Exhibit 10.1
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT, dated as of November __, 2000, is
entered into by and between MICROWARE SYSTEMS CORPORATION, an Iowa corporation,
with headquarters located at 0000 Xxxxxxxxx 000xx Xxxxxx, Xxx Xxxxxx, Xxxx 00000
(the "Company"), and the Elder Court, LLC, a Cayman Islands limited liability
company (the "Buyer").
W I T N E S S E T H:
WHEREAS, the Company and the Buyer are executing and delivering this
Agreement in accordance with and in reliance upon the exemption from securities
registration afforded, INTER ALIA, by Rule 506 under 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 "Securities Act"),
and/or Section 4(2) of the Securities Act;
WHEREAS, in consideration of the foregoing, the Buyer desires to
purchase, upon the terms and subject to the conditions of this Agreement, that
certain 8% Convertible Debenture, in the principal amount of $2,000,000, issued
by the Company (the "Debenture"), the form of which is attached hereto as ANNEX
I, which will be convertible into shares of Common Stock, no par value per share
of the Company (the "Common Stock"), together with the Common Stock Purchase
Warrants described herein (the "Warrants"), upon the terms and subject to the
conditions of such Debenture, and subject to acceptance of this Agreement by the
Company;
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 parties agree as
follows:
1. AGREEMENT TO PURCHASE; PURCHASE PRICE.
a. PURCHASE PRICE; CERTAIN DEFINITIONS. (i) The Buyer hereby agrees
to purchase from the Company the Debenture upon the terms and conditions set
forth herein and in the Debenture. The form of Debenture is attached hereto as
ANNEX I. The purchase price for the Debenture shall be payable in two tranches,
the first tranche (the "First Tranche") of $1,000,000 shall be payable on the
Closing Date (as defined in Section 7(i) below). Subject to the satisfaction of
the closing conditions set forth in paragraphs 9(c), (e), (f) and (g) hereof,
the second tranche (the "Second Tranche") of $1,000,000 shall be paid to Escrow
Agent (as defined in Section 2 below) on the date (the "Second Closing Date")
which is three (3) business days after Escrow Agent's receipt of (i) written
notice from the Company that the registration statement (the "Registration
Statement") filed with the Securities and Exchange Commission
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("SEC") pursuant to the Registration Rights Agreement (as defined in Section
3(d) below), has been declared effective, (ii) an original certification from
the chief financial officer of the Company that, as of the date of the delivery
of the certification, (A) it is then in compliance with all of the covenants and
agreements contained herein (assuming that the Second Tranche has been funded)
and (B) that, as of the date of the delivery of the certification, the Company
would be able to honor a conversion of the entire balance of the Debenture
(including the Second Tranche) and an exercise of all of the Warrants, without
violating the "Cap Regulations" referred to in Section 4(j) below (as defined in
Section 6 of the Debenture). If the SEC refuses to clear the Registration
Statement for effectiveness as a result of the inclusion of the funding of the
Second Tranche in the Debenture, the Company and Buyer hereby agree to amend the
Debenture to remove the funding of the Second Tranche thereunder (thereby
reducing the principal balance of the Debenture to $1,000,000) and, within five
(5) business days of the effectiveness of the Registration Statement, the Buyer
hereby agrees to purchase (and the Company hereby agrees to issue) a new 8%
Convertible Debenture for a purchase price of $1,000,000 upon the same terms and
conditions as contained herein, except that said debenture would not have a
second tranche and Buyer shall not be entitled to additional Warrants in
connection with the purchase thereof.
(ii) As used herein, the term "Securities" means the Debenture,
the Warrants and the Common Stock issuable upon conversion of the Debenture
and the exercise of the Warrants.
b. FORM OF PAYMENT. The Buyer shall pay the Purchase Price for the
Debenture by delivering immediately available good funds in United States
Dollars to the escrow agent (the "Escrow Agent") identified in the Joint Escrow
Instructions attached hereto as ANNEX II (the "Joint Escrow Instructions"). No
later than the Closing Date (as defined below), the Company shall deliver the
original Debenture duly executed on behalf of the Company to the Escrow Agent.
By signing this Agreement, the Buyer and the Company, and subject to acceptance
by the Escrow Agent, each agrees to all of the terms and conditions of, and
becomes a party to, the Joint Escrow Instructions, all of the provisions of
which are incorporated herein by this reference as if set forth in full.
c. METHOD OF PAYMENT. Payment into escrow of the Purchase Price
for the Debenture shall be made by wire transfer of funds as instructed in the
Joint Escrow Instructions. Not later than 1:00 p.m., PST time, on the date which
is one (1) New York Stock Exchange trading day after the Company shall have
accepted this Agreement and returned a signed counterpart of this Agreement to
the Escrow Agent by facsimile, Buyer shall deposit with the Escrow Agent the
purchase price for the Debenture being acquired by it, in immediately available
funds. Time is of the essence with respect to such payment, and failure by the
Buyer to make such payment shall allow the Company to cancel this Agreement.
d. ESCROW PROPERTY. The Purchase Price and the Debenture delivered
to the Escrow Agent as contemplated by Sections 1(b) and (c) hereof are referred
to as the "Escrow
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Property."
2. BUYER REPRESENTATIONS, WARRANTIES, ETC.; ACCESS TO INFORMATION;
INDEPENDENT INVESTIGATION.
Buyer represents and warrants to, and covenants and agrees with, the
Company as follows:
a. Without limiting Buyer's right to sell the Common Stock pursuant
to the Registration Statement (as that term is defined below), the Buyer is
purchasing the Debenture and will be acquiring the shares of Common Stock
issuable upon conversion of the Debenture or the exercise of the Warrant (the
"Converted Shares") for its own account for investment, and not with a view
towards the public sale or distribution thereof and not with a view to or for
sale in connection with any distribution thereof.
b. The Buyer and each of its Members is (i) an "accredited investor"
as that term is defined in Rule 501 of the General Rules and Regulations under
the Securities Act by reason of Rule 501(a)(3), (ii) experienced in making
investments of the kind described in this Agreement and the related documents,
(iii) able, by reason of the business and financial experience of its officers
(if an entity) and professional advisors (who are not affiliated with or
compensated in any way by the Company or any of its affiliates or selling
agents), to protect its own interests in connection with the transactions
described in this Agreement, and the related documents, and (iv) able to afford
the entire loss of its investment in the Securities.
c. All subsequent offers and sales of the Debenture and the shares
of Common Stock representing the Converted Shares (such Common Stock sometimes
referred to as the "Shares") by the Buyer shall be made pursuant to registration
of the Shares under the Securities Act or pursuant to an exemption from
registration.
d. The Buyer understands that the Debenture is 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 upon the truth and accuracy of, and the Buyer's compliance with, the
representations, warranties, agreements, acknowledgments and understandings of
the Buyer set forth herein in order to determine the availability of such
exemptions and the eligibility of the Buyer to acquire the Debenture.
e. The Buyer and its advisors, if any, have been furnished with all
materials relating to the business, finances and operations of the Company and
materials relating to the offer and sale of the Debenture and the offer of the
Shares which have been requested by the Buyer. The Buyer and its advisors, if
any, have been afforded the opportunity to ask questions of the Company and have
received complete and satisfactory answers to any such inquiries.
f. The Buyer understands that its investment in the Securities
involves a high degree of risk.
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g. The 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 Securities.
h. This Agreement has been duly and validly authorized, executed and
delivered on behalf of the Buyer and is a valid and binding agreement of the
Buyer enforceable in accordance with its terms, subject as to enforceability to
general principles of equity and to bankruptcy, insolvency, moratorium and other
similar laws affecting the enforcement of creditors' rights generally. The Buyer
is a limited liability company duly organized, validly existing and in good
standing under the laws of the Cayman Islands and has requisite corporate power
to own its properties and to carry on its business as now being conducted.
i. Notwithstanding the provisions hereof or of the Debenture, in no
event (except with respect to an automatic conversion of the Debenture as
provided therein) shall Buyer be entitled to convert any Debenture to the extent
that, after such conversion, the sum of (1) the number of shares of Common Stock
beneficially owned by Buyer and its affiliates (other than shares of Common
Stock which may be deemed beneficially owned through the ownership of the
unconverted portion of the Debenture), and (2) the number of shares of Common
Stock issuable upon the conversion of the Debenture with respect to which the
determination of this proviso is being made, would result in beneficial
ownership by Buyer and its affiliates of more than 4.99% of the outstanding
shares of Common Stock. For purposes of the proviso to the immediately preceding
sentence, beneficial ownership shall be determined in accordance with Section
13(d) of the Securities Exchange Act of 1934, as amended (the "1934 Act"). Any
issuance by the Company to the Buyer in excess of the limit contained in this
Paragraph 2.i. shall be null and void, AB INITIO, and upon notice of such
invalid issuance, the Company shall correct its books and cause its transfer
agent's books to be corrected forthwith to reflect that the Buyer's ownership of
Common Stock is within the limit set forth herein. Buyer shall immediately
deliver any certificates for invalidly issued Common Stock to the Company's
transfer agent. The Company further agrees to (i) immediately reissue
certificates for Common Stock to the extent that a portion of the Common Stock
represented by said certificates have been validly issued and (ii) immediately
reissue all or a portion of those shares which were deemed invalidly issued (at
a price set forth in the original conversion notices applicable to such shares)
upon notice from the Buyer that the reissuance of such shares would not cause
such Buyer to have a beneficial ownership interest in excess of 4.99%. The
Company hereby indemnifies and holds Buyer free and harmless in connection with
any and all liabilities, losses, costs and expenses, including, without
limitation, attorneys' fees and costs arising from or relating to claims made by
any third parties alleging that Buyer has violated Sections 13(d) and/or 16, to
the extent such violation is premised on the fact that, notwithstanding this
Section 2.i., the Buyer is the beneficial owner of all of the shares of Common
Stock which would be issuable, from time to time, if Buyer converted the entire
principal and interest balance of the Debenture.
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j. Buyer has reviewed the Company's filings under the 1934 Act filed
since November 1998, and in particular has reviewed and understands the risk
factors articulated in such filings, including risk factors which may affect the
future results of operations.
k. Buyer represents that it neither is nor will be obligated for any
finders' fee or commission nor is it aware of any such fee or commission payable
in connection with this transaction other than as set forth on the Joint Escrow
Instructions (attached hereto as Annex II). Buyer agrees to indemnify and to
hold harmless the Company from any liability for any commission or compensation
in the nature of a finders' fee (and the costs and expenses of defending against
such liability or asserted liability) for which such Buyer or any of its
officers, partners, employees, or representatives is responsible, provided that
such liability arises from a written agreement entered into by Buyer or its
representatives.
3. COMPANY REPRESENTATIONS, ETC.
The Company represents and warrants and hereby covenants and agrees
with Buyer that:
a. CONCERNING THE DEBENTURE AND THE SHARES. The Debenture has been
duly authorized and, when issued, will be duly and validly issued, fully paid
and non-assessable and will not subject the holder thereof to personal liability
by reason of being such holder. There are no preemptive rights of any
stockholder of the Company, as such, to acquire the Securities.
b. REPORTING COMPANY STATUS. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Iowa and has the requisite corporate power to own its properties and to carry on
its business as now being conducted. The Company is duly qualified as a foreign
corporation to do business and is in good standing in each jurisdiction where
the nature of the business conducted or property owned by it makes such
qualification necessary, other than those jurisdictions in which the failure to
so qualify would not have a material adverse effect on the business, operations
or prospects or condition (financial or otherwise) of the Company and its
subsidiaries, taken as a whole. The Company has registered its Common Stock
pursuant to Section 12 of the 1934 Act, and the Common Stock is listed and
traded on the NASDAQ/National Market System. The Company has received no notice,
either oral or written, with respect to the continued eligibility of the Common
Stock for such listing, and the Company has maintained all requirements for the
continuation of such listing.
c. AUTHORIZED SHARES. The Company has at October 31, 2000,
16,749,841 shares of Common Stock issued and outstanding, and has sufficient
authorized and unissued Shares as may be reasonably necessary to effect the
conversion of the Debenture (assuming all future conversions occurred are based
upon an average 5-day closing bid of the Common Stock, as reported by Bloomberg,
LP which was one-half (1/2) of the closing bid price of the Common Stock on the
Closing Date [the "Closing Date Bid"]) and exercise of the Warrants (as defined
in Section 4.k.) at the Closing Date Bid. The Common Stock has been duly
authorized and, when
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issued upon conversion of the Debenture in accordance with its terms, will be
duly and validly issued, fully paid and non-assessable and will not subject the
holder thereof to personal liability by reason of being such holder.
d. SECURITIES PURCHASE AGREEMENT; REGISTRATION RIGHTS AGREEMENT AND
DEBENTURE. This Agreement, the Debenture, the Registration Rights Agreement, the
form of which is attached hereto as ANNEX IV (the "Registration Rights
Agreement") and the transactions contemplated hereby and thereby, have been duly
and validly authorized by the Company, this Agreement has been duly executed and
delivered by the Company and this Agreement is, and the Debenture and the
Registration Rights Agreement, when executed and delivered by or on behalf of
the Company, will be, valid and binding agreements of the Company enforceable in
accordance with their respective terms, subject, as to enforceability, to
general principles of equity and to bankruptcy, insolvency, moratorium, and
other similar laws affecting the enforcement of creditors' rights generally.
e. NON-CONTRAVENTION. The execution and delivery of this Agreement,
the Debenture and the Registration Rights Agreement by the Company, the issuance
of the Securities, and the consummation by the Company of the other transactions
contemplated by this Agreement, the Debenture and the Registration Rights
Agreement do not and will not conflict with or result in a breach by the Company
of any of the terms or provisions of, or constitute a default under (i) the
articles of incorporation or by-laws of the Company, each as currently in
effect, (ii) except as disclosed in ANNEX V, any indenture, mortgage, deed of
trust, or other material agreement or instrument to which the Company is a party
or by which it or any of its properties or assets are bound, including any
listing agreement for the Common Stock (except as herein set forth), (iii) to
its knowledge, any existing applicable law, rule, or regulation or any
applicable decree, judgment, or order of any court, United States federal or
state regulatory body, administrative agency, or other governmental body having
jurisdiction over the Company or any of its properties or assets, or (iv) any
listing agreement for its Common Stock, except such conflict, breach or default
which would not have a material adverse effect on the transactions contemplated
herein.
f. APPROVALS. No authorization, approval or consent of any court,
governmental body, regulatory agency, self-regulatory organization, or stock
exchange or market or the stockholders of the Company is required to be obtained
by the Company for the issuance and sale of the Securities to the Buyer as
contemplated by this Agreement, except such authorizations, approvals and
consents that have been obtained.
g. SEC FILINGS. To the best of the Company's knowledge, none of the
Company's SEC Reports filed since November, 1998 contained, at the time they
were filed, any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
made therein in light of the circumstances under which they were made, not
misleading, except as corrected by an amended filing made prior to the date
hereof. The Company has since November 1998 filed all requisite forms, reports
and exhibits
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thereto with the SEC.
h. ABSENCE OF CERTAIN CHANGES. Since September 30, 2000, there has
been no material adverse change and no material adverse development in the
business, properties, operations, condition (financial or otherwise), or results
of operations of the Company and its subsidiaries, taken as a whole, except as
disclosed in ANNEX V or in the Company's SEC Reports. Except as disclosed in
ANNEX V or in the Company's SEC Reports, since September 30, 2000, the Company
has not (i) incurred or become subject to any material liabilities (absolute or
contingent) except liabilities incurred in the ordinary course of business
consistent with past practices; (ii) discharged or satisfied any material lien
or encumbrance or paid any material obligation or liability (absolute or
contingent), other than current liabilities paid in the ordinary course of
business consistent with past practices; (iii) declared or made any payment or
distribution of cash or other property to stockholders with respect to its
capital stock, or purchased or redeemed, or made any agreements to purchase or
redeem, any shares of its capital stock; (iv) sold, assigned or transferred any
other tangible assets, or canceled any debts or claims, except in the ordinary
course of business consistent with past practices; (v) suffered any substantial
losses or waived any rights of material value, whether or not in the ordinary
course of business, or suffered the loss of any material amount of existing
business; (vi) made any changes in employee compensation, except in the ordinary
course of business consistent with past practices; or (vii) experienced any
material problems with labor or management in connection with the terms and
conditions of their employment.
i. FULL DISCLOSURE. There is no fact known to the Company (other
than general economic conditions known to the public generally or as disclosed
in the Company's SEC Reports), that has not been disclosed in writing to the
Buyer that (i) would reasonably be expected to have a material adverse effect on
the business or financial condition of the Company or (ii) would reasonably be
expected to materially and adversely affect the ability of the Company to
perform its obligations pursuant to this Agreement or any of the agreements
contemplated hereby (collectively, including this Agreement, the "Transaction
Agreements").
j. ABSENCE OF LITIGATION. Except as disclosed in ANNEX V or in the
Company's SEC Reports, there is no action, suit, proceeding, inquiry or
investigation before or by any court, public board or body pending or, to the
knowledge of the Company, threatened against or affecting the Company, wherein
an unfavorable decision, ruling or finding would have a material adverse effect
on the properties, business or financial condition. results of operation or
prospects of the Company and its subsidiaries taken as a whole or the
transactions contemplated by any of the Transaction Agreements or which would
adversely affect the validity or enforceability of, or the authority or ability
of the Company to perform its obligations under, any of the Transaction
Agreements.
k. ABSENCE OF EVENTS OF DEFAULT. Except as set forth in ANNEX V
hereto, no Event of Default (or its equivalent term), as defined in the
respective agreement to which the
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Company is a party, and no event which, with the giving of notice or the passage
of time or both, would become an Event of Default (or its equivalent term) (as
so defined in such agreement), has occurred and is continuing, which would have
a material adverse effect on the Company's financial condition or results of
operations.
l. PRIOR ISSUES. Except as set forth in ANNEX V hereto or in the
Company's SEC Reports, during the twelve (12) months preceding the date hereof,
the Company has not issued any Common Stock or convertible securities in capital
transactions which have not been fully disclosed in the Company's filings with
the SEC. Except as set forth in ANNEX V hereto or in the Company's SEC Reports,
all such issuances (except for issuances to Buyer) have been fully converted
into shares of common stock and there are no outstanding unconverted debt or
convertible securities from those transactions.
m. NO UNDISCLOSED LIABILITIES OR EVENTS. Except as set forth in
ANNEX V, the Company has no liabilities or obligations other than those
disclosed in the Company's SEC Reports or those incurred in the ordinary course
of the Company's business since September 30, 2000, and which, individually or
in the aggregate, do not or would not have a material adverse effect on the
properties, business, condition (financial or otherwise), results of operations
or prospects of the Company and its subsidiaries, taken as a whole. No event or
circumstances has occurred or exists with respect to the Company or its
properties, business, condition (financial or otherwise), results of operations
or prospects, which, under applicable law, rule or regulation, requires public
disclosure or announcement prior to the date hereof by the Company but which has
not been so publicly announced or disclosed.
n. NO DEFAULT. Except as disclosed in ANNEX V, hereto, the Company
is not in default in the performance or observance of any material obligation,
agreement, covenant or condition contained in any indenture, mortgage, deed of
trust or other material instrument or agreement to which it is a party or by
which it or its property is bound.
o. 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 offer or sales of any security or solicited any offers to
buy any security under circumstances that would eliminate the availability of
the exemption from registration under Regulation D in connection with the offer
and sale of the Securities as contemplated hereby.
p. DILUTION. The number of Shares issuable upon conversion of the
Debenture may increase substantially in certain circumstances, including, but
not necessarily limited to, the circumstance wherein the trading price of the
Common Stock declines prior to the conversion of the Debenture. The Company's
executive officers and directors fully understand the nature of the Securities
being sold hereby and recognize that they have a potential dilutive effect. The
board of directors of the Company has concluded that, in its good faith business
judgment, such issuance is in the best interests of the Company. The Company
specifically acknowledges that its obligation to issue the Shares upon
conversion of the Debenture is binding
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upon the Company and enforceable regardless of the dilution such issuance may
have on the ownership interests of other shareholders of the Company.
q. ACKNOWLEDGMENT BY COMPANY. Company represents and warrants that
neither the Buyer, nor any persons or entities representing or purporting to
represent the Buyer have made any representation or warranty which is not
contained expressly in this Agreement or any other agreements referred to
herein. Without limiting the foregoing, Company specifically acknowledges that
the Buyer has made no representations that it is a "long term" investor in the
Company, or that it intends to hold the Debenture or shares of stock in the
Company (obtained by conversions of the Debenture) for any period beyond that
which is required under the Securities Act. Company further acknowledges that
the Buyer may hedge the shares of stock in the Company prior to or after the
conversions of the Debenture, provided that such hedging is done in compliance
with the Securities Act, the 1934 Act, any rules applicable to securities traded
on the NASD/National Market System and the express terms of this Agreement, the
Debenture, the Warrants and the Registration Rights Agreement.
r. BROKERS FEE. The Company represents that it neither is nor will
be obligated for any finders' fee or commission nor is it aware of any such fee
or commission payable in connection with this transaction other than as set
forth on the Joint Escrow Instructions (attached hereto as Annex II). The
Company agrees to indemnify and to hold harmless the Buyer from any liability
for any commission or compensation in the nature of a finders' fee (and the
costs and expenses of defending against such liability or asserted liability)
for which the Company or any of its officers, partners, employees, or
representatives is responsible.
4. CERTAIN COVENANTS AND ACKNOWLEDGMENTS.
a. TRANSFER RESTRICTIONS. Buyer acknowledges that (1) the Debenture
has not been and is not being registered under the provisions of the Securities
Act and, except as provided in the Registration Rights Agreement, the Shares
have not been and are not being registered under the Securities Act, and may not
be transferred unless (A) subsequently registered thereunder or (B) the Buyer
shall have delivered to the Company an opinion of counsel, reasonably
satisfactory in form, scope and substance to the Company, to the effect that the
Securities to be sold or transferred may be sold or transferred pursuant to an
exemption from such registration; (2) any sale of the Securities made in
reliance on Rule 144 promulgated under the Securities Act may be made only in
accordance with the terms of said Rule and further, if said Rule is not
applicable, any resale of such Securities under circumstances in which the
seller, or the person through whom the sale is made, may be deemed to be an
underwriter, as that term is used in the Securities Act, may require compliance
with some other exemption under the Securities Act or the rules and regulations
of the SEC thereunder; and (3) neither the Company nor any other person is under
any obligation to register the Securities (other than pursuant to the
Registration Rights Agreement) under the Securities Act or to comply with the
terms and conditions of any exemption thereunder.
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b. RESTRICTIVE LEGEND. The Buyer acknowledges and agrees that the
Debenture and, until such time as the Common Stock has been registered under the
Securities Act as contemplated by the Registration Rights Agreement and sold
pursuant to an effective Registration Statement, certificates and other
instruments representing any of the Securities shall bear a restrictive legend
in substantially the following form (and a stop-transfer order may be placed
against transfer of any such Securities):
THESE SECURITIES (THE "SECURITIES") HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR THE
SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD OR OFFERED FOR SALE
IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE
SECURITIES OR AN OPINION OF COUNSEL OR OTHER EVIDENCE ACCEPTABLE TO
THE CORPORATION THAT SUCH REGISTRATION IS NOT REQUIRED.
c. REGISTRATION RIGHTS AGREEMENT. The parties hereto agree to enter
into the Registration Rights Agreement on or before the Closing Date.
d. FILINGS. The Company undertakes and agrees to make all necessary
filings in connection with the sale of the Debenture to the Buyer under any
United States laws and regulations, or by any domestic securities exchange or
trading market, and to provide a copy thereof to the Buyer promptly after such
filing.
e. REPORTING STATUS. So long as Buyer beneficially holds the
Debenture, the Company shall file all reports required to be filed with the SEC
pursuant to Section 13 or 15(d) of the 1934 Act, and the Company shall not
terminate its status as an issuer required to file reports under the 1934 Act
even if the 1934 Act or the rules and regulations thereunder would permit such
termination.
f. USE OF PROCEEDS. The Company will use the proceeds from the sale
of the Debenture (excluding amounts paid by the Company for legal fees, finder's
fees and escrow agent fees in connection with the sale of the Debenture) for
general capital purposes and, without limiting the foregoing, shall not,
directly or indirectly, use any of such proceeds for investment in any other
affiliate.
g. CERTAIN AGREEMENTS. (i) The Company covenants and agrees that it
will not, without the prior written consent of the Buyer, enter into any
subsequent or further offer or sale of Common Stock or securities convertible
into Common Stock with any third party until one hundred eighty (180) days after
the Effective Date (as defined below).
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(ii) The provisions of subparagraph 4.g.i.(i) will not apply to (A) Common Stock
issued as "restricted stock" as defined in SEC Rule 144, provided the holder
thereof holds such Common Stock for at least one year from the date of issuance;
(B) a secondary public offering of shares of Common Stock at market; (C) an
offering of convertible securities at market or above; (D) the issuance of
securities (other than for cash) in connection with a merger, consolidation,
sale of assets, disposition or the exchange of the capital stock for assets,
stock or other joint venture interests or strategic relationships; (E) the grant
or exercise of employee stock options and other employment compensation; (F) the
conversion of securities or the exercise of warrants referenced in Schedule 5(b)
of the Registration Rights Agreement; (G) any issuance of Common Stock in any
future transaction with Buyer; (H) any issuance of Common Stock, or securities
convertible into Common Stock, pursuant to or related to the July 31, 1995 Stock
and Warrant Purchase Agreement between the Company and Motorola, Inc., or
pursuant to the April 19, 2000 Securities Purchase Agreement among the Company,
Xxxxxxx Associates, L.P. and Westgate International, L.P., (I) the issuance of
securities in connection with a strategic relationship with a customer,
supplier, competitor or key company in the Company's industry, on the condition
that the Company has obtained Investor's prior written approval, which approval
shall not be unreasonably withheld and (J) the issuance of Common Stock or
convertible securities for an amount not to exceed $1,000,000, in the event that
the Investor does not fund the Second Tranche as a result of the failure of the
closing condition set forth in Section 9(g) hereof; provided with regard to (A)
through (D) above, such securities would not be included in the Registration
Statement relating to the Shares and a registration statement in respect of such
stock shall not be filed prior to sixty (60) days after the Effective Date.
(iii) The term "Effective Date" means the effective date of the
Registration Statement covering the Registrable Securities (as defined in the
Registration Rights Agreement).
(iv) In the event the Company breaches the provisions of this
Paragraph 4.G.i., the Conversion Price shall be amended to equal the conversion
formula set forth in Section 4.A. of the Debenture and Buyer may, within thirty
(30) days after it receives written notice of such breach from the Company,
require the Company to immediately redeem the Debenture held by it in accordance
with Section 6(y) of the Debenture.
h. AVAILABLE SHARES. The Company shall have at all times authorized
and reserved for issuance, free from preemptive rights, shares of Common Stock
equal to two hundred percent (200%) of the number of shares of Common Stock
issuable upon conversion of the Debenture, and the exercise of the Warrants.
i. WARRANTS. The Company agrees to issue to Buyer at the Closing,
transferable divisible warrants with cashless exercise provisions (the
"Warrants") for 500,000 shares of Common Stock. Such Warrants shall bear an
exercise price equal to $0.53, and shall be exercisable immediately upon
issuance, and for a period of five (5) years thereafter, in the form annexed
hereto as ANNEX VI, together with piggy-back registration rights, and demand
registration rights set forth under the Registration Rights Agreement.
11
j. LIMITATION ON ISSUANCE OF SHARES. The Debenture shall provide
that the Company shall take all steps reasonably necessary to be in a position
to issue shares of Common Stock on conversion of the Debenture without violating
the "Cap Regulations". If despite taking such steps, the Company is limited in
the number of shares of Common Stock it may issue by the "Cap Regulations," to
the extent that the Company cannot issue such shares of Common Stock, due upon a
Notice of Conversion, without violating the Cap Regulations, the Company shall
immediately notify Buyer the principal amount of its Debenture which is not
convertible as a result of said Cap Regulations (the "Debenture Balance") and
the Buyer, shall have the option, exercisable in its sole and absolute
discretion, to elect any of the remedies in Section 6 of the Debenture.
5. TRANSFER AGENT INSTRUCTIONS.
a. Promptly following the delivery by the Buyer of the aggregate
purchase price for the Debenture in accordance with Section 1(c) hereof, the
Company will irrevocably instruct its transfer agent to issue Common Stock from
time to time upon conversion of the Debenture in such amounts as specified from
time to time by the Company to the transfer agent, bearing the restrictive
legend specified in Section 4(b) of this Agreement prior to registration of the
Shares under the Securities Act, registered in the name of the Buyer or its
nominee and in such denominations to be specified by Buyer in connection with
each conversion of its Debenture. The Company warrants that no instruction other
than such instructions referred to in this Section 5 and stop transfer
instructions to give effect to Section 4(a) hereof prior to registration and
sale of the Shares under the Securities Act will be given by the Company to the
transfer agent and that the Shares 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, and applicable law. Nothing in
this Section shall affect in any way the Buyer's obligations and agreement to
comply with all applicable securities laws upon resale of the Securities. If the
Buyer provides the Company with an opinion of counsel reasonably satisfactory to
the Company that registration of a resale by the Buyer of any of the Securities
in accordance with clause (1)(B) of Section 4(a) of this Agreement is not
required under the Securities Act, the Company shall (except as provided in
clause (2) of Section 4(a) of this Agreement) permit the transfer of the
Securities and, in the case of the Shares, promptly instruct the Company's
transfer agent to issue one or more certificates for Common Stock without legend
in such name and in such denominations as specified by the Buyer.
b. (i) The Company will permit Buyer to exercise its right to
convert its Debenture by telecopying an executed and completed Notice of
Conversion (as defined in the Debenture) to the Company and delivering within
three (3) business days thereafter, the original Notice of Conversion, together
with the original Debenture, by express courier.
(ii) The term "Conversion Date" means, with respect to any
conversion
12
elected by the holder of the Debenture after the Effective Date, the date
specified in the Notice of Conversion, provided the copy of the Notice of
Conversion is telecopied to or otherwise delivered to the Company in accordance
with the provisions hereof so that is received by the Company on or before such
specified date. The Conversion Date for any mandatory conversion at maturity
shall be the Maturity Date of the Debenture.
(iii) The Company shall, at its expense, take all actions and use
all means necessary and diligent to cause its transfer agent to transmit the
certificates representing the Shares issuable upon conversion of the Debenture
to the Buyer via express courier, by electronic transfer or otherwise, within
three (3) business days after receipt by the Company of the later of (i) receipt
by the Company of the copy of the original Notice of Conversion (and the
original Debenture upon the final conversion) and (ii) the Conversion Date (the
"Delivery Date").
c. The Company understands that a delay in the issuance of the Shares of
Common Stock beyond the Delivery Date could result in economic loss to the
Buyer. As compensation to the Buyer for such loss, the Company agrees to pay
late payments to the Buyer in the event that due entirely to the Company's
failure to issue and deliver the Shares upon Conversion in accordance with the
following schedule (where "No. Business Days Late" is defined as the number of
business days beyond (i) three (3) business days from Delivery Date if such date
is after the Registration Statement, as defined in the Registration Rights
Agreement, has been declared effective, or (ii) five (5) business days from the
Delivery Date if such date is prior to the Registration Statement being declared
effective):
Late Payment For Each $10,000
of principal and interest of Debenture
No. Business Days Late Being Converted
---------------------- --------------------------------------
1 $100
2 $200
3 $300
4 $400
5 $500
>5 $500 +$100 for each Business
Day Late beyond 5 days from
The Delivery Date
The Company shall pay any payments incurred under this Section in
immediately available funds upon demand. Nothing herein shall limit Buyer's
right to pursue actual damages or to cause the Company to redeem the Debenture
as provided below for the Company's actions or inactions resulting in the
transfer agent's failure to issue and deliver the Common Stock to the Buyer.
Furthermore, in addition to any other remedies which may be available to the
Buyer, in the event that the Company fails to deliver such shares of Common
Stock within three (3)
13
business days after the Delivery Date, the Buyer will be entitled to revoke the
relevant Notice of Conversion by delivering a notice to such effect to the
Company whereupon the Company and the Buyer shall each be restored to their
respective positions immediately prior to delivery of such Notice of Conversion.
In the event the Company's actions or inactions result in the transfer agent's
failure to issue and deliver the Common Stock to the Buyer within ten (10) days
after the Delivery Date, Buyer may, at its option, require the Company (without
limiting its other remedies hereunder) to immediately redeem the remaining
interest and principal balance of its Debenture in accordance with Section 6(y)
of the Debenture.
d. If, by the relevant Delivery Date, the Company fails for any
reason to deliver the Shares to be issued upon conversion of the Debenture and
after such Delivery Date, the holder of the Debenture being converted (a
"Converting Holder") purchases, in an open market transaction or otherwise,
shares of Common Stock (the "Covering Shares") in order to make delivery in
satisfaction of a sale of Common Stock by the Converting Holder made after a
Conversion Date (the "Sold Shares"), which delivery such Converting Holder
anticipated to make using the Shares to be issued upon such conversion (a
"Buy-In"), the Company shall pay to the Converting Holder, in addition to all
other amounts contemplated in other provisions of the Transaction Agreements,
and not in lieu thereof, the Buy-In Adjustment Amount (as defined below). The
"Buy-In Adjustment Amount" is the amount equal to the excess, if any, of (x) the
Converting Holder's total purchase price (including brokerage commissions, if
any) for the Covering Shares over (y) the net proceeds (after brokerage
commissions, if any) received by the Converting Holder from the sale of the Sold
Shares. The Company shall pay the Buy-In Adjustment Amount to the Buyer in
immediately available funds immediately upon demand by the Converting Holder. By
way of illustration and not in limitation of the foregoing, if the Converting
Holder purchases shares of Common Stock having a total purchase price (including
brokerage commissions) of $11,000 to cover a Buy-In with respect to shares of
Common Stock it sold for net proceeds of $10,000, the Buy-In Adjustment Amount
which Company will be required to pay to the Converting Holder will be $1,000.
The remedies set forth in paragraphs 5(c) and (d) shall be cumulative.
e. In lieu of delivering physical certificates representing the
unlegended securities issuable upon conversion, provided the Company's transfer
agent is participating in the Depository Trust Company ("DTC") Fast Automated
Securities Transfer program, upon request of the Buyer and its compliance with
the provisions contained in this paragraph, so long as the certificates therefor
do not bear a legend and the Buyer thereof is not obligated to return such
certificate for the placement of a legend thereon, the Company shall use its
best efforts to cause its transfer agent to electronically transmit the Common
Stock issuable upon conversion to the Buyer by crediting the account of Buyer's
Prime Broker with DTC through its Deposit Withdrawal Agent Commission system.
f. The original Debenture shall be delivered by the Buyer to the
Company simultaneous with the final Notice of Conversion.
14
6. DELIVERY INSTRUCTIONS.
The Debenture shall be delivered by the Company to the Escrow Agent
pursuant to Section 1(b) hereof, on a delivery against payment basis, no later
than on the Closing Date.
7. CLOSING DATE.
(i) The closing of the issuance and sale of the Debenture shall occur
on the date (the "Closing Date") which is the first NYSE trading day after the
fulfillment or waiver of all closing conditions pursuant to Sections 8 and 9
hereof or such other date and time as is mutually agreed upon by the Company and
the Buyer.
(ii) The closing of the purchase and issuance of Debenture shall occur
on the Closing Date, at the offices of the Escrow Agent and shall take place no
later than 12:00 Noon, PST, on such day or such other time as is mutually agreed
upon by the Company and the Buyer.
(iii) Notwithstanding anything to the contrary contained herein, the
Escrow Agent will be authorized to release the Escrow Property (as defined in
the Escrow Agreement) only upon satisfaction of the conditions set forth in
Sections 8 and 9 hereof.
8. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
The Buyer understands that the Company's obligation to sell the
Debenture on the Closing Date and to the Buyer pursuant to this Agreement is
conditioned upon:
a. The receipt and acceptance by the Buyer of this Agreement as
evidenced by execution of this Agreement by the Buyer for Two Million Dollars
($2,000,000) in aggregate principal amount of the Debenture;
b. Delivery by the Buyer to the Escrow Agent of good funds as
payment in full of an amount equal to the Purchase Price for the Debenture in
accordance with Section 1(c) hereof;
c. The accuracy on the Closing Date of the representations and
warranties of the Buyer contained in this Agreement as if made on the Closing
Date, and the performance by the Buyer on or before the Closing Date of all
covenants and agreements of the Buyer required to be performed on or before the
Closing Date;
d. There shall not be in effect any law, rule or regulation
prohibiting or restricting the transactions contemplated hereby, or requiring
any consent or approval which shall not have been obtained.
9. CONDITIONS TO THE BUYER'S OBLIGATION TO PURCHASE.
15
The Company understands that the Buyer's obligation to purchase the
Debenture on the Closing Date (and, as applicable, to remit the second tranche
on the Second Closing Date) is conditioned upon:
a. Acceptance by the Company of this Agreement for the sale of
Debenture, as indicated by execution of this Agreement;
b. Delivery by the Company to the Escrow Agent of the Debenture, in
accordance with this Agreement;
c. The accuracy in all material respects on the Closing Date (and,
as applicable, the Second Closing Date) of the representations and warranties of
the Company contained in this Agreement as if made on the Closing Date and the
performance of or compliance with all covenants and agreements of the Company
required to be performed or complied with on or before the Closing Date; and
d. On the Closing Date, Buyer having received (i) an opinion of
counsel for the Company, dated the Closing Date, in form, scope and substance
reasonably satisfactory to the Buyer, to the effect set forth in ANNEX III
attached hereto, (ii) the Registration Rights Agreement, and (iii) the Warrants.
e. No statute, rule, regulation, executive order, decree, ruling or
injunction shall be enacted, entered, promulgated or endorsed by any court or
governmental authority of competent jurisdiction which prohibits or adversely
effects any of the transactions contemplated by this Agreement or the
Transaction Documents, and no proceeding or investigation shall have been
commenced or threatened which may have the effect of prohibiting or adversely
effecting any of the transactions contemplated by this Agreement or the
Transaction Documents.
f. From and after the date hereof to and including the Closing Date
(and, as applicable, the Second Closing Date), the trading of the Common Stock
shall not have been suspended by the SEC, or the NASD and trading in securities
generally on the New York Stock Exchange, NASDAQ/National Market System, shall
not have been suspended or limited, nor shall minimum prices been established
for securities traded on NASDAQ/National Market System, nor shall there be any
outbreak or escalation of hostilities involving the United States or any
material adverse change in any financial market that in either case in the
reasonable judgment of the Buyer makes it impracticable or inadvisable to
purchase the Debenture.
g. The average closing bid price of the Common Stock during the five
(5)-trading day period immediately preceding the Second Closing Date shall be
equal to or greater than $0.50.
10. GOVERNING LAW; MISCELLANEOUS.
16
a. This Agreement and all agreements entered into in connection
herewith shall be governed by and interpreted in accordance with the laws of the
State of California for contracts to be wholly performed in such state and
without giving effect to the principles thereof regarding the conflict of laws.
Any litigation based thereon, or arising out of, under, or in connection with,
this agreement or any course of conduct, course of dealing, statements (whether
oral or written) or actions of the Company or Buyer shall be brought and
maintained exclusively in the state or Federal courts of the State of
California, sitting in the City of Los Angeles. The Company hereby expressly and
irrevocably submits to the jurisdiction of the state and federal Courts of the
State of California for the purpose of any such litigation as set forth above
and irrevocably agrees to be bound by any final judgment rendered thereby in
connection with such litigation. The Company further irrevocably consents to the
service of process by registered mail, postage prepaid, or by personal service
within or without the State of California. The Company hereby expressly and
irrevocably waives, to the fullest extent permitted by law, any objection which
it may have or hereafter may have to the laying of venue of any such litigation
brought in any such court referred to above and any claim that any such
litigation has been brought in any inconvenient forum. To the extent that the
Company has or hereafter may acquire any immunity from jurisdiction of any court
or from any legal process (whether through service or notice, attachment prior
to judgment, attachment in aid of execution or otherwise) with respect to itself
or its property, the Company hereby irrevocably waives such immunity in respect
of its obligations under this Agreement and the related agreements entered into
in connection herewith.
b. A facsimile transmission of this signed Agreement shall be legal
and binding on all parties hereto.
c. This Agreement may be signed in one or more counterparts, each of
which shall be deemed an original.
d. The headings of this Agreement are for convenience of reference
and shall not form part of, or affect the interpretation of, this Agreement.
e. If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement or the
validity or enforceability of this Agreement in any other jurisdiction.
f. This Agreement may be amended only by an instrument in writing
signed by the party to be charged with enforcement thereof.
g. This Agreement supersedes all prior agreements and understandings
among the parties hereto with respect to the subject matter hereof.
h. Except as otherwise set forth herein, all costs and expenses,
including
17
reasonable attorneys' fees, incurred by the Buyer in the enforcement of this
Agreement or any agreements related thereto, shall be paid by the Company upon
demand.
11. NOTICES. Any notice or communication required or permitted by this
Agreement shall be given in writing addressed as follows:
COMPANY: Microware Systems Corporation
0000 Xxxxxxxxx 000xx Xxxxxx
Xxx Xxxxxx, Xxxx 00000
ATTN: CEO
Telephone No.: (000) 000-0000
Telecopier No.: (000) 000-0000
with a copy to:
Arthur Don, Esq.
X'Xxxxxx & Xxxxxx
000 X. Xxxxxx Xxxxx, Xxx. 0000
Xxxxxxx, Xxxxxxxx 00000
Telephone No.: (000) 000-0000
Telecopier No.: (000) 000-0000
BUYER: At the address set forth on the signature page of this Agreement.
ESCROW AGENT: At the address set forth in the Joint Escrow Instruction
All notices shall be served personally by telecopy, by telex, by overnight
express mail service or other overnight courier, or by first class registered or
certified mail, postage prepaid, return receipt requested. If served personally,
or by telecopy, notice shall be deemed delivered upon receipt (provided that if
served by telecopy, sender has written confirmation of delivery); if served by
overnight express mail or overnight courier, notice shall be deemed delivered
forty-eight (48) hours after deposit; and if served by first class mail, notice
shall be deemed delivered seventy-two (72) hours after mailing. Any party may
give written notification to the other parties of any change of address for the
sending of notices, pursuant to any method provided for herein.
12. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The Company's
representations and warranties herein shall survive, for a period of two (2)
years the execution and delivery of this Agreement and the delivery of the
Debenture and the Purchase Price, and shall inure to the benefit of the Buyer
and its successors and assigns.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
18
PURCHASE PRICE OF THE DEBENTURE: $2,000,000*
*As detailed below
SIGNATURES FOR ENTITIES
IN WITNESS WHEREOF, the undersigned represents that the foregoing
statements are true and correct and that it has caused this Securities Purchase
Agreement to be duly executed on its behalf as of this ____ day of November,
2000.
Printed Names of Buyers
By: See Annexed
------------------------------------
(Signature of Authorized Person)
---------------------------------------
Printed Name and Title
As of the date set forth below, the undersigned hereby accepts this Agreement
and represents that the foregoing statements are true and correct and that it
has caused this Securities Purchase Agreement to be duly executed on its behalf.
MICROWARE SYSTEMS CORPORATION, an Iowa corporation
By:
------------------------------------
Title:
---------------------------------
Date:
----------------------------------
19
ANNEX TO SIGNATURE PAGE
PRINCIPAL AMOUNT
----------------
$2,000,000 Elder Court, LLC, a Cayman Islands limited
liability company
By:
------------------------------------
Manager
ADDRESS: x/x Xxxxxxxxx Xxxxxxxxxx
X.X. Xxx 000
Xxxx Xxxx
Xxxxxxx, Xxxxxxx Xxxxxx Xxxxxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
ANNEX I DEBENTURE
ANNEX II JOINT ESCROW INSTRUCTIONS
ANNEX III OPINION OF COUNSEL
ANNEX IV REGISTRATION RIGHTS AGREEMENT
ANNEX V COMPANY DISCLOSURE MATERIALS
ANNEX VI COMMON STOCK PURCHASE WARRANT
