EXHIBIT 10.1
DATA SYSTEMS & SOFTWARE INC.
DATABIT INC.
SECURITIES PURCHASE AGREEMENT
June 10, 2002
TABLE OF CONTENTS
Page
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1. AGREEMENT TO SELL AND PURCHASE..............................................1
2. FEES AND WARRANT............................................................1
3. CLOSING, DELIVERY AND PAYMENT...............................................2
3.1 Closing................................................................2
3.2 Delivery...............................................................2
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY...............................2
4.1 Organization, Good Standing and Qualification..........................2
4.2 Subsidiaries...........................................................3
4.3 Capitalization; Voting Rights..........................................3
4.4 Authorization; Binding Obligations.....................................4
4.5 Liabilities............................................................4
4.6 Agreements; Action.....................................................4
4.7 Obligations to Related Parties.........................................5
4.8 Changes................................................................5
4.9 Title to Properties and Assets; Liens, Etc.............................6
4.10 Intellectual Property..................................................7
4.11 Compliance with Other Instruments......................................7
4.12 Litigation.............................................................7
4.13 Tax Returns and Payments...............................................8
4.14 Employees..............................................................8
4.15 Registration Rights and Voting Rights..................................8
4.16 Compliance with Laws; Permits..........................................9
4.17 Environmental and Safety Laws..........................................9
4.18 Valid Offering.........................................................9
4.19 Full Disclosure........................................................9
4.20 Insurance.............................................................10
4.21 SEC Reports...........................................................10
4.22 No Market Manipulation................................................10
4.23 Listing...............................................................10
4.24 No Integrated Offering................................................10
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4.25 Stop Transfer......................................................10
4.26 Dilution...........................................................11
5. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS.........................11
5.1 Requisite Power and Authority......................................11
5.2 Investment Representations.........................................11
5.3 Purchaser Bears Economic Risk......................................11
5.4 Acquisition for Own Account........................................12
5.5 Purchaser Can Protect Its Interest.................................12
5.6 Accredited Investor................................................12
5.7 Legends............................................................12
5.8 No Shorting........................................................12
6. COVENANTS OF THE COMPANY.................................................13
6.1 Stop-Orders........................................................13
6.2 Listing............................................................13
6.3 Market Regulations.................................................14
6.4 Reporting Requirements............................................14
6.5 Use of Funds.......................................................14
6.6 Access to Facilities...............................................14
6.7 Taxes..............................................................14
6.8 Insurance..........................................................14
6.9 Intellectual Property..............................................15
6.10 Properties.........................................................15
6.11 Confidentiality....................................................15
6.12 Required Approvals.................................................15
6.13 Reissuance of Securities...........................................15
6.14 Opinion............................................................16
7. COVENANTS OF THE COMPANY AND PURCHASERS REGARDING INDEMNIFICATION........16
7.1 Company Indemnification............................................16
7.2 Purchaser's Indemnification........................................16
7.2 Procedures.........................................................16
8. CONVERSION OF CONVERTIBLE NOTE...........................................17
8.1 Mechanics of Conversion............................................17
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8.2 Mandatory Redemption...............................................
8.3 Maximum Conversion.................................................18
8.4 Optional Redemption................................................
8.5 Nasdaq Approval....................................................
9. REGISTRATION RIGHTS......................................................19
9.1 Registration Rights Granted........................................19
9.2 Registration Procedures............................................20
9.3 Provision of Documents.............................................21
9.4 Non-Registration Events............................................21
9.5 Expenses...........................................................21
9.6 Indemnification and Contribution...................................22
10. OFFERING RESTRICTIONS....................................................24
11. SECURITY INTEREST........................................................24
12. MISCELLANEOUS............................................................24
12.1 Governing Law......................................................24
12.2 Survival...........................................................24
12.3 Successors and Assigns.............................................25
12.4 Entire Agreement...................................................25
12.5 Severability.......................................................25
12.6 Amendment and Waiver...............................................25
12.7 Delays or Omissions................................................25
12.8 Notices............................................................25
12.9 Attorneys' Fees....................................................25
12.10 Titles and Subtitles...............................................26
12.11 Counterparts.......................................................26
12.12 Broker's Fees......................................................26
12.13 Construction.......................................................26
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DATA SYSTEMS & SOFTWARE INC.
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT (the "Agreement") is made and entered
into as of June 10, 2002, by and among Data Systems & Software Inc., a Delaware
corporation (the "Company"), Databit Inc., a Delaware corporation ("Databit"),
and Laurus Master Fund, Ltd., a Cayman Islands company (the "Purchaser").
RECITALS
WHEREAS, the Company and Databit each has authorized the sale of a 10%
Convertible Note in an aggregate principal amount of $2,000,000 (the "Note"),
convertible into shares of the Company's common stock, $0.01 par value per share
(the "Common Stock") at a fixed conversion rate of $3.49 per share of Common
Stock ("Fixed Conversion Rate");
WHEREAS, the Company wishes to issue a warrant (the "Warrant") to the
Purchaser to purchase shares of the Company's Common Stock in connection with
Purchaser's purchase of the Note;
WHEREAS, Purchaser desires to purchase the Note and Warrant on the terms
and conditions set forth herein; and
WHEREAS, the Company desires to issue and sell the Note and Warrant to
Purchaser on the terms and conditions set forth herein.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
promises, representations, warranties and covenants hereinafter set forth and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:
1. AGREEMENT TO SELL AND PURCHASE. Pursuant to the terms and conditions
set forth in this Agreement, on the Closing Date (as defined in Section 3), the
Company and Databit each agrees to sell to the Purchaser, and the Purchaser
hereby agrees to purchase from the Company and from Databit a Note in the amount
of $2,000,000 convertible in accordance with the terms thereof into shares of
the Company's Common Stock in accordance with the terms of the Note and this
Agreement. The Note purchased on the Closing Date shall be known as the
"Offering." The Company and Databit shall be jointly and severally liable under
the Note, the form of which is annexed hereto as Exhibit A. The Note will have a
Maturity Date (as defined in the Note) twelve months from the date of issuance.
Collectively, the Note and Warrant (as defined in Section 2) and Common Stock
issuable in payment of the Note, upon conversion of the Note and upon exercise
of the Warrant are referred to as the "Securities."
2. FEES AND WARRANT. On the Closing Date:
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(a) The Company will issue and deliver to the Purchaser a
Warrant to purchase 125,000 shares of Common Stock in connection with the
Offering (the "Warrant") pursuant to Section 1 hereof. The Warrant must be
delivered on the Closing Date. A form of Warrant is annexed hereto as Exhibit B.
The per share "Purchase Price" of Common Stock as defined in the Warrants shall
be $4.20. All the representations, covenants, warranties, undertakings, and
indemnification, and other rights made or granted to or for the benefit of the
Purchaser by the Company are hereby also made and granted in respect of the
Warrant and shares of the Company's Common Stock issuable upon exercise of the
Warrant (the "Warrant Shares").
(b) The Company shall reimburse the Purchaser for its
reasonable legal fees for services rendered to the Purchaser in preparation of
this Agreement and the Related Agreements, not to exceed $12,500, and expenses
in connection with the Purchaser's due diligence review of the Company and
relevant matters, not to exceed $3,500, in each case upon presentation to the
Company of reasonable documentation thereof.
(c) The Company will pay a cash fee in the amount of five
percent (5%) of the aggregate gross purchase price to be paid to the Company
from the sale of Note in the Offering (the "Fund Management Fee") to Laurus
Capital Management, L.L.C., a Delaware limited liability company. The Fund
Management Fee must be paid on the Closing Date. The aforementioned Fund
Management Fee and legal fees will be payable at the Closing out of funds held
pursuant to a Funds Escrow Agreement to be entered into by the Company,
Purchaser and an Escrow Agent (the "Funds Escrow Agreement").
3. CLOSING, DELIVERY AND PAYMENT.
3.1 Closing. Subject to the terms and conditions herein, the closing
of the transactions contemplated hereby (the "Closing"), shall take place on the
date hereof, at such time or place as the Company and Purchaser may mutually
agree (such date is hereinafter referred to as the "Closing Date").
3.2 Delivery. Pursuant to the Funds Escrow Agreement, at the
Closing, subject to the terms and conditions hereof, the Company will deliver to
the Escrow Agent, among other things, a Note in the form attached as Exhibit A
representing the principal amount of $2,000,000 and a Common Stock Purchase
Warrant in the form attached as Exhibit B in the Purchaser's name representing
125,000 Warrant Shares and the Purchaser will deliver to the Escrow Agent, among
other things, $2,000,000, by certified funds or wire transfer made payable to
the order of the Escrow Agent.
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND DATABIT.
The Company and Databit each hereby represents and warrants to the
Purchaser as of the date of this Agreement as set forth below which disclosures
are supplemented by, and subject to the Company's filings under the Securities
Exchange Act of 1934 (collectively, the "Exchange Act Filings"), copies of which
have been provided to the Purchaser.
4.1 Organization, Good Standing and Qualification. The Company and
Databit each is a corporation duly organized, validly existing and in good
standing under the
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laws of the State of Delaware. The Company and Databit each has the corporate
power and authority to own and operate its properties and assets, to execute and
deliver this Agreement, the Warrant to be issued in connection with this
Agreement (in the case of the Company only), the Funds Escrow Agreement, the
Security Agreement (in the case of Databit only) and all other agreements
referred to herein (collectively, the "Related Agreements"), to issue and sell
the Note and the shares of Common Stock issuable upon conversion of the Note
(the "Note Shares") (in the case of the Company only), to issue and sell the
Warrant and the Warrant Shares (in the case of the Company only), and to carry
out the provisions of this Agreement and the Related Agreements and to carry on
its business as presently conducted. The Company and Databit each is duly
qualified and is authorized to do business and is in good standing as a foreign
corporation in all jurisdictions in which the nature of its activities and of
its properties (both owned and leased) makes such qualification necessary,
except for those jurisdictions in which failure to do so would not have a
material adverse effect on the Company or its business.
4.2 Subsidiaries. Except as disclosed on Schedule 4.2, the Company
does not own or control any equity security or other interest of any other
corporation, limited partnership or other business entity.
4.3 Capitalization; Voting Rights.
(a) The authorized capital stock of the Company, as of May 15,
2002, consists of 20,000,000 shares of Common Stock, par value $0.01 per share,
7,353,163 shares of which are issued and outstanding and 808,704 shares are held
in treasury.
(b) Except as disclosed on Schedule 4.3, other than (i) the
shares reserved for issuance under the Company's stock option plans; and (ii)
shares which may be granted pursuant to this Agreement and the Related
Agreements, there are no outstanding options, warrants, rights (including
conversion or preemptive rights and rights of first refusal), proxy or
stockholder agreements, or arrangements or agreements of any kind for the
purchase or acquisition from the Company of any of its securities. Neither the
offer, issuance or sale of any of the Note or Warrant, or the issuance of any of
the Note Shares or Warrant Shares, nor the consummation of any transaction
contemplated hereby will result in a change in the price or number of any
securities of the Company outstanding, under anti-dilution or other similar
provisions contained in or affecting any such securities.
(c) All issued and outstanding shares of the Company's Common
Stock (i) have been duly authorized and validly issued and are fully paid and
nonassessable and (ii) were issued in compliance with all applicable state and
federal laws concerning the issuance of securities.
(d) The rights, preferences, privileges and restrictions of
the shares of the Common Stock are as stated in the Certificate of Incorporation
(the "Charter"). The Note Shares and Warrant Shares have been duly and validly
reserved for issuance. When issued in compliance with the provisions of this
Agreement and the Company's Charter, the Securities will be validly issued,
fully paid and nonassessable, and will be free of any liens or encumbrances;
provided, however, that the Securities may be subject to restrictions on
transfer under state
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and/or federal securities laws as set forth herein or as otherwise required by
such laws at the time a transfer is proposed.
(e) No stock plan, stock purchase, stock option or other
agreement or understanding between the Company and any holder of any equity
securities of the Company or rights to purchase equity securities of the Company
provides for acceleration or other changes in the vesting provisions or other
terms of such agreement or understanding as the result of any merger,
consolidated sale of stock or assets, change in control or any other
transaction(s) by the Company, including the transactions contemplated
hereunder.
4.4 Authorization; Binding Obligations. All corporate action on the
part of the Company and Databit, each of their respective officers and directors
necessary for the authorization of this Agreement and the Related Agreements to
which the Company or Databit is a party, respectively, the performance of all
obligations of the Company and Databit hereunder at the Closing and, in the case
of the Company only, the authorization, sale, issuance and delivery of the Note
and Warrant has been taken or will be taken prior to the Closing. The Agreement
and the Related Agreements, when executed and delivered and to the extent it is
a party thereto, will be valid and binding obligations of the Company and
Databit enforceable in accordance with their terms, except (a) as limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other laws of
general application affecting enforcement of creditors' rights, and (b) general
principles of equity that restrict the availability of equitable or legal
remedies. The sale of the Note and the subsequent conversion of the Note into
Note Shares are not and will not be subject to any preemptive rights or rights
of first refusal that have not been properly waived or complied with. The
issuance of the Warrant and the subsequent exercise of the Warrant for Warrant
Shares are not and will not be subject to any preemptive rights or rights of
first refusal that have not been properly waived or complied with. The Note and
the Warrant, when executed and delivered in accordance with the terms of this
Agreement, will be valid and binding obligations of the Company, enforceable in
accordance with their respective terms.
4.5 Liabilities. The Company and Databit each has no material
liabilities and, to the best of its knowledge, knows of no material contingent
liabilities, except current liabilities incurred in the ordinary course of
business and liabilities disclosed in any Exchange Act Filings.
4.6 Agreements; Action. Except as set forth on Schedule 4.6 or as
disclosed in any Exchange Act Filings:
(a) There are no agreements, understandings, instruments,
contracts, proposed transactions, judgments, orders, writs or decrees to which
the Company is a party or to its knowledge by which it is bound which may
involve (i) obligations (contingent or otherwise) of, or payments to, the
Company in excess of $50,000 (other than obligations of, or payments to, the
Company arising from purchase or sale agreements entered into in the ordinary
course of business), or (ii) the transfer or license of any patent, copyright,
trade secret or other proprietary right to or from the Company (other than
licenses arising from the purchase of "off the shelf" or other standard
products), or (iii) provisions restricting the development, manufacture or
distribution of the Company's products or services, or (iv) indemnification by
the Company with respect to infringements of proprietary rights.
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(b) The Company has not (i) declared or paid any dividends, or
authorized or made any distribution upon or with respect to any class or series
of its capital stock, (ii) incurred any indebtedness for money borrowed or any
other liabilities individually in excess of $50,000 or, in the case of
indebtedness and/or liabilities individually less than $50,000, in excess of
$100,000 in the aggregate, (iii) made any loans or advances to any person not in
excess, individually or in the aggregate, of $100,000, other than ordinary
advances for travel expenses, or (iv) sold, exchanged or otherwise disposed of
any of its assets or rights, other than the sale of its inventory in the
ordinary course of business.
(c) For the purposes of subsections (a) and (b) above, all
indebtedness, liabilities, agreements, understandings, instruments, contracts
and proposed transactions involving the same person or entity (including persons
or entities the Company has reason to believe are affiliated therewith) shall be
aggregated for the purpose of meeting the individual minimum dollar amounts of
such subsections.
4.7 Obligations to Related Parties. There are no obligations of the
Company to officers, directors, stockholders or employees of the Company other
than (a) for payment of salary for services rendered, (b) reimbursement for
reasonable expenses incurred on behalf of the Company, (c) for other standard
employee benefits made generally available to all employees (including stock
option agreements outstanding under any stock option plan approved by the Board
of Directors of the Company) and (d) obligations listed in the Company's
financial statements or disclosed in any of its Exchange Act Filings. Except as
described above or set forth on Schedule 4.7, none of the officers, directors
or, to the best of the Company's knowledge, key employees or stockholders of the
Company or any members of their immediate families, are indebted to the Company,
individually or in the aggregate, in excess of $50,000 or have any direct or
indirect ownership interest in any firm or corporation with which the Company is
affiliated or with which the Company has a business relationship, or any firm or
corporation which competes with the Company, other than passive investments in
publicly traded companies (representing less than 1% of such company) which may
compete with the Company. Except as described above, no officer, director or
stockholder, or any member of their immediate families, is, directly or
indirectly, interested in any material contract with the Company and no
agreements, understandings or proposed transactions are contemplated between the
Company and any such person. Except as set forth on Schedule 4.7, the Company is
not a guarantor or indemnitor of any indebtedness of any other person, firm or
corporation.
4.8 Changes. Since December 31, 2001, except as disclosed in any
Exchange Act Filing or in any Schedule to this Agreement or to any of the
Related Agreements, there has not been:
(a) Any change in the assets, liabilities, financial
condition, prospects or operations of the Company, other than changes in the
ordinary course of business, none of which individually or in the aggregate has
had or is reasonably expected to have a material adverse effect on such assets,
liabilities, financial condition, prospects or operations of the Company;
(b) Any resignation or termination of any officer, key
employee or group of employees of the Company;
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(c) Any material change, except in the ordinary course of
business, in the contingent obligations of the Company by way of guaranty,
endorsement, indemnity, warranty or otherwise;
(d) Any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the properties, business or
prospects or financial condition of the Company;
(e) Any waiver by the Company of a valuable right or of a
material debt owed to it;
(f) Any direct or indirect material loans made by the Company
to any stockholder, employee, officer or director of the Company, other than
advances made in the ordinary course of business;
(g) Any material change in any compensation arrangement or
agreement with any employee, officer, director or stockholder;
(h) Any declaration or payment of any dividend or other
distribution of the assets of the Company;
(i) Any labor organization activity related to the Company;
(j) Any debt, obligation or liability incurred, assumed or
guaranteed by the Company, except those for immaterial amounts and for current
liabilities incurred in the ordinary course of business;
(k) Any sale, assignment or transfer of any patents,
trademarks, copyrights, trade secrets or other intangible assets;
(l) Any change in any material agreement to which the Company
is a party or by which it is bound which may materially and adversely affect the
business, assets, liabilities, financial condition, operations or prospects of
the Company;
(m) Any other event or condition of any character that, either
individually or cumulatively, has or may materially and adversely affect the
business, assets, liabilities, financial condition, prospects or operations of
the Company; or
(n) Any arrangement or commitment by the Company to do any of
the acts described in subsection (a) through (m) above.
4.9 Title to Properties and Assets; Liens, Etc. The Company has good
and marketable title to its properties and assets, and good title to its
leasehold estates, in each case subject to no mortgage, pledge, lien, lease,
encumbrance or charge, other than (a) those resulting from taxes which have not
yet become delinquent, (b) minor liens and encumbrances which do not materially
detract from the value of the property subject thereto or materially impair the
operations of the Company, and (c) those that have otherwise arisen in the
ordinary course of business. All facilities, machinery, equipment, fixtures,
vehicles and other properties owned,
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leased or used by the Company are in good operating condition and repair and are
reasonably fit and usable for the purposes for which they are being used. The
Company is in compliance with all material terms of each lease to which it is a
party or is otherwise bound.
4.10 Intellectual Property.
(a) The Company owns or possesses sufficient legal rights to
all patents, trademarks, service marks, trade names, copyrights, trade secrets,
licenses, information and other proprietary rights and processes necessary for
its business as now conducted and to the Company's knowledge as presently
proposed to be conducted (the "Intellectual Property"), without any known
infringement of the rights of others. There are no outstanding options, licenses
or agreements of any kind relating to the foregoing proprietary rights, nor is
the Company bound by or a party to any options, licenses or agreements of any
kind with respect to the patents, trademarks, service marks, trade names,
copyrights, trade secrets, licenses, information and other proprietary rights
and processes of any other person or entity other than such licenses or
agreements arising from the purchase of "off the shelf" or standard products.
(b) Except as set forth on Schedule 4.10(b), the Company has
not received any communications alleging that the Company has violated any of
the patents, trademarks, service marks, trade names, copyrights or trade secrets
or other proprietary rights of any other person or entity, nor is the Company
aware of any basis therefor.
(c) The Company does not believe it is or will be necessary to
utilize any inventions, trade secrets or proprietary information of any of its
employees made prior to their employment by the Company, except for inventions,
trade secrets or proprietary information that have been rightfully assigned to
the Company.
4.11 Compliance with Other Instruments. The Company and Databit each
is not in violation or default of any term of their respective Charter or
Bylaws, or of any material provision of any mortgage, indenture, contract,
agreement, instrument or contract to which it is party or by which it is bound
or of any judgment, decree, order or writ. The execution, delivery and
performance of and compliance with this Agreement and the Related Agreements to
which it is a party, and the issuance and sale of the Note by the Company and
Databit and the other Securities by the Company each pursuant hereto, will not,
with or without the passage of time or giving of notice, result in any such
material violation, or be in conflict with or constitute a default under any
such term or provision, or result in the creation of any mortgage, pledge, lien,
encumbrance or charge upon any of the properties or assets of the Company or
Databit or the suspension, revocation, impairment, forfeiture or nonrenewal of
any permit, license, authorization or approval applicable to the Company or
Databit, their respective business or operations or any of their respective
assets or properties.
4.12 Litigation. There is no action, suit, proceeding or
investigation pending or, to the Company's or Databit's knowledge, currently
threatened against the Company or Databit that prevents the Company to enter
into this Agreement or the Related Agreements, or to consummate the transactions
contemplated hereby or thereby, or which might result, either individually or in
the aggregate, in any material adverse change in the assets, condition, affairs
or prospects of the Company or Databit, financially or otherwise, or any change
in the current
7
equity ownership of the Company or Databit, nor is the Company or Databit aware
that there is any basis for any of the foregoing. The Company and Databit each
is not a party or subject to the provisions of any order, writ, injunction,
judgment or decree of any court or government agency or instrumentality. There
is no action, suit, proceeding or investigation by the Company or Databit
currently pending or which the Company or Databit intends to initiate.
4.13 Tax Returns and Payments. The Company has timely filed all tax
returns (federal, state and local) required to be filed by it. All taxes shown
to be due and payable on such returns, any assessments imposed, and to the
Company's knowledge all other taxes due and payable by the Company on or before
the Closing, have been paid or will be paid prior to the time they become
delinquent. The Company has not been advised (a) that any of its returns,
federal, state or other, have been or are being audited as of the date hereof,
or (b) of any deficiency in assessment or proposed judgment to its federal,
state or other taxes. The Company has no knowledge of any liability of any tax
to be imposed upon its properties or assets as of the date of this Agreement
that is not adequately provided for.
4.14 Employees. The Company has no collective bargaining agreements
with any of its employees. There is no labor union organizing activity pending
or, to the Company's knowledge, threatened with respect to the Company. Except
as disclosed in the Exchange Act Filings, the Company is not a party to or bound
by any currently effective employment contract, deferred compensation
arrangement, bonus plan, incentive plan, profit sharing plan, retirement
agreement or other employee compensation plan or agreement. To the Company's
knowledge, no employee of the Company, nor any consultant with whom the Company
has contracted, is in violation of any term of any employment contract,
proprietary information agreement or any other agreement relating to the right
of any such individual to be employed by, or to contract with, the Company
because of the nature of the business to be conducted by the Company; and to the
Company's knowledge the continued employment by the Company of its present
employees, and the performance of the Company's contracts with its independent
contractors, will not result in any such violation. The Company is not aware
that any of its employees is obligated under any contract (including licenses,
covenants or commitments of any nature) or other agreement, or subject to any
judgment, decree or order of any court or administrative agency, that would
interfere with their duties to the Company. The Company has not received any
notice alleging that any such violation has occurred. Except for employees who
have a current effective employment agreement with the Company, no employee of
the Company has been granted the right to continued employment by the Company or
to any material compensation following termination of employment with the
Company. The Company is not aware that any officer, key employee or group of
employees intends to terminate his, her or their employment with the Company,
nor does the Company have a present intention to terminate the employment of any
officer, key employee or group of employees.
4.15 Registration Rights and Voting Rights. Except as disclosed in
Exchange Act Filings, the Company is presently not under any obligation, and has
not granted any rights, to register any of the Company's presently outstanding
securities or any of its securities that may hereafter be issued. To the
Company's knowledge, no stockholder of the Company has entered into any
agreement with respect to the voting of equity securities of the Company.
8
4.16 Compliance with Laws; Permits. To its knowledge, the Company is
not in violation in any material respect of any applicable statute, rule,
regulation, order or restriction of any domestic or foreign government or any
instrumentality or agency thereof in respect of the conduct of its business or
the ownership of its properties which violation would materially and adversely
affect the business, assets, liabilities, financial condition, operations or
prospects of the Company. No governmental orders, permissions, consents,
approvals or authorizations are required to be obtained and no registrations or
declarations are required to be filed in connection with the execution and
delivery of this Agreement and the issuance of any of the Securities, except
such as has been duly and validly obtained or filed, or with respect to any
filings that must be made after the Closing, as will be filed in a timely
manner. The Company has all material franchises, permits, licenses and any
similar authority necessary for the conduct of its business as now being
conducted by it, the lack of which would materially and adversely affect the
business, properties, prospects or financial condition of the Company.
4.17 Environmental and Safety Laws. The Company is not in violation
of any applicable statute, law or regulation relating to the environment or
occupational health and safety, and to its knowledge, no material expenditures
are or will be required in order to comply with any such existing statute, law
or regulation. No Hazardous Materials (as defined below) are used or have been
used, stored, or disposed of by the Company or, to the Company's knowledge, by
any other person or entity on any property owned, leased or used by the Company.
For the purposes of the preceding sentence, "Hazardous Materials" shall mean (a)
materials which are listed or otherwise defined as "hazardous" or "toxic" under
any applicable local, state, federal and/or foreign laws and regulations that
govern the existence and/or remedy of contamination on property, the protection
of the environment from contamination, the control of hazardous wastes, or other
activities involving hazardous substances, including building materials, or (b)
any petroleum products or nuclear materials.
4.18 Valid Offering. Assuming the accuracy of the representations
and warranties of the Purchaser contained in this Agreement, the offer, sale and
issuance of the Securities will be exempt from the registration requirements of
the Securities Act of 1933, as amended (the "Securities Act"), and will have
been registered or qualified (or are exempt from registration and qualification)
under the registration, permit or qualification requirements of all applicable
state securities laws.
4.19 Full Disclosure. The Company has provided the Purchaser with
all information requested by the Purchaser in connection with its decision to
purchase the Note and Warrant. Neither this Agreement, the exhibits and
schedules hereto, the Related Agreements nor any other document delivered by the
Company to Purchaser or its attorneys or agents in connection herewith or
therewith or with the transactions contemplated hereby or thereby, contain any
untrue statement of a material fact nor omit to state a material fact necessary
in order to make the statements contained herein or therein not misleading. To
the Company's knowledge, there are no facts which (individually or in the
aggregate) materially adversely affect the business, assets, liabilities,
financial condition, prospects or operations of the Company that have not been
set forth in any Exchange Act Filings, this Agreement, the exhibits and
schedules hereto, the Related Agreements or in other documents delivered to
Purchaser or its attorneys or agents in connection herewith.
9
4.20 Insurance. The Company has general commercial, product
liability, fire and casualty insurance policies with coverage customary for
companies similarly situated to the Company in the same or similar business.
4.21 SEC Reports. The Company has filed all proxy statements,
reports and other documents required to be filed by it under the Exchange Act.
The Company has furnished the Purchaser with copies of (i) its Annual Report on
Form 10-K for the fiscal year ended December 31, 2001 as amended, (ii) its
Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2002 and
(iii) its Proxy Statement dated May 29, 2001 (collectively, the "SEC Reports").
Each SEC Report was, at the time of its filing, in substantial compliance with
the requirements of its respective form and none of the SEC Reports, nor the
financial statements (and the notes thereto) included in the SEC Reports, as of
their respective filing dates, contained any untrue statement of a material fact
or omitted 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.
4.22 No Market Manipulation. Except for purchases of Common Stock by
officers and directors of the Company which purchases are, individually, in lots
less than 2,000 shares, the Company has not taken, and will not take, directly
or indirectly, any action designed to, or that might reasonably be expected to,
cause or result in stabilization or manipulation of the price of the Common
Stock of the Company to facilitate the sale or resale of any of the Securities
being offered hereby or affect the price at which any of the Securities being
offered hereby may be issued. Notwithstanding the foregoing, the Company will be
permitted to implement a stock buy back program under Rule 10b-18 under the
Securities Exchange Act of 1934, as amended.
4.23 Listing. The Company's Common Stock is listed for trading on
the Nasdaq National Market and satisfies all requirements for the continuation
of such listing. The Company has not received any notice that its Common Stock
will be delisted from the Nasdaq National Market or that the Common Stock does
not meet all requirements for the continuation of such listing.
4.24 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 cause the offering of the
Securities pursuant to this Agreement to be integrated with prior offerings by
the Company for purposes of the Securities Act which would prevent the Company
from selling the Securities pursuant to Rule 506 under the Securities Act, or
any applicable exchange-related stockholder approval provisions. Nor will the
Company or any of its affiliates or subsidiaries take any action or steps that
would cause the offering of the Securities to be integrated with other
offerings.
4.25 Stop Transfer. The Securities are restricted securities as of
the date of this Agreement. The Company will not issue any stop transfer order
or other order impeding the sale and delivery of any of the Securities at such
time as the Securities are registered for public sale or an exemption from
registration is available, except as required by federal securities laws.
10
4.26 Dilution. The number of shares of Common Stock issuable upon
conversion of the Note and exercise of the Warrant 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
conversion or exercise of such securities. The Company understands the nature of
the Securities being sold hereby and recognize that they may have a potential
dilutive effect. The Board of Directors of the Company has concluded, in its
good faith business judgment, that such issuance is in the best interests of the
Company. The Company specifically acknowledges that its obligation to issue the
shares of Common Stock upon conversion of the Note and exercise of the Warrant
is binding upon the Company and enforceable regardless of the dilution such
issuance may have on the ownership interests of other shareholders of the
Company.
5. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER.
The Purchaser hereby represents and warrants to the Company as
follows (such representations and warranties do not lessen or obviate the
representations and warranties of the Company set forth in this Agreement):
5.1 Requisite Power and Authority. Purchaser has all necessary power
and authority under all applicable provisions of law to execute and deliver this
Agreement and the Related Agreements and to carry out their provisions. All
corporate action on Purchaser's part required for the lawful execution and
delivery of this Agreement and the Related Agreements have been or will be
effectively taken prior to the Closing. Upon their execution and delivery, this
Agreement and the Related Agreements will be valid and binding obligations of
Purchaser, enforceable in accordance with their terms, except (a) as limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other laws of
general application affecting enforcement of creditors' rights, and (b) as
limited by general principles of equity that restrict the availability of
equitable and legal remedies.
5.2 Investment Representations. Purchaser understands that the
Securities are being offered and sold pursuant to an exemption from registration
contained in the Securities Act based in part upon Purchaser's representations
contained in the Agreement, including, without limitation, that the Purchaser is
an "accredited investor" within the meaning of Regulation D under the Securities
Act. The Purchaser has received or has had full access to all the information it
considers necessary or appropriate to make an informed investment decision with
respect to the Note and the Warrant to be purchased by it under this Agreement
and the Note Shares and the Warrant Shares acquired by it upon the conversion of
the Note and the exercise of the Warrant, respectively. The Purchaser further
has had an opportunity to ask questions and receive answers from the Company
regarding the Company's business, management and financial affairs and the terms
and conditions of the Offering, the Note, the Warrant and the Securities and to
obtain additional information (to the extent the Company possessed such
information or could acquire it without unreasonable effort or expense)
necessary to verify any information furnished to the Purchaser or to which the
Purchaser had access.
5.3 Purchaser Bears Economic Risk. Purchaser has substantial
experience in evaluating and investing in private placement transactions of
securities in companies similar to
11
the Company so that it is capable of evaluating the merits and risks of its
investment in the Company and has the capacity to protect its own interests.
Purchaser must bear the economic risk of this investment until the Securities
are sold pursuant to (i) an effective registration statement under the
Securities Act, or (ii) an exemption from registration is available.
5.4 Acquisition for Own Account. Purchaser is acquiring the Note and
Warrant and the Note Shares and the Warrant Shares for Purchaser's own account
for investment only, and not as a nominee or agent and not with a view towards
or for resale in connection with their distribution.
5.5 Purchaser Can Protect Its Interest. Purchaser represents that by
reason of its, or of its management's, business and financial experience,
Purchaser has the capacity to evaluate the merits and risks of its investment in
the Note, the Warrant and the Securities and to protect its own interests in
connection with the transactions contemplated in this Agreement, and the Related
Agreements. Further, Purchaser is aware of no publication of any advertisement
in connection with the transactions contemplated in the Agreement or the Related
Agreements.
5.6 Accredited Investor. Purchaser represents that it is an
accredited investor within the meaning of Regulation D under the Securities Act.
5.7 Legends.
(a) The Note shall bear substantially the following legend:
"THIS NOTE AND THE COMMON STOCK ISSUABLE UPON CONVERSION OF THIS
NOTE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR, IF APPLICABLE, STATE SECURITIES LAWS. THIS NOTE AND THE
COMMON STOCK ISSUABLE UPON CONVERSION OF THIS NOTE MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT AS TO THIS NOTE OR SUCH SHARES
UNDER SAID ACT AND APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF
COUNSEL REASONABLY SATISFACTORY TO DATA SYSTEMS & SOFTWARE INC. THAT
SUCH REGISTRATION IS NOT REQUIRED."
(b) The Note Shares and the Warrant Shares, if not issued by
DWAC system (as hereinafter defined), shall bear a legend which shall be in
substantially the following form until such shares are covered by an effective
registration statement filed with the SEC:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR IF APPLICABLE,
STATE SECURITIES LAWS. THESE SHARES MAY NOT BE SOLD, OFFERED FOR
SALE, PLEDGED OR HYPOTHECATED IN
12
THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH
SECURITIES ACT AND APPLICABLE STATE LAWS OR AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO DATA SYSTEMS & SOFTWARE INC. THAT SUCH
REGISTRATION IS NOT REQUIRED."
(c) The Warrant shall bear substantially the following legend:
"THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS
WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THIS WARRANT AND
THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT BE
SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT AS TO THIS WARRANT OR THE
UNDERLYING SHARES OF COMMON STOCK UNDER SAID ACT AND APPLICABLE
STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO DATA SYSTEMS & SOFTWARE INC. THAT SUCH REGISTRATION
IS NOT REQUIRED."
5.8 No Shorting. The Purchaser will not and will not cause any
person or entity, directly or indirectly, to engage in "short sales" of the
Company's Common Stock.
6. COVENANTS OF THE COMPANY. For so long as 20% of the principal amount of
the Note is outstanding, the Company covenants and agrees with the Purchaser as
follows:
6.1 Stop-Orders. The Company will advise the Purchaser, promptly
after it receives notice of issuance by the Securities and Exchange Commission
(the "SEC"), any state securities commission or any other regulatory authority
of any stop order or of any order preventing or suspending any offering of any
securities of the Company, or of the suspension of the qualification of the
Common Stock of the Company for offering or sale in any jurisdiction, or the
initiation of any proceeding for any such purpose.
6.2 Listing. The Company shall promptly secure the listing of the
shares of Common Stock issuable upon conversion of the Note and upon the
exercise of the Warrant upon the on the Pink Sheets, the NASD OTC Bulletin
Board, NASDAQ SmallCap Market, NASDAQ National Market, American Stock Exchange
or New York Stock Exchange (the "Principal Market") upon which shares of Common
Stock are then listed (subject to official notice of issuance) and shall
maintain such listing so long as any other shares of Common Stock shall be so
listed. The Company will maintain the listing of its Common Stock on a Principal
Market, and will comply in all material respects with the Company's reporting,
filing and other obligations under the bylaws or rules of the National
Association of Securities Dealers
13
("NASD") and such exchanges, as applicable. The Company will provide the
Purchaser copies of all notices it receives notifying the Company of the
threatened and actual delisting of the Common Stock from any Principal Market.
6.3 Market Regulations. The Company shall notify the SEC, NASD and
applicable state authorities, in accordance with their requirements, of the
transactions contemplated by this Agreement, and shall take all other necessary
action and proceedings as may be required and permitted by applicable law, rule
and regulation, for the legal and valid issuance of the Securities to Purchaser
and promptly provide copies thereof to Purchaser.
6.4 Reporting Requirements. The Company will timely file with the
SEC all reports required to be filed pursuant to the Exchange Act and refrain
from terminating its status as an issuer required by the Exchange Act to file
reports thereunder even if the Exchange Act or the rules or regulations
thereunder would permit such termination. In addition, within 15 days after the
end of each calendar month, the Company will provide to the Purchaser a monthly
cash flow statement for the immediately preceding month.
6.5 Use of Funds. The Company agrees that it will use the proceeds
of the sale of the Note and Warrant for general corporate purposes only.
6.6 Access to Facilities. The Company will permit any
representatives designated by the Purchaser (or any transferee of the
Purchaser), upon reasonable notice and during normal business hours, at such
person's expense and accompanied by a representative of the Company, to (a)
visit and inspect any of the properties of the Company, (b) examine the
corporate and financial records of the Company (unless such examination is not
permitted by federal, state or local law or by contract) and make copies thereof
or extracts therefrom and (c) discuss the affairs, finances and accounts of any
such corporations with the directors, officers and independent accountants of
the Company.
6.7 Taxes. The Company will promptly pay and discharge, or cause to
be paid and discharged, when due and payable, all lawful taxes, assessments and
governmental charges or levies imposed upon the income, profits, property or
business of the Company; provided, however, that any such tax, assessment,
charge or levy need not be paid if the validity thereof shall currently be
contested in good faith by appropriate proceedings and if the Company shall have
set aside on its books adequate reserves with respect thereto, and provided,
further, that the Company will pay all such taxes, assessments, charges or
levies forthwith upon the commencement of proceedings to foreclose any lien
which may have attached as security therefor.
6.8 Insurance. The Company will keep its assets which are of an
insurable character insured by financially sound and reputable insurers against
loss or damage by fire, explosion and other risks customarily insured against by
companies in similar business similarly situated as the Company; and the Company
will maintain, with financially sound and reputable insurers, insurance against
other hazards and risks and liability to persons and property to the extent and
in the manner customary for companies in similar business similarly situated as
the Company and to the extent available on commercially reasonable terms.
14
6.9 Intellectual Property. The Company shall maintain in full force
and effect its corporate existence, rights and franchises and all licenses and
other rights to use Intellectual Property owned or possessed by it and
reasonably deemed to be necessary to the conduct of its business.
6.10 Properties. The Company will keep its properties in good
repair, working order and condition, reasonable wear and tear excepted, and from
time to time make all needful and proper repairs, renewals, replacements,
additions and improvements thereto; and the Company will at all times comply
with each provision of all leases to which it is a party or under which it
occupies property if the breach of such provision could reasonably be expected
to have a material adverse effect.
6.11 Confidentiality. The Company agrees that it will not disclose,
and will not include in any public announcement, the name of the Purchaser,
unless expressly agreed to by the Purchaser or unless and until such disclosure
is required by law or applicable regulation, and then only to the extent of such
requirement.
6.12 Required Approvals. The Company, without the prior written
consent of the Purchaser, shall not:
(a) directly or indirectly declare or pay any dividends or
make any distributions upon any of its capital stock or other equity securities
(or any securities directly or indirectly convertible into or exercisable or
exchangeable for equity securities);
(b) liquidate, dissolve or effect a recapitalization,
reclassification or reorganization in any form of transaction (including,
without limitation, any reorganization into a limited liability company, a
partnership or any other non-corporate entity which is treated as a partnership
for federal income tax purposes or a stock split or "reverse" stock split of the
Common Stock);
(c) become subject to (including, without limitation, by way
of amendment to or modification of) any agreement or instrument which by its
terms would (under any circumstances) restrict the Company's right to perform
the provisions of this Agreement or any of the agreements contemplated thereby;
(d) consent to or implement any termination, amendment,
modification, supplement or waiver of the certificate or articles of
incorporation, bylaws, regulations or other constitutional documents of the
Company or any subsidiary; or
(e) materially alter or change the business of the Company,
including, without limitation, the sale of material assets of the Company, but
excluding any transaction involving the Company's subsidiary, Comverge
Technologies, Inc. (whether by the issuance of stock, merger, sale of assets,
stock purchase or otherwise, unless such transaction is made solely with an
affiliate of the Company.
6.13 Reissuance of Securities. The Company agrees to reissue
certificates representing the Securities without the legends set forth in
Section 5.7 above at such time as (a) the holder thereof is permitted to dispose
of such Securities pursuant to Rule 144(k) under the
15
Securities Act, or (b) upon resale subject to an effective registration
statement after such Securities are registered under the Securities Act. The
Company agrees to cooperate with the Purchaser in connection with all resales
pursuant to Rule 144(d) and Rule 144(k) and provide legal opinions necessary to
allow such resales provided the Company and its counsel receive reasonably
requested representations from the selling Purchaser and broker, if any.
6.14 Opinion. On the Closing Date, the Company will deliver to the
Purchaser an opinion acceptable to the Purchaser from the Company's legal
counsel in the form annexed hereto as Exhibit D. The Company will provide, at
the Company's expense, such other legal opinions in the future as are reasonably
necessary for the conversion of the Note and exercise of the Warrant.
7. COVENANTS OF THE COMPANY AND PURCHASER REGARDING INDEMNIFICATION.
7.1 Company Indemnification. The Company agrees to indemnify, hold
harmless, reimburse and defend Purchaser, each of Purchaser's officers,
directors, agents, affiliates, control persons, and principal shareholders,
against any claim, cost, expense, liability, obligation, loss or damage
(including reasonable legal fees) of any nature, incurred by or imposed upon the
Purchaser which results, arises out of or is based upon (i) any
misrepresentation by Company or breach of any warranty by Company in this
Agreement or in any exhibits or schedules attached hereto or any Related
Agreement, or (ii) any breach or default in performance by Company of any
covenant or undertaking to be performed by Company hereunder, or any other
agreement entered into by the Company and Purchaser relating hereto.
7.2 Purchaser's Indemnification. Purchaser agrees to indemnify, hold
harmless, reimburse and defend the Company and each of the Company's officers,
directors, agents, affiliates, control persons and principal shareholders, at
all times against any claim, cost, expense, liability, obligation, loss or
damage (including reasonable legal fees) of any nature, incurred by or imposed
upon the Company which results, arises out of or is based upon (i) any
misrepresentation by Purchaser or breach of any warranty by Purchaser in this
Agreement or in any exhibits or schedules attached hereto or any Related
Agreement; or (ii) any breach or default in performance by Purchaser of any
covenant or undertaking to be performed by Purchaser hereunder, or any other
agreement entered into by the Company and Purchaser relating hereto.
7.3 Procedures. The procedures and limitations set forth in Section
9.6 shall apply to the indemnifications set forth in Sections 7.1 and 7.2 above.
16
8. CONVERSION OF CONVERTIBLE NOTE.
8.1 Mechanics of Conversion.
(a) Provided the Purchaser has notified the Company of the
Purchaser's intention to sell the Note Shares and the Note Shares are included
in an effective registration statement or are otherwise exempt from registration
when sold: (i) Upon the conversion of the Note or part thereof, the Company
shall, at its own cost and expense, take all necessary action (including the
issuance of an opinion of counsel) to assure that the Company's transfer agent
shall issue shares of the Company's Common Stock in the name of the Purchaser
(or its nominee) or such other persons as designated by the Purchaser in
accordance with Section 8.1(b) hereof and in such denominations to be specified
representing the number of Note Shares issuable upon such conversion; and (ii)
The Company warrants that no instructions other than these instructions have
been or will be given to the transfer agent of the Company's Common Stock and
that after the Effective Date (as hereinafter defined) the Note Shares issued
will be freely transferable subject to the prospectus delivery requirements of
the Securities Act and the provisions of this Agreement, and will not contain a
legend restricting the resale or transferability of the Note Shares.
(b) Purchaser will give notice of its decision to exercise its
right to convert the Note or part thereof by telecopying or otherwise delivering
an executed and completed notice of the number of shares to be converted to the
Company (the "Notice of Conversion"). The Purchaser will not be required to
surrender the Note until the Purchaser receives a credit to the account of the
Purchaser's prime broker through the DWAC system (as defined below),
representing the Note Shares or until the Note has been fully satisfied. Each
date on which a Notice of Conversion is telecopied or delivered to the Company
in accordance with the provisions hereof shall be deemed a "Conversion Date."
The Company will cause the transfer agent to transmit the the shares of the
Company's Common Stock issuable upon conversion of the Note (and a certificate
representing the balance of the Note not so converted, if requested by
Purchaser) to the Purchaser by crediting the account of the Purchaser's prime
broker with the Depository Trust Company ("DTC") through its Deposit Withdrawal
Agent Commission ("DWAC") system within three business days after receipt by the
Company of the Notice of Conversion (the "Delivery Date"). The Purchaser
undertakes that all sales of Shares by DWAC will be in compliance with the
prospectus delivery requirements of the Securities Act and will direct its
broker to do the same.
(c) The Company understands that a delay in the delivery of
the Note Shares in the form required pursuant to Section 8 hereof beyond the
Delivery Date could result in economic loss to the Purchaser. In the event that
the Company fails to direct its transfer agent to deliver the Note Shares to the
Purchaser via the DWAC system within the time frame set forth in Section 8.1(b)
above and the Note Shares are not delivered to the Purchaser by the Delivery
Date, as compensation to the Purchaser for such loss, the Company agrees to pay
late payments to the Purchaser for late issuance of the Note Shares in the form
required pursuant to Section 8 hereof upon conversion of the Note in the amount
equal to the greater of (i) $1,000 per business day after the Delivery Date or
(ii) the Purchaser's actual damages from such delayed delivery and which are
eligible for indemnification pursuant to Section 7 hereof. The Company shall pay
any payments incurred under this Section in immediately available funds upon
demand and, in
17
the case of actual damages, accompanied by reasonable documentation of the
amount of such damages.
(d) Nothing contained herein or in any document referred to
herein or delivered in connection herewith shall be deemed to establish or
require the payment of a rate of interest or other charges in excess of the
maximum permitted by applicable law. In the event that the rate of interest or
dividends required to be paid or other charges hereunder exceed the maximum
amount permitted by such law, any payments in excess of such maximum shall be
credited against amounts owed by the Company to a Purchaser and thus refunded to
the Company.
8.2 Maximum Conversion. The Purchaser shall not be entitled to
convert on a Conversion Date that amount of a Note in connection with that
number of shares of Common Stock which would be in excess of the sum of (i) the
number of shares of Common Stock beneficially owned by the Purchaser on a
Conversion Date, and (ii) the number of shares of Common Stock issuable upon the
conversion of the Note with respect to which the determination of this proviso
is being made on a Conversion Date, which would result in beneficial ownership
by the Purchaser of more than 4.9% of the outstanding shares of Common Stock of
the Company on such Conversion Date. For the purposes of the immediately
preceding sentence, beneficial ownership shall be determined in accordance with
Section 13(d) of the Exchange Act and Regulation 13d-3 thereunder. Subject to
the foregoing, a Purchaser shall not be limited to aggregate conversions of only
4.9%. Upon an Event of Default under the Note, the conversion limitation in this
Section 8.3 shall automatically become null and void. In the event of an
Optional Redemption, the Purchaser will be permitted to raise the limit set
forth in this Section 8.2 to 9.9%.
8.3 Optional Redemption. The Company will have the option of
redeeming any outstanding principal of the Note ("Optional Redemption") by
paying to the Purchaser a sum of money as follows:
from the Closing Date through 30 days after the Closing Date - 102%
from 31 days through 60 days after the Closing Date - 104%
from 61 days through 90 days after the Closing Date - 106%
from 91 days through 120 days after the Closing Date -108%
after 120 days following the Closing Date -110%
of the principal amount of the Note together with accrued but unpaid interest
thereon and any and all other sums due, accrued or payable to the Purchaser
arising under this Agreement, Note or any other document delivered herewith
("Redemption Amount") outstanding on the day notice of redemption ("Notice of
Redemption) is delivered to a Purchaser ("Redemption Date"). A Notice of
Redemption may not be given in connection with any portion of Note for which a
Notice of Conversion has been given by the Purchaser at any time before receipt
of a Notice of Redemption or given pursuant to the following sentence. The
Purchaser may elect within five (5) business days after receipt of a Notice of
Redemption to give the Company Notice of Conversion in connection with some or
all of the Note principal and interest which was the subject of the Notice of
Redemption. A Notice of Redemption must be accompanied by a
18
certificate signed by the chief executive officer or chief financial officer of
the Company stating that the Company has on deposit and segregated ready funds
equal to the Redemption Amount. The Redemption Amount must be paid in good funds
to the Purchaser no later than the seventh (7th) business day after the
Redemption Date ("Optional Redemption Payment Date"). In the event the Company
fails to pay the Redemption Amount by the Optional Redemption Payment Date, then
the Redemption Notice will be null and void. A Notice of Redemption may be given
by the Company, provided (i) no Event of Default as described in the Note shall
have occurred or be continuing; and (ii) the Note Shares issuable upon
conversion of the full outstanding Note principal are included for unrestricted
resale in a registration statement effective as of the Redemption Date.
8.4 NASDAQ Approval. The Company and the Purchaser agree that until
the Company either obtains shareholder approval of the issuance of the
Securities, or an exemption from NASDAQ's corporate governance rules as they may
apply to the Securities, and an opinion of counsel reasonably acceptable to the
Purchaser that NASDAQ's corporate governance rules do not conflict with nor may
result in a delisting of the Company's common stock from the NASDAQ National
Market (the "Approval") upon the conversion of the Notes, the Purchaser may not
receive upon conversion of the Notes more than the number of common shares
greater than 19.9% of the shares of Company's common stock outstanding on the
Closing Date. The Company covenants to obtain the Approval required pursuant to
the NASDAQ's corporate governance rules to allow conversion of all the Notes and
interest thereon upon written request of the Purchaser (the "Trigger Date"). The
Company further covenants to file the preliminary proxy statement relating to
the Approval with the Commission on or before thirty days after the Trigger Date
("Proxy Filing Date"). The Company further covenants to obtain the Approval no
later than ninety days after the Trigger Date ("Approval Date"). The Company's
failure to (i) file the proxy on or before the Proxy Filing Date; or (ii) the
Company's failure to obtain the Approval on or before the Approval Date (each
being an "Approval Default") shall be deemed an Event of Default under the Note,
but only to the extent the Note and interest thereon that may not be converted
due to the Company's failure to obtain such Approval. The percent of the
principal of the Note payable by the Company in connection with an Approval
Default shall be 100%.
9. REGISTRATION RIGHTS.
9.1 Registration Rights Granted. The Company hereby grants the
following registration rights to the Purchaser.
(a) The Company shall use its reasonable commercial efforts to file a Form
S-3 registration statement (or such other form that it is eligible to use) in
order to register the Registrable Securities for resale and distribution under
the Securities Act with the SEC within 30 days of the Closing Date (the "Filing
Date"), and use its reasonable commercial efforts to cause such registration
statement to be declared effective within 60 days of the Filing Date (the
"Effective Date"). The Company will register not less than a number of shares of
Common Stock in the aforedescribed registration statement that is equal to the
Warrant Shares and 140% (or such lower amount as permitted or required by the
SEC) of the Note Shares issuable at the Conversion and Purchase Prices set forth
in the Note and Warrant, respectively, that would be in effect on the Closing
Date or the date of filing of such registration statement (employing the
19
price which would result in the greater number of Shares), assuming the
conversion of 100% of the principal amount of the Note which is then
outstanding, and at least one share of Common Stock for each common share
issuable upon exercise of the Warrant ("Registrable Securities"). The Company
will undertake to promptly register as necessary additional shares of Common
Stock with which the Company expects to pay the Monthly Amount (as defined in
the Note) on the same terms and conditions as set forth in Section 9 hereof. No
securities of the Company other than the Registrable Securities will be included
in the registration statement described in this Section 9.1(a).
9.2 Registration Procedures. If and whenever the Company is required
by the provisions hereof to effect the registration of the Registrable
Securities under the Act, the Company will, as expeditiously as possible:
(a) prepare and file with the SEC a registration statement
with respect to such securities and use its best efforts to cause such
registration statement to become and remain effective for the period of the
distribution contemplated thereby (determined as herein provided), and promptly
provide to the Purchaser copies of all filings and SEC letters of comment;
(b) prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective
until the earlier of: (i) six months after the latest exercise period of the
Warrant; (ii) four years after the Closing Date, or (iii) the date on which the
Purchaser has disposed of all of the Registrable Securities covered by such
registration statement in accordance with the Purchaser's intended method of
disposition set forth in such registration statement for such period;
(c) furnish to the Purchaser such number of copies of the
registration statement and the prospectus included therein (including each
preliminary prospectus) as the Purchaser reasonably may request to facilitate
the public sale or disposition of the securities covered by such registration
statement;
(d) use its commercially reasonable efforts to register or
qualify the Purchaser's Registrable Securities covered by such registration
statement under the securities or "blue sky" laws of such jurisdictions as the
Purchaser, provided, however, that the Company shall not for any such purpose be
required to qualify generally to transact business as a foreign corporation in
any jurisdiction where it is not so qualified or to consent to general service
of process in any such jurisdiction;
(e) list the Registrable Securities covered by such
registration statement with any securities exchange on which the Common Stock of
the Company is then listed;
(f) immediately notify the Purchaser at any time when a
prospectus relating thereto is required to be delivered under the Securities
Act, of the happening of any event of which the Company has knowledge as a
result of which the prospectus contained in such registration statement, as then
in effect, includes an untrue statement of a material fact or
20
omits to state a material fact required to be stated therein or necessary to
make the statements therein not misleading in light of the circumstances then
existing; and
(g) make available for inspection by the Purchaser and any
attorney, accountant or other agent retained by the Purchaser, all publicly
available, non-confidential financial and other records, pertinent corporate
documents and properties of the Company, and cause the Company's officers,
directors and employees to supply all publicly available, non-confidential
information reasonably requested by the attorney, accountant or agent of the
Purchaser.
9.3 Provision of Documents.
(a) In connection with each registration hereunder, the
Purchaser will furnish to the Company in writing such information and
representation letters with respect to itself and the proposed distribution by
it as reasonably shall be necessary in order to assure compliance with federal
and applicable state securities laws.
9.4 Non-Registration Events. If (i) the Registration Statement
described in Section 9.1(a) is not filed on or before the Filing Date or not
declared effective on or before the sooner of the Effective Date, or within five
days of receipt by the Company of a communication from the SEC that the
registration statement described in Section 9.1(d) will not be reviewed, or
(iii) any registration statement described in Section 9.1(a) or (d) is filed and
declared effective but shall thereafter cease to be effective (without being
succeeded immediately by an additional registration statement filed and declared
effective) for a period of time which shall exceed 30 days in the aggregate per
year but not more than 20 consecutive calendar days (defined as a period of 365
days commencing on the date the Registration Statement is declared effective)
(each such event referred to in this Section 9.4 is referred to herein as a
"Non-Registration Event"), then, for so long as such Non-Registration Event
shall continue, the Company shall pay in cash as Liquidated Damages to each
holder of any Registrable Securities an amount equal to one percent (1%) per
month or part thereof for the first two months and two percent (2%) per month
thereafter during the pendency of such Non-Registration Event of the principal
of the Note issued in connection with the Offering, whether or not converted,
then owned of record by such holder or issuable as of or subsequent to the
occurrence of such Non-Registration Event. Payments to be made pursuant to this
Section shall be due and payable immediately upon demand in immediately
available funds. In the event a Mandatory Redemption Payment is demanded from
the Company by the holder pursuant to Section 8.2 of this Agreement, then the
Liquidated Damages described in this Section 9.4 shall no longer accrue on the
portion of the purchase price underlying the Mandatory Redemption Payment, from
and after the date the holder receives the Mandatory Redemption Payment. It
shall be deemed a Non-Registration Event to the extent that all the Common Stock
included in the Registrable Securities and underlying the Securities is not
included in an effective registration statement as of and after the Effective
Date at the conversion prices in effect from and after the Effective Date.
9.5 Expenses. All expenses incurred by the Company in complying with
Section 9, including, without limitation, all registration and filing fees,
printing expenses, fees and disbursements of counsel and independent public
accountants for the Company, fees and expenses (including reasonable counsel
fees) incurred in connection with complying with state
21
securities or "blue sky" laws, fees of the NASD, transfer taxes, fees of
transfer agents and registrars, fees of, and disbursements incurred by, one
counsel for the Purchaser, whose fees shall not exceed $1,000, and costs of
insurance are called "Registration Expenses". All underwriting discounts and
selling commissions applicable to the sale of Registrable Securities, including
any fees and disbursements of any special counsel to the Purchaser beyond those
included in Registration Expenses, are called "Selling Expenses."
The Company will pay all Registration Expenses. All Selling
Expenses in connection with each registration statement under Section 9 shall be
borne by the Purchaser.
9.6 Indemnification.
(a) In the event of a registration of any Registrable
Securities under the Securities Act pursuant to Section 9, the Company will
indemnify and hold harmless the Purchaser, and its officers, directors and each
other person, if any, who controls the Purchaser within the meaning of the
Securities Act, against any losses, claims, damages or liabilities, joint or
several, to which the Purchaser, or such persons may become subject under the
Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
any registration statement under which such Registrable Securities were
registered under the Securities Act pursuant to Section 9, any preliminary
prospectus or final prospectus contained therein, or any amendment or supplement
thereof, or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, and will reimburse the Purchaser, and
each such person for any reasonable legal or other expenses incurred by them in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Company will not be liable in
any such case if and to the extent that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission so made in conformity with information
furnished by the Purchaser or any such person in writing specifically for use in
any such document.
(b) In the event of a registration of the Registrable
Securities under the Securities Act pursuant to Section 9, the Purchaser will
indemnify and hold harmless the Company, and its officers, directors and each
other person, if any, who controls the Company within the meaning of the
Securities Act, against all losses, claims, damages or liabilities, joint or
several, to which the Company or such persons may become subject under the
Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
the registration statement under which such Registrable Securities were
registered under the Securities Act pursuant to Section 9, any preliminary
prospectus or final prospectus contained therein, or any amendment or supplement
thereof, or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, and will reimburse the Company and each
such person for any reasonable legal or other expenses incurred by them in
connection with investigating or defending any such loss, claim, damage,
liability or action, provided, however, that the Purchaser will be liable in any
such case if and only to the extent that
22
any such loss, claim, damage or liability arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission so
made in conformity with information furnished in writing to the Company by the
Purchaser specifically for use in any such document.
(c) Promptly after receipt by an indemnified party hereunder
of notice of the commencement of any action, such indemnified party shall, if a
claim in respect thereof is to be made against the indemnifying party hereunder,
notify the indemnifying party in writing thereof, but the omission so to notify
the indemnifying party shall not relieve it from any liability which it may have
to such indemnified party other than under this Section 9.6(c) and shall only
relieve it from any liability which it may have to such indemnified party under
this Section 9.6(c) if and to the extent the indemnifying party is prejudiced by
such omission. In case any such action shall be brought against any indemnified
party and it shall notify the indemnifying party of the commencement thereof,
the indemnifying party shall be entitled to participate in and, to the extent it
shall wish, to assume and undertake the defense thereof with counsel
satisfactory to such indemnified party, and, after notice from the indemnifying
party to such indemnified party of its election so to assume and undertake the
defense thereof, the indemnifying party shall not be liable to such indemnified
party under this Section 9.6(c) for any legal expenses subsequently incurred by
such indemnified party in connection with the defense thereof; if the
indemnified party retains its own counsel, then the indemnified party shall pay
all fees, costs and expenses of such counsel, provided, however, that, if the
defendants in any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded
that there may be reasonable defenses available to it which are different from
or additional to those available to the indemnifying party or if the interests
of the indemnified party reasonably may be deemed to conflict with the interests
of the indemnifying party, the indemnified parties shall have the right to
select one separate counsel and to assume such legal defenses and otherwise to
participate in the defense of such action, with the reasonable expenses and fees
of such separate counsel and other expenses related to such participation to be
reimbursed by the indemnifying party as incurred.
(d) In order to provide for just and equitable contribution in
the event of joint liability under the Securities Act in any case in which
either (i) the Purchaser, or any controlling person of the Purchaser, makes a
claim for indemnification pursuant to this Section 9.6 but it is judicially
determined (by the entry of a final judgment or decree by a court of competent
jurisdiction and the expiration of time to appeal or the denial of the last
right of appeal) that such indemnification may not be enforced in such case
notwithstanding the fact that this Section 9.6 provides for indemnification in
such case, or (ii) contribution under the Securities Act may be required on the
part of the Purchaser or controlling person of the Purchaser in circumstances
for which indemnification is provided under this Section 9.6; then, and in each
such case, the Company and the Purchaser will contribute to the aggregate
losses, claims, damages or liabilities to which they may be subject (after
contribution from others) in such proportion so that the Purchaser is
responsible only for the portion represented by the percentage that the public
offering price of its securities offered by the registration statement bears to
the public offering price of all securities offered by such registration
statement, provided, however, that, in any such case, (A) the Purchaser will not
be required to contribute any amount in excess of the public offering price of
all such securities offered by it pursuant to such registration statement; and
(B) no person or entity guilty of fraudulent misrepresentation
23
(within the meaning of Section 10(f) of the Act) will be entitled to
contribution from any person or entity who was not guilty of such fraudulent
misrepresentation.
10. OFFERING RESTRICTIONS. Except as previously disclosed in the SEC
Reports or in the Exchange Act Filings, or stock or stock options granted to
employees or directors of the Company; or equity or debt issued in connection
with an acquisition of a business or assets by the Company; or the issuance by
the Company of stock in connection with the establishment of a joint venture
partnership or licensing arrangement (these exceptions hereinafter referred to
as the "Excepted Issuances"), the Company will not issue any securities with a
variable/floating conversion feature which are or could be (by conversion or
registration) free-trading securities (i.e. common stock subject to a
registration statement) prior to the full repayment or conversion of the Note
(the "Exclusion Period"). This restriction shall not prohibit the Company from
issuing any equity, convertible debt or other securities prior to the expiration
of the Exclusion Period, provided that such equity, convertible debt or other
securities are restricted securities when issued and remain restricted until the
expiration of the Exclusion Period, which shall include, but not limited to, any
bank debt with warrants, fixed rate convertible debt transactions and/or
discounted equity transactions in each case with registration rights that
provide for registration of the Common Stock issuable therein after the
Exclusion Period.
11. SECURITY INTEREST. As a condition of Closing, Databit will grant to
the Purchaser a security interest in its accounts receivable pursuant to a
Security Agreement. Databit will also execute all such documents reasonably
necessary to memorialize and further protect the security interest described
above.
12. MISCELLANEOUS.
12.1 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York, without regard
to principles of conflicts of laws. Any action brought by either party against
the other concerning the transactions contemplated by this Agreement shall be
brought only in the state courts of New York or in the federal courts located in
the state of New York. Both parties and the individuals executing this Agreement
and other agreements on behalf of the Company agree to submit to the
jurisdiction of such courts and waive trial by jury. In the event that any
provision of this Agreement or any other agreement delivered in connection
herewith is invalid or unenforceable under any applicable statute or rule of
law, then such provision shall be deemed inoperative to the extent that it may
conflict therewith and shall be deemed modified to conform with such statute or
rule of law. Any such provision which may prove invalid or unenforceable under
any law shall not affect the validity or enforceability of any other provision
of any agreement.
12.2 Survival. The representations, warranties, covenants and
agreements made herein shall survive any investigation made by the Purchaser and
the closing of the transactions contemplated hereby to the extent provided
therein. All statements as to factual matters contained in any certificate or
other instrument delivered by or on behalf of the Company pursuant hereto in
connection with the transactions contemplated hereby shall be deemed to be
representations and warranties by the Company hereunder solely as of the date of
such certificate or instrument.
24
12.3 Successors and Assigns. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto and shall inure to the benefit of and be enforceable by each
person who shall be a holder of the Securities from time to time.
12.4 Entire Agreement. This Agreement, the exhibits and schedules
hereto, the Related Agreements and the other documents delivered pursuant hereto
constitute the full and entire understanding and agreement between the parties
with regard to the subjects hereof and no party shall be liable or bound to any
other in any manner by any representations, warranties, covenants and agreements
except as specifically set forth herein and therein.
12.5 Severability. In case any provision of the Agreement shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
12.6 Amendment and Waiver.
(a) This Agreement may be amended or modified only upon the
written consent of the Company and the Purchaser.
(b) The obligations of the Company and the rights of the
Purchaser under this Agreement may be waived only with the written consent of
the Purchaser.
12.7 Delays or Omissions. It is agreed that no delay or omission to
exercise any right, power or remedy accruing to any party, upon any breach,
default or noncompliance by another party under this Agreement or the Related
Agreements, shall impair any such right, power or remedy, nor shall it be
construed to be a waiver of any such breach, default or noncompliance, or any
acquiescence therein, or of or in any similar breach, default or noncompliance
thereafter occurring. All remedies, either under this Agreement, the Note or the
Related Agreements, by law or otherwise afforded to any party, shall be
cumulative and not alternative.
12.8 Notices. All notices required or permitted hereunder shall be
in writing and shall be deemed effectively given: (a) upon personal delivery to
the party to be notified, (b) when sent by confirmed facsimile if sent during
normal business hours of the recipient, if not, then on the next business day,
(c) five days after having been sent by registered or certified mail, return
receipt requested, postage prepaid, or (d) one day after deposit with a
nationally recognized overnight courier, specifying next day delivery, with
written verification of receipt. All communications shall be sent to the Company
at the address as set forth on the signature page hereof, with a copy to Xxxxxxx
Xxxxxx, Esq., Xxxxxxxxxx Xxxxxxxxx & Xxxxxx LLP, 00 Xxxx 00xx Xxxxxx, 00xx
Xxxxx, Xxx Xxxx, Xxx Xxxx, facsimile number (000) 000-0000, and to the Purchaser
at the address set forth on the signature page hereto for such Purchaser, with a
copy in the case of the Purchaser to Xxxxxx X. Xxxxxx, Esq., 000 Xxxx 00xx
Xxxxxx, 0xx Xxxxx, Xxx Xxxx, XX 00000, facsimile number (000) 000-0000, or at
such other address as the Company or the Purchaser may designate by ten days
advance written notice to the other parties hereto.
12.9 Attorneys' Fees. In the event that any suit or action is
instituted to enforce any provision in this Agreement, the prevailing party in
such dispute shall be entitled to
25
recover from the losing party all fees, costs and expenses of enforcing any
right of such prevailing party under or with respect to this Agreement,
including, without limitation, such reasonable fees and expenses of attorneys
and accountants, which shall include, without limitation, all fees, costs and
expenses of appeals.
12.10 Titles and Subtitles. The titles of the sections and
subsections of the Agreement are for convenience of reference only and are not
to be considered in construing this Agreement.
12.11 Facsimile Signatures; Counterparts. This Agreement may be
executed by facsimile signatures and in any number of counterparts, each of
which shall be an original, but all of which together shall constitute one
instrument.
12.12 Broker's Fees. Each party hereto represents and warrants that,
except as each party may have notified the other in writing on or prior to the
date hereof, no agent, broker, investment banker, person or firm acting on
behalf of or under the authority of such party hereto is or will be entitled to
any broker's or finder's fee or any other commission directly or indirectly in
connection with the transactions contemplated herein. Each party hereto further
agrees to indemnify each other party for any claims, losses or expenses incurred
by such other party as a result of the representation in this Section 12.12
being untrue.
12.13 Construction. Each party acknowledges that its legal counsel
participated in the preparation of this Agreement and, therefore, stipulates
that the rule of construction that ambiguities are to be resolved against the
drafting party shall not be applied in the interpretation of this Agreement to
favor any party against the other.
26
IN WITNESS WHEREOF, the parties hereto have executed the SECURITIES
PURCHASE AGREEMENT as of the date set forth in the first paragraph hereof.
COMPANY: PURCHASER:
DATA SYSTEMS & SOFTWARE INC. LAURUS MASTER FUND, LTD.
By:_________________________________ By: _________________________________
Name: Xxxxxx Xxxxxxxxxxx Name:
Title: President and Chief Executive Address: c/o Ironshore Corporate
Officer Services Ltd.
Address: X.X. Xxx 0000 G.T.,
200 Route 00 Xxxxxxxxxx Xxxxx, Xxxxx
Xxxxxx, Xxx Xxxxxx Church Street
Facsimile: 000-000-0000 Grand Cayman, Cayman Islands
Facsimile: 000-000-0000
DATABIT:
DATABIT INC.
By:_________________________________
Name: Xxxxxxx Xxxxxxxxxxx
Title: President
Address:
000 Xxxxx 00
Xxxxxx, Xxx Xxxxxx
Facsimile: 000-000-0000
27
LIST OF EXHIBITS
Form of Offering Convertible Note Exhibit A
Form of Warrant Exhibit B
Form of Opinion Exhibit C
28
EXHIBIT A
FORM OF CONVERTIBLE NOTE
THIS NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF THIS
NOTE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED. THIS NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF THIS
NOTE MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS NOTE UNDER SAID
ACT OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO DATA SYSTEMS &
SOFTWARE INC. AND DATABIT INC., THAT SUCH REGISTRATION IS NOT REQUIRED.
CONVERTIBLE NOTE
FOR VALUE RECEIVED, DATA SYSTEMS & SOFTWARE INC., a Delaware
corporation, and Databit Inc., a Delaware corporation (hereinafter collectively
called the "Borrower"), hereby jointly and severally promise to pay to LAURUS
MASTER FUND, LTD., c/o Ironshore Corporate Services Ltd., X.X. Xxx 0000 G.T.,
Queensgate House, South Church Street, Grand Cayman, Cayman Islands, Fax:
000-000-0000 (the "Holder") or its registered assigns or successors in interest,
on order, without demand, the sum of Two Million Dollars ($2,000,000), with any
accrued and unpaid interest on June 30, 2003 (the "Maturity Date"). Capitalized
terms used herein without definition shall have the meanings ascribed to such
terms in the Purchase Agreement (as defined in Section 3.1(a) below).
The following terms shall apply to this Note:
1
ARTICLE I
DEFAULT RELATED PROVISIONS
1.1 Payment Grace Period. The Borrower shall have a seven (7) day
grace period to pay any monetary amounts due under this Note, after which grace
period a default interest rate of five percent (5%) per annum above the then
applicable interest rate hereunder shall apply to the amounts owed hereunder.
1.2 Conversion Privileges. The Conversion Privileges set forth in
Article II shall remain in full force and effect immediately from the date
hereof and until the Note is paid in full.
1.3 Interest Rate. Interest payable on this Note shall accrue at the
annual rate of ten percent (10%) and be payable in arrears commencing one month
from the date hereof and on the first business day of each consecutive calendar
month thereafter, and on the Maturity Date, accelerated or otherwise, due and
payable as described below.
ARTICLE II
PAYMENTS OF PRINCIPAL AND INTEREST
2.1Monthly Payments. Subject to the terms of this Article II, the
Borrower shall repay one-tenth of the original principal amount of this Note (to
the extent such amount has not been converted pursuant to Article III below),
together with interest accrued to date on such portion of the original principal
amount plus any and all default payments owing under the Purchase Agreement but
not previously paid (collectively the "Monthly Amount"), in accordance with
Section 2.2 below, on the first business day of each consecutive calendar month
(each, a "Repayment Date"), beginning on the first such day which occurs
following ninety (90) days from the date hereof. Notwithstanding the foregoing,
the Holder will have the option to delay the start of the amortization for up to
120 days from the date hereof and the Monthly Amount will then become one-ninth
of the original principal amount of the Note.
2.2 Cash or Common Stock. Subject to the terms hereof, the Borrower
has the sole option to determine whether to satisfy payment of the Monthly
Amount in full on each Repayment Date either in cash or in shares of Common
Stock, or a combination of both. The Borrower shall deliver to the Holder a
written irrevocable notice in the form of Exhibit B attached hereto electing to
pay such Monthly Amount in full on such Repayment Date in either
2
cash or Common Stock, or a combination of both ("Repayment Election Notice").
Such Repayment Election Notice shall be delivered to the Holder at least ten
(10) days, but not more than fifteen (15) days, prior to the applicable
Repayment Date (the date of such notice being hereinafter referred to as the
"Notice Date"). If such Repayment Election Notice is not delivered within the
prescribed period set forth in the preceding sentence, then the repayment shall
be made in either cash or shares of Common Stock on the same terms hereunder at
the Holder's sole option. If the Borrower elects or is required to repay all or
a portion of the Monthly Amount in cash on a Repayment Date, then on such
Repayment Date the Borrower shall pay to the Holder an amount equal to the
Monthly Amount in satisfaction of such obligation. If the Borrower repays all or
a portion of the Monthly Amount in shares of Common Stock, the number of such
shares to be issued for such Repayment Date shall be the number determined by
dividing (x) the portion of the Monthly Amount to be paid in shares of Common
Stock, by (y) the Conversion Price (as defined herein) as of such date.
2.3 No Effective Registration. Notwithstanding anything to the
contrary herein, the Borrower shall be prohibited from exercising its right to
repay the Monthly Amount in shares of Common Stock (and must deliver cash in
respect thereof) on the applicable Repayment Date if at any time from the Notice
Date until the time at which the Holder receive such shares there fails to exist
an effective registration statement or an Event of Default hereunder exists or
occurs, unless otherwise waived in writing by the Holder in whole or in part at
the Holder's option.
2.4 Deemed Conversions. Any repayment of the Monthly Amount in
shares of Common Stock pursuant to the terms hereof shall constitute and be
deemed a conversion of such portion of the applicable principal amount of this
Note for all purposes under this Note and the Purchase Agreement (except as
otherwise provided herein).
ARTICLE III
CONVERSION RIGHTS
3.1. Conversion into the Borrower's Common Stock.
3
(a) Subject to the provisions set forth above, the Holder shall have
the right, but not the obligation, from and after the date hereof, and then at
any time until this Note is fully paid, to convert the principal portion of this
Note and/or interest due and payable into fully paid and nonassessable shares of
common stock of the Borrower as such stock exists on the date of issuance of
this Note, or any shares of capital stock of the Borrower into which such stock
shall hereafter be changed or reclassified (the "Common Stock") at the fixed
conversion price of $3.49 subject to adjustment as provided in Section 3.1(c)
hereof (the "Fixed Conversion Price"). Upon delivery to the Borrower of a Notice
of Conversion as described in Section 8 of the Securities Purchase Agreement
entered into between the Borrower and the Holder relating to this Note (the
"Purchase Agreement") of the Holder's written request for conversion (the date
of giving such notice of conversion being a "Conversion Date"), the Borrower
shall issue and deliver to the Holder within three business days from the
Conversion Date that number of shares of Common Stock for the portion of the
Note converted in accordance with the foregoing. The number of shares of Common
Stock to be issued upon each conversion of this Note shall be determined by
dividing that portion of the principal of the Note to be converted and interest,
if any, by the Fixed Conversion Price as of the Conversion Date. In the event of
any conversions of outstanding principal amount under this Note in part pursuant
to this Article III, such conversions shall be deemed to constitute conversions
of outstanding principal amount applying to Monthly Amounts for the Repayment
Dates in chronological order. By way of example, if the original principal
amount of this Note is $2,000,000 and the Holder converted $400,000 of such
original principal amount prior to the first Repayment Date, then (1) the
principal amount of the Monthly Amount due on the first Repayment Date would
equal $0, (2) the principal amount of the Monthly Amount due on the second
Repayment Date would equal $0 and (3) the principal amount of the Monthly Amount
due on each of the remaining Repayment Dates would be $200,000.
(b) In the event of any payment of the Monthly Amount by the
Borrower in shares of Common Stock, the conversion price (the "Conversion
Price") shall be equal to the lesser of (i) the Fixed Conversion Price and (ii)
83% of the average of the ten (10) lowest closing prices of the Common Stock on
the Principal Market (as defined herein) for the 30 trading day period
immediately preceding the Notice Date (the "Variable Conversion Price").
If an Event of Default has occurred and be continuing
hereunder then the Conversion Price shall be equal to the lower of (i) the Fixed
Conversion Price; or (ii) seventy percent (70%) of the average of the three
lowest closing prices for the Common Stock on the Principal Market, for the
thirty (30) trading days prior to but not including the Conversion Date. The
"Principal Market" shall include the NASD OTC Bulletin Board, NASDAQ SmallCap
Market, NASDAQ National Market System, American Stock Exchange, or New York
Stock
4
Exchange (whichever of the foregoing is at the time the principal trading
exchange or market for the Common Stock, or any securities exchange or other
securities market on which the Common Stock is then being listed or traded.
(c) The Fixed Conversion Price and number and kind of shares or
other securities to be issued upon conversion determined pursuant to Section
3.1(a) and 3.1(b), shall be subject to adjustment from time to time upon the
happening of certain events while this conversion right remains outstanding, as
follows:
A. Merger, Sale of Assets, etc. If the Borrower at any time
shall consolidate with or merge into or sell or convey all or substantially all
its assets to any other corporation, this Note, as to the unpaid principal
portion thereof and accrued interest thereon, shall thereafter be deemed to
evidence the right to purchase such number and kind of shares or other
securities and property as would have been issuable or distributable on account
of such consolidation, merger, sale or conveyance, upon or with respect to the
number of shares of Common Stock the Holder could have acquired immediately
prior to such consolidation, merger, sale or conveyance based on the Fixed
Conversion Price or the Conversion Price, as the case may be, as of the closing
date thereof. The foregoing provision shall similarly apply to successive
transactions of a similar nature by any such successor or purchaser. Without
limiting the generality of the foregoing, the provisions of this Section shall
apply to such securities of such successor or purchaser after any such
consolidation, merger, sale or conveyance.
B. Reclassification, etc. If the Borrower at any time shall,
by reclassification or otherwise, change the Common Stock into the same or a
different number of securities of any class or classes, this Note, as to the
unpaid principal portion thereof and accrued interest thereon, shall thereafter
be deemed to evidence the right to purchase an adjusted number of such
securities and kind of securities as would have been issuable as the result of
such change with respect to the number of shares of Common Stock into which the
Note would have been convertible immediately prior to such reclassification or
other change at the Fixed Conversion Price or the Conversion Price, as the case
may be, as of the effective date for such reclassification or change.
C. Stock Splits, Combinations and Dividends. If the shares of
Common Stock are subdivided or combined into a greater or smaller number of
shares of Common Stock, or if a dividend is paid on the Common Stock in shares
of Common Stock, the Fixed Conversion Price or the Conversion Price, as the case
may be, shall be proportionately reduced in case of subdivision of shares or
stock dividend or proportionately increased in the case of combination of
shares, in each such case by the ratio which the total number of shares of
5
Common Stock outstanding immediately after such event bears to the total number
of shares of Common Stock outstanding immediately prior to such event.
D. Share Issuance. Subject to the provisions of this Section,
if the Borrower at any time shall issue any shares of Common Stock prior to the
conversion of the entire principal amount of the Note (otherwise than as: (i)
provided in Sections 3.1(c)A, 3.1(c)B or 3.1(c)C or this subparagraph D; or (ii)
pursuant to warrants or options that may be granted in the future under any
option plan of the Borrower, or any employment agreement, joint venture, credit,
leasing or other financing agreement or any joint venture or other strategic
arrangement, in each case now or hereinafter entered into by the Borrower, (iii)
pursuant to any agreement entered into by the Company or any of its subsidiaries
for the acquisition of another business (whether by stock purchase or asset
purchase, merger or otherwise) or (iv) other obligations to issue shares,
outstanding on the date hereof as set forth in the Schedules to the Purchase
Agreement (which agreement is incorporated herein by this reference); ((i),
(ii), (iii) and (iv) above, are hereinafter referred to as the "Existing Option
Obligations")) for a consideration less than the Fixed Conversion Price that
would be in effect at the time of such issue, then, and thereafter successively
upon each such issue, the Fixed Conversion Price shall be reduced as follows:
(i) the number of shares of Common Stock outstanding immediately prior to such
issue shall be multiplied by the Fixed Conversion Price in effect at the time of
such issue and the product shall be added to the aggregate consideration, if
any, received by the Borrower upon such issue of additional shares of Common
Stock; and (ii) the sum so obtained shall be divided by the number of shares of
Common Stock outstanding immediately after such issue. The resulting quotient
shall be the adjusted Fixed Conversion Price. Except for the Existing Option
Obligations for purposes of this adjustment, the issuance of any security of the
Borrower carrying the right to convert such security into shares of Common Stock
or of any warrant, right or option to purchase Common Stock shall result in an
adjustment to the Fixed Conversion Price upon the issuance of shares of Common
Stock upon exercise of such conversion or purchase rights.
(d) During the period the conversion right exists, the Borrower will
reserve from its authorized and unissued Common Stock a sufficient number of
shares to provide for the issuance of Common Stock upon the full conversion of
this Note. The Borrower represents that upon issuance, such shares will be duly
and validly issued, fully paid and non-assessable. The Borrower agrees that its
issuance of this Note shall constitute full authority to its officers, agents,
and transfer agents who are charged with the duty of executing and issuing stock
certificates to execute and issue the necessary certificates for shares of
Common Stock upon the conversion of this Note.
6
3.2 Method of Conversion. This Note may be converted by the Holder
in whole or in part as described in Section 3.1(a) hereof and the Purchase
Agreement. Upon partial conversion of this Note, a new Note containing the same
date and provisions of this Note shall, at the request of the Holder, be issued
by the Borrower to the Holder for the principal balance of this Note and
interest which shall not have been converted or paid.
ARTICLE IV
EVENT OF DEFAULT
The occurrence of any of the following events is an Event of Default
("Event of Default"):
4.1 Failure to Pay Principal, Interest or other Fees. The Borrower
fails to pay any installment of principal, interest or other fees hereon or on
any other promissory note issued pursuant to the Purchase Agreement and this
Note, when due and such failure continues for a period of ten (10) days after
the due date.
4.2 Breach of Covenant. The Borrower breaches any material covenant
or other term or condition of this Note or the Purchase Agreement in any
material respect and such breach, if subject to cure, continues for a period of
ten (10) days after written notice to the Borrower from the Holder, except for a
breach of Sections 8.1 (provided the Borrower has delivered instructions and a
legal opinion to the transfer agent within the time frame set forth therein),
8.4 or 9.1 of the Purchase Agreement (provided the Borrower has filed a
registration statement by the Filing Date and responds within a reasonable time
frame to any SEC comment letters with respect to such registration statement).
4.3 Breach of Representations and Warranties. Any material
representation or warranty of the Borrower made herein, in the Purchase
Agreement, or in any agreement, statement or certificate given in writing
pursuant hereto or in connection therewith shall be false or misleading and
shall not be cured for a period of twenty (20) days after written notice thereof
is received by the Borrower from the Holder.
4.4 Receiver or Trustee. The Borrower shall make an assignment for
the benefit of creditors, or apply for or consent to the appointment of a
receiver or trustee for it or for a substantial part of its property or
business; or such a receiver or trustee shall otherwise be appointed.
7
4.5 Judgments. Any money judgment, writ or similar final process
shall be entered or filed against the Borrower or any of its property or other
assets for more than $250,000, and shall remain unvacated, unbonded or unstayed
for a period of ninety (90) days.
4.6 Bankruptcy. Bankruptcy, insolvency, reorganization or
liquidation proceedings or other proceedings or relief under any bankruptcy law
or any law for the relief of debtors shall be instituted by or against the
Borrower.
4.7 Stop Trade. An SEC stop trade order or Principal Market trading
suspension of the Common Stock for 5 consecutive days or 5 days during a period
of 10 consecutive days, excluding in all cases a suspension of all trading on a
the Principal Market, provided that the Borrower shall not have been able to
cure such trading suspension within 60 days of the notice thereof or list the
Common Stock on another Principal Market within 120 days of such notice.
If an Event of Default occurs and is continuing, the Holder may make
all sums of principal, interest and other fees then remaining unpaid hereon and
all other amounts payable hereunder immediately due and payable, all without
demand, presentment or notice, or grace period, all of which hereby are
expressly waived. In the event of an acceleration, the amount due and owing to
the Holder shall be 130% of the outstanding principal amount of the Note (plus
accrued and unpaid interest and fees, if any), except for an Event of Default
resulting, in whole or in part, from a breach of Section 8.4 of the Purchase
Agreement in which case the amount due and owing to the Holder shall be 100% of
the principal amount of the Note (plus accrued and unpaid interest and fees, if
any).
ARTICLE V
MISCELLANEOUS
5.1 Failure or Indulgence Not Waiver. No failure or delay on the
part of the Holder hereof in the exercise of any power, right or privilege
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise of any such power, right or privilege preclude other or further
exercise thereof or of any other right, power or privilege. All rights and
remedies existing hereunder are cumulative to, and not exclusive of, any rights
or remedies otherwise available.
8
5.2 Notices. Any notice herein required or permitted to be given
shall be in writing and shall be deemed effectively given: (a) upon personal
delivery to the party notified, (b) when sent by confirmed telex or facsimile if
sent during normal business hours of the recipient, if not, then on the next
business day, (c) five days after having been sent by registered or certified
mail, return receipt requested, postage prepaid, or (d) one day after deposit
with a nationally recognized overnight courier, specifying next day delivery,
with written verification of receipt. All communications shall be sent to the
Borrower at the address as set forth on the signature page to the Purchase
Agreement executed in connection herewith, with a copy to Xxxxxxx Xxxxxx, Esq.,
Xxxxxxxxxx Xxxxxxxxx & Xxxxxx LLP, 00 Xxxx 00xx Xxxxxx, 00xx Xxxxx, Xxx Xxxx,
Xxx Xxxx, facsimile number (000) 000-0000, and to the Holder at the address set
forth on the signature page to the Purchase Agreement for such Holder, with a
copy to Xxxxxx X. Xxxxxx, Esq., 000 Xxxx 00xx Xxxxxx, 0xx Xxxxx, Xxx Xxxx, Xxx
Xxxx 00000, facsimile number (000) 000-0000, or at such other address as the
Borrower or the Holder may designate by ten days advance written notice to the
other parties hereto. A Notice of Conversion shall be deemed given when made to
the Borrower pursuant to the Purchase Agreement.
5.3 Amendment Provision. The term "Note" and all reference thereto,
as used throughout this instrument, shall mean this instrument as originally
executed, or if later amended or supplemented, then as so amended or
supplemented.
5.4 Assignability. This Note shall be binding upon the Borrower and
its successors and assigns, and shall inure to the benefit of the Holder and its
successors and assigns, and may be assigned by the Holder. 5.5 Governing Law.
This Note shall be governed by and construed in accordance with the laws of the
State of New York, without regard to principles of conflicts of laws. Any action
brought by either party against the other concerning the transactions
contemplated by this Agreement shall be brought only in the state courts of New
York or in the federal courts located in the state of New York. Both parties and
the individual signing this Note on behalf of the Borrower agree to submit to
the jurisdiction of such courts. The prevailing party shall be entitled to
recover from the other party its reasonable attorney's fees and costs. In the
event that any provision of this Note is invalid or unenforceable under any
applicable statute or rule of law, then such provision shall be deemed
inoperative to the extent that it may conflict therewith and shall be deemed
modified to conform with such statute or rule of law. Any such provision which
may prove invalid or unenforceable under any law shall not affect the validity
or unenforceability of any other provision of this Note.
5.6 Maximum Payments. Nothing contained herein shall be deemed to
establish or require the payment of a rate of interest or other charges in
excess of the
9
maximum permitted by applicable law. In the event that the rate of interest
required to be paid or other charges hereunder exceed the maximum permitted by
such law, any payments in excess of such maximum shall be credited against
amounts owed by the Borrower to the Holder and thus refunded to the Borrower.
5.7 Security Interest. The holder of this Note has been granted a
security interest in certain assets of the Borrower more fully described in a
Security Agreement.
5.8 Construction. Each party acknowledges that its legal counsel
participated in the preparation of this Note and, therefore, stipulates that the
rule of construction that ambiguities are to be resolved against the drafting
party shall not be applied in the interpretation of this Note to favor any party
against the other.
10
IN WITNESS WHEREOF, each Borrower has caused this Note to be signed in its
name effective as of this ___ day of June, 2002.
DATA SYSTEMS & SOFTWARE INC.
By:________________________________
DATABIT INC.
By:________________________________
WITNESS:
_____________________________
11
NOTICE OF CONVERSION
(To be executed by the Holder in order to convert the Note)
The undersigned hereby elects to convert $_________ of the principal and
$_________ of the interest due on the Note issued by DATA SYSTEMS & SOFTWARE
INC. and DATABIT INC. on June ___, 2002 into Shares of Common Stock of DATA
SYSTEMS & SOFTWARE INC. (the "Company") according to the conditions set forth in
such Note, as of the date written below.
Date of
Conversion:_____________________________________________________________________
Conversion
Price:__________________________________________________________________________
Shares To Be
Delivered:______________________________________________________________________
Signature:______________________________________________________________________
Print Name:_____________________________________________________________________
Address:________________________________________________________________________
A-1
EXHIBIT B
FORM OF REPAYMENT ELECTION NOTICE
To: [HOLDER AT HOLDER'S ADDRESS]
Pursuant to Section 2.2 of the Note of Data Systems & Software, Inc. and
Databit Inc. issued on June __, 2002, we hereby notify you that we are
irrevocably electing to repay the outstanding Monthly Amount (as defined in the
Note) due on the Repayment Date (as defined in the Note) which occurs on ______,
20__ (CHECK ONE):
_____ In full in cash on such Repayment Date.
_____ In full in shares of the Company's Common Stock within three (3)
trading days following such Repayment Date.
_____ In part in cash in the amount of $______ on such Repayment Date, and
in part in shares of the Company's Common Stock (in the amount of ______ shares)
within three (3) trading days following such Repayment Date.
Data Systems & Software, Inc.
By: ________________________
Name:
Title:
Databit Inc.
By: ________________________
Name:
Title:
A-2
EXHIBIT B
Form of warrant
THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THIS
WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT BE
SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT AS TO THIS WARRANT UNDER SAID ACT OR AN OPINION OF
COUNSEL REASONABLY SATISFACTORY TO DATA SYSTEMS & SOFTWARE INC. THAT SUCH
REGISTRATION IS NOT REQUIRED.
Right to Purchase 125,000 Shares of Common Stock
of Data Systems & Software Inc. (subject to
adjustment as provided herein)
COMMON STOCK PURCHASE WARRANT
No. 2002-1 Issue Date: June ___, 2002
DATA SYSTEMS & SOFTWARE INC., a corporation organized under the laws of
the State of Delaware (the "Company"), hereby certifies that, for value
received, LAURUS MASTER FUND, LTD., or assigns (the "Holder"), is entitled,
subject to the terms set forth below, to purchase from the Company from and
after the Issue Date of this Warrant and at any time or from time to time before
5:00 p.m., New York time, through three (3) years after such date (the
"Expiration Date"), up to 125,000 fully paid and nonassessable shares of Common
Stock (as hereinafter defined), $.01 par value per share, of the Company, at the
Purchase Price (as defined below). The number and character of such shares of
Common Stock and the Purchase Price are subject to adjustment as provided
herein.
As used herein the following terms, unless the context otherwise requires,
have the following respective meanings:
(a) The term "Company" shall include Data Systems & Software Inc. and any
corporation which shall succeed or assume the obligations of Data Systems &
Software Inc. hereunder.
(b) The term "Common Stock" includes (a) the Company's Common Stock, $.01
par value per share, as authorized on the date of the Securities Purchase
Agreement referred to in Section 9 hereof, and (b) any other securities into
which or for which any of the securities described in (a) may be converted or
exchanged pursuant to a plan of recapitalization, reorganization, merger, sale
of assets or otherwise.
(c) The term "Other Securities" refers to any stock (other than Common
Stock) and
1
other securities of the Company or any other person (corporate or otherwise)
which the holder of the Warrant at any time shall be entitled to receive, or
shall have received, on the exercise of the Warrant, 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.
(d) The term "Purchase Price" shall be $4.20 per share. Such Purchase
Price to be subject to adjustment from time to time as provided herein.
1. Exercise of Warrant.
1.1. Number of Shares Issuable upon Exercise. From and after the
date hereof through and including the Expiration Date, the holder hereof shall
be entitled to receive, upon exercise of this Warrant in whole in accordance
with the terms of subsection 1.2 or upon exercise of this Warrant in part in
accordance with subsection 1.3, shares of Common Stock of the Company, subject
to adjustment pursuant to Section 4.
1.2. Full Exercise. This Warrant may be exercised in full by the
holder hereof by delivery of an original or fax copy of the form of subscription
attached as Exhibit A hereto (the "Subscription Form") duly executed by such
Holder, to the Company at its principal office or at the office of its warrant
agent (as provided hereinafter), accompanied by payment, in cash, wire transfer,
or by certified or official bank check payable to the order of the Company, in
the amount obtained by multiplying the number of shares of Common Stock for
which this Warrant is then exercisable by the Purchase Price (as hereinafter
defined) then in effect.
1.3. Partial Exercise. This Warrant may be exercised in part (but
not for a fractional share) by surrender of this Warrant in the manner and at
the place provided in subsection 1.2 except that the amount payable by the
holder on such partial exercise shall be the amount obtained by multiplying (a)
the number of shares of Common Stock designated by the holder in the
Subscription Form by (b) the Purchase Price then in effect. On any such partial
exercise, the Company, at its expense, will forthwith issue and deliver to or
upon the order of the holder hereof a new Warrant of like tenor, in the name of
the holder hereof or as such holder (upon payment by such holder of any
applicable transfer taxes) may request, the number of shares of Common Stock for
which such Warrant may still be exercised.
1.4. Fair Market Value. Fair Market Value of a share of Common Stock
as of a particular date (the "Determination Date") shall mean:
(a) If the Company's Common Stock is traded on an exchange or
is quoted on the National Association of Securities Dealers, Inc. Automated
Quotation ("NASDAQ") National Market System or the NASDAQ SmallCap Market, then
the closing or last sale price, respectively, reported for the last business day
immediately preceding the Determination Date.
(b) If the Company's Common Stock is not traded on an exchange
or on the NASDAQ National Market System or the NASDAQ SmallCap Market but is
traded on
2
the NASD OTC Bulletin Board, then the mean of the average of the closing bid and
asked prices reported for the last business day immediately preceding the
Determination Date.
(c) Except as provided in clause (d) below, if the Company's
Common Stock is not publicly traded, then as the Holder and the Company agree or
in the absence of agreement by arbitration in accordance with the rules then
standing of the American Arbitration Association, before a single arbitrator to
be chosen from a panel of persons qualified by education and training to pass on
the matter to be decided.
(d) If the Determination Date is the date of a liquidation,
dissolution or winding up, or any event deemed to be a liquidation, dissolution
or winding up pursuant to the Company's charter, then all amounts to be payable
per share to holders of the Common Stock pursuant to the charter in the event of
such liquidation, dissolution or winding up, plus all other amounts to be
payable per share in respect of the Common Stock in liquidation under the
charter, assuming for the purposes of this clause (d) that all of the shares of
Common Stock then issuable upon exercise of the Warrant are outstanding at the
Determination Date.
1.5. Company Acknowledgment. The Company will, at the time of the
exercise of the Warrant, upon the request of the holder hereof acknowledge in
writing its continuing obligation to afford to such holder any rights to which
such holder shall continue to be entitled after such exercise in accordance with
the provisions of this Warrant. If the holder shall fail to make any such
request, such failure shall not affect the continuing obligation of the Company
to afford to such holder any such rights.
1.6. Trustee for Warrant Holders. In the event that a bank or trust
company shall have been appointed as trustee for the holders of the Warrant
pursuant to Subsection 3.2, such bank or trust company shall have all the powers
and duties of a warrant agent (as hereinafter described) and shall accept, in
its own name for the account of the Company or such successor person as may be
entitled thereto, all amounts otherwise payable to the Company or such
successor, as the case may be, on exercise of this Warrant pursuant to this
Section 1.
2.1 Delivery of Stock Certificates, etc. on Exercise. The Company agrees
that the shares of Common Stock purchased upon exercise of this Warrant shall be
deemed to be issued to the holder hereof as the record owner of such shares as
of the close of business on the date on which this Warrant shall have been
surrendered and payment made for such shares as aforesaid. As soon as
practicable after the exercise of this Warrant in full or in part, and in any
event within 7 days thereafter, the Company at its expense (including the
payment by it of any applicable issue taxes) will cause to be issued in the name
of and delivered to the holder hereof, or as such holder (upon payment by such
holder of any applicable transfer taxes) may direct in compliance with
applicable Securities Laws, a certificate or certificates for the number of duly
and validly issued, fully paid and nonassessable shares of Common Stock (or
Other Securities) to which such holder shall be entitled on such exercise, plus,
in lieu of any fractional share to which such holder would otherwise be
entitled, cash equal to such fraction multiplied by the then Fair Market Value
of one full share, together with any other stock or other securities and
property (including cash, where applicable) to which such holder is entitled
upon such exercise pursuant to Section 1 or otherwise.
3
2.2. Cashless Exercise.
(a) Payment may be made either in (i) cash or by certified or
official bank check payable to the order of the Company equal to the applicable
aggregate Purchase Price, (ii) by delivery of the Warrant, Common Stock and/or
Common Stock receivable upon exercise of the Warrant in accordance with Section
(b) below, or (iii) by a combination of any of the foregoing methods, for the
number of Common Shares specified in such form (as such exercise number shall be
adjusted to reflect any adjustment in the total number of shares of Common Stock
issuable to the holder per the terms of this Warrant) and the holder shall
thereupon be entitled to receive the number of duly authorized, validly issued,
fully-paid and non-assessable shares of Common Stock (or Other Securities)
determined as provided herein.
(b) Notwithstanding any provisions herein to the contrary, if the
Fair Market Value of one share of Common Stock is greater than the Purchase
Price (at the date of calculation as set forth below), in lieu of exercising
this Warrant for cash, the holder may elect to receive shares equal to the value
(as determined below) of this Warrant (or the portion thereof being cancelled)
by surrender of this Warrant at the principal office of the Company together
with the properly endorsed Subscription Form in which event the Company shall
issue to the holder a number of shares of Common Stock computed using the
following formula:
X=Y (A-B)
-------
A
Where X= the number of shares of Common Stock to be issued to the
holder
Y= the number of shares of Common Stock purchasable under
the Warrant or, if only a portion of the Warrant is
being exercised, the portion of the Warrant being
exercised (at the date of such calculation)
A= the Fair Market Value of one share of the Company's
Common Stock (at the date of such calculation)
B= Purchase Price (as adjusted to the date of such
calculation)
3. Adjustment for Reorganization, Consolidation, Merger, etc.
3.1. Reorganization, Consolidation, Merger, etc. In case at any time
or from time to time, the Company shall (a) effect a reorganization, (b)
consolidate with or merge into any other person, or (c) transfer all or
substantially all of its properties or assets to any other person under any plan
or arrangement contemplating the dissolution of the Company, then, in each such
case, as a condition to the consummation of such a transaction, proper and
adequate provision shall be made by the Company whereby the holder of this
Warrant, on the exercise hereof as provided in Section 1 at any time after the
consummation of such reorganization,
4
consolidation or merger or the effective date of such dissolution, as the case
may be, shall receive, in lieu of the Common Stock (or Other Securities)
issuable on such exercise prior to such consummation or such effective date, the
stock and other securities and property (including cash) to which such holder
would have been entitled upon such consummation or in connection with such
dissolution, as the case may be, if such holder had so exercised this Warrant,
immediately prior thereto, all subject to further adjustment thereafter as
provided in Section 4.
3.2. Dissolution. In the event of any dissolution of the Company
following the transfer of all or substantially all of its properties or assets,
the Company, prior to such dissolution, shall at its expense deliver or cause to
be delivered the stock and other securities and property (including cash, where
applicable) receivable by the holders of the Warrant after the effective date of
such dissolution pursuant to this Section 3 to a bank or trust company having
its principal office in New York, NY, as trustee for the holder or holders of
the Warrant.
3.3. Continuation of Terms. Upon any reorganization, consolidation,
merger or transfer (and any dissolution following any transfer) referred to in
this Section 3, this Warrant shall continue in full force and effect and the
terms hereof shall be applicable to the shares of stock and other securities and
property receivable on the exercise of this Warrant after the consummation of
such reorganization, consolidation or merger or the effective date of
dissolution following any such transfer, as the case may be, and shall be
binding upon the issuer of any such stock or other securities, including, in the
case of any such transfer, the person acquiring all or substantially all of the
properties or assets of the Company, whether or not such person shall have
expressly assumed the terms of this Warrant as provided in Section 4. In the
event this Warrant does not continue in full force and effect after the
consummation of the transaction described in this Section 3, then only in such
event will the Company's securities and property (including cash, where
applicable) receivable by the holders of the Warrant be delivered to the Trustee
as contemplated by Section 3.2.
4. Extraordinary Events Regarding Common Stock. In the event that the
Company shall (a) issue additional shares of the Common Stock as a dividend or
other distribution on outstanding Common Stock, (b) subdivide its outstanding
shares of Common Stock, or (c) combine its outstanding shares of the Common
Stock into a smaller number of shares of the Common Stock, then, in each such
event, the Purchase Price shall, simultaneously with the happening of such
event, be adjusted by multiplying the then Purchase Price by a fraction, the
numerator of which shall be the number of shares of Common Stock outstanding
immediately prior to such event and the denominator of which shall be the number
of shares of Common Stock outstanding immediately after such event, and the
product so obtained shall thereafter be the Purchase Price then in effect. The
Purchase Price, as so adjusted, shall be readjusted in the same manner upon the
happening of any successive event or events described herein in this Section 4.
The number of shares of Common Stock that the holder of this Warrant shall
thereafter, on the exercise hereof as provided in Section 1, be entitled to
receive shall be increased to a number determined by multiplying the number of
shares of Common Stock that would otherwise (but for the provisions of this
Section 4) be issuable on such exercise by a fraction of which (a) the numerator
is the Purchase Price that would otherwise (but for the provisions of this
Section 4) be in effect, and (b) the denominator is the Purchase Price in effect
on the date of such exercise.
5
5. Certificate as to Adjustments. In each case of any adjustment or
readjustment in the shares of Common Stock (or Other Securities) issuable on the
exercise of the Warrant, the Company at its expense will promptly cause its
Chief Financial Officer or other appropriate designee to compute such adjustment
or readjustment in accordance with the terms of the Warrant and prepare a
certificate setting forth such adjustment or readjustment and showing in detail
the facts upon which such adjustment or readjustment is based, including a
statement of (a) the consideration received or receivable by the Company for any
additional shares of Common Stock (or Other Securities) issued or sold or deemed
to have been issued or sold, (b) the number of shares of Common Stock (or Other
Securities) outstanding or deemed to be outstanding, and (c) the Purchase Price
and the number of shares of Common Stock to be received upon exercise of this
Warrant, in effect immediately prior to such adjustment or readjustment and as
adjusted or readjusted as provided in this Warrant. The Company will forthwith
mail a copy of each such certificate to the holder of the Warrant and any
Warrant agent of the Company (appointed pursuant to Section 11 hereof).
6. Reservation of Stock, etc. Issuable on Exercise of Warrant; Financial
Statements. The Company will at all times reserve and keep available, solely for
issuance and delivery on the exercise of the Warrant, all shares of Common Stock
(or Other Securities) from time to time issuable on the exercise of the Warrant.
This Warrant entitles the holder hereof to receive copies of all financial and
other information distributed or required to be distributed to the holders of
the Company's Common Stock.
7. Assignment; Exchange of Warrant. Subject to compliance with applicable
Securities laws, this Warrant, and the rights evidenced hereby, may be
transferred by any registered holder hereof (a "Transferor") with respect to any
or all of the Shares. On the surrender for exchange of this Warrant, with the
Transferor's endorsement in the form of Exhibit B attached hereto (the
"Transferor Endorsement Form") and together with evidence reasonably
satisfactory to the Company demonstrating compliance with applicable Securities
Laws, which shall include, without limitation, a legal opinion fro the
Transferor's counsel that such transfer is exempt from the registration
requirements of federal securities laws, the Company at its expense but with
payment by the Transferor of any applicable transfer taxes) will issue and
deliver to or on the order of the Transferor thereof a new Warrant of like
tenor, in the name of the Transferor and/or the transferee(s) specified in such
Transferor Endorsement Form (each a "Transferee"), calling in the aggregate on
the face or faces thereof for the number of shares of Common Stock called for on
the face or faces of the Warrant so surrendered by the Transferor.
8. Replacement of Warrant. On receipt of evidence reasonably satisfactory
to the Company of the loss, theft, destruction or mutilation of this Warrant
and, in the case of any such loss, theft or destruction of this Warrant, on
delivery of an indemnity agreement or security reasonably satisfactory in form
and amount to the Company or, in the case of any such mutilation, on surrender
and cancellation of this Warrant, the Company at its expense will execute and
deliver, in lieu thereof, a new Warrant of like tenor.
9. Registration Rights. The Holder of this Warrant has been granted
certain
6
registration rights by the Company. These registration rights are set forth in a
Securities Purchase Agreement entered into by the Company and Purchaser of the
Company's 10% Convertible Notes (the "Notes") at or prior to the issue date of
this Warrant. The terms of the Securities Purchase Agreement are incorporated
herein by reference. Upon the occurrence of a Non-Registration Event as
described in the Securities Purchase Agreement, in the event the Company is
unable to issue Common Stock upon exercise of this Warrant that has been
registered in the Registration Statement described in Section 9.1(d) of the
Securities Purchase Agreement, within the time periods described in the
Securities Purchase Agreement, which Registration Statement must be effective
throughout the exercise period of this Warrant, then upon written demand made by
the Holder, the Company will pay to the Holder of this Warrant, in lieu of
delivering Common Stock, a sum equal to the closing ask price of the Company's
Common Stock on the Principal Market (as defined in the Securities Purchase
Agreement) or such other principal trading market for the Company's Common Stock
on the trading date immediately preceding the date notice is given by the
Holder, less the Purchase Price, for each share of Common Stock designated in
such notice from the Holder. The provisions of this Section 9, however, shall
not apply if (a) this Warrant is out-of-the-money at the time of such
Non-Registration Event, or (b) the Holder had not delivered a Subscription Form
to the Company at or immediately prior to the Non-Registration Event.
10. Maximum Exercise. The Holder shall not be entitled to exercise this
Warrant on an exercise date, in connection with that number of shares of Common
Stock which would be in excess of the sum of (i) the number of shares of Common
Stock beneficially owned by the Holder and its affiliates on an exercise date,
and (ii) the number of shares of Common Stock issuable upon the exercise of this
Warrant with respect to which the determination of this proviso is being made on
an exercise date, which would result in beneficial ownership by the Holder and
its affiliates of more than 4.99% of the outstanding shares of Common Stock of
the Company on such date. For the 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, and Regulation
13d-3 thereunder. Subject to the foregoing, the Holder shall not be limited to
aggregate exercises which would result in the issuance of more than 4.99%. The
restriction described in this paragraph may be revoked upon 75 days prior notice
from the Holder to the Company and is automatically null and void upon an Event
of Default under the Note.
11. Warrant Agent. The Company may, by written notice to the each holder
of the Warrant, appoint an agent for the purpose of issuing Common Stock (or
Other Securities) on the exercise of this Warrant pursuant to Section 1,
exchanging this Warrant pursuant to Section 7, and replacing this Warrant
pursuant to Section 8, or any of the foregoing, and thereafter any such
issuance, exchange or replacement, as the case may be, shall be made at such
office by such agent.
12. Transfer on the Company's Books. Until this Warrant is transferred on
the books of the Company, the Company may treat the registered holder hereof as
the absolute owner hereof for all purposes, notwithstanding any notice to the
contrary.
13. Notices, etc. All notices and other communications from the Company to
the
7
holder of this Warrant shall be mailed by first class registered or certified
mail, postage prepaid, at such address as may have been furnished to the Company
in writing by such holder or, until any such holder furnishes to the Company an
address, then to, and at the address of, the last holder of this Warrant who has
so furnished an address to the Company.
14. Voluntary Adjustment by the Company. The Company may at any time
during the term of this Warrant reduce the then current Exercise Price to any
amount and for any period of time deemed appropriate by the Board of Directors
of the Company.
15. Miscellaneous. This Warrant and any term hereof may be changed,
waived, discharged or terminated only by an instrument in writing signed by the
party against which enforcement of such change, waiver, discharge or termination
is sought. This Warrant shall be governed by and construed in accordance with
the laws of State of New York without regard to principles of conflicts of laws.
Any action brought concerning the transactions contemplated by this Warrant
shall be brought only in the state courts of New York or in the federal courts
located in the state of New York. The individuals executing this Warrant on
behalf of the Company agree to submit to the jurisdiction of such courts and
waive trial by jury. The prevailing party shall be entitled to recover from the
other party its reasonable attorney's fees and costs. In the event that any
provision of this Warrant is invalid or unenforceable under any applicable
statute or rule of law, then such provision shall be deemed inoperative to the
extent that it may conflict therewith and shall be deemed modified to conform
with such statute or rule of law. Any such provision which may prove invalid or
unenforceable under any law shall not affect the validity or enforceability of
any other provision of this Warrant. The headings in this Warrant are for
purposes of reference only, and shall not limit or otherwise affect any of the
terms hereof. The invalidity or unenforceability of any provision hereof shall
in no way affect the validity or enforceability of any other provision. The
Company acknowledges that legal counsel participated in the preparation of this
Warrant and, therefore, stipulates that the rule of construction that
ambiguities are to be resolved against the drafting party shall not be applied
in the interpretation of this Warrant to favor any party against the other
party.
[THIS SPACE INTENTIONALLY LEFT BLANK]
8
IN WITNESS WHEREOF, the Company has executed this Warrant
under seal as of the date first written above.
DATA SYSTEMS & SOFTWARE INC.
By:_____________________________________
Witness:
___________________________
9
EXHIBIT A
FORM OF SUBSCRIPTION
(To be signed only on exercise of Warrant)
TO: Data Systems & Software Inc.
The undersigned, pursuant to the provisions set forth in the attached Warrant
(No.____), hereby irrevocably elects to purchase (check applicable box):
___ ________ shares of the Common Stock covered by such Warrant; or
___ the maximum number of shares of Common Stock covered by such Warrant
pursuant to the cashless exercise procedure set forth in Section 2.
The undersigned herewith makes payment of the full purchase price for such
shares at the price per share provided for in such Warrant, which is
$___________. Such payment takes the form of (check applicable box or boxes):
___ $__________ in lawful money of the United States; and/or
___ the cancellation of such portion of the attached Warrant as is exercisable
for a total of _______ shares of Common Stock (using a Fair Market Value of
$_______ per share for purposes of this calculation); and/or
___ the cancellation of such number of shares of Common Stock as is necessary,
in accordance with the formula set forth in Section 2, to exercise this Warrant
with respect to the maximum number of shares of Common Stock purchaseable
pursuant to the cashless exercise procedure set forth in Section 2.
The undersigned requests that the certificates for such shares be issued in the
name of, and delivered to _____________________________________ whose address is
_______________________________________________________________________________.
The undersigned represents and warrants that all offers and sales by the
undersigned of the securities issuable upon exercise of the within Warrant shall
be made pursuant to registration of the Common Stock under the Securities Act of
1933, as amended (the "Securities Act") or pursuant to an exemption from
registration under the Securities Act.
Dated:______________ _______________________________________
(Signature must conform to name of
holder as specified on the face of the
Warrant)
_______________________________________
(Address)
10
Exhibit B
FORM OF TRANSFEROR ENDORSEMENT
(To be signed only on transfer of Warrant)
For value received, the undersigned hereby sells, assigns, and transfers
unto the person(s) named below under the heading "Transferees" the right
represented by the within Warrant to purchase the percentage and number of
shares of Common Stock of Data Systems & Software Inc. to which the within
Warrant relates specified under the headings "Percentage Transferred" and
"Number Transferred," respectively, opposite the name(s) of such person(s) and
appoints each such person Attorney to transfer its respective right on the books
of Data Systems & Software Inc. with full power of substitution in the premises.
================================================================================
Percentage Number
Transferees Transferred Transferred
----------- ----------- -----------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
================================================================================
Dated:___________ , _____ ________________________________________
(Signature must conform to name of
holder as specified on the face of the
warrant)
Signed in the presence of:
____________________________ ________________________________________
(Name) (address)
________________________________________
ACCEPTED AND AGREED: (address)
[TRANSFEREE]
____________________________
(Name)
1
EXHIBIT C
FORM OF OPINION
1. The Company and Databit each is a corporation validly existing
and in good standing under the laws of the State of Delaware and has all
requisite corporate power and authority to own, operate and lease its properties
and to carry on its business as it is now being conducted.
2. The Company and Databit each has the requisite corporate power
and authority to execute, deliver and perform its obligations under the
Agreement and Related Agreements. All corporate action on the part of the
Company and Databit and their respective officers, directors and stockholders
necessary for (i) the authorization of the Agreement and Related Agreements to
which each is a party, and the performance of all obligations of the Company and
Databit thereunder at the Closing, and (ii) the authorization, sale, issuance
and delivery of the Securities pursuant to the Agreement and the Related
Agreements has been taken. The Note Shares and the Warrant Shares, when issued
pursuant to and in accordance with the terms of the Agreement and upon delivery,
shall be validly issued and outstanding, fully paid and non assessable.
3. The execution, delivery and performance of the Agreement, the
Note or the Related Agreements by the Company and Databit and the consummation
of the transactions contemplated by any thereof, will not, with or without the
giving of notice or the passage of time or both:
(a) Violate the provisions of the Charter or bylaws of the
Company or Databit; or
(b) To the best of such counsel's knowledge, violate any
judgment, decree, order or award of any court binding upon the
Company or Databit.
4. The Agreement and Related Agreements to which each is a party
constitute and the Note, upon their issuance will constitute, valid and legally
binding obligations of the Company and Databit, and are enforceable against the
Company and Databit in accordance with their respective terms, except (a) as
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other laws of general application affecting enforcement of creditors' rights,
and (b) general principles of equity that restrict the availability of equitable
or legal remedies.
5. The sale of the Note and the subsequent conversion of the Note
into Note Shares are not subject to any preemptive rights or, to such counsel's
knowledge, rights of first refusal that have not been properly waived or
complied with. The sale of the Warrant and the subsequent exercise of the
Warrant for Warrant Shares are not subject to any preemptive rights or, to such
counsel's knowledge, rights of first refusal that have not been properly waived
or complied with.
C-1
6. Assuming the accuracy of the representations and warranties of
the Purchaser contained in the Agreement, the offer, sale and issuance of the
Securities will be exempt from the registration requirements of the Securities
Act. To the best of such counsel's knowledge, 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 and security under circumstances that would cause the offering of the
Securities pursuant to this Agreement to be integrated with prior offerings by
the Company for purposes of the Securities Act which would prevent the Company
from selling the Securities pursuant to Rule 506 under the Securities Act, or
any applicable exchange-related stockholder approval provisions.
7. There is no action, suit, proceeding or investigation pending or,
to the best of such counsel's knowledge, currently threatened against the
Company or Databit that prevents the right of the Company to enter into this
Agreement or any of the Related Agreements, or to consummate the transactions
contemplated thereby. To the best of such counsel's knowledge, the Company is
not a party or subject to the provisions of any order, writ, injunction,
judgment or decree of any court or government agency or instrumentality; nor is
there any action, suit, proceeding or investigation by the Company currently
pending or which the Company intends to initiate.
C-2
