1
EXHIBIT 2.1
DAZZLE MULTIMEDIA, INC.
NOTE AND WARRANT PURCHASE AGREEMENT
This Note and Warrant Purchase Agreement (the "AGREEMENT") is made as of
the 30th day of December, 1998, by and between Dazzle Multimedia, Inc., a
California corporation (the "COMPANY"), and SCM MicroSystems, Inc., a Delaware
corporation, (the "PURCHASER").
RECITALS
The Company desires to issue and sell, and the Purchaser desires to
purchase, a promissory note and warrant in substantially the form attached to
this Agreement as EXHIBIT A-1 (the "NOTE") and EXHIBIT A-2 (the "WARRANT").
Capitalized terms not otherwise defined herein shall have the meaning
set forth in ANNEX A, Definitions, attached hereto.
AGREEMENT
In consideration of the mutual promises contained herein and other good
and valuable consideration, receipt of which is hereby acknowledged, the parties
to this Agreement agree as follows:
1. PURCHASE AND SALE OF NOTE AND WARRANT
(a) SALE AND ISSUANCE OF NOTE. Subject to the terms and
conditions of this Agreement, the Purchaser agrees to purchase at the Closing
and the Company agrees to sell and issue to the Purchaser the Note in the
principal amount of Two Million Five Hundred Thousand Dollars ($2,500,000). The
purchase price of the Note shall be equal to 100% of the principal amount of the
Note. The Note shall be convertible into equity securities of the Company and
obligations under the Note and the Company Trade Facility shall be secured by a
security agreement substantially in the form of EXHIBIT B attached hereto (the
"SECURITY AGREEMENT") and an intellectual property security agreement
substantially in the form of EXHIBIT C attached hereto (the "INTELLECTUAL
PROPERTY SUPPLEMENT TO SECURITY AGREEMENT" and, together with the Security
Agreement, the "SECURITY AGREEMENTS").
(b) SALE AND ISSUANCE OF WARRANT. Subject to the terms and
conditions of this Agreement, the Company agrees to issue to the Purchaser at
the Closing the Warrant. The exercise price of the Warrant shall be One Cent
($0.01) per share of the Company's Common Stock issued thereunder upon exercise
thereof.
(c) CLOSING; DELIVERY. The purchase and sale of the Note and
the Warrant shall take place at the offices of Xxxxxx Xxxxxxx Xxxxxxxx & Xxxxxx,
P.C., 000 Xxxx Xxxx Xxxx, Xxxx Xxxx, XX 00000 on or before December 30, 1998, or
at such other time and place as the Company and the
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Purchaser mutually agree upon, orally or in writing (which time and place are
designated as the "CLOSING"). At the Closing, the Company shall deliver to the
Purchaser the Note and the Warrant against payment of the purchase price
therefor by check or by wire transfer to the Company's bank account.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. Except as
disclosed on the schedule of exceptions (the "SCHEDULE OF EXCEPTIONS") attached
hereto as EXHIBIT D with specific references made to such applicable paragraph,
the Company hereby represents and warrants to the Purchaser that:
(a) ORGANIZATION, GOOD STANDING AND QUALIFICATION. The
Company is (i) a corporation duly organized, validly existing and in good
standing under the laws of the State of California; (ii) has all requisite
corporate power and authority to carry on its business as now conducted and as
proposed to be conducted; and (iii) is duly qualified, licensed to do business
and is in good standing as a foreign corporation in each jurisdiction where the
failure to be so qualified or licensed could reasonably be expected to have a
Material Adverse Effect. The Company has delivered a true and correct copy of
the Articles of Incorporation (including certificates of designation in respect
of preferred stock) and Bylaws or other charter documents. The Company has no
Subsidiaries.
(b) CAPITALIZATION
(i) As of the date hereof, the authorized capital
stock of the Company consists of 47,000,000 shares, (A) 40,000,000 shares of
which are designated as Common Stock, 7,429,688 shares of which are issued and
outstanding, and (B) 7,000,000 shares of which are designated as Preferred
Stock, of which 3,000,000 shares are designated as Series A Preferred Stock and
4,000,000 shares are designated as Series B Preferred Stock. Of the authorized
shares of Series A Preferred Stock, 2,353,833 shares are issued and outstanding.
Of the authorized shares of Series B Preferred Stock, no shares are issued and
outstanding. The Company has issued and outstanding convertible promissory notes
in the aggregate principal amount of $2,327,970 (the "CONVERTIBLE NOTES"). The
Convertible Notes are convertible into shares of Preferred Stock of the Company
in the manner set forth in the Convertible Notes. The Company has outstanding
warrants to acquire 60,000 shares of Common Stock (the "COMMON WARRANTS") and
25,000 shares of Preferred Stock (the "PREFERRED WARRANTS"). The Company capital
stock (by class), the Common Warrants, the Preferred Warrants, and the
Convertible Notes are held by the persons and in the amounts set forth in
Section 2(b) of the Schedule of Exceptions. All outstanding shares of the
Company's capital stock are duly authorized, validly issued, fully paid and
non-assessable and not subject to preemptive rights created by statute, the
Articles of Incorporation or Bylaws of the Company or any agreement to which the
Company is a party or by which it is bound.
(ii) The Company has reserved (A) 2,353,833 shares of
Common Stock for issuance upon conversion of outstanding shares of Series A
Preferred Stock; (B) 50,000 shares of
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Series A Preferred Stock for issuance to IPC Peripherals Pte Ltd pursuant to an
outstanding unexercised option (the "IPC OPTION"); (C) 50,000 shares of Common
Stock for issuance upon conversion of the Series A Preferred Stock issuable upon
exercise of the IPC Option; (D) 1,624,734 shares of Common Stock for issuance to
employees, consultants, officers and directors of the Company upon the exercise
of outstanding unexercised options granted pursuant to the Company's 1997 Stock
Option Plan (the "1997 PLAN OPTIONS"); (E) 3,000,000 shares of Common Stock for
issuance to employees, consultants, officers and directors of the Company
pursuant to the exercise of options that have been, or may be, granted under the
Company's 1998 Stock Plan (the "1998 PLAN OPTIONS"), of which 186,678 shares
have been granted pursuant to restricted stock purchase agreements, 1,931,300
shares are subject to outstanding unexercised options and 882,022 shares remain
available for future grant; (F) 60,000 shares of Common Stock for issuance upon
exercise of the Common Warrants; (G) 25,000 shares of Preferred Stock for
issuance upon exercise of the Preferred Warrants; (H) 25,000 shares of Common
Stock for issuance upon conversion of the Preferred Stock issuable upon exercise
of the Preferred Warrants. The 1997 Plan Options and the 1998 Plan Options are
collectively referred to as the "COMPANY OPTIONS." Except for the Company
Options, the Common Warrants, the Preferred Warrants and the Convertible Notes,
there are no options, warrants, calls, rights, commitments or agreement of any
character, written or oral, to which the Company is a party or by which it is
bound obligating the Company to issue, deliver, sell, repurchase or redeem, or
cause to be issued, delivered, sold, repurchased or redeemed, any shares of the
capital stock of the Company or obligating the Company to grant, extend,
accelerate the vesting of, change the price of, otherwise amend or enter into
any such option, warrant, call, right, commitment, or agreement. There are no
voting trusts, proxies, or other agreements or understandings with respect to
the voting of any capital stock of Company. The Company does not control,
directly or indirectly, nor does it have any direct or indirect equity
participation in, any corporation, partnership, trust, or other business
association.
(c) AUTHORIZATION. Immediately prior to the Closing, all
corporate action on the part of the Company necessary for the authorization,
execution and delivery of this Agreement and the Security Agreements and the
authorization, sale, issuance and delivery of the Note and the Warrant and the
performance of all obligations of the Company under this Agreement, the Security
Agreement, the Note and the Warrant (this Agreement, the Security Agreement, the
Intellectual Property Supplement to the Security Agreement, the Note and the
Warrant, and all exhibits and schedules attached to these documents, are
collectively referred to as the "Transaction Documents") has been taken or will
be taken prior to the Closing. Each of the Transaction Documents when executed
and delivered by the Company, shall constitute a valid and legally binding
obligation of the Company, enforceable against the Company in accordance with
its terms except as limited by applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance and other laws of general
application affecting enforcement of creditor's rights generally, as limited by
laws relating to the availability of specific performance, injunctive relief, or
other equitable remedies.
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(d) NON-CONTRAVENTION. The execution and delivery by Company
of the Transaction Documents executed by Company and the performance and
consummation of the transactions contemplated hereby and thereby do not and will
not (i) violate the Articles of Incorporation (including any Certificate of
Designation) or Bylaws of the Company; (ii) violate any judgment, order, writ,
decree, statute, rule or regulation applicable to Company; (iii) violate any
provision of, or result in the breach or the acceleration of, or entitle any
other Person to accelerate (whether after the giving of notice or lapse of time
or both), any mortgage, indenture, agreement, instrument or contract to which
Company is a party or by which it is bound; or (iv) result in the creation or
imposition of any Lien upon any property, asset or revenue of Company (other
than any Lien arising under the Security Agreements) or the suspension,
revocation, impairment, forfeiture, or nonrenewal of any material permit,
license, authorization or approval applicable to Company, its business or
operations, or any of its assets or properties.
(e) APPROVALS. No consent, waiver, approval, order or
authorization of, or registration, declaration or filing with, any governmental
authority or other Person (including, without limitation, the Board, the
shareholders and the holders of any debt of the Company) is required in
connection with the execution and delivery of the Transaction Documents executed
by Company and the performance and consummation of the transactions contemplated
hereby and thereby.
(f) INTELLECTUAL PROPERTY.
(i) The Company owns or has the right to use
pursuant to license, sublicense, agreement, or permission all Intellectual
Property necessary for the operation of the business of the Company as presently
conducted and as presently proposed to be conducted. Each item of Intellectual
Property owned or used by the Company immediately prior to the date hereof will
be owned or available for use by the Company on identical terms and conditions
immediately subsequent to the execution and delivery of the Transaction
Documents. The Company has taken all reasonably necessary action to maintain and
protect each item of Intellectual Property that it owns or uses.
(ii) To the Company's knowledge, the Company has not
interfered with, infringed upon, misappropriated, or otherwise come into
conflict with any Intellectual Property rights of third parties, and none of the
directors and officers (and employees with responsibility for Intellectual
Property matters) of the Company has ever received any charge, complaint, claim,
demand, or notice alleging any such interference, infringement,
misappropriation, or violation (including any claim that the Company must
license or refrain from using any Intellectual Property rights of any third
party). To the knowledge of any of the directors and officers (and employees
with responsibility for Intellectual Property matters) of the Company, no third
party has interfered with, infringed upon, misappropriated, or otherwise come
into conflict with any Intellectual Property rights of the Company.
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(iii) To the Company's knowledge, the Company will not
interfere with, infringe upon, misappropriate, or otherwise come into conflict
with, any Intellectual Property rights of third parties as a result of the
continued operation of its businesses as presently conducted and as presently
proposed to be conducted.
(g) TANGIBLE ASSETS. The Company owns or leases all
buildings, machinery, equipment, and other tangible assets reasonably necessary
for the conduct of its business as presently conducted and as presently proposed
to be conducted.
(h) EMPLOYEE BENEFIT PLANS. The Company is in compliance in
all material respects with each of its Employee Benefits Plans and has made all
contributions and payments required to be made in connection with its Employee
Benefit Plans.
(i) OTHER REPRESENTATIONS AND WARRANTIES. Each of the
representations and warranties set forth on ANNEX B are true and correct in all
material respects as of the date hereof (except for any representation and
warranty that speaks as a particular date shall be true and correct as of such
date) and the covenants therein shall be binding upon the Company:
(j) NO VIOLATION OR DEFAULT. The Company is not in violation
of or in default with respect to (i) its Articles of Incorporation (including
any Certificate of Designation) or Bylaws or any judgment, order, writ, decree,
statute, rule or regulation applicable to it; (ii) any material mortgage,
indenture, agreement, instrument or contract to which it is a party or by which
it is bound (nor is there any waiver in effect which, if not in effect, would
result in such a violation or default) ; or (iii) any material judgment, order,
writ, decree, statute, rule or regulation applicable it.
(k) CASH BALANCES; ACCURACY OF FUTURE INFORMATION. The
Company has cash equal to at least the Threshold Account Balance (as defined in
Section 6(e)). All Officer's Certificates, financial information, compliance
certificates and other information delivered to Purchaser pursuant to Section 2
hereof shall be accurate and correct in all material respects on the date
provided.
(l) SOLVENCY, ETC. The Company is Solvent and, after the
execution and delivery of the Transaction Documents and the consummation of the
transactions contemplated thereby, the Company will be Solvent.
(m) FINDER'S FEE. The Company represents that it neither is
nor will be obligated for any finder's or broker's fee or commission in
connection with the transactions contemplated by the Transaction Documents. The
Company agrees to indemnify and hold harmless the Purchaser from any liability
for any commission or compensation in the nature of a finder's or broker's fee
(and the costs and expenses of defending against such liability or asserted
liability) for which the Company or any of its officers, employees or
representatives is responsible.
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3. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The Purchaser
hereby represents and warrants to the Company that:
(a) PURCHASE ENTIRELY FOR OWN ACCOUNT. The Note and the
Warrant and any Company securities issued upon the conversion or exercise
thereof to be acquired by the Purchaser will be acquired for investment for the
Purchaser's own account, not as a nominee or agent, and not with a view to the
resale or distribution of any part thereof, and the Purchaser has no present
intention of selling, granting any participation in, or otherwise distributing
the same. The Purchaser has not been formed for the specific purpose of
acquiring the Note or the Warrant.
(b) KNOWLEDGE. The Purchaser is aware of the Company's
business affairs and financial condition and has acquired sufficient information
about the Company to reach an informed and knowledgeable decision to acquire the
Note and the Warrant and any Company securities issued upon the conversion or
exercise thereof.
(c) RESTRICTED SECURITIES. The Purchaser understands that
the Note and the Warrant and any Company securities issued upon the conversion
or exercise thereof have not been, and will not be, registered under the
Securities Act of 1933, as amended (the "SECURITIES ACT"), by reason of a
specific exemption from the registration provisions of the Securities Act which
depends upon, among other things, the bona fide nature of the investment intent
and the accuracy of the Purchaser's representations as expressed herein. The
Purchaser understands that the Note and the Warrant and any Company securities
issued upon the conversion or exercise thereof are "RESTRICTED SECURITIES" under
applicable U.S. federal and state securities laws and that, pursuant to these
laws, the Purchaser must hold the Note and the Warrant and any Company
securities issued upon the conversion or exercise thereof indefinitely unless
they are registered with the Securities and Exchange Commission and qualified by
state authorities, or an exemption from such registration and qualification
requirements is available. The Purchaser acknowledges that the Company has no
obligation to register or qualify the Note, the Warrant or any Company
securities issued upon the conversion or exercise thereof for resale. The
Purchaser further acknowledges that if an exemption from registration or
qualification is available, it may be conditioned on various requirements
including, but not limited to, the time and manner of sale, the holding period
for the Note and the Warrant and any Company securities issued upon the
conversion or exercise thereof, and on requirements relating to the Company
which are outside of the Purchaser's control, and which the Company is under no
obligation and may not be able to satisfy.
(d) NO PUBLIC MARKET. The Purchaser understands that no
public market now exists for any of the securities issued by the Company and
that the Company has made no assurances that a public market will ever exist for
the Note, the Warrant or any Company securities issued upon the conversion or
exercise thereof.
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(e) LEGENDS. The Purchaser understands that the Note and the
Warrant and any Company securities issued upon the conversion or exercise
thereof may bear one or all of the following legends:
(i) THE SECURITY(IES) REPRESENTED BY THIS
CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN
CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF, AND HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED. SUCH SECURITY(IES) MAY NOT BE SOLD
OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS THE COMPANY
RECEIVES AN OPINION OF COUNSEL REASONABLY ACCEPTABLE TO IT STATING THAT SUCH
SALE OR TRANSFER IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY
REQUIREMENTS OF THE ACT. COPIES OF THE AGREEMENT COVERING THE PURCHASE OF THIS
SECURITY(IES) AND RESTRICTING THEIR TRANSFER MAY BE OBTAINED AT NO COST BY
WRITTEN REQUEST MADE BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE
SECRETARY OF THE COMPANY AT THE PRINCIPAL EXECUTIVE OFFICES OF THE COMPANY.
(ii) Any legend required by the Blue Sky laws of any
state to the extent such laws are applicable to the shares represented by the
certificate so legended.
(f) ACCREDITED INVESTOR. The Purchaser is an accredited
investor as defined in Rule 501(a) of Regulation D promulgated under the
Securities Act.
4. CONDITIONS OF THE PURCHASER'S OBLIGATIONS AT CLOSING. The
obligations of the Purchaser to the Company under this Agreement are subject to
the fulfillment, on or before the Closing, of each of the following conditions,
unless otherwise waived:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Company contained in Section 2 shall be true on and as of the
Closing with the same effect as though such representations and warranties had
been made on and as of the date of the Closing and the Purchaser shall have
received an Officers' Certificate to such effect.
(b) QUALIFICATIONS. All authorizations, approvals or
permits, if any, of any governmental authority or regulatory body of the United
States or of any state that are required in connection with the lawful issuance
and sale of the Note and the Warrant pursuant to this Agreement shall be
obtained and effective as of the Closing.
(c) WAIVERS AND CONSENTS. The Company shall have obtained
all required waivers and/or consents, including those from its Board, its
shareholders and holders of the Company's Debt, to allow sale and issuance of
the Note and the Warrant and any Company securities issuable upon the conversion
or exercise thereof. Specifically, the Company shall have
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also obtained a waiver, consent and proxy substantially in the form attached
hereto as EXHIBIT E ("WAIVER, CONSENT AND PROXY"), from the holders of a
majority of its Common Stock, a majority of its Preferred Stock, and from
holders of a majority of the its Convertible Notes and from all holders of the
Common Warrants and Preferred Warrants and such waivers shall be in force and
effect.
(d) LEGAL REQUIREMENTS. At the Closing, the sale and
issuance by the Company, and the purchase by the Purchaser, of the Note and the
Warrant shall be legally permitted by all laws and regulations to which the
Purchaser or the Company are subject.
(e) PROCEEDINGS AND DOCUMENTS. All corporate and other
proceedings in connection with the transactions contemplated at the Closing and
all documents and instruments incident to such transactions shall be reasonably
satisfactory in substance and form to the Purchaser and its counsel.
(f) OPINION OF COUNSEL. There shall have been delivered to
the Purchaser a favorable written opinion of Venture Law Group, counsel to the
Company, in the form of EXHIBIT F attached hereto, dated as of the Closing Date.
(g) TRANSACTION DOCUMENTS. The Company shall have duly
executed and delivered to the Purchaser the following documents:
(A) This Agreement;
(B) The Note issued hereunder and the
Company Trade Facility;
(C) The Warrant issued hereunder;
(D) The Security Agreement and the
Intellectual Property Supplement to the Security Agreement;
(E) All UCC-1 financing statements and other
documents and instruments which the Purchaser may reasonably request to perfect
its security interest in the collateral described in the Security Agreement;
(F) Copies of required consents certified by
the Company as true and correct including the required copies of the Waiver,
Consent and Proxy; and
(G) Other documents reasonably requested by
the Purchaser.
(h) Parties' Fees and Expenses. Each party shall be
responsible for its own fees and expenses (including reasonable attorneys' fees
and expenses) incurred in connection with the negotiation and execution of this
Agreement and the other Transaction Documents.
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5. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT CLOSING. The
obligations of the Company to the Purchaser under this Agreement are subject to
the fulfillment, on or before the Closing, of each of the following conditions,
unless otherwise waived:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Purchaser contained in Section 3 shall be true on and as of
the Closing with the same effect as though such representations and warranties
had been made on and as of the Closing.
(b) QUALIFICATIONS. All authorizations, approvals or
permits, if any, of any governmental authority or regulatory body of the United
States or of any state that are required in connection with the lawful issuance
and sale of the Note and the Warrant pursuant to this Agreement shall be
obtained and effective as of the Closing.
(c) WAIVERS AND CONSENTS. The Company shall have obtained
all required waivers and/or consents, including those from its Board, its
shareholders and the holder of Senior Debt, to allow the sale and issuance of
the Note and the Warrant.
(d) LEGAL REQUIREMENTS. At the Closing, the sale and
issuance by the Company, and the purchase by the Purchaser, of the Note and the
Warrant shall be legally permitted by all laws and regulations to which the
Purchaser or the Company are subject.
(e) PROCEEDINGS AND DOCUMENTS. All corporate and other
proceedings in connection with the transactions contemplated at the Closing and
all documents and instruments incident to such transactions shall be reasonably
satisfactory in substance and form to the Company and its counsel.
(f) TRANSACTION DOCUMENTS. The Purchaser shall have duly
executed and delivered to the Company the following documents:
(A) This Agreement;
(B) The Note issued hereunder and the
Company Trade Facility; and
(C) The Security Agreement and the
Intellectual Property Supplement to the Security Agreement;
6. CERTAIN COVENANTS. While any obligations are outstanding under
the Note:
(a) NO VIOLATION OF COMERICA AGREEMENT. Directly for the
benefit of Purchaser, the Company will comply with the covenants set forth on
ANNEX B hereto. In addition, without the consent of Comerica (or future holder
of Senior Debt in respect thereof) the Company shall not take
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any action nor omit to take any action that would violate the obligations of the
Company under Section 6 of the Comerica Agreement, excluding the financial
covenants contained in Section 6.17 thereof (or the comparable provisions of any
successor Senior Debt).
(b) DEBT PAYMENTS. Without the prior written consent of the
Purchaser, the Company shall not (i) prepay, redeem, purchase, defease or
otherwise satisfy in any manner prior to the scheduled repayment thereof any
Debt for borrowed money (other than amounts due under, the Company Trade
Facility, the Senior Debt or the Note) or lease obligations, (ii) amend, modify
or otherwise change the terms of any Debt for borrowed money (other than the
Company Trade Facility, the Senior Debt or the Note) or lease obligations so as
to accelerate the scheduled repayment thereof or (iii) repay or prepay any notes
to officers, directors or shareholders.
(c) CHANGE OF CONTROL. Without the prior written consent of
the Purchaser, the Company shall not consummate any transaction which upon
consummation thereof would result in a Change of Control of the Company, unless
prior thereto the parties shall have entered into such documents and guarantees
as the Purchaser and its counsel may reasonably request regarding the assumption
of the obligations of the Company under this Agreement and the other Transaction
Documents. The Company will provide the Purchaser ten (10) days prior notice of
any proposed Company Change of Control and shall promptly keep the Purchaser
apprised of all developments related thereto.
(d) AFFILIATE TRANSACTIONS. Without the prior written
consent of the Purchaser, the Company shall not enter into any contractual
obligation with any Affiliate or engage in any other transaction with any
Affiliate except upon terms at least as favorable to the Company as an arm's
length transaction with unaffiliated Persons.
(e) WEEKLY CASH BALANCE. If at any time the Company has less
than an aggregate of Three Hundred Thousand Dollars ($300,000) in all of its
bank, cash or other accounts (the "THRESHOLD ACCOUNT BALANCE"), then promptly
(but in any event within two business days) after such determination the Company
shall provide Purchaser an officers' certificate signed by the Company's
President and the Chief Financial Officer (an "OFFICERS' CERTIFICATE") (i)
confirming that the Company has at least an aggregate of One Hundred Thousand
Dollars ($100,000) in such accounts, and (ii) setting forth in reasonable detail
the basis therefor. Thereafter, until the Company has maintained the Threshold
Account Balance for at least one week, the Company shall continue to provide
weekly Officers' Certificates to the foregoing effect. In the event that the
Company shall thereafter reach and maintain the Threshold Account Balance for
one week, (i) the Company shall provide an Officers' Certificate to the
Purchaser confirming the same, setting forth in reasonable detail the basis for
such conclusion and (ii) the Company's obligation to provide, with respect to
that particular failure to maintain the Threshold Account Balance, weekly
Officers' Certificates shall terminate. In connection with the foregoing, the
Company shall provide Purchaser such related information as it may reasonably
request.
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(f) FINANCIAL STATEMENTS. At such times as required to be
delivered under the Comerica Agreement as in effect as of the date hereof, the
Company shall provide to the Purchaser, (i) copies of all monthly financial
statements that currently and in the future are required to be delivered to
Comerica (including those financial statements currently required to be
delivered under Section 6.16 of the Comerica Agreement); and (ii) upon the
request of the Purchaser to the Company, such other documents required to be
delivered to Comerica under the Comerica Agreement. The Company shall also
provide the Purchaser with prompt written notice of any changes under the
Comerica Agreement relating to the documents required to be delivered to
Comerica. The Purchaser, upon its request to the Company, shall receive copies
of such additional documents provided to Comerica.
(g) NOTICE OF DEFAULTS. Promptly upon the occurrence
thereof, the Company shall provide to the Purchaser written notice of the
occurrence of any Event of Default, as defined in ANNEX A, Definitions, attached
hereto and including an Event of Default related to the Company's failure to
maintain the specified cash account balances (as described in Section 6(e)) or
any event or circumstance that upon notice thereof or lapse of time would result
in an Event of Default or any event of default with respect to any Debt
(including Senior Debt).
(h) INSPECTION RIGHTS. The Purchaser and its representatives
shall have the right, at any time during normal business hours and upon
reasonable prior notice, but in no event less than three (3) business day's
advance notice to visit and inspect the properties of the Company and its
corporate, financial and operating records, and make abstracts therefrom, and to
discuss the Company's affairs, finances and accounts with its directors,
officers and independent public accountants.
(i) RESERVATION OF STOCK ISSUABLE UPON CONVERSION. For
purposes of conversion of the Note and Company Trade Facility and the exercise
of the Warrant, the Company shall at all times reserve and keep available out of
its authorized but unissued shares of Common Stock and each class of Equity
Securities (including, without duplication, shares of its Common Stock for
issuance on conversion of each such Equity Securities); and if at any time the
number of authorized but unissued shares of Common Stock or any class of Equity
Securities (including, without duplication, shares of its Common Stock for
issuance on conversion of each such class of Equity Securities) shall not be
sufficient to effect the conversion of the entire outstanding principal amount
of the Note and the Company Trade Facility and to effect the exercise of the
Warrant, the Company will use its best efforts to take such corporate action as
may, in the opinion of counsel, be necessary to increase its authorized but
unissued shares of Common Stock and each class of Equity Securities (including,
without duplication, shares of its Common Stock for issuance on conversion of
each such class of Equity Securities) to such number of shares as shall be
sufficient for such purposes.
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(j) COOPERATION. The Company shall cooperate with the
Purchaser's reasonable requests for documents, governmental filings, and
agreements and use its best efforts to do all actions necessary to effect the
transactions contemplated by the Transaction Documents. Prior to (A) any failure
to pay all Obligations due under the Note on the Maturity Date (including
following a Change of Control) or (B) an Event of Default under circumstances
that would allow acceleration of all Obligations due under the Note regardless
of the Subordination Agreement, and subject to the Purchaser's rights as a
creditor of the Company, the Purchaser shall use its reasonable efforts to
assist the Company in the Company's efforts to obtain equity financing.
7. MISCELLANEOUS
(a) SUCCESSORS AND ASSIGNS. The terms and conditions of this
Agreement shall inure to the benefit of and be binding upon the respective
successors and assigns of the parties. Nothing in this Agreement, express or
implied, is intended to confer upon any party other than the parties hereto or
their respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.
(b) GOVERNING LAW. This Agreement and all acts and
transactions pursuant hereto and the rights and obligations of the parties
hereto shall be governed, construed and interpreted in accordance with the laws
of the State of California, without giving effect to principles of conflicts of
law.
(c) COUNTERPARTS. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original and all of which
together shall constitute one and the same instrument.
(d) TITLES AND SUBTITLES. The titles and subtitles used in
this Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
(e) NOTICES. All notices and other communications required
or permitted hereunder shall be in writing, shall be effective when given, and
shall in any event be deemed to be given upon receipt or, if earlier, (a) five
(5) days after deposit with the U.S. Postal Service or other applicable postal
service, if delivered by first class mail, postage prepaid, (b) upon delivery,
if delivered by hand, (c) one business day after the business day of deposit
with Federal Express or similar overnight courier, freight prepaid or (d) one
business day after the business day of facsimile transmission with written
confirmation of receipt (i) if to the Holder, at the Holder's address as set
forth on the Note and Warrant Purchase Agreement, and (ii) if to the Company, at
the address of its principal corporate offices (attention: President), or at
such other address as a party may designate by ten (10) day advance written
notice to the other party pursuant to the provisions above.
(f) AMENDMENTS AND WAIVERS. Any term of this Agreement may
be amended or waived only with the written consent of the Company and the holder
of the Note and the Warrant.
13
Dazzle Multimedia
Note and Warrant Purchase Agreement
Page 13
Any amendment or waiver effected in accordance with this Section 7(f) shall be
binding upon the Purchaser and each transferee of the Note and the Warrant, each
future holder of the Note and the Warrant and the Company.
(g) SEVERABILITY. If one or more provisions of this
Agreement are held to be unenforceable under applicable law, the parties agree
to renegotiate such provision in good faith, to maintain the economic position
enjoyed by each party as close as possible to that under the provision rendered
unenforceable. In the event that the parties cannot reach a mutually agreeable
and enforceable replacement for such provision, then (i) such provision shall be
excluded from this Agreement, (ii) the balance of the Agreement shall be
interpreted as if such provision were so excluded and (iii) the balance of the
Agreement shall be enforceable in accordance with its terms.
(h) ENTIRE AGREEMENT. This Agreement, and the documents
referred to herein, constitute the entire agreement between the parties hereto
pertaining to the subject matter hereof, and any and all other written or oral
agreements existing between the parties hereto are expressly canceled.
(i) EXCULPATION. The Purchaser acknowledges that it is not
relying upon any person, firm or corporation, other than the representations and
warranties contained herein and the Company and its officers and directors, in
making its investment or decision to invest in the Company. The Purchaser agrees
that neither the Purchaser nor the respective controlling persons, officers,
directors, partners, agents, or employees of the Purchaser shall be liable for
any action heretofore or hereafter taken or omitted to be taken by any of them
in connection with the Note and the Warrant.
(j) CORPORATE SECURITIES LAW. THE SALE OF THE SECURITIES
WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE
COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF THE
SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR
PRIOR TO THE QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT
FROM THE QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA
CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY
CONDITIONED UPON THE QUALIFICATION BEING OBTAINED UNLESS THE SALE IS SO EXEMPT.
(k) SURVIVAL. The representations, warranties, covenants and
agreements made herein shall survive the execution and delivery of this
Agreement.
14
Dazzle Multimedia
Note and Warrant Purchase Agreement
Page 14
(l) ASSIGNMENT.
(i) Neither the Note nor the Warrant, nor any of the
rights, interests or obligations hereunder may be assigned, by operation of law
or otherwise, in whole or in part, by the Company without the prior written
consent of the Purchaser.
(ii) Prior to (A) any failure to pay all Obligations
due under the Note on the Maturity Date (including following a Change of
Control) or (B) an Event of Default under circumstances that would allow
acceleration of all Obligations due under the Note regardless of the
Subordination Agreement, neither the Note nor the Warrant, nor any of the
rights, interests or obligations hereunder may be assigned, by operation of law
or otherwise, in whole or in part, by the Purchaser (other than to a subsidiary
thereof) without the prior written consent of the Company.
15
The parties have executed this Note and Warrant Purchase Agreement as of
the date first written above.
COMPANY:
DAZZLE MULTIMEDIA, INC.
By: /s/ XXXXXX XXXXXX
------------------------------------
Name: Xxxxxx Xxxxxx
Title: CHIEF FINANCIAL OFFICER
Address: 00000 Xxxxxxxxx Xxxx Xxxx
Xxxxxxx, XX 00000
Tel. (000) 000-0000
Fax: (000) 000-0000
PURCHASER:
SCM MICROSYSTEMS, INC.
By: /s/ XXXX X. XXXXXXXXXXX
------------------------------------
Xxxx X. Xxxxxxxxxxx, Vice President,
Finance, Chief Financial Officer
Address: 000 Xxxxxxxx Xxx
Xxx Xxxxx, XX 00000
Tel. (000) 000-0000
Fax: (000) 000-0000
[SIGNATURE PAGE TO NOTE AND WARRANT PURCHASE AGREEMENT]
16
ANNEX A
TO TRANSACTION DOCUMENTS
DEFINITIONS
"ACCOUNT DEBTOR" shall have the meaning given to that term in Section 2
of the Security Agreement.
"AFFILIATE" with respect to any Person, means (1) any director or
officer of such Person, (2) any Person directly or indirectly controlling or
controlled by or under direct or indirect common control with such Person, and
(3) any Person beneficially owning or holding 5% or more of any class of voting
securities of such Person or any corporation of which such Person beneficially
owns or holds, in the aggregate, five percent (5%) or more of any class of
voting securities. The term "CONTROL" means the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of a Person, whether through the ownership of voting securities, by
contract or otherwise. The term "AFFILIATE," when used herein without reference
to any Person, shall mean an Affiliate of the Company.
A "CHANGE OF CONTROL" shall mean a merger or consolidation of the
Company with or into any other corporation or corporations or a sale of all or
substantially all of the assets of the Company such that the shareholders of the
Company immediately prior to such transaction hold less than Forty Percent (40%)
of the outstanding equity securities of the entity surviving such merger or
consolidation or the entity purchasing such assets.
The "CLOSING" shall have the meaning in Section 1 of the Note and
Warrant Purchase Agreement.
"COLLATERAL" shall have the meaning given to that term in Section 1 of
the Security Agreement.
"COMERICA AGREEMENT" shall mean Revolving Credit Loan & Security
Agreement dated June 22, 1998 between the Company and Comerica Bank-California.
The "COMPANY" shall mean Dazzle Multimedia, Inc., a California
corporation.
The "COMPANY OPTIONS" shall have the meaning in Section 2(b) of the Note
and Warrant Purchase Agreement.
17
"COMPANY TRADE FACILITY" shall mean the Company's trade facility in
respect of products purchased by the Company from SCM or its Affiliates as
evidenced by the Secured Trade Facility dated as of December __, 1998 and any
replacement facility.
The "COMMON WARRANTS" shall have the meaning in Section 2(b) of the Note
and Warrant Purchase Agreement.
The "CONTROL NUMBER" shall have the meaning in Section 2 of the Warrant.
"CONVERSION PRICE" shall have the meaning in Section 2 of the Note.
The "CONVERTIBLE NOTES" shall have the meaning in Section 2(b) of the
Note and Warrant Purchase Agreement.
The "COPYRIGHT ACT" shall mean the Copyright Act of 1976, as amended, 17
U.S.C. Sections 101-810, 1001-1010.
"DEBT" shall mean and include the aggregate amount of, without
duplication (1) all obligations for borrowed money, (2) all obligations
evidenced by bonds, debentures, notes or other similar instruments other than
the Company Trade Facility, (3) all obligations to pay the deferred purchase
price of property or services (other than accounts payable incurred in the
ordinary course of business determined in accordance with Generally Accepted
Accounting Principles "GAAP"), (4) all obligations with respect to capital
leases, (5) all obligations created or arising under any conditional sale or
other title retention agreement with respect to property acquired by such
Person, (6) all reimbursement and other payment obligations, contingent or
otherwise, in respect of letters of credit; and (7) all guaranty obligations
with respect to the types of Debt listed in clauses (1) through (6) above.
The "DEBTOR" shall have the meaning in the Security Agreement and shall
mean Dazzle Multimedia, Inc., a California corporation.
"EMPLOYEE BENEFIT PLAN" means any (a) deferred compensation or
retirement plan or arrangement, (b) defined contribution retirement plan or
arrangement, (c) defined benefit retirement plan or arrangement, or (d) material
fringe benefit or other retirement, bonus, or incentive plan or program.
"EQUIPMENT" shall have the meaning given to that term in ATTACHMENT 1 to
the Security Agreement.
"EQUITY FINANCING" shall have the meaning in Section 2 of the Note.
"EQUITY SECURITIES" shall have the meaning in Section 2 of the Note.
"EQUITY SECURITIES EQUIVALENTS" shall have the meaning in Section 4 of
the Note.
18
"EVENT OF DEFAULT" is defined as the occurrence of any of the following:
8. FAILURE TO PAY. The Company shall fail to pay: (i) when due any
principal payment under the Note on the Maturity Date; (ii) any interest payment
under the Note within five (5) days following the due date thereunder; or (iii)
any other payment under the Note or any other Transaction Document within ten
(10) days following receipt of the Holder's written request for the payment of
such other amounts; provided that such grace period under this Section (1)(iii)
shall not apply if the Company failed to promptly notify the notice specified in
Section 6(g) of the Note and Warrant Purchase Agreement.
9. BREACHES OF COVENANTS. The Company or any of its Subsidiaries
shall fail to observe or perform in any material respect any covenant,
obligation, condition or agreement set forth in the Transaction Documents;
provided that (i) other than in respect of any breach of Sections 6(b), (c), (d)
or (e) of the Note and Warrant Purchase Agreement or any other breach which is
not curable by the Company or its Subsidiaries, the Company shall have received
ten (10) days prior written notice of any such breach and such breach shall have
not been cured during such period; provided further, however, that any such
grace period under this section shall not apply if the Company failed to
promptly provide the notice specified in Section 6(g) of the Note and Warrant
Purchase Agreement; or
10. REPRESENTATIONS AND WARRANTIES. Any material representation,
warranty, certificate, or other statement (financial or otherwise) made or
furnished by or on behalf of the Company to the Holder in writing in connection
with the Note or any of the other Transaction Documents, or as an inducement to
the Holder to enter into the Note and the other Transaction Documents, shall be
false, incorrect, incomplete or misleading in any material respect when made or
furnished; provided that (i) other than in respect of any breach of Section
2(a), (c), (d) or (e) of the Note and Warrant Purchase Agreement or any other
breach which is not curable by the Company or its Subsidiaries, the Company
shall have received ten (10) days prior written notice of any such breach and
such breach shall have not been cured during such period; provided further,
however, that any such grace period under this section shall not apply if the
Company failed to promptly provide the notice specified in Section 6(g) of the
Note and Warrant Purchase Agreement.
11. ACCELERATION OF SENIOR DEBT. The payments of the amounts owed
under the Senior Debt shall have been accelerated; or
12. VOLUNTARY BANKRUPTCY OR INSOLVENCY PROCEEDINGS. The Company
shall: (1) apply for or consent to the appointment of a receiver, trustee,
liquidator or custodian of itself or of all or a substantial part of its
property; (2) be unable, or admit in writing its inability, to pay its debts
generally as they mature; (3) make a general assignment for the benefit of its
or any of its creditors; (4) be dissolved or liquidated; (5) become insolvent
(as such term may be defined or interpreted under any applicable statute); (6)
commence a voluntary case or other proceeding seeking liquidation,
reorganization or other relief with respect to itself or its debts under any
bankruptcy, insolvency or other similar law now or hereafter in effect or
consent to any such relief or to the appointment of or taking possession of its
property by any official in an involuntary case or other
19
proceeding commenced against it; or (7) take any action for the purpose of
effecting any of the foregoing; or
13. INVOLUNTARY BANKRUPTCY OR INSOLVENCY PROCEEDINGS. Proceedings
for the appointment of a receiver, trustee, liquidator or custodian of the
Company or of all or a substantial part of the property thereof, or an
involuntary case or other proceedings seeking liquidation, reorganization or
other relief with respect to the Company or the debts thereof under any
bankruptcy, insolvency or other similar law now or hereafter in effect shall be
commenced and an order for relief entered or such proceeding shall not be
dismissed or discharged within sixty (60) days of commencement; or
14. OTHER PAYMENT OBLIGATIONS. The Company shall: (i) fail to make
any payment when due under the terms of any bond, debenture, note or other
evidence of Debt, including Senior Debt, to be paid by such Person (excluding
the Note, the Company Trade Facility and the other Transaction Documents) and
such failure shall continue beyond any period of grace provided with respect
thereto; or (ii) default in the observance or performance of any other
agreement, term or condition contained in any such bond, debenture, note or
other evidence of Debt, and the effect of such failure or default, under clause
(i) and (ii) above, is to cause, or permit the holder or holders thereof to
cause, Debt in an aggregate amount of One Hundred Thousand Dollars ($100,000) or
more to become due prior to its stated date of maturity; or
15. JUDGMENTS. A final judgment or order for the payment of money in
excess of One Hundred Thousand Dollars ($100,000) (exclusive of amounts covered
by insurance issued by an insurer not an Affiliate of the Company) shall be
rendered against the Company and the same shall remain undischarged for a period
of thirty (30) days during which execution shall not be effectively stayed, or
any judgment, writ, assessment, warrant of attachment, or execution or similar
process shall be issued or levied against a substantial part of the property of
Company or any of its Subsidiaries and such judgment, writ, or similar process
shall not be released, stayed, vacated or otherwise dismissed within thirty (30)
days after issue or levy; provided however that (i) such judgment does not arise
from any suit or claim directly related to the Company Trade Facility or (ii)
pending any any such discharge or release the Company shall be in good faith
challenging such judgment and shall have sufficient cash and other reserves to
satisfy its obligations; or
16. TRANSACTION DOCUMENTS. Any Transaction Document or any material
term thereof shall cease to be, or be asserted by the Company not to be, a
legal, valid and binding obligation of the Company enforceable in accordance
with its terms or if the Liens of Holder in any of the assets of the Company
shall cease (after having been established) to be or shall not be valid
perfected Liens or the Company shall assert that such Liens are not valid and
perfected Liens; or
17. COMPANY'S CASH MINIMUM. The Company shall have fully extended
the Company Trade Facility and the Company shall have less than an aggregate of
One Hundred Thousand Dollars ($100,000) in all its bank, cash or other accounts
over a period of at least three (3) consecutive business days.
20
The "EXERCISE PRICE" shall have the meaning in the Warrant and shall be
equal to One Cent ($0.01) per share, subject to adjustment according to the
Warrant.
The "HOLDER" shall mean SCM Microsystems, Inc., a Delaware corporation,
or any Person who shall at the time be the registered holder of the Note.
"INTELLECTUAL PROPERTY" shall mean (a) all inventions (whether
patentable or unpatentable and whether or not reduced to practice), all
improvements thereto, and all patents, patent applications, and patent
disclosures, together with all reissuances, continuations,
continuations-in-part, revisions, extensions, and reexaminations thereof, (b)
all trademarks, service marks, trade dress, logos, trade names, and corporate
names, together with all translations, adaptations, derivations, and
combinations thereof and including all goodwill associated therewith, and all
applications, registrations, and renewals in connection therewith, (c) all
copyrightable works, all copyrights, and all applications, registrations, and
renewals in connection therewith, (d) all mask works and all applications,
registrations, and renewals in connection therewith, (e) all trade secrets and
confidential business information (including ideas, research and development,
know-how, formulas, compositions, manufacturing and production processes and
techniques, technical data, designs, drawings, specifications, customer and
supplier lists, pricing and cost information, and business and marketing plans
and proposals), (f) all computer software (including data and related
documentation), (g) all other proprietary rights, and (h) all copies and
tangible embodiments thereof (in whatever form or medium).
"INVENTORY" shall have the meaning given to that term in ATTACHMENT 1 to
the Security Agreement hereto.
The "XXXXXX ACT" shall mean the Trademark Act of 1946, as amended, 15
U.S.C. Section 1051-1127.
"LIEN" shall mean, with respect to any property, any security interest,
mortgage, pledge, lien, claim, charge or other encumbrance in, of, or on such
property or the income therefrom, including, without limitation, the interest of
a vendor or lessor under a conditional sale agreement, capital lease or other
title retention agreement, or any agreement to provide any of the foregoing, and
the filing of any financing statement or similar instrument under the Uniform
Commercial Code ("UCC") or comparable law of any jurisdiction (including filings
with the U.S. Patent and Trademark Office). A reference to a Lien of the Holder
or a security agreement executed in favor of the Holder shall be deemed to
include a Lien granted to a collateral agent on behalf of the Holder and a
security agreement executed in favor of a collateral agent on behalf of the
Holder, respectively.
"MATERIAL ADVERSE EFFECT" shall mean a material adverse effect on (a)
the business, assets, operations, prospects or financial or other condition of
the Company; (b) the ability of the Company to pay or perform the Obligations in
accordance with the terms of the Note and the other Transaction Documents and to
avoid a default or Event of Default under any Transaction Document; or (c) the
rights and remedies of the Holder under the Note, the other Transaction
Documents or any related document, instrument or agreement (other than the
Company Trade Facility).
21
"MATURITY DATE" shall have the meaning in Section 1 of the Note and
shall be the earlier date of (i) June 30, 1999, or (ii) thirty (30) days after
the closing of a Change of Control.
The "NOTE" shall mean the secured convertible promissory note
substantially in the form attached as EXHIBIT A-1 to the Note and Warrant
Purchase Agreement.
"NOTE AND WARRANT PURCHASE AGREEMENT" is the Agreement between the
Company and the Purchaser dated December ___, 1998.
"OBLIGATIONS" shall mean and include all loans, advances, debts,
liabilities and obligations, howsoever arising, owed by the Company (or Debtor,
as the case may be) to the Holder (or Secured Party, as the case may be) of
every kind and description (whether or not evidenced by any note or instrument
and whether or not for the payment of money), now existing or hereafter arising
under or pursuant to the terms of the Note, the Note and Warrant Purchase
Agreement and the other Transaction Documents, and the Company Trade Facility,
including, all interest, fees, charges, expenses, attorneys' fees and costs and
accountants' fees and costs chargeable to and payable by Company (or Debtor, as
the case may be) hereunder and thereunder, in each case, whether direct or
indirect, absolute or contingent, due or to become due, and whether or not
arising after the commencement of a proceeding under Title 11 of the United
States Code (11 U. S. C. Section 101 et seq.), as amended from time to time
(including post-petition interest) and whether or not allowed or allowable as a
claim in any such proceeding.
The "OFFICERS' CERTIFICATE" shall have the meaning in Section 6(e) of
the Note and Warrant Purchase Agreement.
"PERMITTED LIENS" shall mean and include: (i) Liens for taxes or other
governmental charges not at the time delinquent or thereafter payable without
penalty or being contested in good faith, provided provision is made to the
reasonable satisfaction of the Holder for the eventual payment thereof if
subsequently found payable; (ii) Liens of carriers, warehousemen, mechanics,
materialmen, vendors, and landlords incurred in the ordinary course of business
for sums not overdue or being contested in good faith, provided provision is
made to the reasonable satisfaction of the Holder for the eventual payment
thereof if subsequently found payable; (iii) deposits under workers'
compensation, unemployment insurance and social security laws or to secure the
performance of bids, tenders, contracts (other than for the repayment of
borrowed money) or leases, or to secure statutory obligations of surety or
appeal bonds or to secure indemnity, performance or other similar bonds in the
ordinary course of business; (iv) Liens securing obligations under a capital
lease if such lease is permitted under the Transaction Documents and such Liens
do not extend to property other than the property leased under such capital
lease; (v) Liens upon any equipment acquired or held by Debtor to secure the
purchase price of such equipment or Debt incurred solely for the purpose of
financing the acquisition of such equipment, so long as such Lien extends only
to the equipment financed, and any accessions, replacements, substitutions and
proceeds (including insurance proceeds) thereof or thereto; (vi) easements,
reservations, rights of way, restrictions, minor defects or irregularities in
title and other similar charges or encumbrances affecting real property in a
manner not materially or adversely affecting the value or use of such property;
(vii) Liens in favor of
22
Holder; (viii) Liens in favor of holders of Senior Debt; (ix) the Lien on
equipment in favor of Signature Financial Group; and (x) the Lien on accounts
receivables and inventory in favor of Xxxxxx Financial, Inc.
"PERSON" shall mean and include an individual, a partnership, a
corporation (including a business trust), a joint stock company, a limited
liability company, an unincorporated association, a joint venture or other
entity or a governmental authority.
The "PREFERRED WARRANTS" shall have the meaning in Section 2(b) of the
Note and Warrant Purchase Agreement.
The "PURCHASER" shall have the meaning in the Note and Warrant Purchase
Agreement and shall mean SCM Microsystems, Inc., a Delaware corporation.
"QUALIFIED EQUITY FINANCING" shall have the meaning in Section 2 of the
Note.
"RECEIVABLES" shall have the meaning given to that term in ATTACHMENT 1
to the Security Agreement.
The "SCHEDULE OF EXCEPTIONS" shall mean that schedule attached as
EXHIBIT D to the Note and Warrant Purchase Agreement.
"SECURED PARTY" shall have the meaning in the Security Agreement and
shall mean SCM Microsystems, Inc., a Delaware corporation.
The "SECURITIES ACT" shall mean the Securities Act of 1933, as amended.
The "SECURITY AGREEMENT" shall mean that agreement substantially in the
form attached as EXHIBIT B to the Note and Warrant Purchase Agreement.
The "SECURITY AGREEMENTS" shall mean, collectively, the Security
Agreement and the Intellectual Property Supplement to the Security Agreement.
"SENIOR DEBT" shall mean, unless expressly subordinated to or made on a
parity with the amounts due under the Note, the principal of (and premium, if
any), unpaid interest on and amounts reimbursable, fees, expenses, costs of
enforcement and other amounts due in connection with, (1) Debt of Company under
the Comerica Agreement, and (2) any debentures, notes or other evidence of debt
issued in exchange for such Senior Debt; provided that, the Senior Debt shall
not exceed a total amount of Two Million Dollars ($2,000,000).
The "SHARES" shall have the meaning in the Warrant and shall mean the
number of shares equal to the Control Number of fully paid and non-assessable
Common Stock, $0.001 par value, of Dazzle Multimedia, Inc., a California
corporation.
23
"SOLVENT" shall mean, with respect to any Person on any date, that on
such date (1) the fair value of the property of such Person is greater than the
fair value of the liabilities (including, without limitation, contingent
liabilities) of such Person, (2) the present fair saleable value of the assets
of such Person is not less than the amount that will be required to pay the
probable liability of such Person on its debts as they become absolute and
matured, (3) such Person does not intend to incur debts or liabilities beyond
such Person's ability to pay as such debts and liabilities mature and (4) such
Person is not engaged in business or a transaction, and is not about in business
or a transaction, for which such Person's property would constitute an
unreasonably small capital.
"SUBORDINATION AGREEMENT" shall mean the Subordination Agreement dated
_____, 1998 between the Holder and Comerica Bank-California.
"SUBSIDIARY" means any corporation, partnership or business entity with
respect to which Company (or any Subsidiary thereof) owns a majority of the
capital stock or otherwise has the power to direct the management or policies
thereof.
The "INTELLECTUAL PROPERTY SUPPLEMENT TO THE SECURITY AGREEMENT" shall
mean that agreement substantially in the form attached as EXHIBIT C to the Note
and Warrant Purchase Agreement.
The "THRESHOLD ACCOUNT BALANCE" shall have the meaning in Section 6(e)
of the Note and Warrant Purchase Agreement and shall mean an aggregate of Three
Hundred Thousand Dollars ($300,000) in all of the Company's bank, cash or other
accounts.
"TRANSACTION DOCUMENTS" shall mean the Note, the Warrant, the Note and
Warrant Purchase Agreement, the Security Agreement, the Intellectual Property
Supplement to the Security Agreement and all exhibits and schedules attached to
such documents. The Transaction Documents do not include the Company Trade
Facility.
"UCC" shall mean the Uniform Commercial Code as in effect in the State
of California from time to time.
The "WAIVER, CONSENT AND PROXY " shall mean the waiver substantially in
the form attached as EXHIBIT E to the Note and Warrant Purchase Agreement.
The "WARRANT" shall mean the Common Stock purchase warrant substantially
in the form attached as EXHIBIT A-2 to the Note and Warrant Purchase Agreement.
