Exhibit 10.38
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (the "Agreement"), dated as of
January 12, 1999, by and among SoftNet Systems, Inc., a New York corporation,
with headquarters located at 000 Xxxxx Xxxxxx, Xxxxxxxx Xxxx, XX 00000 (the
"Company"), and the investors listed on the Schedule of Buyers attached hereto
(individually, a "Buyer" and collectively, the "Buyers").
WHEREAS:
A. The Company and the Buyers are executing and delivering
this Agreement in reliance upon the exemption from securities registration
afforded by Rule 506 of Regulation D ("Regulation D") as promulgated by the
United States Securities and Exchange Commission (the "SEC") under the
Securities Act of 1933, as amended (the "1933 Act");
B. The Company shall authorize as of the Closing (as defined
below) the issuance of an aggregate of $12 million of its 9% Senior Subordinated
Convertible Notes due January 1, 2001 (the "Convertible Notes") in the form
attached hereto as Exhibit A, which shall be convertible into shares of the
Company's Common Stock, $.01 par value per share (the "Common Stock") (as
converted, the "Conversion Shares"), in accordance with the terms of the
Convertible Notes;
C. The Company shall authorize as of the Closing the issuance
of Common Stock Purchase Warrants (the "Warrants"), in the form attached hereto
as Exhibit B, to acquire shares of Common Stock (such shares of Common Stock
issued upon exercise of the Warrants are hereinafter referred to as the "Warrant
Shares", and together with the Convertible Notes, the Warrants and the
Conversion Shares, the "Securities");
D. The Buyers wish to purchase, upon the terms and conditions
stated in this Agreement, an aggregate of $12 million of Convertible Notes in
the respective amounts set forth opposite each Buyer's name on the Schedule of
Buyers; and to receive, in consideration for such purchase, the Warrants, to
purchase an aggregate of up to 300,000 shares of Common Stock in the respective
amounts set forth opposite each Buyer's name in the Schedule of Buyers, subject
to adjustment as provided in the Warrants; and
E. Contemporaneously with the execution and delivery of this
Agreement, the parties hereto are executing and delivering a Registration Rights
Agreement in the form attached hereto as Exhibit C (the "Registration Rights
Agreement") pursuant to which the Company has agreed to provide certain
registration rights under the 1933 Act and the rules and regulations promulgated
thereunder, and applicable state securities laws.
NOW, THEREFORE, the Company and the Buyers hereby agree as
follows:
1. PURCHASE AND SALE OF CONVERTIBLE NOTES.
a. Purchase of Convertible Notes. Subject to the
satisfaction (or waiver) of the conditions set forth in Sections 6 and 7 below,
the Company shall issue and sell to the Buyers and the Buyers shall purchase
from the Company an aggregate of $12 million of Convertible Notes, in the
respective amounts set forth opposite each Buyer's name on the Schedule of
Buyers (the "Closing"). On the Closing Date (as defined below) the Company shall
deliver to each Buyer a Convertible Note in the principal amount which such
Buyer is then purchasing (as indicated opposite such Buyer's name on the
Schedule of Buyers), duly executed on behalf of the Company and registered in
the name of such Buyer or its designee.
b. Closing Date. The date and time of the Closing
(the "Closing Date") shall be 10:00 a.m. Eastern Standard Time on January 12,
1999, subject to notification of satisfaction (or waiver) of the conditions to
the Closing set forth in Sections 6 and 7 below (or such later date as is
mutually agreed to by the Company and the Buyers). The Closing shall occur on
the Closing Date at the offices of Xxxxxxx Xxxx & Xxxxx LLP, 000 Xxxxx Xxxxxx,
Xxx Xxxx, Xxx Xxxx 00000.
c. Form of Payment. On the Closing Date, each Buyer
shall pay the Company for the principal face amount of the Convertible Notes to
be issued and sold to such Buyer at the Closing, by wire transfer of immediately
available funds in accordance with the Company's written wire instructions
provided in writing to the Buyers at least two days prior to the Closing Date.
d. Warrants. In consideration of the purchase of the
Convertible Notes, the Company shall on the Closing Date issue and deliver to
each Buyer, Warrants to purchase in the aggregate 300,000 additional shares of
Common Stock in the respective amounts set forth opposite each Buyer's name on
the Schedule of Buyers..
2. BUYER'S REPRESENTATIONS AND WARRANTIES.
Each Buyer represents and warrants with respect to only itself
that:
a. Investment Purpose. Such Buyer (i) is purchasing
the Convertible Notes and the Warrants and (ii) upon conversion of the
Convertible Notes and exercise of the Warrants, will acquire the Conversion
Shares and Warrant Shares, respectively, then issuable for its own account for
investment only and not with a present view towards or for resale in connection
with, the public sale or distribution thereof, except pursuant to sales
registered or exempted under the 1933 Act; provided, however, that by making the
representations herein, such Buyer does not agree to hold any Securities for any
minimum or other specific term and reserves the right to dispose of the
Securities at any time in accordance with or pursuant to a registration
statement or an exemption under the 1933 Act. Buyer understands that Buyer must
bear the economic risk of this investment until such time as the Securities may
be registered for resale or an exemption from such registration is available and
the Company has no present intention of registering such Securities other than
as contemplated in the Registration Rights Agreement.
b. Accredited Investor Status. Such Buyer is an
"accredited investor" as that term is defined in Rule 501(a) of Regulation D.
c Reliance on Exemptions. Such Buyer understands
that the Convertible Notes and Warrants are being offered and sold to it in
reliance on specific exemptions from the registration requirements of United
States federal and state securities laws and that the Company is relying in part
upon the truth and accuracy of, and such Buyer's compliance with, the
representations, warranties, agreements, acknowledgments and understandings of
such Buyer set forth herein in order to determine the availability of such
exemptions and the eligibility of such Buyer to acquire the Convertible Notes
and the Warrants.
d. Information. Such Buyer and its advisors, if any,
have been furnished with or given access to all materials relating to the
business, finances and operations of the Company and materials relating to the
offer and sale of the Convertible Notes and the Warrants which have been
specifically requested by such Buyer. Such Buyer and its advisors, if any, have
been afforded the opportunity to ask questions of the Company and has received
what Buyer believes to be satisfactory answers to such inquiries. Neither such
inquiries nor any other due diligence investigations conducted by such Buyer or
its advisors, if any, or its representatives shall modify, amend or affect such
Buyer's right to rely on the Company's representations and warranties contained
in Section 3 below. Buyer understands that Buyer's purchase of the Securities
involves a high degree of risk. Buyer acknowledges that all documents available
via the Securities and Exchange Commission's XXXXX document retrieval system as
of the date hereof shall be deemed to have been available to Buyer.
e. No Governmental Review. Such Buyer understands
that no United States federal or state agency or any other government or
governmental agency has passed on or made any recommendation or endorsement of
the Convertible Notes and the Warrants or the fairness or suitability of the
investment in the Securities nor have such authorities passed upon or endorsed
the merits of the offering of the Convertible Notes and the Warrants.
f. Transfer or Resale. Such Buyer understands that
except as provided in the Registration Rights Agreement: (i) Securities have not
been and are not being registered under the 1933 Act or any state securities
laws, and may not be offered for sale, sold, assigned or transferred unless (A)
subsequently registered thereunder, (B) such Buyer shall have delivered to the
Company an opinion of counsel, in a generally acceptable form, to the effect
that such Securities to be sold, assigned or transferred may be sold, assigned
or transferred pursuant to an exemption from such registration, or (C) such
securities can be sold, assigned or transferred pursuant to Rule 144 promulgated
under the 1933 Act (or a successor rule thereto) ("Rule 144"); (ii) any sale of
such securities made in reliance on Rule 144 may be made only in accordance with
the terms of Rule 144 and further, if Rule 144 is not applicable, any resale of
such securities under circumstances in which the seller (or the person through
whom the sale is made) may be deemed to be an underwriter (as that term is
defined in the 0000 Xxx) may require compliance with some other exemption under
the 1933 Act or the rules and regulations of the SEC thereunder; and (iii)
neither the Company nor any other person is under any obligation to register
such securities under the 1933 Act or any state securities laws or to comply
with the terms and conditions of any exemption thereunder. The Company may issue
stop transfer instructions in the event that a Buyer fails to comply with the
provisions hereof.
g. Legends. Such Buyer understands that the
certificates or other instruments representing the Convertible Notes and the
Warrants, and, until such time as the sale of the Conversion Shares and the
Warrant Shares have been registered under the 1933 Act as contemplated by the
Registration Rights Agreement, the stock certificates representing the
Conversion Shares and the Warrant Shares, except as set forth below, shall bear
a restrictive legend in substantially the following form (and a stop-transfer
order may be placed against transfer of such stock certificates):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES
LAWS. THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE
OFFERED FOR SALE, SOLD, OR OTHERWISE TRANSFERRED OR ASSIGNED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES
LAWS, OR AN OPINION OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT
REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE STATE
SECURITIES LAWS OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT.
The legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of any Securities upon which it is
stamped, if (i) any such Securities are registered for sale under the 1933 Act,
(ii) in connection with a sale transaction, such holder provides the Company
with an opinion of counsel, in a generally acceptable form, to the effect that a
public sale, assignment or transfer of any of the Securities may be made without
registration under the 1933 Act, or (iii) any of the Securities can be sold
pursuant to Rule 144 without any restriction as to the number of securities
acquired as of a particular date that can then be immediately sold. Each Buyer
acknowledges, covenants and agrees to sell any of the Securities represented by
a certificate(s) from which the legend has been removed, only pursuant to (i) a
registration statement effective under the 1933 Act, or (ii) advice of counsel
that such sale is exempt from registration required by Section 5 of the 1933
Act. In the event the above legend is removed from any of the Securities, the
Company may, upon reasonable advance notice to the holder, require that the
above legend be placed on any of the Securities that cannot then be sold
pursuant to an effective registration statement or Rule 144(k) under the 1933
Act (or any successor rule thereto).
h. Authorization; Enforcement. This Agreement has
been duly and validly authorized, executed and delivered on behalf of such Buyer
and is a valid and binding agreement of such Buyer enforceable in accordance
with its terms, subject as to enforceability to general principles of equity and
to applicable bankruptcy, insolvency, reorganization, moratorium, liquidation
and other similar laws relating to, or affecting generally, the enforcement of
applicable creditors' rights and remedies.
i. Residency. Such Buyer is a resident of that
country specified in the Schedule of Buyers.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to each of the
Buyers that:
a. Organization and Qualification. The Company and
its subsidiaries (a complete list of which is set forth in Schedule 3(a)) are
corporations duly organized and validly existing in good standing under the laws
of the jurisdiction in which they are incorporated, and have the requisite
corporate power to own their properties and to carry on their business as now
being conducted. Each of the Company and its subsidiaries is duly qualified as a
foreign corporation to do business and is in good standing in every jurisdiction
in which the nature of the business conducted by it makes such qualification
necessary, except to the extent that the failure to be so qualified or be in
good standing would not have a Material Adverse Effect. Communicate Direct,
Inc., a subsidiary of the Company, does not (i) own any material assets, (ii)
have any liabilities or (iii) conduct any business or operations; and any
absence of good standing with respect to such subsidiary of the Company will not
have a Material Adverse Effect. "Material Adverse Effect" means any material
adverse effect on (i) the business, properties, operations, condition (financial
or otherwise), results of operations or prospects of the Company or its
subsidiaries, individually or taken as a whole, (ii) on the ability of the
Company to perform its obligations hereunder, under the Convertible Notes or
under the agreements or instruments to be entered into or filed in connection
herewith or therewith, or (iii) the Securities.
b. Authorization; Enforcement; Compliance with Other
Instruments. (i) The Company has the requisite corporate power and authority to
enter into and perform its obligations under this Agreement and the Registration
Rights Agreement, to issue, sell and perform its obligations with respect to the
Convertible Notes and the Warrants in accordance with the terms hereof, the
Convertible Notes and the Warrants, as applicable, and to issue the Conversion
Shares and the Warrant Shares upon conversion of the Convertible Notes and the
exercise of the Warrants, respectively, in accordance with the Convertible Notes
and the Warrants, respectively, (ii) the execution and delivery of this
Agreement, the Convertible Notes, the Warrants and the Registration Rights
Agreement by the Company and the consummation by it of the transactions
contemplated hereby and thereby, including, without limitation, the issuance of
the Convertible Notes and the Warrants and the reservation for issuance and the
issuance of the Conversion Shares issuable upon conversion of the Convertible
Notes and the Warrant Shares upon exercise of the Warrants have been duly
authorized by the Company's Board of Directors and no further consent or
authorization is required by the Company, its Board of Directors or its
stockholders, (iii) this Agreement, the Registration Rights Agreement, the
Convertible Notes and the Warrants have been duly executed and delivered by the
Company, and (iv) this Agreement, the Registration Rights Agreement, the
Convertible Notes and the Warrants constitute the valid and binding obligations
of the Company enforceable against the Company in accordance with their terms,
except as such enforceability may be limited by general principles of equity or
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or
similar laws relating to, or affecting generally, the enforcement of creditors'
rights and remedies.
c. Capitalization and Indebtedness. As of the date
hereof, the authorized capital stock of the Company consists of 25,000,000
shares of Common Stock, of which as of December 31, 1998, 8,631,087 shares were
issued and outstanding, and four (4) million shares of Preferred Stock par value
$.01 per share (the "Preferred Stock"), of which as of the date hereof, 10,252
shares of Series B Preferred Stock and 7,625 shares of Series C Preferred Stock
were issued and outstanding. All of such outstanding shares have been validly
issued and are fully paid and nonassessable. Except as disclosed in Schedule
3(c), no shares of Common Stock or Preferred Stock are subject to preemptive
rights or any other similar rights or any liens or encumbrances suffered or
permitted by the Company. Except as disclosed in Schedule 3(c), as of the date
hereof, (i) there are no outstanding options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into, any shares of capital stock of the
Company or any of its subsidiaries, or contracts, commitments, understandings or
arrangements by which the Company or any of its subsidiaries is or may become
bound to issue additional shares of capital stock of the Company or any of its
subsidiaries or options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into, any shares of capital stock of the Company or any of its
subsidiaries, (ii) there are no outstanding debt securities, notes, credit
agreements, or other agreements, documents or instruments evidencing
indebtedness of the Company or any of its subsidiaries or by which the Company
or any of its subsidiaries is or may become bound and (iii) there are no
agreements or arrangements under which the Company or any of its subsidiaries is
obligated to register the sale of any of their securities under the 1933 Act
(except the Registration Rights Agreement). Except as disclosed in Schedule
3(c), there are no securities or instruments containing anti-dilution or similar
provisions that will be triggered by the issuance of any of the Securities as
described in this Agreement. The Company has furnished to the Buyer true and
correct copies of the Company's Certificate of Incorporation, as amended and as
in effect on the date hereof (the "Certificate of Incorporation"), and the
Company's By-laws, as in effect on the date hereof (the "By-laws"), and the
terms of all securities convertible into or exercisable for Common Stock and the
material rights of the holders thereof in respect thereto.
d. Issuance of Securities. The Securities are duly
authorized and, upon issuance in accordance with the terms hereof, the
Convertible Notes and the Warrants shall be (i) validly issued, fully paid and
non-assessable, (ii) free from all taxes, liens and charges with respect to the
issue thereof and shall not be subject to preemptive rights or other similar
rights of stockholders of the Company and (iii) entitled to the rights and
preferences set forth in the Convertible Notes and the Warrants, respectively.
Not less than 1,717,587 shares of Common Stock have been duly authorized and
reserved for issuance upon conversion of the Convertible Notes and exercise of
the Warrants. Upon conversion or exercise in accordance with the Convertible
Notes and the Warrants, as applicable, the Conversion Shares and Warrant Shares
will be validly issued, fully paid and nonassessable and free from all taxes,
liens and charges with respect to the issue thereof, with the holders being
entitled to all rights accorded to a holder of Common Stock.
e. No Conflicts. The execution, delivery and
performance of this Agreement, the Registration Rights Agreement, the
Convertible Notes and the Warrants by the Company, and the consummation by the
Company of the transactions contemplated hereby and thereby (including, without
limitation, the issuance of the Securities) will not (i) result in a violation
of the Certificate of Incorporation, any Certificate of Designations,
Preferences and Rights of any outstanding series of Preferred Stock of the
Company or By-laws or (ii) except as disclosed in Schedule 3(e), violate or
conflict with, or result in a breach of any provision of, or constitute a
default (or an event which with notice or lapse of time or both would become a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any material agreement, indenture or instrument
to which the Company or any of its subsidiaries is a party, or result in a
violation of any law, rule, regulation, order, judgment or decree (including
U.S. federal and state securities laws and regulations and the rules and
regulations of the principal market or exchange on which the Common Stock is
traded or listed) applicable to the Company or any of its subsidiaries or by
which any property or asset of the Company or any of its subsidiaries is bound
or affected. Neither the Company nor its subsidiaries is in violation of any
material term of or in default under its Certificate of Incorporation, any
Certificate of Designations, Preferences and Rights of any outstanding series of
Preferred Stock of the Company or By-laws or their organizational charter or
by-laws, respectively, or in violation of any term of or in default under any
material contract, agreement, mortgage, indebtedness, indenture, instrument,
judgment, decree or order or any statute, rule or regulation applicable to the
Company or its subsidiaries. The business of the Company and its subsidiaries is
not being conducted, in violation of any law, ordinance or regulation of any
governmental entity. Except as specifically contemplated by this Agreement and
as required under the 1933 Act, the Company is not required to obtain any
consent, authorization or order of, or make any filing or registration with, any
court or governmental or regulatory or self-regulatory agency in order for it to
execute, deliver or perform any of its obligations under or contemplated by this
Agreement, the Convertible Notes, the Registration Rights Agreement or the
Warrants in accordance with the terms hereof or thereof. Except as disclosed in
Schedule 3(e), all consents, authorizations, orders, filings and registrations
which the Company is required to obtain pursuant to the preceding sentence have
been obtained or effected on or prior to the date hereof. The Company is not in
violation of the listing requirements of the American Stock Exchange (the
"AMEX") or, if applicable, the Nasdaq National Market and does not reasonably
anticipate that the Common Stock will be delisted by the AMEX or the Nasdaq
National Market in the foreseeable future. The Company and its subsidiaries are
unaware of any facts or circumstances which might give rise to any of the
foregoing.
f. SEC Documents; Financial Statements. Since
October 1, 1996 and except as provided on Schedule 3(f), the Company has filed
all reports, schedules, forms, statements and other documents required to be
filed by it with the SEC pursuant to the reporting requirements of the
Securities Exchange Act of 1934, as amended (the "1934 Act") (all of the
foregoing filed prior to the date hereof and all exhibits included therein and
financial statements and schedules thereto and documents incorporated by
reference therein being hereinafter referred to as the "SEC Documents"). The
Company (i) has delivered or made available to each Buyer or its representative
true and complete copies of the SEC Documents as each Buyer or its
representative has requested from the Company and (ii) agrees to deliver or make
available to each Buyer or its representative true and complete copies of any
additional SEC Documents, upon request. As of their respective dates, the SEC
Documents complied in all material respects with the requirements of the 1934
Act and the rules and regulations of the SEC promulgated thereunder applicable
to the SEC Documents, and none of the SEC Documents, at the time they were filed
with the SEC, contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading. As of their respective dates, the financial statements of
the Company included in the SEC Documents complied as to form in all material
respects with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto. Such financial statements have been
prepared in accordance with generally accepted accounting principles,
consistently applied during the periods involved (except (i) as may be otherwise
indicated in such financial statements or the notes thereto, or (ii) in the case
of unaudited interim statements, to the extent they may exclude footnotes or may
be condensed or summary statements) and fairly present in all material respects
the financial position of the Company as of the dates thereof and the results of
its operations and cash flows for the periods then ended (subject, in the case
of unaudited statements, to normal year-end audit adjustments). No other
information provided by or on behalf of the Company to the Buyer which is not
included in the SEC Documents, including, without limitation, information
referred to in Section 2(d) of this Agreement, contains any untrue statement of
a material fact or omits to state any material fact necessary in order to make
the statements therein, in the light of the circumstances under which they are
or were made, not misleading. The Company has not provided and will not provide
to any Buyer any material non-public information which, according to applicable
law, rule or regulation should have been disclosed publicly by the Company but
which has not been so disclosed as of the date hereof.
g. Absence of Certain Changes. Except as expressly
set forth in Schedule 3(g) and the draft Form 10-K of the Company for the year
ended September 30, 1998 which is attached to said Schedule 3(g), since October
1, 1997, there has been no material adverse change and no material adverse
development in the business, properties, operations, condition (financial or
otherwise), results of operations or prospects of the Company and its
subsidiaries individually or taken as a whole. The Company has not taken any
steps, and does not currently expect to take any steps, to seek protection
pursuant to any bankruptcy law nor does the Company or its subsidiaries have any
knowledge or reason to believe that its creditors intend to initiate involuntary
bankruptcy proceedings.
h. Absence of Litigation. Except as set forth in
Schedule 3(h), there is no action, suit, proceeding, inquiry or investigation
before or by any court, public board, government agency, self-regulatory
organization or body pending or, to the knowledge of the Company or any of its
subsidiaries, threatened against or affecting the Company or its subsidiaries or
their respective directors or officers, or the Common Stock, wherein an
unfavorable decision, ruling or finding would individually or in the aggregate
have a Material Adverse Effect. Schedule 3(h) contains a complete list and
summary description of any pending, or to the knowledge of the Company,
threatened proceeding against or affecting the Company or any of its
subsidiaries involving a claim exceeding $50,000 , without regard to whether it
could have a Material Adverse Effect.
i. Acknowledgment Regarding Buyers' Purchase of the
Securities. The Company acknowledges and agrees that each of the Buyers is
acting solely in the capacity of arm's length purchaser with respect to this
Agreement and the transactions contemplated hereby. The Company further
acknowledges that each Buyer is not acting as a financial advisor or fiduciary
of the Company (or in any similar capacity) with respect to this Agreement and
the transactions contemplated hereby and any advice given by any of the Buyers
or any of their respective representatives or agents in connection with this
Agreement and the transactions contemplated hereby is merely incidental to such
Buyer's purchase of the Convertible Notes. The Company further represents to
each Buyer that the Company's decision to enter into this Agreement has been
based solely on the independent evaluation by the Company and its
representatives.
j. No General Solicitation. Neither the Company, nor
any of its affiliates, nor any person acting on its or their behalf, has engaged
in any form of general solicitation or general advertising (within the meaning
of Regulation D under the 0000 Xxx) in connection with the offer or sale of any
of the Securities offered hereby.
k. No Integrated Offering. Neither the Company, nor
any of its affiliates, nor any person acting on its or their behalf has,
directly or indirectly, made any offers or sales of any security or solicited
any offers to buy any security, under circumstances that would require
registration of any of the Securities under the 1933 Act or cause the offering
of any of the Securities to be integrated with prior offerings by the Company
for purposes of the 1933 Act or any applicable stockholder approval provisions,
including, without limitation, under the rules and regulations of the AMEX or
National Association of Securities Dealers Automated Quotations ("NASDAQ").
l. Employment Matters; ERISA Matters. The Company
and its subsidiaries are in compliance with all federal, state, local and
foreign laws and regulations respecting employment and employment practices,
terms and conditions of employment and wages and hours except where failure to
be in compliance would not have a Material Adverse Effect. There are no pending
investigations involving the Company or any of its subsidiaries by the U.S.
Department of Labor or any other governmental agency responsible for the
enforcement of such federal, state, local or foreign laws and regulations. There
is no unfair labor practice charge or complaint against the Company or any of
its subsidiaries pending before the National Labor Relations Board or any
strike, picketing, boycott, dispute, slowdown or stoppage pending or threatened
against or involving the Company or any of its subsidiaries. Except as set forth
in Schedule 3(l), no representation question exists respecting the employees of
the Company or any of its subsidiaries, and no collective bargaining agreement
or modification thereof is currently being negotiated by the Company or any of
its subsidiaries. No grievance or arbitration proceeding is pending under any
expired or existing collective bargaining agreements of the Company or any of
its subsidiaries. No material labor dispute with the employees of the Company or
any of its subsidiaries exists or, to the knowledge of the Company, is imminent.
The Company has no employee benefit plans subject to the Employee Retirement
Income Security Act of 1974, as amended.
m. Intellectual Property Rights. The Company and its
subsidiaries own or possess the requisite rights or licenses to use all
trademarks, trade names, service marks, service xxxx registrations, service
names, patents, patent rights, copyrights, inventions, licenses, approvals,
governmental authorizations, trade secrets and rights (collectively
"Intellectual Property Rights") necessary to conduct their respective businesses
as now conducted and as presently contemplated to be operated in the future.
None of the Intellectual Property Rights or other intellectual property rights
have expired or terminated, or are expected to expire or terminate in the near
future. The Company and its subsidiaries do not have any knowledge of any event,
fact or circumstance relating to (i) any infringement by the Company or its
subsidiaries of any trademarks, trade names, service marks, service xxxx
registrations, service names, patents, patent rights, copyrights, inventions,
licenses, approvals, governmental authorizations, trade secrets or other similar
rights of others, or of any such development of similar or identical trade
secrets or technical information by others or (ii) any person or entity now
infringing any Intellectual Property Rights or other similar rights or any such
development of similar or identical trade secrets or technical information owned
or used by the Company or any of its subsidiaries and, except as set forth on
Schedule 3(m), there is no claim, action or proceeding being made or brought
against, or to the Company's knowledge, being threatened against, the Company or
its subsidiaries regarding any trademarks, trade names, service marks, service
xxxx registrations, service names, patents, patent rights, copyrights,
inventions, licenses, approvals, governmental authorizations, trade secrets or
other similar rights of others, or of any such development of similar or
identical trade secrets or technical information by others or (ii) any person or
entity now infringing any Intellectual Property Rights or other similar rights
or any such development of similar or identical trade secrets or other
infringement; and the Company and its subsidiaries are unaware of any facts or
circumstances which might give rise to any of the foregoing. The Company and its
subsidiaries have taken reasonable security measures to protect the secrecy,
confidentiality and value of all of their Intellectual Property Rights.
n. Environmental Laws. (i) The Company and its
subsidiaries (A) are in compliance with any and all Environmental Laws, (B) have
received all permits, licenses or other approvals required of them under
applicable Environmental Laws to conduct their respective businesses, and (C)
are in compliance with all terms and conditions of any such permit, license or
approval. With respect to the Company and/or its subsidiaries (A) there are no
past or present releases of any material into the environment, actions,
activities, circumstances, conditions, events, incidents, or contractual
obligations which may give rise to any common law environmental liability or any
liability under any Environmental Law and (B) neither the Company nor any of its
subsidiaries has received any notice with respect to the foregoing, nor is any
action pending or to the Company's knowledge, threatened in connection with the
foregoing. The term "Environmental Laws" means all federal, state, local or
foreign laws relating to pollution or protection of human health or the
environment (including, without limitation, ambient air, surface water,
groundwater, land surface or subsurface strata), including, without limitation,
laws relating to emissions, discharges, releases or threatened releases of
chemicals, pollutants, contaminants, or toxic or hazardous substances or wastes
(collectively, "Hazardous Materials") into the environment, or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Hazardous Materials, as well as all
authorizations, codes, decrees, demands or demand letters, injunctions,
judgments, licenses, notices or notice letters, orders, permits, plans or
regulations issued, entered, promulgated or approved thereunder.
(ii) Other than those that are or were stored, used or
disposed of in compliance with applicable law, no Hazardous Materials are
contained on or about any real property currently owned, leased or used by the
Company or any of its Subsidiaries, and no Hazardous Materials were released on
or about any real property previously owned, leased or used by the Company or
any of its subsidiaries during the period the property was owned, leased or used
by the Company or any of its subsidiaries.
(iii) Except as set forth in Schedule 3(n), there are no
underground storage tanks on or under any real property owned, leased or used by
the Company or any of its subsidiaries that are not in compliance with
applicable law.
o. Title. The Company and its subsidiaries have good
and marketable title in fee simple to all real property and good and marketable
title to all personal property owned by them which is material to the business
of the Company and its subsidiaries, in each case free and clear of all liens,
encumbrances and defects except such as are described in Schedule 3(o) or such
as do not materially affect the value of such property and do not interfere with
the use made and proposed to be made of such property by the Company and its
subsidiaries. Any real property and facilities held under lease by the Company
and its subsidiaries are held by them under valid, subsisting and enforceable
leases with such exceptions as are not material and do not interfere with the
use made and proposed to be made of such property and buildings by the Company
and its subsidiaries.
p. Insurance. The Company and each of its
subsidiaries are insured by insurers of recognized financial responsibility
against such losses and risks and in such amounts as is prudent and customary in
the businesses in which the Company and its subsidiaries are engaged. Neither
the Company nor any such subsidiary has any reason to believe that it will not
be able to renew its existing insurance coverage as and when such coverage
expires or to obtain similar coverage from similar insurers as may be necessary
to continue its business at a cost that would not individually or in the
aggregate have a Material Adverse Effect.
q. Regulatory Permits; Compliance. The Company and
its subsidiaries possess all franchises, grants, authorizations, licenses
permits, easements, consents, certificates, approvals and orders necessary to
own, lease and operate its properties and to conduct their respective businesses
as currently being conducted (collectively, the "Company Permits"). There is no
action pending, or to the knowledge of the Company, threatened regarding the
suspension or cancellation of any of the Company Permits. Neither the Company
nor any of its subsidiaries is in conflict with, or in default or violation of,
any of the Company Permits. Neither the Company nor any of its subsidiaries has
received any notification with respect to possible conflicts, defaults, or
violations of applicable laws.
r. Internal Accounting Controls. The Company and
each of its subsidiaries maintain a system of internal accounting controls
sufficient, in the judgment of the Company's board of directors, to provide
reasonable assurance that (i) transactions are executed in accordance with
management's general or specific authorizations, (ii) transactions are recorded
as necessary to permit preparation of financial statements in conformity with
generally accepted accounting principles and to maintain asset accountability,
(iii) access to assets is permitted only in accordance with management's general
or specific authorization and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate action
is taken with respect to any differences.
s. No Materially Adverse Contracts, Etc. Neither the
Company nor any of its subsidiaries is subject to any charter, corporate or
other legal restriction, or any judgment, decree, order, rule or regulation
which in the reasonable judgment of the Company's officers has or is expected in
the future individually or in the aggregate to have a Material Adverse Effect.
Neither the Company nor any of its subsidiaries is a party to any contract or
agreement which in the reasonable judgment of the Company's officers has or
based upon past, current or reasonably foreseeable circumstances is expected to
have a Material Adverse Effect.
t. Tax Status. Except as set forth on Schedule 3(t),
the Company and each of its subsidiaries has made or filed all federal, state
and foreign income and all other tax returns, reports and declarations required
by any jurisdiction to which it is subject (unless and only to the extent that
the Company and each of its subsidiaries has set aside on its books provisions
reasonably adequate for the payment of all unpaid and unreported taxes) and has
paid all taxes and other governmental assessments and charges that are material
in amount, shown or determined to be due on such returns, reports and
declarations, except those being contested in good faith and has set aside on
its books provision reasonably adequate for the payment of all taxes for periods
subsequent to the periods to which such returns, reports or declarations apply.
There are no unpaid taxes in any material amount claimed to be due by the taxing
authority of any jurisdiction, and the officers of the Company know of no basis
for any such claim. The Company has not executed a waiver with respect to the
statute of limitations relating to the assessment or collection of any foreign,
federal, state or local tax.. The Company has not been notified that any of its
tax returns is currently being audited by any taxing authority.
u. Certain Transactions. Except as set forth on
Schedule 3(u) and except for arm's length transactions pursuant to which the
Company makes payments in the ordinary course of business upon terms no less
favorable than the Company could obtain from third parties and other than the
grant of stock options disclosed on Schedule 3(c), none of the officers,
directors or employees of the Company is presently a party to any transaction
with the Company (other than for services as employees, officers and directors),
including any contract, agreement or other arrangement providing for the
furnishing of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any officer,
director or such employee or, to the knowledge of the Company, any corporation,
partnership, trust or other entity in which any officer, director or any such
employee has a substantial interest or is an officer, director, trustee or
partner.
v. S-3 Registration. Except as provided on Schedule
3(v), the Company is currently eligible to register securities, including the
resale of Conversion Shares and the Warrant Shares, on a registration statement
on Form S-3 under the 1933 Act.
w. Disclosure. All information relating to or
concerning the Company or any of its subsidiaries set forth in this Agreement
and provided to the Buyer pursuant to Section 2(d) hereof and otherwise in
connection with the transactions contemplated hereby is true and correct in all
material respects and the Company has not omitted to state any material fact
necessary in order to make the statements made herein or therein, in light of
the circumstances under which they were made, not misleading. No event or
circumstance has occurred or information exists with respect to the Company or
any of its subsidiaries or its or their business, properties, operations or
financial conditions, which, under applicable law, rule or regulation, requires
public disclosure or announcement by the Company but which has not been so
publicly announced or disclosed (assuming for this purpose that the Company's
reports filed under the 1934 Act are being incorporated into an effective
registration statement filed by the Company under the 1933 Act). The Company has
not provided any Buyer with any material non-public information nor any
projections or assurance regarding the future financial performance of the
Company.
x. No Qualified Opinion. The Company has not
received an opinion, report or letter from its auditors qualified in any
respect, including as to the Company's ability to proceed as a going concern in
connection with the Company's financial statements for the fiscal year ended
September 30, 1998 and provided that the transactions contemplated hereby are
consummated, does not anticipate or know of any basis upon which its auditors
might issue any such opinion, report or letter.
y. Investment Company Status. The Company is not and
upon consummation of the sale of the Securities will not be an "investment
company," a company controlled by an "investment company" or an "affiliated
person" of, or "promoter" or "principal underwriter" for, an "investment
company" as such terms are defined in the Investment Company Act of 1940, as
amended.
z. Foreign Corrupt Practices. Neither the Company
nor any of its subsidiaries, nor any director, officer, agent, employee or other
person acting on behalf of the Company or any subsidiary has, in the course of
his actions for, or on behalf of, the Company used any corporate funds for any
unlawful contribution, gift, entertainment or other unlawful expenses relating
to political activity; made any direct or indirect unlawful payment to any
foreign or domestic government official or employee from corporate funds;
violated or is in violation of any provision of the U.S. Foreign Corrupt
Practices Act of 1977; or made any bribe, rebate, payoff, influence payment,
kickback or other unlawful payment to any foreign or domestic government
official or employee.
aa. Year 2000. Any reprogramming required to permit
the proper functioning, in and following the year 2000, of the Company's and its
subsidiaries' (i) computer systems and (ii) equipment containing embedded
microchips (including systems and equipment supplied by others to the Company or
with which are sold as an integral part of Company's or any of its subsidiaries'
systems) and the testing of such systems and equipment, as so reprogrammed will
be completed by September 30, 1999. The cost to the Company and its subsidiaries
of such reprogramming and testing and of the reasonably foreseeable consequences
of year 2000 to the Company and its subsidiaries with respect to the matters
referred to in the previous sentence (including without limitation,
reprogramming errors and the failure of systems or equipment supplied by others
to the Company or which are sold as an integral part of the Company's or any of
its subsidiaries' systems) will not have a Material Adverse Effect. Except for
the reprogramming referred to herein as may be necessary, the computer and
management information systems of the Company and each of its subsidiaries are
and, with ordinary course upgrading and maintenance, will continue to be,
sufficient to permit the Company and each subsidiary to conduct its business
without a Material Adverse Effect.
4. COVENANTS AND AGREEMENTS.
a. Best Efforts. Each party shall use its best
efforts timely to satisfy each of the conditions to be satisfied by it as
provided in Sections 6 and 7 of this Agreement.
b. Form D. The Company agrees to file a Form D with
respect to the Securities as required under Regulation D and to provide a copy
thereof to each Buyer promptly after such filing. The Company shall, on or
before the Closing Date, take such action as the Company shall reasonably
determine is necessary to qualify the Securities for, or obtain exemption for
the Securities for, sale to the Buyers at the Closing pursuant to this Agreement
under applicable securities or "Blue Sky" laws of the states of the United
States, and shall provide evidence of any such action so taken to the Buyers on
or prior to the Closing Date.
c. Reporting Status. Until the earlier of (i) six
months after the date as of which the Investors (as that term is defined in the
Registration Rights Agreement) may sell all of the Conversion Shares and Warrant
Shares without restriction pursuant to Rule 144(k) promulgated under the 1933
Act (or successor thereto) or (ii) the date which is six months after the date
on which none of the Convertible Notes or Warrants are outstanding (the
"Registration Period"), the Company (x) shall timely file all reports required
to be filed with the SEC pursuant to the 1934 Act, and the Company shall not
terminate its status as an issuer required to file reports under the 1934 Act
even if the 1934 Act or the rules and regulations thereunder would otherwise
permit such termination and (y) will use its best efforts and take all necessary
action to maintain its ability and eligibility to register securities on Form
S-3.
d. Use of Proceeds. The Company will use the
proceeds from the sale of the Convertible Notes and Warrants for working capital
and general corporate purposes and shall not otherwise, directly or indirectly,
use such proceeds for any loan to or investment in any other corporation,
partnership, enterprise or other person (except in connection with its direct or
indirect subsidiaries).
e. Financial Information. The Company agrees to file
all reports, schedules, forms, statements and other documents required to be
filed by it with the SEC pursuant to the reporting requirements of the 1934 Act.
The financial statements of the Company will be prepared in accordance with
generally accepted accounting principles, consistently applied, and will fairly
present in all material respects the consolidated financial position of the
Company and its consolidated subsidiaries and results of their operations and
cash flows for the periods then ended (subject, in the case of unaudited
statements, to normal year-end audit adjustments). The Company agrees to send
the following to each Investor (as that term is defined in the Registration
Rights Agreement) during the Registration Period: (i) within fifteen (15) days
after the filing thereof with the SEC, a copy of its Annual Reports on Form
10-K, its Quarterly Reports on Form 10-Q, any Current Reports on Form 8-K and
any registration statements or amendments filed pursuant to the 1933 Act; (ii)
within five (5) days after release thereof, copies of all press releases issued
by the Company or any of its subsidiaries; and (iii) copies of any notices and
other information made available or given to the stockholders of the Company
generally, contemporaneously with the making available or giving thereof to the
stockholders.
f. Reservation of Shares. The Company shall take all
action necessary to at all times have authorized, and reserved for the purpose
of issuance, no less than the number of shares of Common Stock necessary to
provide for the issuance of the Conversion Shares and Warrant Shares upon
conversion of the Convertible Notes and the exercise of the Warrants,
respectively, in accordance with the terms of this Agreement, the Convertible
Notes and the Warrants; provided that the number of shares of Common Stock so
reserved shall initially be 1,717,587 and if the Common Share Limit (as defined
in the Convertible Notes) is no longer applicable as set forth in Section 3(a)
of the Convertible Notes, shall at no time be less than 200% of the number of
shares of Common Stock necessary to provide for issuance of the Conversion
Shares and the Warrant Shares, upon conversion of the Convertible Notes and
exercise of the Warrants, respectively, in accordance with the terms of this
Purchase Agreement, the Convertible Notes and the Warrants.
g. Listing. The Company shall promptly secure the
listing of the Conversion Shares and Warrant Shares upon the AMEX or the Nasdaq
National Market ("Nasdaq") (subject to official notice of issuance) and shall
maintain, so long as Buyer owns any of the Securities, the listing of all
Conversion Shares and Warrant Shares from time to time issuable under the terms
of this Agreement, the Convertible Notes and the Warrants on each national
securities exchange and automated quotation system (including the AMEX and the
Nasdaq National Market System and Nasdaq SmallCap), if any, upon which shares of
Common Stock are then listed. The Company shall promptly provide to each Buyer
copies of any notices it receives from AMEX or NASDAQ regarding the continued
eligibility of the Common Stock for listing on AMEX or Nasdaq or other principal
exchange or quotation system on which the Common Stock is listed or traded
except to the extent that such notices would constitute material non-public
information which, according to applicable law, rule or regulation should have
been disclosed publicly by the Company but which has not been so disclosed as
such date. The Company shall pay all fees and expenses in connection with
satisfying its obligations under this Section 4(g).
h. Expenses. Each of the Company and the Buyers
shall each pay its respective costs and expenses incurred by such party in
connection with the negotiation, investigation, preparation, execution, delivery
and performance of this Agreement or the Convertible Notes, the Warrants and the
Registration Rights Agreement; provided, that at the Closing as the Buyers may
request, the Company shall reimburse the Buyers for Buyers' accountable
attorneys' fees and expenses incurred in connection with the preparation of this
Agreement, the Convertible Notes, the Warrants and the Registration Rights
Agreement up to an aggregate of $50,000. In addition to the foregoing, the
Company agrees to pay on demand (i) all reasonable costs and expenses
(including, without limitation, reasonable fees and expenses of counsel to the
Buyers) incurred by the Buyers in connection with the enforcement of the Buyer's
rights and/or the collection of all amounts due under this Agreement, the
Warrants, the Registration Rights Agreement or the Notes.
i. Additional Issuances of Securities.
(a) Right of First Refusal. If at any time on or
before the earlier of (i) the six-month anniversary of the Closing Date and (ii)
the time that the Buyers no longer hold any Convertible Notes or Warrants, the
Company shall desire to issue any Common Stock or any security convertible,
exchangeable or exercisable for Common Stock or any other right to acquire any
Common Stock (the "Convertible Securities") pursuant to Section 4(2) of the 1933
Act or an offering under Regulation D or Regulation S of the 1933 Act or in any
other private placement in any such case with an acquisition price for each
share of Common Stock that is proposed to be less than the Market Price (as
defined in the Convertible Notes) of the Common Stock on the date of such
issuance (other than pursuant to Company authorized stock option plans or future
equity financing whereby Common Stock or Convertible Securities are issued to
any person or entity which has or is proposed to have a material business,
technology or commercial relationship with the Company in addition to any equity
financing provided by such person or entity), then the Company shall first
comply with the terms of this Section 4(i).
(b) Notice Requirements. The Company shall notify,
or cause to be notified, the Buyers not less than twenty (20) business days
prior to the time the Company intends to consummate such issuance (the "Issuance
Notice"). The Issuance Notice shall set forth all of the terms of such proposed
issuance.
(c) Exercise of Right of First Refusal. The right of
first refusal provided for in this Section 4(i) may be exercised by the Buyers
by delivery of a written notice to the Company (the "Exercise Notice"), within
ten (10) business days following receipt of the Issuance Notice (the "Refusal
Period"). The Exercise Notice shall state that the Buyers agree to purchase all
or any specified part of the proposed issuance of such Common Stock or
Convertible Securities on terms substantially equal to the terms set forth in
the Issuance Notice.
(d) Right to Issue Securities. After expiration of
the Refusal Period, if the provisions of this Section 4(i) have been complied
with in all respects by the Company and no Exercise Notice has been given, or if
given, the Buyers have not agreed to purchase all of the securities set forth in
the Issuance Notice, the Company shall have the right for forty-five (45)
calendar days following the termination of the Refusal Period to issue such
securities, or any portion thereof not being purchased by the Buyers, specified
in the Issuance Notice on the terms described in the Issuance Notice without
further notice to the Buyers, but after such forty-five (45) calendar days, no
such issuance may be made without again giving notice to the Buyers and
complying with all of the requirements of this Section 4(i).
(e) For so long as any Buyer beneficially owns any
Securities, the Company will not issue any Convertible Notes other than to the
Buyers as contemplated hereby.
j. Dilutive Effect. The Company understands and
acknowledges that the number of Conversion Shares and Warrant Shares issuable
upon conversion of the Convertible Notes and exercise of the Warrants,
respectively, will increase in certain circumstances. The Company further
acknowledges and agrees that its obligation to issue Conversion Shares and
Warrant Shares upon conversion of the Convertible Notes and exercise of the
Warrants, respectively, in accordance with this Agreement, the Convertible
Notes, and the Warrants, as applicable, is absolute and unconditional regardless
of the dilutive effect that such issuance may have on the ownership interests of
other stockholders of the Company.
k. Disclosure. From and after the date hereof, the
Company will not provide to any Buyer any material non-public information which,
according to applicable law, rule or regulation should be disclosed publicly by
the Company but which has not been so disclosed.
l. Corporate Existence. So long as any Buyer
beneficially owns any Securities, the Company shall maintain its corporate
existence in good standing under the laws of the jurisdiction in which it is
incorporated and shall not sell all or substantially all of the Company's
assets, except in the event of a merger or consolidation or sale of all or
substantially all of the Company's assets, where the surviving or successor
entity in such transaction either (i) repays the Convertible Notes in full in
accordance with the terms of the Convertible Notes applicable to such
transaction or (ii) (A) assumes the Company's obligations hereunder and under
the agreements and instruments entered into or filed in connection herewith and
(B) is a publicly traded corporation whose Common Stock is listed for trading on
AMEX, Nasdaq NMS or NYSE.
m. Solvency; Compliance with Law. The Company (both
before and after giving effect to the transactions contemplated by this
Agreement) is solvent (i.e., its assets have a fair market value in excess of
the amount required to pay its probable liabilities on its existing debts as
they become absolute and matured) and currently the Company has no information
that would lead it to reasonably conclude that the Company would not have, nor
does it intend to take any action that would impair, its ability to pay its
debts from time to time incurred in connection therewith as such debts mature.
The Company will conduct its business in compliance with all applicable laws,
rules, ordinances and regulations of the jurisdictions in which it is conducting
business, including, without limitation, all applicable local, state and federal
environmental laws and regulations the failure to comply with which would have a
Material Adverse Effect.
n. Insurance. The Company shall maintain liability,
casualty and other insurance (subject to customary deductions and retentions)
with responsible insurance companies against such risk of the types and in the
amounts customarily maintained by companies of comparable size to the Company.
o. No Integration. The Company will not conduct any
future offering that will be integrated with the issuance of the Securities for
purposes of the rules promulgated by the SEC or AMEX.
p. Year 2000. Take all actions reasonably necessary
to assure that the Company's and its subsidiaries' computer systems and
equipment containing embedded microchips (including systems and equipment
supplied by others to the Company or which are sold as an integral part of the
Company's or any of its subsidiaries' systems) will operate and effectively
process data including datafields requiring references to dates on and after
January 1, 2000 and the testing of such systems and equipment.
5. TRANSFER AGENT INSTRUCTIONS.
The Company shall issue irrevocable instructions to its
transfer agent (in the form attached hereto as Exhibit D) to issue certificates,
or at a Buyer's request, to electronically issue such shares (e.g., through DWAC
or DTC), registered in the name of each Buyer or its respective nominee(s), for
the Conversion Shares or Warrant Shares in such amounts as specified from time
to time by each Buyer to the Company in accordance with the terms of and upon
conversion of the Convertible Notes or exercise of the Warrants, respectively
(the "Irrevocable Transfer Agent Instructions"). Prior to registration of the
Conversion Shares and Warrant Shares under the 1933 Act, such certificates shall
bear the restrictive legend specified in Section 2(g) of this Agreement. The
Company warrants that no instruction with respect to the Securities other than
(i) the Irrevocable Transfer Agent Instructions referred to in this Section 5,
and (ii) stop transfer instructions (a) to give effect to Section 2(f) hereof
(in the case of the Conversion Shares and Warrant Shares, prior to registration
of the Conversion Shares and Warrant Shares under the 1933 Act), (b) to comply
with any SEC or court order, or (c) to suspend use of a then effective
registration statement in the event an amendment or supplement thereto is
necessary, will be given by the Company to its transfer agent and that the
Securities shall otherwise be freely transferable on the books and records of
the Company as and to the extent provided in this Agreement, the Registration
Rights Agreement, the Convertible Notes and the Warrants. Nothing in this
Section 5 shall affect in any way each Buyer's obligations and agreement to
comply with all applicable securities laws upon resale of any of the Securities.
If a Buyer provides the Company with an opinion of counsel, reasonably
satisfactory in form and substance to the Company, that registration of a resale
by such Buyer of any of the Securities is not required under the 1933 Act, the
Company shall permit the transfer, and, in the case of the Conversion Shares or
Warrant Shares, promptly instruct its transfer agent to issue one or more
certificates in such name and in such denominations as specified by such Buyer.
The Company acknowledges that a breach by it of its obligations hereunder will
cause irreparable harm to the Buyers by vitiating the intent and purpose of the
transaction contemplated hereby. Accordingly, the Company acknowledges that the
remedy at law for a breach of its obligations under this Section 5 will be
inadequate and agrees, in the event of a breach or threatened breach by the
Company of the provisions of this Section 5, that the Buyers shall be entitled,
in addition to all other available remedies, to an injunction restraining any
breach and requiring immediate issuance and transfer, without the necessity of
showing economic loss and without any bond or other security being required.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
The obligation of the Company hereunder to issue and sell the
Convertible Notes and Warrants to each Buyer at the Closing is subject to the
satisfaction, with respect to each Buyer, at or before the Closing Date, of each
of the following conditions, provided that these conditions are for the
Company's sole benefit and may be waived by the Company at any time in its sole
discretion:
a. Such Buyer shall have executed this Agreement and
the Registration Rights Agreement and delivered the same to the Company.
b. Such Buyer shall have delivered to the Company
the purchase price for the Convertible Notes being purchased by such Buyer at
the Closing by wire transfer of immediately available funds pursuant to the wire
instructions provided by the Company.
c. The representations and warranties of such Buyer
shall be true and correct in all material respects as of the date when made and
as of the Closing Date as though made at that time (except for representations
and warranties that speak as of a specific date), and such Buyer shall have
performed, satisfied and complied in all material respects with the covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by such Buyer at or prior to the Closing Date.
7. CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE.
The obligation of each Buyer hereunder to purchase the
Convertible Notes and Warrants at the Closing is subject to the satisfaction, at
or before the Closing Date, of each of the following conditions, provided that
these conditions are for each Buyer's sole benefit and may be waived by such
Buyer at any time in its sole discretion:
a. The Company shall have executed this Agreement,
the Convertible Notes and the Registration Rights Agreement, and delivered the
same to such Buyer.
b. The Common Stock shall be listed and authorized
for trading on the AMEX or the Nasdaq National Market, trading in the Common
Stock issuable upon conversion of the Convertible Notes and exercise of the
Warrants to be traded on the AMEX or the Nasdaq National Market shall not have
been suspended by the SEC or the AMEX or Nasdaq.
c. The representations and warranties of the Company
shall be true and correct in all material respects (except to the extent that
any of such representations and warranties is already qualified as to
materiality in Section 3 above, in which case such representations and
warranties shall be true and correct without further qualification) as of the
date when made and as of the Closing Date as though made at that time (except
for representations and warranties that speak as of a specific date) and the
Company shall have performed, satisfied and complied in all material respects
with the covenants, agreements and conditions required by this Agreement to be
performed, satisfied or complied with by the Company at or prior to the Closing
Date. Such Buyer shall have received a certificate, executed by the Chief
Financial Officer of the Company, dated as of the Closing Date, to the foregoing
effect and as to such other matters as may be reasonably requested by such Buyer
including, without limitation, an update as of the Closing Date regarding the
representation contained in Section 3(c) above.
d. Each Buyer shall have received the opinion of the
Company's counsel dated as of the Closing Date, in form, scope and substance
reasonably satisfactory to such Buyer and in substantially the form of Exhibit E
attached hereto.
e. The Company shall have executed and delivered to
such Buyer the Warrants being purchased by such
Buyer at the Closing.
f. The Board of Directors of the Company shall have
adopted the resolutions in substantially the form
of Exhibit F attached hereto.
g. As of the Closing Date, the Company shall have
reserved out of its authorized and unissued Common Stock, solely for the purpose
of effecting the conversion of the Convertible Notes and the exercise of the
Warrants, 1,717,587 shares of Common Stock to provide for the issuance of the
Conversion Shares and Warrant Shares in accordance with the terms of this
Agreement, the Convertible Notes and the Warrants.
h. The Irrevocable Transfer Agent Instructions, in
the form of Exhibit D attached hereto, shall have been delivered to and
acknowledged in writing by the Company's transfer agent.
i. The transactions contemplated hereby shall not
violate any law, regulation or order then in effect and applicable to Buyers or
the Company.
8. INDEMNIFICATION.
In consideration of each Buyer's execution and
delivery of this Agreement and acquiring the Securities hereunder and in
addition to all of the Company's other obligations under this Agreement, the
Company shall defend, protect, indemnify and hold harmless each Buyer and each
other holder of Securities and all of their officers, directors, employees and
agents (including, without limitation, those retained in connection with the
transactions contemplated by this Agreement) (collectively, the "Buyer
Indemnitees") from and against any and all actions, causes of action, suits,
claims, losses, costs, penalties, fees, liabilities and damages, and expenses in
connection therewith (irrespective of whether any such Buyer Indemnitee is a
party to the action for which indemnification hereunder is sought), and
including reasonable attorneys' fees and disbursements (the "Buyer Indemnified
Liabilities"), incurred by any Buyer Indemnitee (and shall advance the same) as
a result of, or arising out of, or relating to (a) subject to Section 9(i), any
misrepresentation or breach of any representation or warranty made by the
Company in this Agreement, the Convertible Notes, the Warrants, the Registration
Rights Agreement or any other certificate, instrument or document contemplated
hereby or thereby, (b) any breach of any covenant, agreement or obligation of
the Company contained in this Agreement, the Convertible Notes, the Warrants or
the Registration Rights Agreement or any other certificate, instrument or
document contemplated hereby or thereby, or (c) the execution, delivery,
performance or enforcement of this Agreement or any other instrument, document
or agreement executed pursuant hereto by any of the Buyer Indemnitees, any
transaction financed or to be financed in whole or in part, directly or
indirectly, with the proceeds of the issuance of the Convertible Notes and
Warrants or the status of such Buyer or holder of any of the Securities as an
investor in the Company except to the extent that such Buyer Indemnified
Liabilities are incurred directly as a result of a breach by such Buyer
Indemnitee of any covenant, agreement or obligation of such Buyer Indemnitee
contained in this Agreement. To the extent that the foregoing undertaking by the
Company may be unenforceable for any reason, the Company shall make the maximum
contribution to the payment and satisfaction of each of the Buyer Indemnified
Liabilities which is permissible under applicable law.
9. GOVERNING LAW; MISCELLANEOUS.
a. Governing Law. This Agreement shall be governed
by and interpreted in accordance with the laws of the State of New York without
regard to the principles of conflict of laws.
b. Counterparts. This Agreement may be executed in
two or more identical counterparts, all of which shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party. In the event any signature page is
delivered by facsimile transmission, the party using such means of delivery
shall cause four (4) additional original executed signature pages to be
physically delivered to the other party within five (5) days of the execution
and delivery hereof.
c. Headings. The headings of this Agreement are for
convenience of reference and shall not form part of, or affect the
interpretation of, this Agreement.
d. Severability. If any provision of this Agreement
shall be invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement in that jurisdiction or the validity or
enforceability of any provision of this Agreement in any other jurisdiction.
e. Entire Agreement; Amendments. This Agreement
supersedes all other prior oral or written agreements between the Buyers, the
Company, their affiliates and persons acting on their behalf with respect to the
matters discussed herein, and this Agreement and the documents referenced herein
contain the entire understanding of the parties with respect to the matters
covered herein and therein and, except as specifically set forth herein or
therein, neither the Company nor any Buyer makes any representation, warranty,
covenant or undertaking with respect to such matters. No provision of this
Agreement may be waived or amended other than by an instrument in writing signed
by the party to be charged with enforcement.
f. Notices. Any notices, consents, waivers or other
communications required or permitted to be given under the terms of this
Agreement shall be in writing and will be deemed to have been delivered (i) upon
receipt, when delivered personally; (ii) upon receipt, when sent by facsimile;
(iii) three (3) days after being sent by U.S. certified mail, return receipt
requested, or (iv) one (1) day after deposit with a nationally recognized
overnight delivery service, in each case properly addressed to the party to
receive the same. The addresses and facsimile numbers for such communications
shall be:
If to the Company:
SoftNet Systems, Inc.
000 Xxxxx Xxxxxx
Xxxxxxxx Xxxx, XX 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Attention: Chief Financial Officer
With a copy to:
Xxxxxxx, Phleger & Xxxxxxxx LLP
Two Embarcadero Place
0000 Xxxx Xxxx
Xxxx Xxxx, XX 00000-0000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Attention: Xxxxxx X. Xxxxxxxxx, Esq.
If to the Transfer Agent:
Xxxxx Xxxxxx Shareholders Services LLC
000 Xxxxxxxx Xxxxx, Xxxxx 0000
Xxxx Xxxxxxxx, XX 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Attention: Compliance Department
If to a Buyer, to its address and facsimile number on the
Schedule of Buyers, with copies to such Buyer's counsel as set forth on the
Schedule of Buyers. Each party shall provide five (5) days' prior written notice
to the other party of any change in address or facsimile number.
g. Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of the parties and their respective
successors and assigns, including any purchasers of the Securities. The Company
shall not assign this Agreement or any rights or obligations hereunder without
the prior written consent of the Buyers, except pursuant to a Major Transaction
(as defined in the Convertible Notes) with respect to which the Company is in
compliance with the Convertible Notes. A Buyer may assign some or all of its
rights hereunder without the consent of the Company, provided, however, that (i)
any such assignment shall not release such Buyer from its obligations hereunder
unless such obligations are assumed by such assignee and the Company has
consented to such assignment and assumption, (ii) no Buyer may assign its rights
hereunder in a manner that would cause the offering of Securities hereunder to
be required to be registered under the 1933 Act and (iii) no Buyer may knowingly
assign the Convertible Notes to a then existing competitor of the Company known
to the Buyer.
h. No Third Party Beneficiaries. This Agreement is
intended for the benefit of the parties hereto and their respective permitted
successors and assigns, and is not for the benefit of, nor may any provision
hereof be enforced by, any other person.
i. Survival. The representations and warranties of
the Company and the Buyers contained in Sections 3 and 2, respectively, shall
survive the Closing until two years after the Closing Date, including, without
limitation, all financial statements thereto. The agreements and covenants set
forth in Sections 4, 5 and 9, and the indemnification provisions set forth in
Section 8, shall survive the Closing. Each Buyer shall be responsible only for
its own representations, warranties, agreements and covenants hereunder.
j. Publicity. The Company and each Buyer shall have
the right to approve before issuance any press releases or any other public
statements with respect to the transactions contemplated hereby; provided,
however, that the Company shall be entitled, without the prior approval of any
Buyer, to make any press release or other public disclosure with respect to such
transactions as is required by applicable law and regulations (although each
Buyer shall be consulted by the Company in connection with any such press
release or other public disclosure prior to its release and shall be provided
with a copy thereof), but only to the extent required by such law or regulation.
k. Further Assurances. Each party shall do and
perform, or cause to be done and performed, all such further acts and things,
and shall execute and deliver all such other agreements, certificates,
instruments and documents, as the other party may reasonably request in order to
carry out the intent and accomplish the purposes of this Agreement and the
consummation of the transactions contemplated hereby.
l. No Strict Construction. The language used in this
Agreement will be deemed to be the language chosen by the parties to express
their mutual intent, and no rules of strict construction will be applied against
any party.
m. Equitable Relief. The Company recognizes that in
the event that it fails to perform, observe, or discharge any or all of its
obligations under this Agreement, any remedy at law may prove to be inadequate
relief to the Buyers. The Company therefore agrees that the Buyers shall be
entitled to temporary and permanent injunctive relief in any such case without
the necessity of proving actual damages.
IN WITNESS WHEREOF, the Buyers and the Company have caused
this Securities Purchase Agreement to be duly executed as of the date first
written above.
COMPANY: BUYERS:
SOFTNET SYSTEMS, INC. XXXXX INTERNATIONAL
By: By:
--------------------------- -------------------------------
Name: Name:
--------------------------- -------------------------------
Its: Its:
--------------------------- -------------------------------
SHEPHERD INVESTMENTS
INTERNATIONAL, LTD.
By:
-------------------------------
Name:
-------------------------------
Its:
-------------------------------
SCHEDULE OF BUYERS
Investor's Advisor
Investor Address and Principal Amount of and Legal Counsel
Investor Name Facsimile Number Convertible Notes Amount of Warrants Address
-------------------- -------------------- ------------------- ------------------ ---------------------
Xxxxx International c/o Staro Asset $8 million 200,000 Xxxxxxx Xxxxx, Esq.
(Bermuda) Management Xxxxxxx Xxxx & Xxxxx
0000 Xxxx Xxxxxx XXX
Xxxxxx Xxx Xxxx, XX 00000
Mequon, Wisconsin Fax: (000) 000-0000
53092
Fax: (000) 000-0000
Shepherd c/o Staro Asset $4million 100,000 Xxxxxxx Xxxxx, Esq.
Investments Management Xxxxxxx Xxxx & Xxxxx
International, Ltd. 0000 Xxxx Xxxxxx XXX
(Xxxxxxx Xxxxxx Xxxxxx Xxx Xxxx, XX 00000
Islands) Mequon, Wisconsin Fax: (000) 000-0000
53092
Fax: (000) 000-0000
