors who hold two-thirds (2/3) of the Registrable Securities. Any
amendment or waiver effected in accordance with this Section 10 shall be binding
upon each Investor and the Company.
11. MISCELLANEOUS.
a. A person or entity is deemed to be a holder of Registrable
Securities whenever such person or entity owns of record such Registrable
Securities. If the Company receives conflicting instructions, notices or
elections from two or more persons or entities with respect to the same
Registrable Securities, the Company shall act upon the basis of instructions,
notice or election received from the registered owner of such Registrable
Securities.
b. Any notices consents, waivers or other communications
required or permitted to be given under the terms of this Agreement must be in
writing and will be deemed to have been delivered (i) upon receipt, when
delivered personally; (ii) upon receipt, when sent by facsimile, provided a copy
is mailed by U.S. certified mail, return receipt requested; (iii) three (3) days
after being sent by U.S. certified mail, return receipt requested; or (iv) one
(1) day after deposit with a nationally recognized overnight delivery service,
in each case properly addressed to the party to receive the same. The addresses
and facsimile numbers for such communications shall be:
if to the Company:
SoftNet Systems, Inc.
520 Logue Avenue
Mountain View, CA 44043
Telephone: (650) 962-7490
Facsimile: (650) 962-7488
Attention: Chief Financial Officer
with a copy to:
Brobeck, Phleger & Harrison LLP
Two Embarcadero Place
2200 Geng Road
Palo Alto, CA 94303-0913
Telephone: 650-424-0160
Facsimile: 650-496-2885
Attention: Thomas W. Kellerman, Esq.
if to a Buyer, to its address and facsimile number on the
Schedule of Buyers attached hereto, with copies to such
Buyer's counsel as set forth on the Schedule of Buyers.
Each party shall provide five (5) days prior notice to the other party of
any change in address, phone number or facsimile number.
c. Failure of any party to exercise any right or remedy under
this Agreement or otherwise, or delay by a party in exercising such right or
remedy, shall not operate as a waiver thereof.
d. This Agreement shall be governed by and interpreted in
accordance with the laws of the State of New York without regard to the
principles of conflict of laws. If any provision of this Agreement shall be
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement in that jurisdiction or the validity or
enforceability of any provision of this Agreement in any other jurisdiction.
e. This Agreement, the Convertible Notes, the Warrants and the
Purchase Agreement (including all schedules and exhibits thereto) constitute the
entire agreement among the parties hereto with respect to the subject matter
hereof and thereof. There are no restrictions, promises, warranties or
undertakings, other than those set forth or referred to herein and therein. The
aforementioned documents supersede all prior agreements and understandings among
the parties hereto with respect to the subject matter hereof and thereof.
f. Subject to the requirements of Section 9, this Agreement
shall inure to the benefit of and be binding upon the permitted successors and
assigns of each of the parties hereto.
g. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
h. This Agreement may be executed in two or more identical
counterparts, each of which shall be deemed an original but all of which shall
constitute one and the same agreement. This Agreement, once executed by a party,
may be delivered to the other party hereto by facsimile transmission of a copy
of this Agreement bearing the signature of the party so delivering this
Agreement.
i. Each party shall do and perform, or cause to be done and
performed, all such further acts and things, and shall execute and deliver all
such other agreements, certificates, instruments and documents, as the other
party may reasonably request in order to carry out the intent and accomplish the
purposes of this Agreement and the consummation of the transactions contemplated
hereby.
<PAGE>
<PAGE>
IN WITNESS WHEREOF, the Buyers and the Company have caused
this Securities Purchase Agreement to be duly executed as of the date first
written above.
COMPANY: BUYERS:
SOFTNET SYSTEMS, INC. STARK INTERNATIONAL
By: By:
--------------------------- -------------------------------
Name: Name:
--------------------------- -------------------------------
Its: Its:
--------------------------- -------------------------------
SHEPHERD INVESTMENTS
INTERNATIONAL, LTD.
By:
-------------------------------
Name:
-------------------------------
Its:
-------------------------------
<PAGE>
SCHEDULE OF BUYERS
<TABLE>
<CAPTION>
Investor's Advisor
Investor Address and Principal Amount of and Legal Counsel
Investor Name Facsimile Number Convertible Notes Amount of Warrants Address
- -------------------- -------------------- ------------------- ------------------ ---------------------
<S> <C> <C> <C> <C>
Stark International c/o Staro Asset $8 million 200,000 Eleazer Klein, Esq.
(Bermuda) Management Schulte Roth & Zabel
1500 West Market LLP
Street New York, NY 10022
Mequon, Wisconsin Fax: (212) 593-5955
53092
Fax: (414) 241-1888
Shepherd c/o Staro Asset $4million 100,000 Eleazer Klein, Esq.
Investments Management Schulte Roth & Zabel
International, Ltd. 1500 West Market LLP
(British Virgin Street New York, NY 10022
Islands) Mequon, Wisconsin Fax: (212) 593-5955
53092
Fax: (414) 241-1888
</TABLE>
Exhibit 10.41
THIS WARRANT AND ANY SECURITIES ACQUIRED UPON EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES
LAW OF ANY STATE OF THE UNITED STATES AND MAY NOT BE SOLD, TRANSFERRED OR
OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE
EXEMPTION TO THE REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH LAWS. THIS
WARRANT AND SUCH SECURITIES MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED
OF EXCEPT IN COMPLIANCE WITH THE CONDITIONS SPECIFIED IN THIS WARRANT AND THE
SECURITIES PURCHASE AGREEMENT DATED AS OF JANUARY 12, 1999 BY AND AMONG SOFTNET
SYSTEMS, INC., STARK INTERNATIONAL AND SHEPHERD INVESTMENTS INTERNATIONAL, LTD.
SOFTNET SYSTEMS, INC.
COMMON STOCK PURCHASE WARRANT
No. W-1 January 12, 1999
Warrant to Purchase [200,000] [100,000]
Shares of Common Stock par value $.01 per share
SOFTNET SYSTEMS, INC., a New York corporation (the "Company"),
for value received, hereby certifies that [STARK INTERNATIONAL] [SHEPHERD
INVESTMENTS INTERNATIONAL, LTD.], or registered assigns (the "Holder"), is
entitled to purchase from the Company [200,000] [100,000] duly authorized,
validly issued, fully paid and nonassessable shares of Common Stock, par value
$.01 per share, of the Company (the "Common Stock"), at a purchase price equal
to $17 per share, at any time or from time to time prior to 5:00 P.M., New York
City time, on January 1, 2003 (the "Expiration Date"), all subject to the terms,
conditions and adjustments set forth below in this Warrant.
This Warrant is one of the Common Stock Purchase Warrants
(collectively, the "Warrants", such term to include any such warrants issued in
substitution therefor) originally issued pursuant to the terms of the Securities
Purchase Agreement, dated as of January 12, 1999, by and among the Company, the
Holder and [Shepherd Investments International, Ltd.] [Stark International] (the
"Purchase Agreement"). The Warrants originally so issued evidence rights to
purchase an aggregate of 300,000 shares of Common Stock subject to adjustment as
provided herein. Capitalized terms used herein and not otherwise defined herein
shall have the meanings assigned such terms in the Purchase Agreement.
1. Definitions. As used herein, unless the context otherwise
requires, the following terms shall have the meanings indicated:
"Additional Shares of Common Stock" shall mean all shares
(including treasury shares) of Common Stock issued or sold (or, pursuant to
Section 3.3 or 3.4, deemed to be issued) by the Company after the date hereof,
whether or not subsequently reacquired or retired by the Company, other than
(a) (i) shares of Common Stock issued upon the exercise of the
Warrants, (ii) shares of Common Stock issued upon conversion of the
Convertible Notes and (iii) such number of additional shares of Common
Stock as may become issuable upon the exercise of the Warrants or by
conversion of the Convertible Notes by reason of adjustments required
pursuant to the anti-dilution provisions applicable to such Warrants or
Convertible Notes as in effect on the date hereof; and
(b) shares of Common Stock issued pursuant to Approved Stock
Plans; and
(c) shares issued upon exercise of options and warrants
outstanding as of December 31, 1998.
"Approved Stock Plan" shall mean any contract, plan or
agreement which has been or shall be approved by the Board of Directors of the
Company, pursuant to which the Company's securities may be issued to any
employee, officer, director, consultant or other service provider of the Company
in an aggregate amount that does not exceed 110% of the number of securities
issuable as of December 31, 1998 pursuant to any currently existing Approved
Stock Plan.
"Business Day" shall mean any day other than a Saturday or a
Sunday or a day on which commercial banking institutions in the City of New York
are authorized by law to be closed. Any reference to "days" (unless Business
Days are specified) shall mean calendar days.
"Buy In Actual Damages" shall have the meaning assigned to it
in Section 2.6 of this Warrant.
"Closing Bid Prices" shall mean for any security as of any
date, the closing bid price of such security on the principal securities
exchange or trade market where such security is listed or trades as reported by
Bloomberg, L.P. ("Bloomberg"), or if the foregoing does not apply, the closing
bid price of such security in the over-the-counter market on the electronic
bulletin board for such security as reported by Bloomberg, or, if no closing bid
price is reported for such security by Bloomberg, the average of the bid prices
of any market makers for such security as reported in the "pink sheets" by the
National Quotation Bureau, Inc. If the Closing Bid Price cannot be calculated
for such security on such date, as set forth above, the Closing Bid Price of
such security shall be the fair market value as determined in good faith by an
investment banking firm selected jointly by the Company and the Holders, with
the fees and expenses of such determination borne solely by the Company.
"Commission" shall mean the Securities and Exchange Commission
or any successor agency having jurisdiction to enforce the Securities Act.
"Common Stock" shall have the meaning assigned to it in the
introduction to this Warrant, such term to include any stock into which such
Common Stock shall have been changed or any stock resulting from any
reclassification of such Common Stock, and all other stock of any class or
classes (however designated) of the Company the holders of which have the right,
without limitation as to amount, either to all or to a share of the balance of
current dividends and liquidating dividends after the payment of dividends and
distributions on any shares entitled to preference.
"Company" shall have the meaning assigned to it in the
introduction to this Warrant, such term to include any corporation or other
entity which shall succeed to or assume the obligations of the Company hereunder
in compliance with Section 4.
"Convertible Notes" shall mean the Company's 9% Senior
Subordinated Convertible Notes due January 1, 2001.
"Convertible Securities" shall mean any evidences of
indebtedness, shares of stock (other than Common Stock) or other securities
directly or indirectly convertible into or exchangeable for Additional Shares of
Common Stock.
"Current Market Price" shall mean, on any date specified
herein, the average of the daily Closing Bid Prices during the 10 consecutive
trading days commencing 15 trading days before such date, except that, if on any
such date the shares of Common Stock are not listed or admitted for trading on
any national securities exchange or quoted in the over-the-counter market, the
Current Market Price shall be the Fair Value on such date.
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended from time to time, and the rules and regulations thereunder, or any
successor statute.
"Expiration Date" shall have the meaning assigned to it in the
introduction to this Warrant.
"Fair Value" shall mean, on any date specified herein (i) in
the case of cash, the dollar amount thereof, (ii) in the case of a security
admitted for trading on any national securities exchange or quoted in the
over-the-counter market, the Current Market Price, and (iii) in all other cases
as determined in good faith jointly by the Board of Directors of the Company and
the Holder; provided, however, that if such parties are unable to reach
agreement within a reasonable period of time, the Fair Value shall be determined
in good faith by an independent investment banking firm selected jointly by the
Company and the Holder or, if that selection cannot be made within ten days, by
an independent investment banking firm selected by the American Arbitration
Association in accordance with its rules, and provided further, that the Company
shall pay all of the fees and expenses of any third parties incurred in
connection with determining the Fair Value.
"Options" shall mean any rights, options or warrants to
subscribe for, purchase or otherwise acquire either Additional Shares of Common
Stock or Convertible Securities.
"Other Securities" shall mean any stock (other than Common
Stock) and other securities of the Company or any other Person (corporate or
otherwise) which the holders of the Warrants at any time shall be entitled to
receive, or shall have received, upon the exercise of the Warrants, in lieu of
or in addition to Common Stock, or which at any time shall be issuable or shall
have been issued in exchange for or in replacement of Common Stock or Other
Securities pursuant to Section 4 or otherwise.
"Person" shall mean any individual, firm, partnership,
corporation, trust, joint venture, association, joint stock company, limited
liability company, unincorporated organization or any other entity or
organization, including a government or agency or political subdivision thereof,
and shall include any successor (by merger or otherwise) of such entity.
"Purchase Agreement" shall have the meaning assigned to it in
the introduction to this Warrant.
"Purchase Price" shall mean (i) initially the amount per share
indicated in the introductory paragraph to this Warrant, and (ii) on and after
July 1, 1999, the amount per share equal to the lesser of (A) the then current
Purchase Price and (B) 110% of the five day average Closing Bid Prices for the
five trading days immediately preceding July 1, 1999 in the case of both (i) and
(ii) above, subject to adjustment and readjustment from time to time as provided
in Section 3, and, as so adjusted or readjusted, shall remain in effect until a
further adjustment or readjustment thereof is required by Section 3.
"Registration Rights Agreement" shall mean the Registration
Rights Agreement dated as of January 12, 1999, substantially in the form of
Exhibit C to the Purchase Agreement.
"Rights"shall have the meaning assigned to it in Section 3.10.
"Securities Act" shall mean the Securities Act of 1933, as
amended from time to time, and the rules and regulations thereunder, or any
successor statute.
"Warrants" shall have the meaning assigned to it in the
introduction to this Warrant.
2. Exercise of Warrant.
2.1. Manner of Exercise; Payment of the Purchase Price. (a)
This Warrant may be exercised by the Holder, in whole or in part, at any time or
from time to time prior to the Expiration Date, by surrendering to the Company
at its principal office (or such other office or agency of the Company as the
Company may designate in a written notice to the Holder) this Warrant, together
with the form of Election to Purchase Shares attached hereto as Exhibit A (or a
reasonable facsimile thereof) duly executed by the Holder and accompanied by
payment of the Purchase Price as described below for the number of shares of
Common Stock specified in such form.
(b) Payment of the Purchase Price may be made as follows (or
by any combination of the following): (i) in United States currency by cash or
delivery of a certified check or bank draft payable to the order of the Company
or by wire transfer to the account of the Company, (ii) by cancellation of all
or any part of the unpaid principal amount of the Convertible Notes held by the
Holder in an amount equal to the Purchase Price, (iii) by cancellation of such
number of the shares of Common Stock otherwise issuable to the Holder upon such
exercise as shall be specified in such Election to Purchase Shares, such that
the excess of the Current Market Price of such specified number of shares on the
date of exercise over the portion of the Purchase Price attributable to such
shares shall equal the Purchase Price attributable to the shares of Common Stock
to be issued upon such exercise, in which case upon delivery of such notice such
amount shall be deemed to have been paid to the Company and the number of shares
issuable upon such exercise shall be reduced by such specified number, or (iv)
by surrender to the Company for cancellation, certificates representing shares
of Common Stock of the Company owned by the Holder (properly endorsed for
transfer in blank) having a Current Market Price on the date of Warrant exercise
equal to the Purchase Price.
2.2. When Exercise Effective. Each exercise of this Warrant
shall be deemed to have been effected immediately prior to the close of business
on the Business Day on which this Warrant shall have been surrendered to, and
the Purchase Price shall have been received by, the Company as provided in
Section 2.1, and at such time the Person or Persons in whose name or names any
certificate or certificates for shares of Common Stock (or Other Securities)
shall be issuable upon such exercise as provided in Section 2.3 shall be deemed
to have become the holder or holders of record thereof for all purposes.
2.3. Delivery of Stock Certificates, etc.; Charges, Taxes and
Expenses. Subject to Section 2.5 (a) As soon as practicable after each exercise
of this Warrant, in whole or in part, and in any event within three Business
Days thereafter, the Company shall cause to be issued in such denominations as
may be requested by Holder in the Election to Purchase Shares, in the name of
and delivered to the Holder or, subject the Purchase Agreement, as the Holder
may direct,
(i) a certificate or certificates, or, if then permissible
under the Securities Act, at a Holder's request to electronically issue
such shares (e.g., through DWAC or DTC), for the number of shares of
Common Stock (or Other Securities) to which the Holder shall be
entitled upon such exercise plus, in lieu of issuance of any fractional
share to which the Holder would otherwise be entitled, if any, a
certified check for the amount of cash equal to the same fraction
multiplied by the Current Market Price per share on the date of Warrant
exercise, provided, however, that in the event sufficient funds are not
legally available for the payment of such amount, the number of shares
of Common Stock for which such certificate(s) represents shall be
rounded up to the nearest whole number, and
(ii) in case such exercise is for less than all of the shares
of Common Stock purchasable under this Warrant, a new Warrant or
Warrants of like tenor, for the balance of the shares of Common Stock
purchasable hereunder.
(b) Issuance of certificates for shares of Common Stock upon
the exercise of this Warrant shall be made without charge to the Holder hereof
for any issue or transfer tax or other incidental expense, in respect of the
issuance of such certificates, all of which such taxes and expenses shall be
paid by the Company.
2.4. Company to Reaffirm Obligations. The Company shall, at
the time of each exercise of this Warrant, upon the request of the Holder
hereof, acknowledge in writing its continuing obligation to afford to such
Holder all rights to which such Holder shall continue to be entitled after such
exercise in accordance with the terms of this Warrant, provided that if the
Holder of this Warrant shall fail to make any such request, such failure shall
not affect the continuing obligation of the Company to afford such rights to the
Holder.
2.5. Exercise Disputes. In the case of any dispute with
respect to the number of shares to be issued upon exercise of this Warrant, the
Company shall promptly issue such number of shares of Common Stock that is not
disputed and shall submit the disputed determinations or arithmetic calculations
to the Holder via facsimile within two (2) Business Days of receipt of the
Holder's Election to Purchase Shares. If the Holder and the Company are unable
to agree as to the determination of the Purchase Price within two (2) Business
Days of such disputed determination or arithmetic calculation being submitted to
the Holder, then the Company shall in accordance with this Section, submit via
facsimile the disputed determination to an independent reputable accounting firm
of national standing, selected jointly by the Company and the Holder. The
Company shall cause such accounting firm to perform the determinations or
calculations and notify the Company and the Holder of the results within
forty-eight (48) hours from the time it receives the disputed determinations of
calculations. Such accounting firm's determination shall be binding upon all
parties absent manifest error. The Company shall then on the next Business Day
issue certificate(s) representing the appropriate number of shares of Common
Stock in accordance with such accounting firm's determination and this Section.
All fees and expenses of such determination and calculation shall be borned by
the Company.
2.6. Failure to Deliver Common Stock If, at any time, the
Holder of this Warrant submits this Warrant, an Election to Purchase Shares and
payment to the Company of the Purchase Price for each of the shares of Common
Stock specified in the Election to Purchase Shares in accordance with Section
2.1 above, and the Company, for any reason, fails to deliver, on or prior to the
last possible date which the Company could have issued such Common Stock to the
Holder without violating this Section 2, the number of shares of Common Stock
for which the Holder is entitled upon such exercise, the Company shall pay
damages to the Holder equal to the greater of (a) actual damages incurred by the
Holder as a result of the Holder's needing to "buy in" shares of Common Stock to
the extent necessary to satisfy its securities delivery requirements ("Buy In
Actual Damages") and (b) if the Company fails to deliver such certificates
within five days after the last possible date on which the Company could have
issued such Common Stock to the Holder without violating this Section 2, on each
date such exercise is not timely effected in an amount equal to 1% of the
product of (i) the number of shares of Common Stock not issued to the Holder on
a timely basis and to which the Holder is entitled and (ii) the Closing Bid
Price of the Common Stock on the last possible date which the Company could have
issued such Common Stock to the Holder without violating this Section 2.
3. Adjustment of Common Stock Issuable Upon Exercise.
3.1. Adjustment of Number of Shares.
Upon each adjustment of the Purchase Price as a
result of the calculations made in this Section 3, this Warrant shall thereafter
evidence the right to receive, at the adjusted Purchase Price, that number of
shares of Common Stock (calculated to the nearest one-hundredth) obtained by
dividing (i) the product of the aggregate number of shares covered by this
Warrant immediately prior to such adjustment and the Purchase Price in effect
immediately prior to such adjustment of the Purchase Price by (ii) the Purchase
Price in effect immediately after such adjustment of the Purchase Price.
3.2. Adjustment of Purchase Price.
3.2.1. Issuance of Additional Shares of Common Stock. In case
the Company at any time or from time to time after the date hereof shall issue
or sell Additional Shares of Common Stock (including Additional Shares of Common
Stock deemed to be issued pursuant to Section 3.3 or 3.4 but excluding
Additional Shares of Common Stock purchasable upon exercise of Rights referred
to in Section 3.10), without consideration or for a consideration per share less
than the fair market value of such additional shares of Common Stock as
determined in good faith by the Board of Directors of the Company as in effect
immediately prior to such issue or sale, then, and in each such case, subject to
Section 3.8, the Purchase Price shall be reduced, concurrently with such issue
or sale, to a price (calculated to the nearest .001 of a cent) determined by
multiplying such Purchase Price by a fraction
(a) the numerator of which shall be the sum of (i) the number
of shares of Common Stock outstanding immediately prior to such issue
or sale and (ii) the number of shares of Common Stock which the gross
consideration received by the Company for the total number of such
Additional Shares of Common Stock so issued or sold would purchase at
such Current Market Price, and
(b) the denominator of which shall be the number of shares of
Common Stock outstanding immediately after such issue or sale, provided
that, for the purposes of this Section 3.2.1, (x) immediately after any
Additional Shares of Common Stock are deemed to have been issued
pursuant to Section 3.3 or 3.4, such Additional Shares shall be deemed
to be outstanding, and (y) treasury shares shall not be deemed to be
outstanding.
3.2.2. Extraordinary Dividends and Distributions. In case the
Company at any time or from time to time after the date hereof shall declare,
order, pay or make a dividend or other distribution (including, without
limitation, any distribution of other or additional stock or other securities or
property or Options by way of dividend or spin-off, reclassification,
recapitalization or similar corporate rearrangement) on the Common Stock, then,
in each such case, subject to Section 3.8, the Purchase Price in effect
immediately prior to the close of business on the record date fixed for the
determination of holders of any class of securities entitled to receive such
dividend or distribution shall be reduced, effective as of the close of business
on such record date, to a price determined by multiplying such Purchase Price by
a fraction
(x) the numerator of which shall be the Current Market Price
in effect on such record date or, if the Common Stock trades on an
ex-dividend basis, on the date prior to the commencement of ex-dividend
trading, less the Fair Value of such dividend or distribution
applicable to one share of Common Stock, and
(y) the denominator of which shall be such Current
Market Price.
3.3. Treatment of Options and Convertible Securities. In case
the Company at any time or from time to time after the date hereof shall issue,
sell, grant or assume, or shall fix a record date for the determination of
holders of any class of securities of the Company entitled to receive, any
Options or Convertible Securities (whether or not the rights thereunder are
immediately exercisable), then, and in each such case, the maximum number of
Additional Shares of Common Stock (as set forth in the instrument relating
thereto, without regard to any provisions contained therein for a subsequent
adjustment of such number) issuable upon the exercise of such Options or, in the
case of Convertible Securities and Options therefor, the conversion or exchange
of such Convertible Securities, shall be deemed to be Additional Shares of
Common Stock issued as of the time of such issue, sale, grant or assumption or,
in case such a record date shall have been fixed, as of the close of business on
such record date (or, if the Common Stock trades on an ex-dividend basis, on the
date prior to the commencement of ex-dividend trading), provided that such
Additional Shares of Common Stock shall not be deemed to have been issued unless
(i) the consideration per share (determined pursuant to Section 3.5) of such
shares would be less than the fair market value of such shares as determined in
good faith by the Board of Directors of the Company as in effect on the date of
and immediately prior to such issue, sale, grant or assumption or immediately
prior to the close of business on such record date (or, if the Common Stock
trades on an ex-dividend basis, on the date prior to the commencement of
ex-dividend trading), as the case may be and (ii) such Additional Shares of
Common Stock are not purchasable pursuant to Rights referred to in Section 3.10,
and provided, further, that
(a) whether or not the Additional Shares of Common Stock
underlying such Options or Convertible Securities are deemed to be
issued, no further adjustment of the Purchase Price shall be made upon
the subsequent issue or sale of Convertible Securities or shares of
Common Stock upon the exercise of such Options or the conversion or
exchange of such Convertible Securities;
(b) if such Options or Convertible Securities by their terms
provide, with the passage of time or otherwise, for any increase in the
consideration payable to the Company, or decrease in the number of
Additional Shares of Common Stock issuable, upon the exercise,
conversion or exchange thereof (by change of rate or otherwise), the
Purchase Price computed upon the original issue, sale, grant or
assumption thereof (or upon the occurrence of the record date, or date
prior to the commencement of ex-dividend trading, as the case may be,
with respect thereto), and any subsequent adjustments based thereon,
shall, upon any such increase or decrease becoming effective, be
recomputed to reflect such increase or decrease insofar as it affects
such Options, or the rights of conversion or exchange under such
Convertible Securities, which are outstanding at such time;
(c) upon the expiration or termination (or purchase by the
Company and cancellation or retirement) of any such Options which shall
not have been exercised or the expiration of any rights of conversion
or exchange under any such Convertible Securities which (or purchase by
the Company and cancellation or retirement of any such Convertible
Securities the rights of conversion or exchange under which) shall not
have been exercised, the Purchase Price computed upon the original
issue, sale, grant or assumption thereof (or upon the occurrence of the
record date, or date prior to the commencement of ex-dividend trading,
as the case may be, with respect thereto), and any subsequent
adjustments based thereon, shall, upon such expiration (or such
cancellation or retirement, as the case may be), be recomputed as if:
(i) in the case of Options for Common Stock or
Convertible Securities, the only Additional Shares of Common
Stock issued or sold were the Additional Shares of Common
Stock, if any, actually issued or sold upon the exercise of
such Options or the conversion or exchange of such Convertible
Securities and the consideration received therefor was the
consideration actually received by the Company for the issue,
sale, grant or assumption of all such Options, whether or not
exercised, plus the consideration actually received by the
Company upon such exercise, or for the issue or sale of all
such Convertible Securities which were actually converted or
exchanged, plus the additional consideration, if any, actually
received by the Company upon such conversion or exchange, and
(ii) in the case of Options for Convertible
Securities, only the Convertible Securities, if any, actually
issued or sold upon the exercise of such Options were issued
at the time of the issue or sale, grant or assumption of such
Options, and the consideration received by the Company for the
Additional Shares of Common Stock deemed to have then been
issued was the consideration actually received by the Company
for the issue, sale, grant or assumption of all such Options,
whether or not exercised, plus the consideration deemed to
have been received by the Company (pursuant to Section 3.5)
upon the issue or sale of such Convertible Securities with
respect to which such Options were actually exercised;
(d) no readjustment pursuant to subdivision (b) or (c) above
shall have the effect of increasing the Purchase Price by an amount in
excess of the amount of the adjustment thereof originally made in
respect of the issue, sale, grant or assumption of such Options or
Convertible Securities; and
(e) in the case of any such Options which expire by their
terms not more than 30 days after the date of issue, sale, grant or
assumption thereof, no adjustment of the Purchase Price shall be made
until the expiration or exercise of all such Options, whereupon such
adjustment shall be made in the manner provided in subdivision (c)
above.
3.4. Treatment of Stock Dividends, Stock Splits, etc. In case
the Company at any time or from time to time after the date hereof shall declare
or pay any dividend on the Common Stock payable in Common Stock, or shall effect
a subdivision of the outstanding shares of Common Stock into a greater number of
shares of Common Stock (by reclassification or otherwise than by payment of a
dividend in Common Stock), then, and in each such case, Additional Shares of
Common Stock shall be deemed to have been issued (a) in the case of any such
dividend, immediately after the close of business on the record date for the
determination of holders of any class of securities entitled to receive such
dividend, or (b) in the case of any such subdivision, at the close of business
on the day immediately prior to the day upon which such corporate action becomes
effective.
3.5. Computation of Consideration.
For the purposes of this Section 3,
(a) the consideration for the issue or sale of any Additional
Shares of Common Stock shall, irrespective of the accounting treatment
of such consideration,
(i) insofar as it consists of cash, be computed at
the amount of cash received by the Company, without deducting
any expenses paid or incurred by the Company or any
commissions or compensations paid or concessions or discounts
allowed to underwriters, dealers or others performing similar
services in connection with such issue or sale,
(ii) insofar as it consists of property (including
securities) other than cash, be computed at the Fair Value
thereof at the time of such issue or sale, and
(iii) in case Additional Shares of Common Stock are
issued or sold together with other stock or securities or
other assets of the Company for a consideration which covers
both, be the portion of such consideration so received,
computed as provided in clauses (i) and (ii) above, allocable
to such Additional Shares of Common Stock, such allocation to
be determined in the same manner that the Fair Value of
property not consisting of cash or securities is to be
determined as provided in the definition of 'Fair Value'
herein;
(b) Additional Shares of Common Stock deemed to have been
issued pursuant to Section 3.3, relating to Options and Convertible
Securities, shall be deemed to have been issued for a consideration per
share determined by dividing
(i) the total amount, if any, received and receivable
by the Company as consideration for the issue, sale, grant or
assumption of the Options or Convertible Securities in
question, plus the minimum aggregate amount of additional
consideration (as set forth in the instruments relating
thereto, without regard to any provision contained therein for
a subsequent adjustment of such consideration to protect
against dilution) payable to the Company upon the exercise in
full of such Options or the conversion or exchange of such
Convertible Securities or, in the case of Options for
Convertible Securities, the exercise of such Options for
Convertible Securities and the conversion or exchange of such
Convertible Securities, in each case computing such
consideration as provided in the foregoing subdivision (a),
by
(ii) the maximum number of shares of Common Stock (as
set forth in the instruments relating thereto, without regard
to any provision contained therein for a subsequent adjustment
of such number to protect against dilution) issuable upon the
exercise of such Options or the conversion or exchange of such
Convertible Securities; and
(c) Additional Shares of Common Stock deemed to have been
issued pursuant to Section 3.4, relating to stock dividends, stock
splits, etc., shall be deemed to have been issued for no consideration.
3.6. Adjustments for Combinations, etc. In case the
outstanding shares of Common Stock shall be combined or consolidated, by
reclassification or otherwise, into a lesser number of shares of Common Stock,
the Purchase Price in effect immediately prior to such combination or
consolidation shall, concurrently with the effectiveness of such combination or
consolidation, be proportionately increased.
3.7. Dilution in Case of Other Securities. In case any Other
Securities shall be issued or sold or shall become subject to issue or sale upon
the conversion or exchange of any stock (or Other Securities) of the Company (or
any issuer of Other Securities or any other Person referred to in Section 4) or
to subscription, purchase or other acquisition pursuant to any Options issued or
granted by the Company (or any such other issuer or Person) for a consideration
such as to dilute, on a basis consistent with the standards established in the
other provisions of this Section 3, the purchase rights granted by this Warrant,
then, and in each such case, the computations, adjustments and readjustments
provided for in this Section 3 with respect to the Purchase Price and the number
of shares purchasable upon Warrant exercise shall be made as nearly as possible
in the manner so provided and applied to determine the amount of Other
Securities from time to time receivable upon the exercise of the Warrants, so as
to protect the holders of the Warrants against the effect of such dilution.
3.8. De Minimis Adjustments. If the amount of any adjustment
of the Purchase Price per share required pursuant to this Section 3 would be
less than $.01, such amount shall be carried forward and adjustment with respect
thereto made at the time of and together with any subsequent adjustment which,
together with such amount and any other amount or amounts so carried forward,
shall aggregate a change in the Purchase Price of at least $.01 per share. All
calculations under this Warrant shall be made to the nearest .001 of a cent or
to the nearest one-hundredth of a share, as the case may be.
3.9. Abandoned Dividend or Distribution. If the Company shall
take a record of the holders of its Common Stock for the purpose of entitling
them to receive a dividend or other distribution (which results in an adjustment
to the Purchase Price under the terms of this Warrant) and shall, thereafter,
and before such dividend or distribution is paid or delivered to stockholders
entitled thereto, legally abandon its plan to pay or deliver such dividend or
distribution, then any adjustment made to the Purchase Price and number of
shares of Common Stock purchasable upon Warrant exercise by reason of the taking
of such record shall be reversed, and any subsequent adjustments, based thereon,
shall be recomputed.
3.10. Shareholder Rights Plan. Notwithstanding the foregoing,
in the event that the Company shall distribute "poison pill" rights pursuant to
a "poison pill" shareholder rights plan (the "Rights"), the Company shall, in
lieu of making any adjustment pursuant to Section 3.2.1 or Section 3.2.2 hereof,
make proper provision so that each Holder who exercises a Warrant after the
record date for such distribution and prior to the expiration or redemption of
the Rights shall be entitled to receive upon such exercise, in addition to the
shares of Common Stock issuable upon such exercise, a number of Rights to be
determined as follows: (i) if such exercise occurs on or prior to the date for
the distribution to the holders of Rights of separate certificates evidencing
such Rights (the "Distribution Date"), the same number of Rights to which a
holder of a number of shares of Common Stock equal to the number of shares of
Common Stock issuable upon such exercise at the time of such exercise would be
entitled in accordance with the terms and provisions of and applicable to the
Rights; and (ii) if such exercise occurs after the Distribution Date, the same
number of Rights to which a holder of the number of shares into which the
Warrant so exercised was exercisable immediately prior to the Distribution Date
would have been entitled on the Distribution Date in accordance with the terms
and provisions of and applicable to the Rights, and in each case subject to the
terms and conditions of the Rights.
4. Consolidation, Merger, etc.
4.1. Adjustments for Consolidation, Merger, Sale of Assets,
Reorganization, etc. In case the Company after the date hereof (a) shall
consolidate with or merge into any other Person and shall not be the continuing
or surviving corporation of such consolidation or merger, or (b) shall permit
any other Person to consolidate with or merge into the Company and the Company
shall be the continuing or surviving Person but, in connection with such
consolidation or merger, the Common Stock or Other Securities shall be changed
into or exchanged for stock or other securities of any other Person or cash or
any other property, or (c) shall transfer all or substantially all of its
properties or assets to any other Person, or (d) shall effect a capital
reorganization or reclassification of the Common Stock or Other Securities
(other than a capital reorganization or reclassification resulting in the issue
of Additional Shares of Common Stock for which adjustment in the Purchase Price
is provided in Section 3.2.1 or 3.2.2), then, and in the case of each such
transaction, proper provision shall be made so that, upon the basis and the
terms and in the manner provided in this Warrant, the Holder of this Warrant,
upon the exercise hereof at any time after the consummation of such transaction
shall be entitled to receive (at the aggregate Purchase Price in effect at the
time of such consummation for all Common Stock or Other Securities issuable upon
such exercise immediately prior to such consummation), in lieu of the Common
Stock or Other Securities issuable upon such exercise prior to such
consummation, the amount of securities, cash or other property to which such
Holder would actually have been entitled as a stockholder upon such consummation
if such Holder had exercised this Warrant immediately prior thereto, subject to
adjustments (subsequent to such consummation) as nearly equivalent as possible
to the adjustments provided for in Sections 3 through 5.
4.2. Assumption of Obligations. Notwithstanding anything
contained in the Warrants or in the Purchase Agreement to the contrary, the
Company shall not effect any of the transactions described in clauses (a)
through (d) of Section 4.1 unless, prior to the consummation thereof, each
Person (other than the Company) which may be required to deliver any stock,
securities, cash or property upon the exercise of this Warrant as provided
herein shall assume, by written instrument delivered to, and reasonably
satisfactory to, the Holder of this Warrant, (a) the obligations of the Company
under this Warrant (and if the Company shall survive the consummation of such
transaction, such assumption shall be in addition to, and shall not release the
Company from, any continuing obligations of the Company under this Warrant), (b)
the obligations of the Company under the Agreement, the Convertible Notes and
the Registration Rights Agreement and (c) the obligation to deliver to the
Holder such shares of stock, securities, cash or property as, in accordance with
the foregoing provisions of this Section 4, the Holder may be entitled to
receive. Nothing in this Section 4 shall be deemed to authorize the Company to
enter into any transaction not otherwise permitted by the Purchase Agreement.
5. Other Dilutive Events. In case any event shall occur as to
which the provisions of Section 3 or Section 4 hereof are not strictly
applicable or if strictly applicable would not fairly protect the purchase
rights of the Holder in accordance with the essential intent and principles of
such Sections, then, in each such case, the Board of Directors of the Company
shall make an adjustment in the application of such provisions, in accordance
with such essential intent and principles, so as to preserve, without dilution,
the purchase rights represented by this Warrant.
6. No Dilution or Impairment. The Company shall not, by
amendment of its certificate of incorporation or through any consolidation,
merger, reorganization, transfer of assets, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms of this Warrant, but will at all times in
good faith assist in the carrying out of all such terms and in the taking of all
such action as may be reasonably necessary or appropriate in order to protect
the rights of the Holder of this Warrant against dilution or other impairment.
Without limiting the generality of the foregoing, the Company (a) shall not
permit the par value of any shares of stock receivable upon the exercise of this
Warrant to exceed the amount payable therefor upon such exercise, (b) shall take
all such action as may be necessary or appropriate in order that the Company may
validly and legally issue fully paid and nonassessable shares of stock, free
from all taxes, liens, security interests, encumbrances, preemptive rights and
charges on the exercise of the Warrants from time to time outstanding, (c) shall
not take any action which results in any adjustment of the Purchase Price if the
total number of shares of Common Stock (or Other Securities) issuable after the
action upon the exercise of all of the Warrants would exceed the total number of
shares of Common Stock (or Other Securities) then authorized by the Company's
certificate of incorporation and available for the purpose of issue upon such
exercise, and (d) shall not issue any capital stock of any class which is
preferred as to dividends or as to the distribution of assets upon voluntary or
involuntary dissolution, liquidation or winding-up, unless the rights of the
holders thereof shall be limited to a fixed sum or percentage of par value or a
sum determined by reference to a formula based on a published index of interest
rates, an interest rate publicly announced by a financial institution or a
similar indicator of interest rates in respect of participation in dividends and
to a fixed sum or percentage of par value in any such distribution of assets.
7. Certificate as to Adjustments. In each case of any
adjustment or readjustment in the shares of Common Stock (or Other Securities)
issuable upon the exercise of this Warrant, the Company at its expense shall
promptly compute such adjustment or readjustment in accordance with the terms of
this Warrant and prepare a certificate, signed by the Chairman of the Board,
President or one of the Vice Presidents of the Company, and by the Chief
Financial Officer, the Treasurer or one of the Assistant Treasurers of the
Company, setting forth such adjustment or readjustment and showing in reasonable
detail the method of calculation thereof and the facts upon which such
adjustment or readjustment is based, including a statement of (a) the
consideration received or to be received by the Company for any Additional
Shares of Common Stock issued or sold or deemed to have been issued, (b) the
number of shares of Common Stock outstanding or deemed to be outstanding, and
(c) the Purchase Price in effect immediately prior to such issue or sale and as
adjusted and readjusted (if required by Section 3) on account thereof. The
Company shall forthwith mail a copy of each such certificate to each holder of a
Warrant and shall, upon the written request at any time of any holder of a
Warrant, furnish to such holder a like certificate. The Company shall also keep
copies of all such certificates at its principal office and shall cause the same
to be available for inspection at such office during normal business hours by
any holder of a Warrant or any prospective purchaser of a Warrant designated by
the holder thereof. The Company shall, upon the request in writing of the Holder
(at the Company's expense), retain independent public accountants of recognized
national standing selected by the Board of Directors of the Company to make any
computation required in connection with adjustments under this Warrant, and a
certificate signed by such firm shall be conclusive evidence of the correctness
of such adjustment, which shall be binding on the Holder and the Company.
8. Notices of Corporate Action. In the event of:
(a) any taking by the Company of a record of the holders of
any class of securities for the purpose of determining the holders
thereof who are entitled to receive any dividend or other distribution,
or any right to subscribe for, purchase or otherwise acquire any shares
of stock of any class or any other securities or property, or to
receive any other right, or
(b) any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the
Company, any consolidation or merger involving the Company and any
other Person, any transaction or series of transactions in which more
than 50% of the voting securities of the Company are transferred to
another Person, or any transfer, sale or other disposition of all or
substantially all the assets of the Company to any other Person, or
(c) any voluntary or involuntary dissolution, liquidation or
winding-up of the Company,
the Company shall mail to each holder of a Warrant a notice specifying (i) the
date or expected date on which any such record is to be taken for the purpose of
such dividend, distribution or right, and the amount and character of such
dividend, distribution or right, and (ii) the date or expected date on which any
such reorganization, reclassification, recapitalization, consolidation, merger,
transfer, sale, disposition, dissolution, liquidation or winding-up is to take
place and the time, if any such time is to be fixed, as of which the holders of
record of Common Stock (or Other Securities) shall be entitled to exchange their
shares of Common Stock (or Other Securities) for the securities or other
property deliverable upon such reorganization, reclassification,
recapitalization, consolidation, merger, transfer, dissolution, liquidation or
winding-up. Such notice shall be mailed at least 20 days prior to the date
therein specified but in no event earlier than the public announcement of such
proposed transaction or event.
9. Registration of Common Stock. If any shares of Common Stock
required to be reserved for purposes of exercise of this Warrant require
registration with or approval of any governmental authority under any federal or
state law (other than the Securities Act) before such shares may be issued upon
exercise, the Company shall, at its expense and as expeditiously as possible,
use its best efforts to cause such shares to be duly registered or approved, as
the case may be. At any such time as Common Stock is listed on any national
securities exchange or trade market, the Company shall, at its expense, obtain
promptly and maintain the approval for listing on each such exchange or trade
market, upon official notice of issuance, the shares of Common Stock issuable
upon exercise of the then outstanding Warrants and maintain the listing of such
shares after their issuance; and the Company shall also list on such national
securities exchange or trade market, shall register under the Exchange Act and
shall maintain such listing of, any Other Securities that at any time are
issuable upon exercise of the Warrants, if and at the time that any securities
of the same class shall be listed on such national securities exchange or trade
market by the Company.
10. Reservation of Stock, etc. The Company shall at all times
reserve and keep available, solely for issuance and delivery upon exercise of
the Warrants, the number of shares of Common Stock (or Other Securities) from
time to time issuable upon exercise of all Warrants at the time outstanding and
otherwise in accordance with the terms of the Purchase Agreement. All shares of
Common Stock (or Other Securities) issuable upon exercise of any Warrants shall
be duly authorized and, when issued upon such exercise, shall be validly issued
and, in the case of shares, fully paid and nonassessable with no liability on
the part of the holders thereof, and, in the case of all securities, shall be
free from all taxes, liens, security interests, encumbrances, preemptive rights
and charges. The transfer agent for the Common Stock, which may be the Company
(the "Transfer Agent"), and every subsequent Transfer Agent for any shares of
the Company's capital stock issuable upon the exercise of any of the purchase
rights represented by this Warrant, are hereby irrevocably authorized and
directed at all times until the Expiration Date to reserve such number of
authorized and unissued shares as shall be requisite for such purpose. The
Company shall keep copies of this Warrant on file with the Transfer Agent for
the Common Stock and with every subsequent Transfer Agent for any shares of the
Company's capital stock issuable upon the exercise of the rights of purchase
represented by this Warrant. The Company shall supply such Transfer Agent with
duly executed stock certificates for such purpose. All Warrant Certificates
surrendered upon the exercise of the rights thereby evidenced shall be canceled,
and such canceled Warrants shall constitute sufficient evidence of the number of
shares of stock which have been issued upon the exercise of such Warrants.
Subsequent to the Expiration Date, no shares of stock need be reserved in
respect of any unexercised Warrant.
11. Registration and Transfer of Warrants, etc.
11.1. Warrant Register; Ownership of Warrants. Each Warrant
issued by the Company shall be numbered and shall be registered in a warrant
register (the "Warrant Register") as it is issued and transferred, which Warrant
Register shall be maintained by the Company at its principal office or, at the
Company's election and expense, by a Warrant Agent or the Company's transfer
agent. The Company shall be entitled to treat the registered Holder of any
Warrant on the Warrant Register as the owner in fact thereof for all purposes
and shall not be bound to recognize any equitable or other claim to or interest
in such Warrant on the part of any other Person, and shall not be affected by
any notice to the contrary, except that, if and when any Warrant is properly
assigned in blank, the Company may (but shall not be obligated to) treat the
bearer thereof as the owner of such Warrant for all purposes. A Warrant, if
properly assigned, may be exercised by a new holder without a new Warrant first
having been issued.
11.2. Transfer of Warrants. If applicable, this Warrant and
all rights hereunder are transferable in whole or in part, without charge to the
Holder hereof, upon surrender of this Warrant with a properly executed Form of
Assignment attached hereto as Exhibit B at the principal office of the Company
(or such other office or agency of the Company as it may in writing designate to
the Holder). Upon any partial transfer, the Company shall at its expense issue
and deliver to the Holder a new Warrant of like tenor, in the name of the
Holder, which shall be exercisable for such number of shares of Common Stock
with respect to which rights under this Warrant were not so transferred and to
the transferee a new Warrant of like tenor, in the name of the transferee, which
shall be exercisable for such number of shares of Common Stock with respect to
which rights under this Warrant were so transferred.
11.3. Replacement of Warrants. On receipt by the Company of
evidence reasonably satisfactory to the Company of the loss, theft, destruction
or mutilation of this Warrant and, in the case of any such loss, theft or
destruction of this Warrant, on delivery of an indemnity agreement reasonably
satisfactory in form and amount to the Company or, in the case of any such
mutilation, on surrender of such Warrant to the Company at its principal office
and cancellation thereof, the Company at its expense shall execute and deliver,
in lieu thereof, a new Warrant of like tenor.
11.4. Adjustments To Purchase Price and Number of Shares.
Notwithstanding any adjustment in the Purchase Price or in the number or kind of
shares of Common Stock purchasable upon exercise of this Warrant, any Warrant
theretofore or thereafter issued may continue to express the same number and
kind of shares of Common Stock as are stated in this Warrant, as initially
issued.
11.5. Fractional Shares. Notwithstanding any adjustment
pursuant to Section 3 in the number of shares of Common Stock covered by this
Warrant or any other provision of this Warrant, the Company shall not be
required to issue fractions of shares upon exercise of this Warrant or to
distribute certificates which evidence fractional shares. In lieu of fractional
shares, the Company shall make payment to the Holder, at the time of exercise of
this Warrant as herein provided, in an amount in cash equal to such fraction
multiplied by the Current Market Price of a share of Common Stock on the date of
Warrant exercise.
12. Remedies; Specific Performance. The Company stipulates
that there would be no adequate remedy at law to the Holder of this Warrant in
the event of any default or threatened default by the Company in the performance
of or compliance with any of the terms of this Warrant and accordingly, the
Company agrees that, in addition to any other remedy to which the Holder may be
entitled at law or in equity, the Holder shall be entitled to seek to compel
specific performance of the obligations of the Company under this Warrant,
without the posting of any bond, in accordance with the terms and conditions of
this Warrant in any court of the United States or any State thereof having
jurisdiction, and if any action should be brought in equity to enforce any of
the provisions of this Warrant, the Company shall not raise the defense that
there is an adequate remedy at law. Except as otherwise provided by law, a delay
or omission by the Holder hereto in exercising any right or remedy accruing upon
any such breach shall not impair the right or remedy or constitute a waiver of
or acquiescence in any such breach. No remedy shall be exclusive of any other
remedy. All available remedies shall be cumulative.
13. No Rights or Liabilities as Shareholder. Nothing contained
in this Warrant shall be construed as conferring upon the Holder hereof any
rights as a stockholder of the Company or as imposing any obligation on the
Holder to purchase any securities or as imposing any liabilities on the Holder
as a stockholder of the Company, whether such obligation or liabilities are
asserted by the Company or by creditors of the Company.
14. Notices. Any notices, consents, waivers or other
communications required or permitted to be given hereunder must be in writing
and will be deemed to have been delivered (i) upon receipt, when delivered
personally; (ii) upon receipt, when sent by facsimile, provided a copy is mailed
by U.S. certified mail, return receipt requested; (iii) three (3) days after
being sent by U.S. certified mail, return receipt requested, or (iv) one (1) day
after deposit with a nationally recognized overnight delivery service, in each
case properly addressed to the party to receive the same. The addresses and
facsimile numbers for such communications shall be:
If to the Company:
Softnet Systems, Inc.
520 Logue Avenue
Mountain View, CA 94043
Telephone: (650) 962-7490
Facsimile: (650) 962-7488
Attention: Chief Financial Officer
With a copy to:
Brobeck Phleger & Harrison LLP
Two Embarcadero Place
2200 Geng Road
Palo Alto, CA 94303-0913
Telephone: (650) 424-0160
Facsimile: (650) 496-2777
Attention: Thomas W. Kellerman, Esq.
If to a Holder, to its address and facsimile number on the
register maintained by the Company. Each party shall provide five (5) days'
prior written notice to the other party of any change in address or facsimile
number. Notwithstanding the foregoing, the exercise of any Warrant shall be
effective in the manner provided in Section 2.
15. Amendments. This Warrant and any term hereof may not be
amended, modified, supplemented or terminated, and waivers or consents to
departures from the provisions hereof may not be given, except by written
instrument duly executed by the party against which enforcement of such
amendment, modification, supplement, termination or consent to departure is
sought.
16. Descriptive Headings, Etc. The headings in this Warrant
are for convenience of reference only and shall not limit or otherwise affect
the meaning of terms contained herein. Unless the context of this Warrant
otherwise requires: (1) words of any gender shall be deemed to include each
other gender; (2) words using the singular or plural number shall also include
the plural or singular number, respectively; (3) the words "hereof", "herein"
and "hereunder" and words of similar import when used in this Warrant shall
refer to this Warrant as a whole and not to any particular provision of this
Warrant, and Section and paragraph references are to the Sections and paragraphs
of this Warrant unless otherwise specified; (4) the word "including" and words
of similar import when used in this Warrant shall mean "including, without
limitation," unless otherwise specified; (5) "or" is not exclusive; and (6)
provisions apply to successive events and transactions.
17. GOVERNING LAW. This Warrant shall be governed by, and
construed in accordance with, the laws of the State of New York (without giving
effect to the conflict of laws principles thereof).
18. Judicial Proceedings. Any legal action, suit or proceeding
brought against the Company with respect to this Warrant may be brought in any
federal court of the Southern District of New York or any state court located in
New York County, State of New York, and by execution and delivery of this
Warrant, the Company hereby irrevocably and unconditionally waives any claim (by
way of motion, as a defense or otherwise) of improper venue, that it is not
subject personally to the jurisdiction of such court, that such courts are an
inconvenient forum or that this Warrant or the subject matter may not be
enforced in or by such court. The Company hereby irrevocably and unconditionally
consents to the service of process of any of the aforementioned courts in any
such action, suit or proceeding by the mailing of copies thereof by registered
or certified mail, postage prepaid, at its address set forth or provided for in
Section 14, such service to become effective 10 days after such mailing. Nothing
herein contained shall be deemed to affect the right of any party to serve
process in any manner permitted by law or commence legal proceedings or
otherwise proceed against any other party in any other jurisdiction to enforce
judgments obtained in any action, suit or proceeding brought pursuant to this
Section. The Company irrevocably submits to the exclusive jurisdiction of the
aforementioned courts in such action, suit or proceeding.
<PAGE>
19. Registration Rights Agreement. The shares of Common Stock
(and Other Securities) issuable upon exercise of this Warrant (or upon
conversion of any shares of Common Stock issued upon such exercise) shall
constitute Registrable Securities (as such term is defined in the Registration
Rights Agreement). Each holder of this Warrant shall be entitled to all of the
benefits afforded to a holder of any such Registrable Securities under the
Registration Rights Agreement and such holder, by its acceptance of this
Warrant, agrees to be bound by and to comply with the terms and conditions of
the Registration Rights Agreement applicable to such holder as a holder of such
Registrable Securities.
SOFTNET SYSTEMS, INC.
By:
------------------------------------
Name:
------------------------------------
Title:
------------------------------------
<PAGE>
EXHIBIT A to
Common Stock Purchase Warrant
[FORM OF]
ELECTION TO PURCHASE SHARES
AND TRANSFER AGENT INSTRUCTIONS
The undersigned hereby irrevocably elects to exercise the
Warrant to purchase ____ shares of Common Stock, par value $.01 per share
("Common Stock"), of SOFTNET SYSTEMS, INC. (the "Company") and hereby [makes
payment of $________ in consideration therefor] [or] [makes payment therefor by
application pursuant to Section 2.1(b)(ii) of the Warrant of $____ aggregate
principal amount of Notes (as defined in the Warrant) [or] [makes payment in
consideration therefor by reduction pursuant to Section 2.1(b)(iii) of the
Warrant of the number of shares of Common Stock otherwise issuable to the Holder
upon Warrant exercise by ______ shares] [or] [makes payment in consideration
therefor by delivery of the following Common Stock Certificates of the Company
pursuant to Section 2.1(b)(iv) of the Warrant, certificates of which are
attached hereto for cancellation _______ [list certificates by number and
amount]]. The undersigned hereby requests that certificates for such shares be
issued and delivered as follows:
ISSUE TO:
--------------------------------------------------
(NAME)
--------------------------------------------------
(ADDRESS, INCLUDING ZIP CODE)
--------------------------------------------------
(SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER)
DELIVER TO: --------------------------------------------------
(NAME)
--------------------------------------------------
(ADDRESS, INCLUDING ZIP CODE)
If the number of shares of Common Stock purchased hereby is
less than the number of shares of Common Stock covered by the Warrant, the
undersigned requests that a new Warrant representing the number of shares of
Common Stock not so purchased be issued and delivered as follows:
ISSUE TO: --------------------------------------------------
(NAME OF HOLDER)
--------------------------------------------------
(ADDRESS, INCLUDING ZIP CODE)
--------------------------------------------------
DELIVER TO: --------------------------------------------------
(NAME OF HOLDER)
--------------------------------------------------
(ADDRESS, INCLUDING ZIP CODE)
Dated:
--------------------------- [NAME OF HOLDER]
By:
------------------------------
Name:
Title:
__________________, as transfer agent and registrar of the Common
Stock, is hereby authorized and directed to issue the above number of shares of
Common Stock in the name of the above referenced entity or person and to deliver
the certificates representing such shares using an overnight delivery service.
SOFTNET SYSTEMS, INC.
<PAGE>
By:
------------------------------
<PAGE>
EXHIBIT B to
Common Stock Purchase Warrant
[FORM OF] ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and
transfers unto the Assignee named below all of the rights of the undersigned to
purchase Common Stock, par value $.01 per share ("Common Stock") of SOFTNET
SYSTEMS, INC. represented by the Warrant, with respect to the number of shares
of Common Stock set forth below:
Name of Assignee Address No. of Shares
and does hereby irrevocably constitute and appoint ________ as Attorney to make
such transfer on the books of SOFTNET SYSTEMS, INC. maintained for that purpose,
with full power of substitution in the premises.
Dated: ____________________
Dated:
--------------------------- [NAME OF HOLDER]
By:
------------------------------
Name:
Title:
