CONVERTIBLE SECURITIES SUBSCRIPTION AGREEMENT
This Convertible Securities Subscription Agreement (the "Agreement")
dated as of February 6, 1998, has been executed by the undersigned (the
"Subscriber") in connection with the sale of Convertible Subordinated
Debentures due February 6, 2003 (the "Debentures"), of ▇▇▇▇ Systems, Inc.,
a California corporation (the "Company"), convertible into shares of Common
Stock, no par value (the "Common Stock"), of the Company. The Company is
offering an aggregate amount of up to $10,000,000 of Debentures at an
aggregate price of up to $10,000,000 (the "Financing"). The issuance, sale
and purchase of an aggregate of $6,000,000 of the Debentures shall take place
in the first closing (the "First Closing") and up to an aggregate of
$4,000,000 of the Debentures shall take place upon the satisfaction of
certain conditions (the "Second Closing"). The form of the Debentures,
including the terms on which the Debentures may be converted into Common
Stock, is attached hereto as Exhibit A. The solicitation of this Agreement
and, if accepted by the Company, the offer and sale of Debentures, are being
made in reliance upon the provisions of Regulation D ("Regulation D")
promulgated by the Securities and Exchange Commission ("SEC") under the
United States Securities Act of 1933, as amended (the "Securities Act"). The
Debentures and the Common Stock issuable upon conversion thereof and issuable
in payment of interest thereunder are sometimes collectively referred to in
this Agreement as the "Securities." The Common Stock issuable upon
conversion of and in payment of interest under the Debentures is sometimes
referred to as the "Underlying Stock." In consideration of the mutual
promises, representations, warranties and conditions set forth herein, and
intending to be legally bound hereby, the Company and the Subscriber agree as
follows:
1. AGREEMENT TO SUBSCRIBE; THE SUBSCRIBER
1.1. PURCHASE AND ISSUANCE OF DEBENTURES. Subject to the terms and
conditions of this Agreement, the Subscriber hereby subscribes for
the principal amount of Debentures and at the aggregate purchase
price set forth in Section 14 on the signature page hereto.
Subject to the satisfaction (or waiver) of the conditions thereto
set forth in each of Section 1.4 and 1.5 below (i) at the First
Closing, the Company shall issue and sell to the Subscriber and the
Subscriber shall purchase from the Company the principal amount of
Debentures for the purchase price set forth in Section 14 as the
"First Closing Amount"; and (ii) at the Second Closing, the Company
shall issue and sell to the Subscriber and the Subscriber shall
purchase from the Company the principal amount of Debentures for
the purchase price set forth in Section 14 as the "Second Closing
Amount."
1.2. CLOSING DATES. Subject to the satisfaction (or waiver) of the
conditions thereto set forth in Sections 1.4 and 1.5 below, the
date and time of the issuance and sale of the Debentures pursuant
to this Agreement (the "Closing Dates") shall be (i) in the case of
the First Closing, February 6, 1998 (the "First Closing Date") and
(ii) in the case of the Second Closing, five (5) business days
following expiration of the Second Closing Waiting Period (defined
in Section 1.5B below) upon
satisfaction (or waiver) of the conditions to such closing set
forth in Sections 1.4 and 1.5 below (subject, in each case, to a
two (2) business day grace period at either party's option), or,
in each case, such other mutually agreed upon time.
1.3. THE CLOSINGS. On each Closing Date, the Subscriber shall cause the
purchase price for the Debentures being purchased on that Closing
Date to be delivered to the escrow agent as provided in that Escrow
Agreement attached as Exhibit B hereto (the "Escrow Agreement"),
and the Company shall cause the Debentures subscribed for hereby
with respect to that Closing Date to be executed, issued and
delivered to the escrow agent as provided in the Escrow Agreement.
Upon satisfaction of all relevant closing conditions as set forth
herein, the Escrow Agent shall be instructed to release the
purchase price to the Company and the Debentures to the Subscriber,
all as more particularly described in the Escrow Agreement.
1.4. CONDITIONS PRECEDENT TO THE OBLIGATION OF THE COMPANY TO SELL THE
DEBENTURES. The obligation hereunder of the Company to issue
and/or sell the Debentures to the Subscriber is subject to the
satisfaction, at or before each Closing, of each of the conditions
set forth below. These conditions are for the Company's sole
benefit and may be waived by the Company at any time in its sole
discretion.
(a) ACCURACY OF THE SUBSCRIBER'S REPRESENTATIONS AND WARRANTIES.
The representations and warranties of the Subscriber shall
be true and correct as of the date when made and in all
material respects as of each Closing Date as though made at
each such time.
(b) PERFORMANCE BY THE SUBSCRIBER. The Subscriber shall have
performed, satisfied and complied in all material respects
with all covenants, agreements and conditions required by
this Agreement to be performed, satisfied or complied with
by the Subscriber at or prior to that Closing.
(c) NO INJUNCTION. No statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted,
entered, promulgated or endorsed by any court or
governmental authority of competent jurisdiction which
prohibits the consummation of any of the transactions
contemplated by this Agreement, and no proceeding shall have
been commenced which may have the effect of prohibiting or
adversely affecting any of the transactions contemplated
hereby.
1.5. CONDITIONS PRECEDENT TO THE OBLIGATION OF THE SUBSCRIBER TO
PURCHASE THE DEBENTURES.
1.5A CONDITIONS TO EACH CLOSING. The obligation of the Subscriber
hereunder to acquire and pay for the Debentures is subject to the
satisfaction, at or before each Closing, of each of the following
conditions. Each of these conditions is for
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Subscriber's sole benefit and may be waived by Subscriber at any
time in its sole discretion.
(a) ACCURACY OF THE COMPANY'S REPRESENTATIONS AND WARRANTIES.
The representations and warranties of the Company shall be
true and correct as of the date when made and in all
material respects as of the Closing Date as though made at
each such time.
(b) PERFORMANCE BY THE COMPANY. The Company shall have
performed, satisfied and complied in all material respects
with all covenants, agreements and conditions required by
this Agreement to be performed, satisfied or complied with
by the Company at or prior to the Closing.
(c) NO INJUNCTION. No statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted,
entered, promulgated or endorsed by any court or
governmental authority of competent jurisdiction which
prohibits or adversely effects any of the transactions
contemplated by this Agreement, and no proceeding shall have
been commenced which may have the effect of prohibiting or
adversely affecting any of the transactions contemplated
hereby.
(d) ADVERSE CHANGES. For the period from June 30, 1997 until
the Closing, except as publicly disclosed since June 30,
1997 in Company press releases or Exchange Act filings
issued or made prior to or on the date of the First Closing
as listed on Schedule 1.5(d) ("Prior Public Disclosures"),
no event shall have occurred or be threatened to occur which
has had or is likely to have a Material Adverse Effect on
the Company and its subsidiaries taken as a whole. The
Company shall have received and delivered to the Subscriber
(i) the consent of all applicable lenders to the issuance of
the Debentures, (ii) the Subordination Agreement by and
between the Company and Coast Business Credit in form and
substance as set forth as Schedule 1.5A(d) hereto and (ii)
the waiver of any and all pending events of default (or
pending events which with lapse of time or notice or both
would constitute an event of default) thereunder.
(e) NO SUSPENSION OF TRADING IN OR DELISTING OF COMMON STOCK.
The trading in the Common Stock shall not have been
suspended by the SEC or the Nasdaq Stock Market; the Common
Stock shall not have been delisted from the Nasdaq Stock
Market; and trading in securities generally on the Nasdaq
shall not have been suspended or limited.
(f) LEGAL OPINION. The Company shall have delivered to the
Subscriber opinions of Wilson, Sonsini, ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇,
counsel to the Company, in form and substance reasonably
satisfactory to the Subscriber.
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(g) OFFICER'S CERTIFICATE. The Company shall have delivered to
the Subscriber (i) a certificate in form and substance
reasonably satisfactory to the Subscriber, executed by an
executive officer of the Company, to the effect that all the
conditions to the Closing shall have been satisfied; and
(ii) a certificate in form and substance reasonably
satisfactory to the Subscriber, executed by the Secretary of
the Company, providing certified copies of all Board
resolutions authorizing the transactions contemplated by
this Agreement and of the Company's Articles of
Incorporation and By-laws as contemplated by Section 3.7
below.
(h) REGISTRATION RIGHTS AGREEMENT. The Company and the
Subscriber shall have entered into the Registration Rights
Agreement contemplated by Section 5.1.
1.5B OTHER CONDITIONS TO SECOND CLOSING. In addition to the foregoing
conditions precedent to the obligation of the Subscriber to
purchase the Debentures, with respect to the Second Closing, there
shall have elapsed 120 days from the First Closing Date (the
"Second Closing Waiting Period") and each of the following
conditions shall have been satisfied. Each of these conditions is
for Subscriber's sole benefit and may be waived by Subscriber at
the expiration of the Second Closing Waiting Period.
(a) ABSENCE OF NASDAQ DELISTING NOTIFICATION. There shall have
been no notice issued by Nasdaq to the Company during the
Second Closing Waiting Period, which remains outstanding, to
the effect that because of non-compliance with Nasdaq
listing requirements, the Company's Common Stock may be
subject to delisting;
(b) NO EXCESS NET LOSSES. The Company has not experienced a net
loss in respect of each of the Company's second and third
quarters of its 1998 fiscal year in excess of $2,000,000, as
reflected in the Company's Form 10-Qs for each such quarter;
(c) STABLE CLOSING BID PRICE. For the thirty days preceding the
expiration of the Second Closing Waiting Period, the closing
bid price for the Company's Common Stock as reported by the
Bloomberg System is not below $2.00 for any four consecutive
trading days; and
(d) EFFECTIVENESS OF INITIAL REGISTRATION STATEMENT. The
registration statement(s) filed by the Company pursuant to
Section 2 of the Registration Rights Agreement contemplated
by Section 5.1 below and covering the resale of the
Registrable Securities (as defined in the Registration
Rights Agreement) underlying the Debentures issued at the
First Closing shall be effective and no stop order shall
have been issued in respect thereof.
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2. REPRESENTATIONS AND WARRANTIES OF SUBSCRIBER
The Subscriber represents and warrants to the Company that:
2.1. NO GOVERNMENT RECOMMENDATION OR APPROVAL. The Subscriber
understands that no United States federal or state agency or
similar agency of any other country, has passed upon or made any
recommendation or endorsement of the Company or the offering of the
Securities.
2.2. INTENT. The Subscriber is purchasing the Securities for its own
account and not with a view towards distribution and the Subscriber
has no present arrangement to sell the Debentures or the Underlying
Stock to or through any person or entity; provided, however, that
by making the representation herein, the Subscriber does not agree
to hold the Securities for any minimum or other specific term and
reserves the right to dispose of the Securities at any time in
accordance with federal and state securities laws applicable to
such disposition. The Subscriber understands that the Securities
must be held indefinitely unless such Securities are subsequently
registered under the Securities Act or an exemption from
registration is available. The Subscriber has been advised or is
aware of the provisions of Rule 144 promulgated under the
Securities Act.
2.3. SOPHISTICATED INVESTOR. The Subscriber is an accredited investor
(as defined in Rule 501 of Regulation D promulgated under the
Securities Act ("Regulation D")), and Subscriber has such
experience in business and financial matters that it is capable of
evaluating the merits and risks of an investment in the Securities.
The Subscriber acknowledges that the Securities are speculative and
involve a high degree of risk.
2.4. INDEPENDENT INVESTIGATION. The Subscriber, in making the decision
to purchase the Securities subscribed for hereunder, has relied
upon an investigation made by it and/or its representatives and has
not relied on any information or representations made by third
parties. The Subscriber acknowledges that the Company does not
make any representation or warranty relating to (i) information
contained in any analyst reports or (ii) the financial forecast
prepared by the Company in December 1997 for fiscal year 1998,
which have been provided to the Subscriber by or on behalf of the
Company. Prior to the date hereof, the Subscriber has been
furnished with and has reviewed the Company's latest proxy
statement and Annual Report on Form 10-K sent to the Company's
shareholders and all documents filed by the Company with the
Securities and Exchange Commission (the "SEC") since June 30, 1995
pursuant to sections 13(a), 13(c), 14 or 15(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), excluding
preliminary proxy statement filings (such documents are
collectively referred to in this Agreement as the "Exchange Act
Reports" and the Prior Public Disclosures). Subject to the
foregoing, the Subscriber has had a
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reasonable opportunity to ask questions of and receive answers
from the Company concerning the Company and the Offering and has
received complete and satisfactory answers to all inquiries it
has made with respect to the Company and the Securities. The
Subscriber acknowledges the price and terms of the Securities
offered hereby has been determined by negotiation based in part
on the market price for the Common Stock, and does not
necessarily bear any relationship to the assets, book value or
potential performance of the Company or any other recognized
criteria of value.
2.5. AUTHORITY. This Agreement and the Registration Rights Agreement
have been duly authorized and validly executed and delivered by the
Subscriber and are each a valid and binding agreement enforceable
in accordance with its terms, subject to general principles of
equity and to bankruptcy or other laws affecting the enforcement of
creditors' rights generally.
2.6. NO LEGAL ADVICE FROM COMPANY. The Subscriber acknowledges that it
has had the opportunity to review this Agreement and the
transactions contemplated by this Agreement with its own legal
counsel and investment and tax advisors. Except for any statements
or representations of the Company made in this Agreement and the
legal opinion called for by Section 1.4 hereof, the Subscriber is
relying solely on such counsel and advisors and not on any
statements or representations of the Company or any of its
representatives or agents for legal, tax or investment advice with
respect to this investment, the transactions contemplated by this
Agreement or the securities laws of any jurisdiction.
2.7. NO BROKERS. The Subscriber has taken no action which would give
rise to any claim by any person for brokerage commissions, finder's
fees or similar payments by the Company relating to this Agreement
or the transactions contemplated hereby.
2.8. NOT AN AFFILIATE. The Subscriber is not an officer, director or
"affiliate" (as that term is defined in Rule 405 of Securities Act)
of the Company.
2.9. RELIANCE ON REPRESENTATIONS AND WARRANTIES. The Subscriber
understands that the Securities are being offered and sold to it in
reliance on specific provisions of United States federal and state
securities laws and that the Company is relying upon the truth and
accuracy of the representations, warranties, agreements,
acknowledgments and understandings of the Subscriber set forth in
this Agreement in order to determine the applicability of such
provisions.
2.10. NO BROKER-DEALER. The Subscriber is not a registered broker dealer
and is not engaged in the business of being a broker dealer.
3. REPRESENTATIONS AND WARRANTIES OF COMPANY
The Company represents and warrants to the Subscriber that:
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3.1 COMPANY STATUS. The Company has registered its Common Stock
pursuant to Section 12(b) or 12(g) of the Exchange Act, is in full
compliance with all reporting requirements of the Exchange Act, and
the Company has maintained all requirements for the continued
listing of its Common Stock, and such Common Stock is currently
listed, on the Nasdaq National Market System. The Company is
eligible to use Form S-3 under the Securities Act for secondary
offerings.
3.2 CURRENT PUBLIC INFORMATION. The Exchange Act Reports are the only
filings made by the Company since June 30, 1995 pursuant to
Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act.
3.3. NO DIRECTED SELLING EFFORTS OR GENERAL SOLICITATION IN REGARD TO
THIS TRANSACTION. Neither the Company nor any person acting on its
behalf has conducted any general solicitation or general
advertising (as those terms are used in Regulation D) in connection
with the offer or sale of any of the Securities.
3.4. VALID ISSUANCE OF DEBENTURES AND CAPITAL STOCK. The Company has an
authorized capitalization consisting of 27,000,000 shares of common
stock, no par value, of which 25,000,000 are designated "Common
Stock" and 2,000,000 are designated "Non-Voting Common Stock" and
5,000,000 shares of Preferred Stock, no par value. As of the date
hereof, the Company has issued and outstanding 19,859,808 shares of
Common Stock no shares of Non-Voting Common Stock and 107 shares of
Preferred Stock, designated as Series E Preferred Stock, and there
are no other outstanding shares of capital stock of the Company.
All of the issued shares of capital stock of the Company have been
duly and validly authorized and issued, are fully paid and
non-assessable. Except as set forth on SCHEDULE 3.4 hereto, there
are no outstanding warrants, options, convertible securities or
other rights, agreements or arrangements of any character under
which the Company is or may be obligated to issue any equity
securities of any kind, or to transfer any equity securities of any
kind owned by it. Prior to the Closing Date, the authorized
capitalization shall include the Securities; upon issuance of the
Securities, the Securities will be duly and validly issued, fully
paid and non-assessable; the shares of Common Stock issuable upon
conversion of or in payment of interest under the Debentures, when
issued and delivered in accordance with the terms of the
Debentures, will be duly and validly issued, fully paid and
non-assessable; and the holders of outstanding capital stock of the
Company are not and shall not be entitled to preemptive or other
rights afforded by the Company to subscribe for the capital stock
or other securities of the Company as a result of the sale of the
Securities or the issuance of Common Stock pursuant to the terms of
the Debentures. The Company will provide to the Subscriber within
ten (10) days of the Closing Date a SCHEDULE 3.4 setting forth all
agreements pursuant to which the Company has granted to any person
the right to require the Company to register any securities of the
Company under the Securities Act, whether on a demand basis or in
connection with the registration of securities of the Company for
its own account or for the account of any other person (the "Other
Registration
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Rights"). The Company represents and warrants that such Other
Registration Rights (i) do not conflict with the rights granted
to the Subscriber pursuant to the Registration Rights Agreement
between the Company and the Subscriber of even date herewith (the
"Registration Rights Agreement") and (ii) do not provide the
holders of the Other Registration Rights with the right to have
their Company securities registered by the Company under the
Securities Act pursuant to the Registration Rights Agreement.
3.5. ORGANIZATION AND QUALIFICATION. The Company is a corporation duly
incorporated and existing in good standing under the laws of the
State of California and has the requisite corporate power to own
its properties and to carry on its business as now being conducted.
The Company does not have any subsidiaries except as listed in
SCHEDULE 3.5. Except as set forth on Schedule 3.5, each of the
subsidiaries of the Company is a corporation duly organized and
validly existing in good standing under the law of the jurisdiction
in which it is incorporated, and has the requisite corporate power
to own its properties and carry on its business as now being
conducted. Except as set forth on Schedule 3.5, the Company and
each such subsidiary, if any, 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 or
property owned by it makes such qualification necessary other than
those in which the failure so to qualify would not have a Material
Adverse Effect. "Material Adverse Effect" means any material
adverse effect on the business, operations, properties, prospects,
or financial condition of the Company and its subsidiaries taken as
a whole and/or any condition or situation which would prohibit or
otherwise adversely interfere with the ability of the Company to
enter into and perform its obligations under this Agreement, the
Debentures and the Registration Rights Agreement.
3.6. AUTHORIZATION; ENFORCEMENT. (i) The Company has the requisite
corporate power and authority to enter into and perform this
Agreement and the Registration Rights Agreement and to issue the
Securities in accordance with the terms hereof and thereof, (ii)
the execution, issuance and delivery of this Agreement, the
Registration Rights Agreement and the Debentures by the Company and
the consummation by it of the transactions contemplated hereby and
thereby have been duly authorized by all necessary corporate
action, and no further consent or authorization of the Company or
its Board of Directors or stockholders is required, (iii) this
Agreement has been, and on the Closing Date the Registration Rights
Agreement and the Debentures will be, duly executed and delivered
by the Company and (iv) this Agreement constitutes, and upon
execution, issuance and delivery thereof the Registration Rights
Agreement and the Debentures shall be, valid and binding
obligations of the Company enforceable against the Company in
accordance with their terms, except as such enforceability may be
limited by applicable bankruptcy, insolvency, or similar laws
relating to, or affecting generally the enforcement of, creditors'
rights and remedies or by other equitable principles of general
application.
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3.7. CORPORATE DOCUMENTS. The Company has furnished or made available
to the Subscriber true and correct copies of the Company's
Certificate of Incorporation 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"), certified in each case
by the Secretary of the Company.
3.8. NO CONFLICTS. The execution, delivery and performance of this
Agreement, including the conversion of the Debentures into the
Common Stock of the Company, the Registration Rights Agreement and
the Debentures by the Company and the consummation by the Company
of the transactions contemplated hereby and thereby do not and will
not (i) result in a violation of the Company's Certificate of
Incorporation or By-Laws or (ii) conflict with, 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
agreement, indenture or instrument to which the Company or any of
its subsidiaries is a party, or result in a violation of any
federal, state, local or foreign law, rule, regulation, order,
judgment or decree (including federal and state securities laws and
regulations) 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 (except in the case of this
subparagraph (ii) for such conflicts, defaults, terminations,
amendments, accelerations, cancellations and violations as would
not, individually or in the aggregate, have a Material Adverse
Effect); provided that, for purposes of such representation as to
federal, state, local or foreign law, rule or regulation, no
representation is made herein with respect to any of the same
applicable solely to the Subscriber and not to the Company. The
business of the Company and its subsidiaries is not being conducted
in violation of any law, ordinance or regulations of any
governmental entity, except for possible violations which either
singly or in the aggregate do not and will not have a Material
Adverse Effect. The Company is not required under federal, state
or local law, rule or regulation in the United States to obtain any
consent, authorization or order of, or make any filing or
registration with, any court or governmental agency in order for it
to execute, deliver or perform any of its obligations under this
Agreement or the Registration Rights Agreement or issue and sell
the Securities in accordance with the terms hereof and thereof
(other than any SEC, Nasdaq or state securities filings which may
be required to be made by the Company subsequent to the Closing,
and any registration statement which may be filed pursuant hereto);
provided that, for purposes of the representation made in this
sentence, the Company is assuming and relying in part upon the
accuracy of the relevant representations and agreements of the
Subscriber herein.
3.9. EXCHANGE ACT REPORTS. The Company has delivered or made available
to the Subscriber true and complete copies of the Exchange Act
Reports (including, without limitation, proxy information and
solicitation materials). The Company has not provided to the
Subscriber any information which, according to applicable
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law, rule or regulation, should have been disclosed publicly by
the Company but which has not been so disclosed. As of their
respective dates, the Exchange Act Reports complied (and as of
its effective date, the Registration Statement for the Underlying
Stock will comply) in all material respects with the requirements
of the Exchange Act (or in the case of such Registration
Statement, the Securities Act) and the rules and regulations of
the SEC promulgated thereunder and other applicable federal,
state and local laws, rules and regulations, and none of the
Exchange Act Reports contained (and, as of its effective date,
such Registration Statement will not contain) 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. The financial statements of the
Company included (or to be included) in the Exchange Act Reports
and the Registration Statement comply as to form in all material
respects with applicable accounting requirements and the
published rules and regulations of the SEC or other applicable
rules and regulations with respect thereto. Such financial
statements have been (or will be) prepared in accordance with
generally accepted accounting principles applied on a consistent
basis 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 not include footnotes or may be condensed or summary
statements) and fairly present (or will fairly present) in all
material respects the consolidated financial position of the
Company as of the dates thereof and the consolidated results of
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 Subscriber contains any untrue statement of a
material fact or omits to state any material fact necessary in
order to make the statements therein, in light of the
circumstances under which they are or were made, not misleading.
The preceding sentence notwithstanding, the Company does not make
any representation or warranty relating to (i) information
contained in any analyst reports or (ii) the financial forecast
prepared by the Company in December 1997 for fiscal year 1998,
which have been provided to the Subscriber by or on behalf of the
Company.
3.10. NO MATERIAL ADVERSE CHANGE. Since September 30, 1997, the date
through which the most recent Quarterly Report of the Company on
Form 10-Q has been prepared and filed with the SEC, a copy of which
is included in the Exchange Act Reports, except as disclosed in the
Prior Public Disclosures, no Material Adverse Effect has occurred
or exists with respect to the Company and its subsidiaries taken as
a whole.
3.10A NO VIOLATION OF CREDITOR COVENANTS. Except as set forth in
Schedule 3.10A, no event of default has occurred and is continuing
(or event which with lapse of time or notice or both would
constitute such an event) under any of the revolving credit
facilities or other financing arrangements of the Company or its
subsidiaries.
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3.11. NO UNDISCLOSED LIABILITIES. The Company and its subsidiaries have
no liabilities or obligations not disclosed in the Exchange Act
Reports, other than those incurred in the ordinary course of the
Company's or its subsidiaries' respective businesses since
September 30, 1997 and which, individually or in the aggregate, do
not or would not have a Material Adverse Effect on the Company and
its subsidiaries taken as a whole.
3.12. NO UNDISCLOSED EVENTS OR CIRCUMSTANCES. No event or circumstance
has occurred or exists with respect to the Company or its
subsidiaries or their respective business, properties, prospects,
operations or financial condition, 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.
3.13. 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 the Securities under the Securities
Act or cause the offering of the Securities pursuant to this
Agreement to be integrated with any prior offering(s) by the
Company for purposes of the Securities Act or any applicable
shareholder approval provisions, including without limitation,
under the rules and regulations of the Nasdaq National Market
System.
3.14. NO BROKERS. The Company has taken no action which would give rise
to any claim by any person for brokerage commissions, finder's fees
or similar payments by the Subscriber relating to this Agreement or
the transactions contemplated hereby, except for dealings with
▇▇▇▇▇▇ Capital Group, Ltd., whose commissions and fees will be paid
for by the Company.
3.15. EFFECTIVENESS OF SEC FILINGS. The SEC has not issued any stop order
or other order suspending the effectiveness of any registration
involving the Company or its subsidiaries.
3.16. NO MATERIAL LITIGATION PROCEEDINGS. Except as disclosed in the
Exchange Act Reports, neither the Company nor any of its
subsidiaries is a party to or the subject of any litigation,
arbitration or other proceeding which if adversely determined would
singly or in the aggregate have a Material Adverse Effect.
3.17. INTELLECTUAL PROPERTY RIGHTS. To the knowledge of the Company, the
Company and its subsidiaries own or possess adequate rights or
licenses to use all trademarks, trade names, service marks,
patents, patent rights, copyrights, inventions and trade secrets
(collectively "Intellectual Property") necessary to conduct their
respective businesses as now conducted, except to the extent that
the failure to possess such rights or licenses to such Intellectual
Property would not have a Material Adverse Effect. The Company has
no knowledge of any infringement by the Company or its subsidiaries
of any Intellectual Property rights
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of others, and there is no claim, action or proceeding pending
or, to the Company's knowledge, threatened against, the Company
or any of its subsidiaries regarding any Intellectual Property
used by the Company in its business.
4. COVENANTS OF THE SUBSCRIBER
4.1. RESALES. The Subscriber shall not make any offers or sales of the
Securities other than pursuant to a registration statement under
the Securities Act or pursuant to an exemption from registration
under the Securities Act. Subscriber will comply with applicable
prospectus delivery requirements.
4.2. LOW TRADES. The Subscriber covenants and agrees that it will not,
directly or through any Affiliate, (i) create the lowest reported
sales price on the Nasdaq National Market System for the Common
Stock on any trading day or (ii) offer to sell shares of Common
Stock at a price lower than the then prevailing bid price for the
Common Stock on the Nasdaq National Market System. The Subscriber
will not directly or indirectly engage in any activity that is
intended to reduce the closing bid price for the Common Stock on
the Nasdaq National Market System on any day that is within the
period of thirty (30) trading days immediately prior to a Holder
Conversion Date (as defined in the Debenture) for the Subscriber.
5. COVENANTS OF THE COMPANY
5.1. REGISTRATION RIGHTS. The Company will file and use its best
efforts to cause to become effective, as promptly as possible a
registration statement ("Registration Statement") on Form S-3 under
the Securities Act (or in the event that the Company is ineligible
to use such form, such other form as the Company is eligible to use
under the Securities Act) covering the resale of the Underlying
Stock issuable on conversion of the Debentures issued and sold to
Subscriber on the First Closing Date, in accordance with terms of
the Registration Rights Agreement (the "Registration Rights
Agreement") in the form of Exhibit C hereto, which the Company and
the Subscriber shall enter into on the First Closing Date. The
Company will file promptly after the Second Closing Date and use
its best efforts to cause to become effective, as promptly
thereafter as possible a Registration Statement covering the resale
of the Underlying Stock issuable on conversion of the Debentures to
be issued and sold to Subscriber on the Second Closing Date, all in
accordance with the Registration Rights Agreement.
5.2. RESERVATION OF COMMON STOCK. As of the date hereof, the Company
has reserved and the Company shall continue to reserve and keep
available at all times, free of preemptive rights, shares of Common
Stock for the purpose of enabling the Company to satisfy any
obligation to issue shares of its Common Stock upon conversion of
the Debentures; provided, however, that the number of shares so
reserved shall at all times be at least two times the number of
shares required to satisfy the conversion of the Debentures then
outstanding. The number of shares so reserved may be reduced by
the number of shares actually delivered pursuant to
-12
conversion of Debentures (provided that in no event shall the
number of shares so reserved be less than the number required to
satisfy the remaining conversion rights on the unconverted
Debentures) and the number of shares so reserved shall be
increased to reflect stock splits and stock dividends and
distributions.
5.3. LISTING OF UNDERLYING SHARES. The Company hereby agrees, promptly
following the Closing of the transactions contemplated by this
Agreement, to take such action to cause the Underlying Stock to be
listed on the Nasdaq National Market System as promptly as possible
but no later than the effective date of the Registration Statements
referred to in Section 5.1. The Company further agrees, if the
Company applies to have the Common Stock traded on any other
principal stock exchange or market, it will include in such
application the Underlying Stock and will take such other action as
is necessary to cause the Underlying Stock to be listed on such
other exchange or market as promptly as possible.
5.4. EXCHANGE ACT REGISTRATION. The Company will cause its Common Stock
to continue to be registered under Section 12(g) or 12(b) of the
Exchange Act, will comply in all respects with its reporting and
filing obligations under said Act, and will not take any action or
file any document (whether or not permitted by said Act or the
rules thereunder) to terminate or suspend such registration or to
terminate or suspend its reporting and filing obligations under
said Act. The Company will take all action necessary to continue
the listing and trading of its Common Stock on the Nasdaq National
Market System and will comply in all respects with the Company's
reporting, filing and other obligations under the bylaws or rules
of the Nasdaq National Market System.
5.5. LEGENDS. The Underlying Stock and certificates evidencing the same
shall at all times be free of legends (except as provided in
Section 6.1 below), "stop transfers", "stock transfer restrictions"
or other restrictions, upon the effectiveness of the Registration
Statement.
5.6. CORPORATE EXISTENCE. The Company will take all steps necessary to
preserve and continue the corporate existence of the Company.
5.7. RIGHT OF FIRST REFUSAL. The Company acknowledges that the right of
first refusal granted by it to ▇▇▇▇▇▇ Capital Group, Ltd. by
agreement dated January 22, 1998 (the "▇▇▇▇▇▇ Agreement"), has been
extended by ▇▇▇▇▇▇ Capital Group, Ltd. to each Subscriber in this
Offering, granting the Subscribers exclusive first rights to
participate as purchasers in any Subsequent Financing (as defined
in the ▇▇▇▇▇▇ Agreement) to the extent of each Subscriber's
participation in this Offering. The Company hereby consents to
such participation by the Subscriber in any and all such Subsequent
Financings pursuant to the terms of the ▇▇▇▇▇▇ Agreement.
5.8. WITHHOLDING. It is the intent of the Company that the Debentures
be treated as "registered obligations" under Section 871(h)(2)(B)
of the Internal Revenue Code of 1986, as amended (the "Code") and
that the interest payments thereon be
-13-
treated as "portfolio interest" within the meaning of Section
871(h) of the Code. Assuming no changes in the current law
applicable hereto, so long as the Subscriber (or any transferee
thereof who is a "Holder" under the Debenture) complies with the
requirements for exemption from taxation under the Code
(including any compliance with any documentation requirements
reasonably requested by the Company to establish and support such
exemption) and the interest on the Debentures is not determined
to be other than "portfolio interest", the Company agrees that it
shall not withhold federal income taxes in respect of interest
payments on the Debentures.
5.9. 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 the Subscriber promptly after such filing.
5.10. FINANCIAL INFORMATION. The Company agrees to send to the
Subscriber for so long as it holds any of the Debentures, (i)
promptly after the filing thereof with the SEC, a copy of the
Company's Annual Reports on Form 10-K, Quarterly Reports on Form
10-Q, any Current Reports on Form 8-K and notice of any
registration statements or amendments filed pursuant to the
Securities Act, and (ii) contemporaneously with the making
available or giving thereof of the stockholders of the Company,
copies of any notices, reports and other information made available
or given to the stockholders of the Company generally.
6. LEGENDS; SUBSEQUENT TRANSFER OF SECURITIES; DENOMINATIONS
6.1. LEGEND. The Company will issue one or more Debentures in the name
of the Subscriber and in such denominations to be specified by the
Subscriber prior to (or from time to time subsequent to) Closing.
The Debentures, and any shares of Common Stock issued upon
conversion thereof or in payment of interest thereunder prior the
effectiveness of the Registration Statement, will bear the
following legend (the "Legend"):
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933 OR ANY STATE SECURITIES LAWS, AND MAY NOT BE SOLD OR
OFFERED FOR SALE EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT AS TO THE SECURITIES UNDER SAID ACT AND ANY APPLICABLE
STATE SECURITIES LAWS OR PURSUANT TO AN AVAILABLE EXEMPTION FROM
SUCH REGISTRATION REQUIREMENTS.
Following the effectiveness of the Registration Statement, the Company will
promptly instruct its transfer agent, upon surrender of the Debentures for
conversion and/or Underlying Stock, to remove the Legend from any of the
Underlying Stock. In addition, and if applicable, the Company shall
reissue certificates representing the Underlying Stock without the legend
set forth above at such time as (i) the Holder thereof is permitted to
dispose of such Securities pursuant to Rule 144(k) under the Securities Act
-14-
or (ii) the Securities are sold to a purchaser or purchasers in a
transaction exempt from registration under the Securities Act, as evidenced
by an opinion of counsel to the transferor delivered to and reasonably
satisfactory to the Company.
6.2. NO OTHER LEGEND OR STOCK TRANSFER INSTRUCTIONS. No legend has been
or shall be placed on the share certificates representing the
Securities and no stock transfer instructions have been or shall be
given to the Company's transfer agent with respect thereto other
than as set forth in this Section 6.
6.3. SUBSCRIBER'S COMPLIANCE. Nothing in this section shall affect in
any way the Subscriber's obligations and agreement to comply with
all applicable securities laws upon resale of the Securities.
6.4. OTHER RESTRICTIONS ON TRANSFER. The Subscriber shall not transfer
the Debentures to any party not constituting an affiliate of
Subscriber without the prior written consent of the Company, which
consent shall not be unreasonably withheld or delayed.
7. GOVERNING LAW; JURISDICTION; WAIVER OF JURY TRIAL
This Agreement shall be governed by and construed in accordance with the
laws of the State of New York without regard to principles of conflicts of
law or choice of law. The Company and Subscriber hereby agree that all
actions or proceedings arising directly or indirectly from or in connection
with this Agreement shall be litigated only in the Supreme Court of the
State of New York or the United States District Court for the Southern
District of New York located in New York County, New York. To the extent
permitted by applicable law, the Company and Subscriber consent to the
jurisdiction and venue of the foregoing courts and consent that any process
or notice of motion or other application to either of said courts or a
judge thereof may be served inside or outside the State of New York or the
Southern District of New York by registered mail, return receipt requested,
directed to such party at its address set forth in this Agreement (and
service so made shall be deemed complete five (5) days after the same has
been posted as aforesaid) or by personal service or in such other manner as
may be permissible under the rules of said courts. The parties hereto
hereby waive any right to a jury trial in connection with any litigation
pursuant to this Agreement.
8. ASSIGNMENT, ENTIRE AGREEMENT; AMENDMENT
8.1. ASSIGNMENT. 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 Debentures. Except in connection
with the Company's currently contemplated and shareholder approved
reincorporation in Delaware, the Company shall not assign this
Agreement or any rights or obligations hereunder without the prior
written consent of the holders of two-thirds (2/3) of the
Debentures then outstanding. The Subscriber may assign some or all
of its rights hereunder to affiliates of the Subscriber without the
consent of the Company, and
-15-
to others with the consent of the Company; provided, however,
that any such assignment shall not release the Subscriber from
its obligations hereunder unless such obligations are assumed by
such assignee and the Company has consented to such assignment
and assumption.
8.2. ENTIRE AGREEMENT; AMENDMENT. This Agreement, the Debentures, the
Registration Rights Agreement and the other documents delivered
pursuant hereto constitute the full and entire understanding and
agreement between the parties with regard to the subjects hereof
and thereof, and no party shall be liable or bound to any other
party in any manner by any warranties, representations or covenants
except as specifically set forth in this Agreement or therein.
Except as expressly provided in this Agreement, neither this
Agreement nor any term hereof may be amended, waived, discharged or
terminated other than by a written instrument signed by the party
against whom enforcement of any such amendment, waiver, discharge
or termination is sought.
9. PUBLICITY
The Company agrees that it will not disclose, and will not include in any
public announcement, the name of the Subscriber without its express written
consent, unless and until such disclosure is required by law or applicable
regulation, and then only to the extent of such requirement. Except as may
be required by law, the Company and the Subscribers shall consult with each
other before issuing any press release or otherwise making any public
statements with respect to this Agreement or the relationship between the
Company and the Subscribers and shall not issue any such press release or
make any such public statement prior to such consultation.
10. NOTICES, ETC.; EXPENSES; INDEMNITY
10.1. NOTICES. Any notice, demand or request required or permitted to be
given by either the Company or any Subscriber pursuant to the terms
of this Agreement shall be in writing and shall be deemed given
when delivered personally or by facsimile, with a hard copy to
follow by two day courier addressed to the parties at the addresses
of the parties set forth at the end of this Agreement or such other
address as a party may request by notifying the other in writing.
Copies of all notices to each Subscriber shall be sent to its
designee or representative.
10.2. COSTS AND EXPENSES. The Company shall be responsible for the
Subscribers' costs and expenses, due and payable at Closing,
(including legal fees and expenses for one counsel for the
Subscribers) incurred in entering into this Agreement and the
transactions contemplated hereby and in conducting a due diligence
examination in connection with the transactions contemplated
hereby, but not to exceed $25,000 in the aggregate for all
Subscribers.
10.3. INDEMNIFICATION. Each party shall indemnify the other against any
loss, cost or damages (including reasonable attorney's fees and
expenses) incurred as a result
-16-
of such parties' breach of any representation, warranty, covenant
or agreement in this Agreement.
11. COUNTERPARTS
This Agreement may be executed in any number of counterparts, each of which
shall be enforceable against the parties actually executing such
counterparts, and all of which together shall constitute one instrument.
12. SURVIVAL; SEVERABILITY
The representations, warranties, covenants and agreements of the parties
hereto shall survive the Closing notwithstanding any due diligence
investigation conducted by or on behalf of the Subscriber. In the event
that any provision of this Agreement becomes or is declared by a court of
competent jurisdiction to be illegal, unenforceable or void, this Agreement
shall continue in full force and effect without said provision; provided
that no such severability shall be effective if it materially changes the
economic benefit of this Agreement to any party.
13. 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.
14. AMOUNT
The undersigned hereby subscribes for U.S. $______________ in principal
amount of Debentures for the First Closing (the "First Closing Amount") and
for U.S. $__________ in principal amount of Debentures for the Second
Closing (the "Second Closing Amount").
Name of the Subscriber:________________________
Address:_______________________________________
Telephone:_____________________________________
Fax:___________________________________________
Date of Subscription: ________________________
Signature:_____________________________________
Name: Title:
Place of Execution:____________________________
-17-
Place of Organization or Citizenship:__________
Place of Residency
and/or Principal Place of Business:____________
Copies of Notice to be sent to:
_______________________________________________
_______________________________________________
_______________________________________________
_______________________________________________
_______________________________________________
-18-
THIS SUBSCRIPTION IS ACCEPTED BY THE COMPANY ON THE 6th DAY OF
FEBRUARY, 1998.
▇▇▇▇ SYSTEMS, INC.
By:________________________________________
Print Name:
Its:
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Telephone: 770/▇▇▇-▇▇▇▇
Fax:
Copies of Notices to be sent to:
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
-19-
SCHEDULE 1.5 (d)
PRIOR PUBLIC DISCLOSURES
SINCE JUNE 30, 1997
Date Filed Description
----------------------- ------------------------------------------------------------------------
EXCHANGE ACT FILINGS:
August 19, 1997 Form 8-K: Earnings release for the fourth quarter of fiscal 1997
September 29, 1997 Form 10-K: Annual report for the fiscal year ended June 30, 1997
October 8, 1997 Form 14A: Definitive Proxy Statement & Notice of Shareholder Meeting
November 14, 1997 Form 10-Q: Quarterly report for the quarter ended September 30, 1997
January 28, 1998 Form 8-K: Earnings release for the second quarter of fiscal 1998
PRESS RELEASES:
July 1, 1997 ▇▇▇▇ Systems, Inc. Announces $500,000 in Contracts
July 1, 1997 ▇▇▇▇ Systems, Inc. Announces $2.1 Million in Process
Manufacturing Agreements
July 3, 1997 ▇▇▇▇ Systems Appoints Professional Services Vice-President
July 7, 1997 ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇ Joins ▇▇▇▇ Systems as CFO
July 7, 1997 ▇▇▇▇ Systems and Dragoco Sign Key Accord
July 7, 1997 ▇▇▇▇ Systems Reports Progress in the Process
Manufacturing Market
July 28, 1997 ▇▇▇▇ Systems Announces Increased Demand for
Renaissance CS on Windows NT
August 4, 1997 ▇▇▇▇ Systems, Inc. Announces $850,000 in Spanish Agreements
August 5, 1997 ▇▇▇▇ Systems Acquires Software Applications for
Enhanced Supply Chain Capabilities
August 7, 1997 ▇▇▇▇ Systems, Inc. Announces $1.6 Million Agreement
August 8, 1997 ▇▇▇▇ Systems, Inc. Announces $1.4 Million Agreement
August 18, 1997 ▇▇▇▇ Systems, Inc. Discusses Fourth Quarter Revenues
August 21, 1997 ▇▇▇▇ Systems Announces Year End Results
August 27, 1997 ▇▇▇▇ Systems, Inc. Announces $750,000 in New Contracts
August 28, 1997 ▇▇▇▇ Systems, Inc. Expands Agreement with Mental Health &
Mental Retardation Authority
September 10, 1997 ▇▇▇▇ Systems Announces First Joint Integration of
Renaissance CS and FRx
September 17, 1997 Gorges Quick to Fix Foods - Quick to Implement ▇▇▇▇ Systems'
Renaissance CS
September 24, 1997 ▇▇▇▇ Systems, Inc. Announces New Agreements
September 29, 1997 ▇▇▇▇ Systems, Inc. Names ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ to Board of Directors
Page 1 of 2
SCHEDULE 1.5 (d)
PRIOR PUBLIC DISCLOSURES
SINCE JUNE 30, 1997
Date Filed Description
----------------------- ------------------------------------------------------------------------
September 30, 1997 ▇▇▇▇ Systems, Inc. Announces $840,000 in New Contracts
October 2, 1997 ▇▇▇▇ Systems Announces $1,250,000 in International Agreements
October 2, 1997 ▇▇▇▇ Systems Announces New Agreements valued at $830,000
October 23, 1997 ▇▇▇▇ Systems Reports 1st Quarter Results
November 20, 1997 ▇▇▇▇ Systems Announces New Agreements Valued at $940,000
November 21, 1997 ▇▇▇▇ Systems, Inc. Announces $490,000 in New Contracts
December 1, 1997 ▇▇▇▇ Systems, Inc. Announces $525,000 in New Contracts
December 2, 1997 ▇▇▇▇ Systems, Inc. Announces $400,000 in New Agreements
December 2, 1997 ▇▇▇▇ Systems Appoints Ramsay Vice President, Canadian Sales
December 2, 1997 ▇▇▇▇ Systems Taps Austin to Head Western U.S. Sales Region
December 9, 1997 ▇▇▇▇ Systems, Inc. Selected by Nucor Steel
December 11, 1997 ▇▇▇▇ Systems Selected by Eastern Foods
December 11, 1997 ▇▇▇▇ Systems, Inc. Selected by Sunnybrook Hospital
December 16, 1997 Nucor Steel Describes New ERP System from ▇▇▇▇ Systems as
a Key Business Strategy
December 18, 1997 Geo Specialty Chemicals Completes Rapid ERP Implementation
in Less Than Four Months
December 22, 1997 ▇▇▇▇ Systems, Inc. Announces $475,000 in New Contracts
December 22, 1997 ▇▇▇▇ Systems Selected by Eurocan Pulp & Paper
December 22, 1997 ▇▇▇▇ Systems Announces General Availability of
Renaissance Classic Release 7.0
December 22, 1997 ▇▇▇▇ Systems, Inc. Announces New Sales
January 5, 1998 ▇▇▇▇ Systems Announces Energy Sector Win
January 5, 1998 ▇▇▇▇ Systems Selected by Charter Steel
January 5, 1998 ▇▇▇▇ Systems Announces International Agreements
January 5, 1998 ▇▇▇▇ Systems Announces $800,000 in Agreements
January 6, 1998 ▇▇▇▇ Systems Acquires Business Partner
January 12, 1998 The Power Group Wraps Up Fast-Track Implementation
in Three Months
January 15, 1998 ▇▇▇▇ Systems Announces New Win in Georgia
January 26, 1998 ▇▇▇▇ Systems Announces 2nd Quarter Results
January 29, 1998 ▇▇▇▇ Systems Announces New Agreements
Page 2 of 2
SCHEDULE 1.5A(d)
COAST
DEBT SUBORDINATION AGREEMENT
BORROWER: ▇▇▇▇ SYSTEMS, INC.
CREDITOR:
----------------------------
DATE: FEBRUARY 6, 1998
THIS DEBT SUBORDINATION AGREEMENT is executed by the above-named Creditor
("Creditor") in favor of Coast Business Credit, a division of Southern
Pacific Thrift & Loan Association ("Coast"), whose address is ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇▇., ▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇, with respect to the above-named Borrower
("Borrower"). In order to induce Coast to extend or continue to extend
financing to the Borrower (but without obligation on Coast's part to do so),
the Creditor hereby agrees as follows:
1. SUBORDINATION OF DEBT. Creditor hereby subordinates payment by the
Borrower of and and all indebtedness, liabilities, guarantees and other
obligations of the Borrower to Creditor, now existing or hereafter arising
(collectively, the "Subordinated Debt"), to the payment to Coast, in full in
cash, of all indebtedness, liabilities, guarantees and other obligations of
the Borrower to Coast, now existing or hereafter arising (including without
limitation any interest, charges and other sums accruing after the filing of
a petition by or against Borrower under the Bankruptcy Code) (the "Coast
Debt"). Creditor represents and warrants that the Subordinated Debt includes
without limitation the following:
THAT CERTAIN CONVERTIBLE SUBORDINATED DEBENTURE DUE FEBRUARY 6, 2003 IN THE
ORIGINAL PRINCIPAL AMOUNT OF $_______________, WHICH HAS A PRESENT UNPAID
PRINCIPAL BALANCE OF $_______________ THE "DEBENTURE").
Creditor represents and warrants that it has not transferred or assigned the
Subordinated Debt or given any other subordination agreement in respect
thereof, and that it will not do so without prior written notice to Coast and
without making such transfer or assignment or subordination expressly subject
to this Agreement. Creditor agrees not to ask for, demand, ▇▇▇ for, take or
receive all or any part of the Subordinated Debt nor any security therefor
unless and until all of the Coast Debt has been paid and performed in full,
in cash; provided that, so long as no Event of Default and no event which,
with notice or passage of time or both, would constitute an Event of Default
under any present or future document, instrument or agreement evidencing,
securing or relating to the Coast Debt, both before and after giving effect to
the following payments. Subordinated Creditor may accept payment of the
following amounts on the Subordinated Debt:
PAYMENT OF ACCRUED INTEREST.
Creditor further agrees that upon any distribution of the assets or
readjustment of the indebtedness of the Borrower whether by reason of
liquidation, composition, bankruptcy, arrangement, receivership, assignment
for the benefit of creditors or any other action or proceeding involving the
readjustment of all or any of the Subordinated Debt, or the application of
the assets of the Borrower to the payment or liquidation thereof, Coast shall
be entitled to receive payment in full in cash of all of the Coast Debt prior
to the payment of all or any part of the Subordinated Debt, and in order to
enable Coast to enforce its rights hereunder in any such action or
proceeding, Coast is hereby irrevocably authorized and empowered in its
discretion (but without any obligation on its part) to make and present for
and on behalf of Creditor such proofs of claim against the Borrower on
account of the Subordinated Debt as Coast may deem expedient or proper and to
vote such proofs of claim in any such proceeding and to receive and collect
any and all dividends or other payments or disbursements made thereon in
whatever form the same may be paid or issued and to apply same on account of
the Coast Debt. Creditor further agrees to execute and deliver to Coast such
assignments or other instruments as may be required by Coast in order to
enable Coast to enforce any and all such claims and to collect any and all
dividends or other payments or disbursements which may be made at any time on
account of all and any of the Subordinated Debt. Creditor shall endorse all
notes and other written evidence of the Subordinated Debt with a statement
that they are subordinated to the Coast Debt pursuant to the terms of this
Agreement, in such form as Coast shall require, and Creditor will exhibit the
originals of such notes and other written evidence of the Subordinated Debt
to Coast so that Coast can confirm that such endorsement has been made, but
this Subordination Agreement shall be fully effective, even if no such
endorsement is made.
-1-
COAST BUSINESS CREDIT SUBORDINATION AGREEMENT
------------------------------------------------------------------------------
2. MODIFICATIONS TO COAST DEBT; WAIVERS. Until Coast have received payment
in full of all Coast Debt, the Creditor agrees that, in addition to any other
rights that Coast may have at law or in equity, Coast may at any time, and
from time to time, without the Creditor's consent and without notice to the
Creditor, renew, extend or increase any of the Coast Debt or that of any other
person at any time directly or indirectly liable for the payment of any Coast
Debt, accept partial payments of the Coast Debt, settle, release (by operation
of law or otherwise), compound, compromise, collect or liquidate any of the
Coast Debt, make loans or advances to the Borrower secured in whole or in part
by the any present or future assets securing any or all of the Coast Debt
(the "Collateral") or refrain from making any loans or advances to the
Borrower, change, waive, alter or vary the interest charge on, or any other
terms or provisions of the Coast Debt or any present or future instrument,
document or agreement between Coast and the Borrower, release, exchange, fail
to perfect, delay the perfection of, fail to resort to, or realize upon any
Collateral, and take any other action or omit to take any other action with
respect to the Coast Debt or the Collateral as Coast deems necessary or
advisable in Coast's sole discretion. The Creditor waives any right to
require Coast to marshal any assets in favor of the Creditor or against or in
payment of any or all of the Coast Debt. Creditor further waives any defense
arising by reason of any claim or defense based upon an election of remedies
by Coast which in any manner impairs, affects, reduces, releases, destroys
and/or extinguishes the Creditor's subrogation rights, rights to proceed
against the Borrower for reimbursement, and/or any other rights of the
Creditor. In the event of any financing of the Borrower by Coast during any
bankruptcy, arrangement, or reorganization of the Borrower, the Creditor
agrees that the term "Coast Debt" shall include without limitation all
indebtedness, liabilities and obligations incurred in any such proceeding,
and the Subordinated Debt shall continue to remain subordinate to the Coast
Debt, and the Creditor agrees to take such actions and execute such documents
in such proceedings as may be required in order to continue such subordination.
3. DEFAULT.*
*THE CREDITOR SHALL PROMPTLY GIVE COAST WRITTEN NOTICE OF ANY DEFAULT OR
EVENT OF DEFAULT UNDER ANY DOCUMENT, INSTRUMENT OR AGREEMENT EVIDENCING,
SECURING OR RELATING TO ANY OF THE SUBORDINATED DEBT. UNLESS WITHIN TEN (10)
DAYS OF SUCH NOTICE COAST GIVES CREDITOR A WRITTEN NOTICE TO THE CONTRARY
SIGNED BY COAST, CREDITOR MAY PROCEED TO ENFORCE THE FOLLOWING AND ONLY THE
FOLLOWING RIGHTS UNDER THE DEBENTURE: (i) THE RIGHT TO CONVERT THE DEBENTURE
INTO COMMON STOCK OF THE BORROWER; (ii) THE RIGHT TO PARTICIPATE IN A
PARAGRAPH 5 TRANSACTION (AS DEFINED IN THE DEBENTURE), (iii) THE RIGHT TO
OBTAIN AN ADJUSTMENT TO ITS CONVERSION RIGHTS AS PROVIDED IN THE DEBENTURE,
(iv) THE RIGHT TO REQUIRE SHAREHOLDER APPROVAL AS REQUIRED UNDER PARAGRAPH
14(b) OF THE DEBENTURE, AND (v) THE RIGHT TO OBTAIN REPLACEMENT DEBENTURES AS
PROVIDED IN THE DEBENTURE; PROVIDED THAT NOTWITHSTANDING ANYTHING HEREIN TO
THE CONTRARY, THE RIGHTS IN CLAUSES (i) THROUGH (v) ABOVE SHALL NOT INCLUDE
ANY RIGHT TO HAVE ANY DEBENTURE REDEEMED OR TO ACCEPT ANY PAYMENT WITH
RESPECT TO ANY DEBENTURE. EXCEPT AS EXPRESSLY PERMITTED BY THE FOREGOING
SENTENCE, UNTIL THE COAST DEBT HAS BEEN PAID AND PERFORMED IN FULL, THE
CREDITOR SHALL NOT EXERCISE ANY RIGHTS OR REMEDIES WITH RESPECT TO THE
SUBORDINATED DEBT, JUDICIALLY OR NON-JUDICIALLY, OR ATTEMPT TO DO ANY OF THE
FOREGOING.
4. NO COMMITMENT. It is understood and agreed that this Agreement shall in
no way be construed as a commitment or agreement by Coast to continue
financing arrangements with the Borrower and that Coast may terminate such
arrangements at any time, in accordance with Coast's agreements with the
Borrower.
5. NO CONTEST. Creditor agrees not to contest the validity, perfection,
priority or enforceability of Coast' security interest in the Collateral or
the Coast Debt.
6. FINANCIAL CONDITION OF BORROWER. The Creditor is presently informed of
the financial condition of the Borrower and of all other circumstances which
a diligent inquiry would reveal and which bear upon the risk of non-payment
of the Coast Debt and the Subordinated Debt. The Creditor covenants that it
will continue to keep itself informed as to the Borrower's financial
condition and all other circumstances which bear upon the risk of non-payment
of the Coast Debt and the Subordinated Debt. The Creditor waives any right to
require Coast to disclose to it any information which Coast may now or
hereafter acquire concerning the Borrower.
7. REVIVOR. If, after payment of the Coast Debt, the Borrower thereafter
becomes liable to Coast on account of the Coast Debt, as a result of any
payment made on the Coast Debt for any reason being returned by Coast or
being reversed, set aside, or recovered by the Borrower or any trustee or
assignee for the Borrower, this Agreement shall thereupon in all respects
become effective with respect to such subsequent or reinstated Coast Debt,
without the necessity of any further act or agreement between Coast and the
Creditor.
8. GENERAL. The Creditor agrees, upon Coast's request, to execute all
such documents and instruments and take all such actions as Coast shall deem
necessary or advisable in order to carry out the purposes of this Agreement.
The word "indebtedness" is used in this agreement in its most comprehensive
sense and includes without limitation any and all present and future loans,
advances, credit, debts, obligations, liabilities, representations,
warranties, and guarantees, of any kind and nature, absolute or contingent,
liquidated or unliquidated, and individual or joint. Creditor represents and
warrants that it has not heretofore
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COAST BUSINESS CREDIT SUBORDINATION AGREEMENT
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transferred or assigned the Subordinated Debt, and that it will not do so
without prior written notice to Coast and without making such transfer or
assignment expressly subject to this Agreement. This Agreement is solely for
the benefit of Coast and Coast's successors and assigns, and neither the
Borrower nor any other person shall have any right, benefit, priority or
interest under, or because of the existence of, this Agreement. All of
Coast's rights and remedies hereunder and under applicable law are cumulative
and not exclusive. This Agreement sets forth in full the terms of agreement
between the parties with respect to the subject matter hereof, and may not be
modified or amended, nor may any rights hereunder be waived, except in a
writing signed by Coast and the Creditor. The Creditor agrees to reimburse
Coast, upon demand, for all costs and expenses (including reasonable
attorneys' fees) incurred by Coast in enforcing this Agreement against
Creditor, whether or not suit be brought. In the event of any litigation
between the parties based upon or arising out of this Agreement, the
prevailing party shall be entitled to recover all of its costs and expenses
(including without limitation attorneys fees) from the non-prevailing party.
This Agreement shall be construed in accordance with, and governed by, the
laws of the State of California. As a material part of the consideration to
the parties for entering into this Agreement, each party (i) agrees that all
actions and proceedings based upon, arising out of or relating in any way
directly or indirectly to, this Agreement shall be litigated exclusively in
courts located within Los Angeles County, California, (ii) consents to the
jurisdiction of any such court and consents to the service of process in any
such action or proceeding by personal delivery, first-class mail, or any
other method permitted by law, and (iii) waives any and all rights to
transfer or change the venue of any such action or proceeding to any court
located outside Los Angeles County, California. This Agreement shall be
binding upon the Creditor and its successors and assigns and shall inure to
the benefit of Coast and Coast's successors and assigns.
9. MUTUAL WAIVER OF JURY TRIAL. Creditor and Coast each hereby waive the
right to trial by jury in any action or proceeding based upon, arising out
of, or in any way relating to: (i) this Agreement; or (ii) any other present
or future instrument or agreement between Creditor and Coast; or (iii) any
conduct, acts or omissions of Creditor or Coast or any of their directors,
officers, employees, agents, attorneys or any other persons affiliated with
Creditor or Coast; in each of the foregoing cases, whether sounding in
contract or tort or otherwise.
"CREDITOR."
--------------------------------------------
By:
CONSENT AND AGREEMENT OF BORROWER
The undersigned Borrower hereby approves of, agrees to and consents to all
of the terms and provisions of the foregoing Subordination Agreement and
agrees to be bound thereby and further agrees that any default or event of
default by the Borrower under any present or future instrument or agreement
between the Borrower and the Creditor shall constitute an immediate default
and event of default under all present and future instruments and agreements
between the Borrower and Coast. Borrower further agrees that, at any time and
from time to time, the foregoing Agreement may be altered, modified or
amended by Coast and the Creditor without notice to or the consent of
Borrower.
BORROWER:
▇▇▇▇ SYSTEMS, INC.
By
-------------------------------
President or Vice President
ACCEPTED:
COAST:
COAST BUSINESS CREDIT
By
---------------------------
Title
------------------------
-1
-3-
SCHEDULE 3.4
OUTSTANDING STOCK, WARRANTS, OPTIONS, CONVERTIBLE SECURITIES,
OTHER CAPITAL STOCK ITEMS,
AND OTHER REGISTRATION RIGHTS
AS OF FEBRUARY 6, 1998
1. Outstanding shares of common stock 19,859,808
2. Outstanding redeemable preferred stock:
Series E - held by ▇▇▇▇▇▇▇▇ International Ltd.
convertible into 283,872 shares of common stock 107
3. Outstanding common stock warrants:
Price - fixed at $5.576 per share 400,000
Price - variable at $3.447 per share on 12/31/97 640,000
4. Outstanding options to purchase common stock issued under
the Company's stock option plans (as of 12/31/97) 1,714,169
5. Shares available to be granted under the Company's
current stock option plan (900,000 shares authorized) 669,350
6. Shares available to be issued to the Company's employees
under the Company's Employee Stock Purchase Plan 88,317
7. The Company has an obligation to issue additional shares of
its Common Stock (the "Adjusted Shares") pursuant to
its acquisition of Bizware Corporation 156,732
8. The Company has an obligation to register 50% of the shares
of Common Stock issued pursuant to its acquisition of
Bizware Corporation (including 50% of the Adjusted Shares) 351,450
SCHEDULE 3.5
LIST OF SUBSIDIARIES
AS OF FEBRUARY 6, 1998
▇▇▇▇ Systems, Inc. (▇▇▇▇ Systems, Inc. is currently not in good standing in
the Commonwealth of Massachusetts)
▇▇▇▇ Systems Computer Software B.V.
▇▇▇▇ Systems Nederland B.V. (Netherlands office)
▇▇▇▇ Systems Europe N.V. (Belgium office)
▇▇▇▇ Systems France S.A. (France office)
▇▇▇▇ Systems Deutschland GmbH (Germany office)
▇▇▇▇ Data Canada, Ltd. (Toronto office)
▇▇▇▇ Systems Iberica (Spain/Portugal office)
▇▇▇▇ Systems Servicios Integrados (Spanish entity)
▇▇▇▇ Systems (UK), Ltd. (UK offices)
Pioneer Computer Systems, Ltd. (dormant company)
Pioneer Software International, Ltd. (dormant company)
▇▇▇▇ Systems, Ltd. (dormant company)
Virtual Discorp (Domestic International Sales Corporation - for tax
purposes)
▇▇▇▇ Systems Sales Corporation (Foreign Sales Corporation - for tax
purposes)
Cardinal Data Corporation (dormant company)
(This entity is currently not in good standing in the
Commonwealth of Massachusetts. The Company is in the process of
dissolving this dormant entity)
Pioneer Software, Inc. (dormant company)
Bizware Corporation
SCHEDULE 3.10A
VIOLATION OF CREDITOR COVENANTS
FEBRUARY 6, 1998
NONE