SECURITIES PURCHASE AGREEMENT
Among
IMAGING TECHNOLOGIES CORPORATION,
▇▇▇▇▇ ▇. ▇▇▇▇ TRUST UTA DATED 7/19/72,
SAAL FAMILY CHARITABLE LEAD TRUST UTA DATED 2/25/98,
MANOR INVESTMENT,
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇,
NESHER, INC.,
MANCHESTER ASSET MANAGEMENT,
GILSTON CORPORATION, LTD.,
▇.▇. ▇▇▇▇▇▇,
THE CUTTYHUNK FUND, LIMITED
AND
CASHCO FLP
Dated as of February 2, 1999
TABLE OF CONTENTS
Page
ARTICLE I PURCHASE AND SALE OF UNITS........................................1
1.1 Purchase and Sale....................................................1
1.2 Purchase Price.......................................................2
1.3 The Closing..........................................................2
ARTICLE II REPRESENTATIONS AND WARRANTIES...................................3
2.1 Representations, Warranties and Agreements of the Company............3
2.2 Representations and Warranties of the Purchasers....................10
ARTICLE III OTHER AGREEMENTS OF THE PARTIES................................11
3.1 Transfer Restrictions...............................................11
3.2 Stop Transfer Instruction...........................................12
3.3 Furnishing of Information...........................................13
3.4 Blue Sky Laws.......................................................13
3.5 Integration.........................................................13
3.6 Certain Agreements..................................................13
3.7 Listing and Reservation of Underlying Shares and Warrant Shares;
Compliance with Law...............................................14
3.8 Notice of Breaches..................................................14
3.9 Conversion Obligations of the Company...............................15
3.10 Use of Proceeds....................................................15
3.11 Indemnification....................................................15
3.12 Sales of Preferred Stock...........................................17
3.13 Subsequent Sales and Registrations.................................17
3.14 Shareholder Approval...............................................17
3.15 Interim Financing..................................................17
3.16 Incorporation of Certificate of Designation By Reference...........18
3.17 Board of Directors.................................................18
3.18 Conversion of Preferred Stock and Exercise of Warrants..........18
ARTICLE IV CONDITIONS......................................................18
4.1 Conditions Precedent to Sale of the Units...........................18
ARTICLE V MISCELLANEOUS....................................................21
5.1 Fees and Expenses...................................................21
5.2 Entire Agreement; Amendments........................................21
5.3 Notices.............................................................21
5.4 Amendments; Waivers.................................................21
5.5 Headings............................................................22
5.6 Successors and Assigns..............................................22
5.7 No Third Party Beneficiaries........................................22
5.8 Governing Law.......................................................22
5.9 Survival............................................................22
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5.10 Execution..........................................................22
5.11 Publicity..........................................................23
5.12 Consent to Jurisdiction; Attorneys' Fees...........................23
5.13 Waiver of Jury Trial...............................................24
5.14 Severability.......................................................24
5.15 Remedies...........................................................24
5.16 Independent Nature of Purchasers' Obligations and Rights...........24
Schedules and Exhibits
Schedule 1 - Purchasers of Units
Schedule 2.1(a) - Organization and Qualification; Subsidiaries
Schedule 2.1(c) - Capitalization; Rights to Acquire Capital Stock
Schedule 2.1(f) - Consents and Approvals
Schedule 2.1(g) - Litigation; Proceedings
Schedule 2.1(n) - Certain Fees
Schedule 2.1(r) - Listing and Maintenance Requirements Compliance
Schedule 2.1(u) - Registration Rights, Rights of Participation
Schedule 2.1(v) - Title
Schedule 2.1(aa) - Year 2000 Compliance
Schedule 3.13 - Other Transactions
Schedule 3.18 - Conversion of Preferred Shares and Exercise of Warrants
Exhibit A - Certificate of Designation
Exhibit B - Warrants
Exhibit C - Registration Rights Agreement
Exhibit D - Legal Opinion of ▇▇▇▇▇▇ ▇▇▇▇▇▇ Flattau & Klimpl, LLP
Exhibit E - Transfer Agent Instructions
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SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as of February
2, 1999, among Imaging Technologies Corporation, a Delaware corporation (the
"Company"), and each of the Purchasers listed on Schedule 1 attached hereto.
Each of the Purchasers listed on Schedule 1 attached hereto are referred to
herein as a "Purchaser" and are collectively referred to herein as the
"Purchasers."
WHEREAS, subject to the terms and conditions set forth in this
Agreement, the Company desires to issue and sell to the Purchasers, and the
Purchasers desire to acquire from the Company, for cash or in exchange and/or
cancellation for certain indebtedness owed by the Company to certain Purchasers
in the amounts and in the form listed on Schedule 1 attached hereto, shares of
the Company's Series E Convertible Preferred Stock, par value $1,000 per share
and stated value of $5,000 per share (the "Preferred Stock"), and warrants (the
"Warrants") to purchase shares of common stock, par value $.005 per share, of
the Company (the "Common Stock").
NOW, THEREFORE, in consideration of the mutual covenants contained in
this Agreement, the Company and each Purchaser agree as follows:
ARTICLE I
PURCHASE AND SALE OF UNITS
1.1 Purchase and Sale.
(a) Subject to the terms and conditions set forth herein, the
Company shall issue and sell to the Purchasers, and the Purchasers,
severally and not jointly, shall purchase from the Company up to 1,250
units (the "Units"), each Unit consisting of (i) a share of Preferred
Stock and (ii) Warrants to purchase 5,000 shares of Common Stock.
Notwithstanding anything to the contrary set forth in this Agreement,
the aggregate number of Units to be sold hereunder shall not exceed
1,250.
(b) The Preferred Stock shall have the respective rights,
preferences and privileges set forth in the Certificate of Designation
of the Company (the "Certificate of Designation") the form of which is
annexed hereto as Exhibit A, which shall be approved by the Purchasers
and the Company's Board of Directors (the "Board of Directors") and
filed and accepted for filing on or prior to the Closing Date (as
defined below) by the Company with the Secretary of State of the State
of Delaware. The Warrants shall be in the form of Exhibit B annexed
hereto.
For purposes of this Agreement, "Trading Day," "Per Share Market Value"
and "Original Issue Date" shall have the meanings set forth in the Certificate
of Designation.
1.2 Purchase Price. The purchase price per Unit shall be $5,000.00.
1.3 The Closing.
(a) The closing of the purchase and sale of the Units
(as defined below) (the "Closing") shall take place at the
offices of ▇▇▇▇▇▇ ▇▇▇▇▇▇ Flattau & Klimpl, LLP, ▇▇▇▇ ▇▇▇▇▇▇ ▇▇
▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, immediately following the
execution hereof or such later date or different location as
the parties shall agree in writing, but not prior to the date
that the conditions set forth in Section 4.1 have been
satisfied or waived by the appropriate party. The date of the
Closing, is hereinafter referred to as the "Closing Date." At
the Closing, the Company shall sell and issue to the
Purchasers, and the Purchasers shall, severally and not
jointly, purchase from the Company up to 1,250 Units (the
"Units") for an aggregate purchase price of $5,000 per Unit
(the "Purchase Price").
(b) At the Closing (a) the Company shall deliver to
each Purchaser (1) stock certificates representing the shares
of Preferred Stock included in the Units (the "Shares")
purchased by such Purchaser as set forth next to such
Purchaser's name on Schedule 1 attached hereto, each
registered in the name of such Purchaser, (2) the Warrants
included in the Units (the "Warrants") purchased by such
Purchaser as set forth next to such Purchaser's name on
Schedule 1 attached hereto, registered in the name of such
Purchaser, (3) and all other documents, instruments and
writings required to have been delivered at or prior to the
Closing by the Company pursuant to this Agreement and the
Registration Rights Agreement, dated the date hereof, by and
among the Company and the Purchasers, in the form of Exhibit C
annexed hereto (the "Registration Rights Agreement"), and (b)
each Purchaser shall deliver to the Company the Purchase Price
set forth next to its name on Schedule 1, in (i) United States
dollars in immediately available funds by wire transfer to an
account designated in writing by the Company for such purpose
on or prior to the Closing Date, or (ii) such other
consideration, in outstanding debt of the Company, agreed to
by the Company and set forth on Schedule 1, and all documents,
instruments and writings required to have been delivered at or
prior to the Closing by such Purchaser pursuant to this
Agreement and the Registration Rights Agreement.
(c) Notwithstanding anything in the foregoing to the
contrary, Manchester Asset Management and Gilston Corporation,
Ltd. (together, the "Tranche Purchasers") shall purchase the
number of Units listed opposite their names on Schedule 1
hereto in three tranches. On the Closing Date, each of the
Tranche Purchasers shall purchase, severally and not jointly,
up to 15 Units for an aggregate purchase price of $150,000.
Within ten (10) days of the Company's filing of a registration
statement in accordance with the Registration Rights Agreement
with the Securities and Exchange Commission (the
"Commission"), each of the Tranche Purchasers shall purchase,
severally and not jointly, an additional 15 Units for an
aggregate purchase price of $150,000. Within ten (10) days of
the date on which the
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Company's registration statement filed with the Commission has
been declared effective by the Commission, each of the Tranche
Purchasers shall purchase, severally and not jointly, an
additional 45 Units for an aggregate purchase price of
$450,000. In no case shall the Tranche Purchasers purchase
additional Units unless and until the conditions listed in
Section 4.1(b) have been satisfied or waived by each Tranche
Purchaser.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
2.1 Representations, Warranties and Agreements of the Company. The
Company hereby makes the following representations and warranties to each of the
Purchasers:
(a) Organization and Qualification; Subsidiaries. The Company
is a corporation, duly organized, validly existing and in good standing
under the laws of the State of Delaware, with the requisite corporate
power and authority to own and use its properties and assets and to
carry on its business as currently conducted. The Company has no
subsidiaries other than as set forth in Schedule 2.1(a) (collectively,
the "Subsidiaries"). Each of the Subsidiaries is a corporation, duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization (as applicable), with
the full corporate power and authority to own and use its properties
and assets and to carry on its business as currently conducted. Each of
the Company and the Subsidiaries is duly qualified to do business and
is in good standing as a foreign corporation in each jurisdiction in
which the nature of the business conducted or property owned by it
makes such qualification necessary, except where the failure to be so
qualified or in good standing, as the case may be, would not,
individually or in the aggregate, (x) adversely affect the legality,
validity or enforceability of the Preferred Stock or any of the
Transaction Documents (as defined below), (y) have or result in a
material adverse effect on the results of operations, assets, prospects
insofar as it may reasonably be foreseen, or financial condition of the
Company and the Subsidiaries, taken as a whole or (z) adversely impair
the Company's ability to perform fully on a timely basis its
obligations under any Transaction Document, including, without
limitation, the Company's covenant under Section 3.7 hereof (any of
(x), (y) or (z), being a "Material Adverse Effect").
(b) Authorization; Enforcement. The Company has the requisite
corporate power and authority to enter into and to consummate the
transactions contemplated by this Agreement and the other Transaction
Documents, and otherwise to carry out its obligations hereunder and
thereunder. This Agreement, the Registration Rights Agreement, the
Certificate of Designation, the Transfer Agent Instructions and the
Warrants are collectively referred to as the "Transaction Documents."
The execution and delivery of each of the Transaction Documents by the
Company and the consummation by it of the transactions contemplated
hereby and thereby have been duly authorized by all necessary action on
the part of the Company and no further action is required by the
Company. Each of the
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Transaction Documents has been duly executed by the Company and when
delivered in accordance with the terms hereof will constitute the
legal, valid and binding obligation of the Company, enforceable against
the Company in accordance with its terms, except as such enforceability
may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium, liquidation or similar laws relating to, or affecting
generally the enforcement of, creditors' rights and remedies or by
other equitable principles of general application. Neither the Company
nor any Subsidiary is in violation of any of the provisions of its
respective certificate of incorporation, bylaws or other organizational
documents. Prior to the Closing Date the Certificate of Designation has
been filed with the Secretary of State of the State of Delaware and
will be in full force and effect, enforceable against the Company in
accordance with the terms thereof.
(c) Capitalization; Rights to Acquire Capital Stock. The
authorized, issued and outstanding capital stock of the Company as of
February 2, 1999, is set forth in Schedule 2.1(c). All issued and
outstanding shares of capital stock of the Company and each Subsidiary
have been duly authorized and validly issued and are fully paid and
non-assessable. Except as disclosed in Schedule 2.1(c), no shares of
the capital stock of the Company are entitled to preemptive or similar
rights, nor is any holder of the capital stock of the Company entitled
to preemptive or similar rights arising out of any agreement or
understanding with the Company by virtue of any of the Transaction
Documents. Except as disclosed in Schedule 2.1(c), as of February 2,
1999, there are no outstanding options, warrants, script rights to
subscribe to, calls, written commitments or, to the knowledge of the
Company, oral commitments relating to, or, except as a result of the
purchase and sale of the Units, securities, rights or obligations
convertible into or exchangeable for, or giving any Person any right to
subscribe for or acquire any shares of Common Stock, or contracts,
commitments, understandings, written arrangements or, to the knowledge
of the Company, oral arrangements by which the Company or any
Subsidiary is or may become bound to issue additional shares of Common
Stock, or securities or rights convertible or exchangeable into shares
of Common Stock. Except as set forth on Schedule 2.1(c), and, to the
best knowledge of the Company, no Person or group of related Persons
beneficially owns (as determined pursuant to Rule 13d-3 promulgated
under the Securities Exchange Act of 1934, as amended (the "Exchange
Act")) or has the right to acquire by agreement with or by obligation
binding upon the Company beneficial ownership of in excess of 5% of the
Common Stock. A "Person" means an individual or corporation,
partnership, trust, incorporated or unincorporated association, joint
venture, limited liability company, joint stock company, government (or
an agency or subdivision thereof) or other entity of any kind. The
Common Stock is quoted and is listed for trading on The Nasdaq SmallCap
Market. Except as set forth on Schedule 2.1(c), the Company has
received no notice, either oral or written, with respect to the
continued eligibility of the Common Stock for such listing, and the
Company has maintained all requirements for the continuation of such
listing.
(d) Issuance of Units. The Units are duly authorized, and when
issued and paid for in accordance with the terms hereof, shall be
validly issued, fully paid and nonassessable, free and clear of all
liens, encumbrances, and rights of first refusal of any kind
(collectively,
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"Liens"). The Units upon issuance will not subject the holders thereof
to personal liability by reason of being such holders. The Company has
and, at the Closing Date, will have and at all times while the Shares
and the Warrants are outstanding will maintain an adequate reserve of
duly authorized shares of Common Stock to enable it to perform its
obligations under this Agreement, the Warrants and the Certificate of
Designation with respect to the number of Shares and Warrants issued
and outstanding at the Closing Date and in no circumstances shall such
reserved and available shares of Common Stock be less than 175% of the
maximum number of shares of Common Stock which would be issuable upon
conversion of the Shares and upon exercise of the Warrants issued
pursuant to the terms hereof with respect to the number of Shares and
Warrants issued and outstanding at the Closing Date were such
conversion or exercise, as the case may be, effected on the Closing
Date. The shares of Common Stock issuable upon conversion of the Shares
are referred to herein as the "Underlying Shares." When issued in
accordance with the Certificate of Designation, the Underlying Shares
will be duly authorized, validly issued, fully paid and nonassessable,
free and clear of all Liens. The shares of Common Stock issuable upon
exercise of the Warrants are referred to herein as the "Warrant
Shares." When issued and paid for in accordance with the Warrants, the
Warrant Shares will be duly authorized, validly issued, fully paid and
nonassessable, free and clear of all Liens. The Shares, the Warrants,
the Underlying Shares and the Warrant Shares are referred to herein as
the "Securities."
(e) No Conflicts. The execution, delivery and performance of
this Agreement and the other Transaction Documents by the Company and
the consummation by the Company of the transactions contemplated hereby
and thereby do not and will not (i) conflict with or violate any
provision of its certificate of incorporation, bylaws or other
organizational documents (each as amended through the date hereof) or
(ii) subject to obtaining the consents referred to in Section 2.1(f),
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 (evidencing a
Company debt or otherwise) to which the Company is a party or by which
any property or asset of the Company is bound or affected, (iii) result
in a violation of any law, rule, regulation, order, judgment,
injunction, decree or other restriction of any court or governmental
authority to which the Company is subject (including Federal and state
securities laws and regulations), or by which any material property or
asset of the Company is bound or affected, or (iv) result in the
creation of imposition of a Lien upon any of the Securities or any of
the assets of the Company, or any of its Affiliates (as such term is
defined under Rule 405 promulgated under the Securities Act), except in
the case of each of clauses (ii) and (iii), such conflicts, defaults,
terminations, amendments, accelerations, cancellations and violations
as would not, individually or in the aggregate, have or result in a
Material Adverse Effect. The business of the Company is not being
conducted in violation of any law, ordinance or regulation of any
governmental authority except for any such violation as would not,
individually or in the aggregate, have or result in a Material Adverse
Effect.
(f) Consents and Approvals. Except as specifically set forth
in Schedule 2.1(f), neither the Company nor any Subsidiary is required
to obtain any consent, waiver,
5
authorization or order of, give any notice to, or make any filing or
registration with, any court or other federal, state, local or other
governmental authority or other Person in connection with the
execution, delivery and performance by the Company of the Transaction
Documents, other than (i) the approval of the Board of Directors and
the filing of the Certificate of Designation with respect to the
Preferred Stock with the Secretary of State of the State of Delaware,
which filing and approvals with respect to the Preferred Stock shall be
effected prior to the Closing Date, (ii) the filing of the Registration
Statement with the Commission, which shall be filed in accordance with
and in the time periods set forth in the Registration Rights Agreement,
(iii) the application(s) or any letter(s) acceptable to The Nasdaq
SmallCap Market for the listing of the Underlying Shares and the
Warrant Shares with The Nasdaq SmallCap Market (and with any other
national securities exchange or market on which the Common Stock is
then listed), and (iv) any filings, notices or registrations under
applicable federal and state securities laws (together with the
consents, waivers, authorizations, orders, notices and filings referred
to in Schedule 2.1(f), the "Required Approvals").
(g) Litigation; Proceedings. Except as specifically set forth
in Schedule 2.1(g) there is no action, suit, notice of violation,
proceeding or investigation pending or, to the knowledge of the
Company, threatened against or affecting the Company or any of the
Subsidiaries or any of their respective properties before or by any
court, governmental or administrative agency or regulatory authority
(federal, state, county, local or foreign) which (i) adversely affects
or challenges the legality, validity or enforceability of any of the
Transaction Documents or the Securities or (ii) would reasonably be
expected to, individually or in the aggregate, have a Material Adverse
Effect.
(h) No Default or Violation. Neither the Company nor any
Subsidiary (i) is in default under or in violation of any indenture,
loan or credit agreement or any other agreement or instrument to which
it is a party or by which it or any of its properties is bound which
would reasonably be expected to, individually or in the aggregate, have
a Material Adverse Effect, (ii) is in violation of any order of any
court, arbitrator or governmental body applicable to it, or (iii) is in
violation of any statute, rule or regulation of any governmental
authority to which it is subject, which violation would reasonably be
expected to, individually or in the aggregate, have a Material Adverse
Effect.
(i) Schedules. The Schedules to this Agreement furnished by or
on behalf of the Company do not contain any untrue statement of a
material fact or omit to state any material fact necessary in order to
make the statements made therein not misleading.
(j) Private Offering. The Company and all Persons acting on
its behalf have not made, and will not make, offers or sales of the
Preferred Stock, and any securities that might be integrated with
offers and sales of the Preferred Stock, except to "accredited
investors" (as defined in Regulation D ("Regulation D") under the
Securities Act of 1933, as amended (the "Securities Act")) without any
general solicitation or advertising and otherwise in compliance with
the conditions of Regulation D. The offer and sale by the Company to
the Purchasers of the Shares and the Warrants and the Underlying Shares
and the Warrant Shares
6
into which the Shares and the Warrants are convertible or exercisable,
as the case may be, is exempt from the registration requirements of the
Securities Act.
(k) SEC Documents; Financial Statements; No Adverse Change.
The Company has filed all reports required to be filed by it under the
Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, for
the three years preceding the date hereof (the foregoing materials
being collectively referred to herein as the "SEC Documents") on a
timely basis or has received a valid extension of such time of filing
and has filed any such SEC Documents prior to the expiration of any
such extension. As of their respective dates, the SEC Documents
complied in all material respects with the requirements of the Exchange
Act and the rules and regulations of the Commission promulgated
thereunder, and none of the SEC Documents, when filed, contained any
untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the
statements therein not misleading. All material agreements to which the
Company is a party or to which the property or assets of the Company
are subject have been filed as exhibits to the SEC Documents as
required; neither the Company nor any of the Subsidiaries is in breach
of any agreement where such breach would reasonably be expected to,
individually or in the aggregate, have a Material Adverse Effect. The
financial statements of the Company included in the SEC Documents
comply in all material respects with applicable accounting requirements
and the rules and regulations of the Commission with respect thereto as
in effect at the time of filing. Such financial statements have been
prepared in accordance with United States generally accepted accounting
principles applied on a consistent basis during the periods involved,
except as may be otherwise specified in such financial statements or
the notes thereto, and fairly present in all material respects the
financial position of the Company as of and for the dates thereof and
the results of operations and cash flows for the periods then ended,
subject, in the case of unaudited statements, to normal year-end audit
adjustments. Since the date of the financial statements included in the
Company's last filed Quarterly Report on Form 10-Q for the period ended
September 30, 1998, there has been no event, occurrence or development
that has had, or would reasonably be expected to have, a Material
Adverse Effect which has not been specifically disclosed to the
Purchasers by the Company. The Company last filed audited financial
statements with the Commission on October 13, 1998, and has not
received any comments from the Commission in respect thereof.
(l) Seniority. Except for the Company's series of (i) 5%
Convertible Preferred Stock and (ii) Series D Convertible Preferred
Stock ("Series D Stock"), no class of equity securities of the Company
is senior to or on parity with the Preferred Stock in right of payment,
whether upon liquidation, dissolution or otherwise.
(m) Investment Company. The Company is not, and is not
controlled by or under common control with an affiliate of, an
"investment company" within the meaning of the Investment Company Act
of 1940, as amended.
7
(n) Certain Fees. Except as specifically set forth in Schedule
2.1(n), no fees or commissions will be payable by the Company to any
broker, financial advisor, finder, investment banker, or bank with
respect to the transactions contemplated by this Agreement. The
Purchasers shall have no obligation with respect to any fees or with
respect to any claims made by or on behalf of other Persons for fees of
a type contemplated in this Section 2.1(n) that may be due in
connection with the transactions contemplated by this Agreement. The
Company shall indemnify and hold harmless each of the Purchasers, its
employees, officers, directors, agents, and partners, and their
respective Affiliates, from and against all claims, losses, damages,
costs (including the costs of preparation and attorney's fees) and
expenses suffered in respect of any such claimed or existing fees.
(o) Solicitation Materials. The Company has not distributed
any offering materials in connection with the offering and sale of the
Securities. The Company confirms that it has not provided the
Purchasers or their agents or counsel with any information that
constitutes or might constitute material non-public information. The
Company understands and confirms that the Purchasers shall be relying
on the foregoing representations in effecting transactions in
securities of the Company.
(p) Form S-3 Eligibility. The Company is, and at each Closing
Date will be, eligible to register securities (including the Underlying
Shares and the Warrant Shares) for resale with the Commission under
Form S-3 promulgated under the Securities Act.
(q) Exclusivity. The Company shall not issue and sell the
Preferred Stock to any Person other than the Purchasers pursuant to
this Agreement other than with the specific prior written consent of
each of the Purchasers.
(r) Listing and Maintenance Requirements Compliance. Except as
set forth on Schedule 2.1(r), the Company has not in the three years
preceding the date hereof received notice (written or oral) from any
stock exchange, market or trading facility on which the Common Stock is
or has been listed (or on which it has been quoted) to the effect that
the Company is not in compliance with the listing or maintenance
requirements of such exchange or market. Except as specifically set
forth on Schedule 2.1(r), after giving effect to the transactions
contemplated in this Agreement, the Company believes that it is in
compliance with all such maintenance requirements.
(s) Patents and Trademarks. The Company has, or has rights to
use, all patents, patent applications, trademarks, trademark
applications, service marks, trade names, copyrights, licenses and
rights (collectively, the "Intellectual Property Rights") which are
necessary for use in connection with its business, as currently
conducted and as described in the SEC Documents, and which the failure
to so have would have a Material Adverse Effect.
(t) Acknowledgment of Dilution. The Company acknowledges that
the issuance of (i) the Underlying Shares upon conversion of the Shares
in accordance with the Certificate of Designation and (ii) the Warrant
Shares upon exercise of the Warrants may result in
8
dilution of the outstanding shares of Common Stock, which dilution may
be substantial under certain market conditions. The Company further
acknowledges that its obligation to issue (i) the Underlying Shares
upon conversion of the Shares in accordance with the Certificate of
Designation and (ii) the Warrant Shares upon exercise of the Warrants
is unconditional and absolute regardless of the effect of any such
dilution.
(u) Registration Rights; Rights of Participation. Except as
described on Schedule 2.1(u) hereto, (A) the Company has not granted or
agreed to grant to any Person any rights (including "piggy-back"
registration rights) to have any securities of the Company registered
with the Commission or any other governmental authority which has not
been satisfied and (B) except as set forth on Schedule 2.1(c) hereto,
no Person, including, but not limited to, current or former
shareholders of the Company, underwriters, brokers or agents, has any
right of first refusal, preemptive right, right of participation, or
any similar right to participate in the transactions contemplated by
this Agreement or any other Transaction Document.
(v) Title. Except as disclosed in Schedule 2.1(v), the Company
and the Subsidiaries have good and marketable title to, or the right to
use, all personal property owned by them which is material to the
business of the Company and the Subsidiaries, in each case free and
clear of all Liens, except for liens, claims or encumbrances as do not
materially affect the value of such property and do not interfere with
the use made and proposed to be made of such property by the Company
and the Subsidiaries. Neither the Company nor any of its Subsidiaries
owns any real property. Any real property and facilities held under
lease by the Company and the Subsidiaries are held by them under valid,
subsisting and enforceable leases with such exceptions as are not
material and do not interfere with the use made and proposed to be made
of such property and buildings by the Company and the Subsidiaries.
(w) Regulatory Permits. The Company and the Subsidiaries
possess all franchises, certificates, licenses, authorizations and
permits or similar authority issued by the appropriate federal, state
or foreign regulatory authorities necessary to conduct their respective
businesses as described in the SEC Documents except where the failure
to possess such permits would not, individually or in the aggregate,
have a Material Adverse Effect ("Material Permits"), and neither the
Company nor any such Subsidiary has received any notice of proceedings
relating to the revocation or modification of any Material Permit.
(x) Insurance. The Company and each Subsidiary maintains
property and casualty, general liability, workers' compensation,
environmental hazard, personal injury and other similar types of
insurance with financially sound and reputable insurers that is
adequate, consistent with industry standards. Neither the Company nor
any Subsidiary has received notice from, and has any knowledge of any
threat by, any insurer (that has issued any insurance policy to the
Company or any Subsidiary) that such insurer intends to deny coverage
under or cancel, discontinue or not renew any insurance policy
presently in force.
(y) Taxes. All applicable tax returns required to be filed by
the Company and each of the Subsidiaries have been filed, or if not yet
filed have been granted extensions of the filing
9
dates which extensions have not expired, and all taxes, assessments,
fees and other governmental charges upon the Company, the Subsidiaries,
or upon any of their respective properties, income or franchises, shown
in such returns and on assessments received by the Company or the
Subsidiaries to be due and payable have been paid, or adequate reserves
therefor have been set up if any of such taxes are being contested in
good faith; or if any of such tax returns have not been filed or if any
such taxes have not been paid or so reserved for, the failure to so
file or to pay would not in the aggregate or individually have a
Material Adverse Effect.
(z) 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 in any security or
solicited any offers to buy any securities under circumstances that
would require registration of any such securities under the Securities
Act or cause the offering of the Securities pursuant to this Agreement
to be integrated with prior offerings, except for the offering of
Series D Convertible Preferred Stock, 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 Stock Market, as applicable. The Company has not conducted any
offering that will be integrated with the issuance of the Securities
solely for purpose of Rule 4460(i) of The Nasdaq Stock Market, Inc.'s
Marketplace Rules.
(aa) Year 2000 Compliance. The Company has initiated a review
and assessment of all areas within its and each Subsidiaries' business
and operations that could be adversely affected by the "Year 2000
Problem" (that is, the risk that computer applications used by the
Company or any of the Subsidiaries may be unable to recognize and
perform properly date- sensitive functions involving certain dates
prior to and any date after December 31, 1999). Based on the foregoing,
except as set forth on Schedule 2.1(aa), the Company believes that the
computer applications that are currently material to its or any
Subsidiaries' business and operations are reasonably expected to be
able to perform properly date-sensitive functions for all dates before
and after January 1, 2000, except to the extent that a failure to do so
would not reasonably be expected to have a Material Adverse Effect.
(bb) Series D Stock Documentation. The Company has provided
each of the Purchasers with true, complete and correct copies of the
closing documentation relating to the sale by the Company of Series D
Stock to the Series D Investors.
(cc) Rights Agreement. The Company has not adopted a
shareholder rights plan or similar arrangement relating to
accumulations of beneficial ownership of Common Stock or a change in
control of the Company.
2.2 Representations and Warranties of the Purchasers. Each of the
Purchasers, severally and not jointly, hereby represents and warrants to the
Company as follows:
10
(a) Investment Intent. Such Purchaser is acquiring the
Securities for its own account for investment purposes only and not
with a view to or for distributing or reselling such Securities or any
part thereof or interest therein, without prejudice, however, to such
Purchaser's right, subject to the provisions of this Agreement and the
Registration Rights Agreement, at all times to sell or otherwise
dispose of all or any part of such Securities pursuant to an effective
registration statement under the Securities Act and in compliance with
applicable State securities laws or under an exemption from such
registration.
(b) Purchaser Status. At the time such Purchaser was offered
the Securities, and at each Closing Date, (i) it was and will be, an
"accredited investor" (as defined in Regulation D), or (ii) such
Purchaser either alone or together with its representatives, had and
will have such knowledge, sophistication and experience in business and
financial matters so as to be capable of evaluating the merits and
risks of the prospective investment in the Securities, and had and will
have so evaluated the merits and risks of such investment. Such
Purchaser has the authority and is duly and legally qualified to
purchase and own the Securities.
(c) Ability of Purchaser to Bear Risk of Investment. Such
Purchaser is able to bear the economic risk of an investment in the
Securities and, at the present time, is able to afford a complete loss
of such investment.
(d) Reliance. Each Purchaser understands and acknowledges that
(i) the Securities are being offered and sold to the Purchaser without
registration under the Securities Act in a private placement that is
exempt from the registration provisions of the Securities Act under
Section 4(2) of the Securities Act or Regulation D promulgated
thereunder and (ii) the availability of such exemption, depends in part
on, and the Company will rely upon the accuracy and truthfulness of,
the foregoing representations and such Purchaser hereby consents to
such reliance.
ARTICLE III
OTHER AGREEMENTS OF THE PARTIES
3.1 Transfer Restrictions.
(a) If any Purchaser should decide to dispose of any Shares
(and upon conversion thereof any of the Underlying Shares) or Warrants
(and upon exercise thereof any of the Warrant Shares) held by it, each
Purchaser understands and agrees that it may do so only pursuant to an
effective registration statement under the Securities Act, to the
Company or pursuant to an available exemption from the registration
requirements of the Securities Act. In connection with any transfer of
any Securities other than pursuant to an effective registration
statement or pursuant to Rule 144 under the Securities Act or to the
Company, the Company may require the transferor thereof to provide to
the Company a written opinion of counsel, the form and substance of
which opinion shall be reasonably satisfactory to the Company, to the
effect that such transfer does not require registration of such
transferred
11
securities under the Securities Act. Notwithstanding the foregoing, the
Company hereby consents to and agrees to register (i) any transfer of
Securities by one Purchaser to another Purchaser, and agrees that no
documentation other than executed transfer documents shall be required
for any such transfer, and (ii) any transfer by any Purchaser to an
Affiliate of such Purchaser or to an Affiliate of another Purchaser, or
any transfer among any such Affiliates, provided that transferee
certifies in writing to the Company that it is an "accredited investor"
(as defined in Regulation D). Any such transferee shall agree in
writing to be bound by the terms of this Agreement and shall have the
rights of a Purchaser under this Agreement and the Registration Rights
Agreement.
(b) Each Purchaser, severally and not jointly, agrees to the
imprinting, so long as is required by this Section 3.1(b), of the
following legend on the Securities:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
WITH THE SECURITIES AND EXCHANGE COMMISSION IN RELIANCE UPON AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR
SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A
TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT.
The Underlying Shares issuable upon conversion of the Shares
and the Warrant Shares issuable upon exercise of the Warrants shall not
contain the legend set forth above if (a) such conversion or exercise
occurs at any time while the Registration Statement is effective under
the Securities Act and upon the sale of the Underlying Shares or the
Warrant Shares by the Purchasers or (b) in the event there is not an
effective Registration Statement at such time, if in the written
opinion of counsel to the Company (such opinion to be furnished at the
sole expense of the Company at the request of a Purchaser) such legend
is not required under applicable requirements of the Securities Act
(including judicial interpretations and pronouncements issued by the
staff of the Commission) or (c) a holder provides the Company with
reasonable assurance that such securities can be sold pursuant to Rule
144 without any restriction as to the number of securities that can be
sold. The Company agrees that it will provide each Purchaser, upon
request, with a certificate or certificates representing Underlying
Shares and/or Warrant Shares, free from such legend at such time as
such legend is no longer required hereunder.
3.2 Stop Transfer Orders; Suspension of Qualification. The Company may
not make any notation on its records or give instructions to any transfer agent
of the Company which enlarge the restrictions of transfer set forth in Section
3.1. The Company will advise the Purchasers, promptly after it receives notice
of issuance by the Commission, any state securities commission or any other
regulatory authority of any stop order or of any order preventing or suspending
the use of any offering of any securities of the Company, or of the suspension
of the qualification of the Common Stock for offering or sale in any
jurisdiction, or the initiation of any proceeding for any such purpose.
12
3.3 Furnishing of Information. As long as any Purchaser owns any
Securities, the Company covenants to timely file (or obtain extensions in
respect thereof and file within the applicable grace period) all reports
required to be filed by the Company after the date hereof pursuant to Section
13(a) or 15(d) of the Exchange Act and to promptly furnish the Purchasers with
true and complete copies of all such filings. As long as any Purchaser owns
Securities, if the Company is not required to file reports pursuant to Section
13(a) or 15(d) of the Exchange Act, it will prepare and furnish to the
Purchasers and make publicly available in accordance with Rule 144(c)
promulgated under the Securities Act annual and quarterly financial statements,
together with a discussion and analysis of such financial statements in form and
substance substantially similar to those that would otherwise be required to be
included in reports required by Section 13(a) or 15(d) of the Exchange Act, as
well as any other information required thereby, in the time period that such
filings would have been required to have been made under the Exchange Act. The
Company further covenants that it will take such further action as any holder of
Units may reasonably request, all to the extent required from time to time to
enable such Person to sell Underlying Shares and/or Warrant Shares without
registration under the Securities Act within the limitation of the exemptions
provided by Rule 144 promulgated under the Securities Act, including the legal
opinion referenced above in Section 3.1. Upon the request of any such Person,
the Company shall deliver to such Person a written certification of a duly
authorized officer as to whether it has complied with such requirements.
3.4 Blue Sky Laws. In accordance with the Registration Rights
Agreement, the Company shall qualify the Underlying Shares and the Warrant
Shares under the securities or Blue Sky laws of such jurisdictions as the
Purchasers may request and shall continue such qualification at all times
through the third anniversary of the last Closing Date.
3.5 Integration. The Company shall not sell, offer for sale or solicit
offers to buy or otherwise negotiate in respect of any security (as defined in
Section 2 of the Securities Act) that would be integrated with the offer or sale
of the Securities (a) in a manner that would require the registration under the
Securities Act of the sale of any or all of such securities to any Purchaser or
(b) for purposes of any applicable shareholder approval provisions, including
without limitation, under the rules and regulations of the Nasdaq SmallCap
Market.
3.6 Certain Agreements. As long as any Purchaser owns Securities, the
Company shall not and shall cause the Subsidiaries not to, without the consent
of the holders of all of the Shares then outstanding, (i) amend its certificate
of incorporation, bylaws or other charter documents so as to adversely affect
any rights of any Purchaser or holder of the Shares; (ii) declare, authorize,
set aside or pay any dividend or other distribution with respect to the Common
Stock except as permitted under the Certificate of Designation and as would not
adversely affect the rights of any Purchaser or holder of the Shares hereunder
or under the Certificate of Designation; (iii) repay, repurchase or offer to
repay, repurchase or otherwise acquire shares of its Common Stock in any manner;
(iv) issue any series of preferred stock or other securities with rights senior
(in respect of liquidations, dividends, preferences and similar rights) to those
of the Shares; or (v) enter into any agreement with respect to any of the
foregoing.
13
3.7 Listing and Reservation of Underlying Shares and Warrant Shares;
Compliance with Law.
(a) The Company shall (i) within the time periods required by
the Nasdaq SmallCap Market, but not later than the tenth Business Day
following the applicable Closing Date, prepare and file with The Nasdaq
SmallCap Market (as well as any other national securities exchange or
market on which the Common Stock is then listed) an additional shares
listing application or a letter acceptable to The Nasdaq SmallCap
Market covering and listing a number of shares of Common Stock which is
at least equal to 175% of the maximum number of Underlying Shares and
Warrant Shares then issuable, (ii) take all steps necessary to cause
the Underlying Shares and the Warrant Shares to be approved for listing
in The Nasdaq SmallCap Market (as well as on any other national
securities exchange or market on which the Common Stock is then listed)
as soon as possible thereafter, and (iii) provide to the Purchasers
evidence of such listing, and the Company shall maintain the listing of
its Common Stock on such market. As used herein, "Business Day" means
any day except Saturday, Sunday and any day which shall be a legal
holiday or a day on which banking institutions in the State of
California generally are authorized or required by law or other
government actions to close.
(b) The Company shall at all times have authorized and
reserved for issuance upon conversion of the Shares pursuant to the
terms of the Certificate of Designation and upon exercise of the
Warrants pursuant to the Warrant the number of shares of Common Stock
required to provide for the conversion of the Shares and the exercise
of the Warrants without regard to any limitations on conversions or
exercise.
(c) Until at least two (2) years after the last of the Shares
has been converted into Underlying Shares or the last of the Warrants
has been exercised for the Warrant Shares, (i) the Company will cause
its Common Stock to continue to be registered under Sections 12(b) or
12(g) of the Exchange Act, will comply in all respects with its
reporting and filing obligations under such Exchange Act, will comply
with all requirements related to any registration statement filed
pursuant to this Agreement or the Registration Rights Agreement and
will not take any action or file any document (whether or not permitted
by the Securities Act or the Exchange Act or the rules and regulations
thereunder) to terminate or suspend such registration or to terminate
or suspend its reporting and filing obligations under the Securities
Act and Exchange Act, except as permitted herein and (ii) the Company
will take all action within its power to continue the listing or
trading of its Common Stock on The Nasdaq SmallCap Market and will
comply in all respects with the Company's reporting, filing and other
obligations under the bylaws or rules of the NASD and The Nasdaq Stock
Market.
3.8 Notice of Breaches.
(a) Each of the Company and each Purchaser shall give prompt
written notice to the other of any breach by such party of any
representation, warranty or other agreement contained in this
Agreement, the Certificate of Designation, the Warrants or the
Registration
14
Rights Agreement, as well as any events or occurrences arising after
the date hereof and prior to any Closing Date, which would reasonably
be likely to cause any representation or warranty or other agreement of
such party, as the case may be, contained herein to be incorrect or
breached as of such Closing Date. However, no disclosure by any party
pursuant to this Section 3.8 shall be deemed to cure any breach of any
representation, warranty or other agreement contained herein or in the
Registration Rights Agreement.
(b) Notwithstanding the generality of Section 3.8(a), the
Company shall promptly notify each Purchaser of any notice or claim
(written or oral) that it receives from any lender of the Company to
the effect that the consummation of the transactions contemplated
hereby, by the Certificate of Designation, by the Warrants and by the
Registration Rights Agreement violates or would violate any written
agreement or understanding between such lender and the Company, and the
Company shall promptly furnish by facsimile to each Purchaser a copy of
any written statement in support of or relating to such claim or
notice.
(c) The default by any Purchaser of any of its obligations,
representations or warranties under any Transaction Document shall not
be imputed to, and shall have no effect upon, any other Purchaser or
affect the Company's obligations under the Transaction Documents to any
non-defaulting Purchaser, or to the defaulting Purchaser with respect
to any outstanding Shares, Warrants, Underlying Shares or Warrant
Shares.
3.9 Conversion Obligations of the Company. The Company covenants to
convert Shares and to deliver the Underlying Shares in accordance with the terms
and conditions and within the time period set forth in the Certificate of
Designation.
3.10 Use of Proceeds. The Company shall use all of the proceeds from
the sale of the Units for working capital and general corporate purposes and not
for the satisfaction of any portion of Company borrowings outside the normal
course of business, including, without limitation, any obligation or liability
of any kind owed to a shareholder, officer or director of the Company, or to
redeem Company equity or equity-equivalent securities. Pending application of
the proceeds of this placement in the manner permitted hereby, the Company will
invest such proceeds in interest bearing accounts and/or short-term, investment
grade interest bearing securities.
3.11 Indemnification. The Company also will indemnify and hold the
Purchasers harmless against any and all losses, claims, damages or liabilities
to any such Person (including, without limitation, in connection with any
action, proceeding or investigation brought by or against any such Person,
including by shareholders of the Company) in connection with or as a result of
any matter referred to in the Transaction Documents, including, without
limitation, for any misrepresentation by the Company, for breaches of
representations and warranties contained in any of the Transaction Documents,
and for any breach, non-compliance or nonfulfillment by the Company of any
covenant, agreement or undertaking to be complied with or performed by it
contained in or pursuant to the Transaction Documents, except to the extent that
it is finally judicially determined that such losses, claims, damages or
liabilities resulted solely from the gross negligence or bad faith of the
Purchasers. If for any reason the foregoing indemnification is unavailable to
such Purchaser or is insufficient to
15
hold such Person harmless, then the Company shall contribute to the amount paid
or payable by such Purchaser as a result of such loss, claim, damage or
liability in such proportion as is appropriate to reflect the relative economic
interests of the Company and its shareholders on the one hand and the Purchasers
on the other hand in the matters contemplated by the Transaction Documents as
well as the relative fault of the Company and the Purchasers with respect to
such loss, claim, damage or liability and any other relevant equitable
considerations. The reimbursement, indemnity and contribution obligations of the
Company under this paragraph shall be in addition to any liability which the
Company may otherwise have, shall extend upon the same terms and conditions to
any affiliate of the Purchasers and the partners, directors, agents, employees
and controlling persons (if any), as the case may be, of the Purchasers and any
such affiliate, and shall be binding upon and inure to the benefit of any
successors, assigns, heirs and personal representatives of the Company, the
Purchasers, any such affiliate and any such Person. The Company also agrees that
neither the Purchasers nor any of such Affiliates, partners, directors, agents,
employees or controlling persons shall have any liability to the Company or any
Person asserting claims on behalf of or in right of the Company in connection
with or as a result of any matter referred to in this Agreement except to the
extent that it is finally judicially determined that any losses, claims,
damages, liabilities or expenses incurred by the Company result solely from the
gross negligence or bad faith of, or knowing breach of this Agreement by, the
Purchasers. Promptly after receipt by the Purchasers or any affiliate, partners,
directors, agents, employees and controlling persons, as the case may be, of
notice of any claim or other commencement of any action in respect of which
indemnity may be sought, such party will notify the Company in writing of the
receipt or commencement thereof and the Company shall have the right to assume
the defense of such claim or action (including the employment of counsel
reasonably satisfactory to the indemnified parties and the payment of fees and
expenses of such counsel). The indemnified party shall cooperate with the
Company and the Company's counsel in the defense of such claim or action. The
Purchasers understand that the Company shall not in connection with any one such
claim or action or separate but substantially similar related claims or actions
in the same jurisdiction arising out of the same general allegations or
circumstances, be liable for the reasonable fees and expenses of more than one
separate firm of attorneys for all of the indemnified parties unless the defense
of one indemnified party is unique or separate from that of another indemnified
party or one or more legal defenses are available to an indemnified party but
not to other indemnified parties subject to the same claim or action. In the
event the Company does not promptly assume the defense of a claim or action, the
indemnified parties shall have the right to employ counsel reasonably
satisfactory to the Company, at the Company's expense, to defend such claim or
action. The indemnified party shall not admit any liability with respect to the
claim or action or settle, compromise, pay or discharge the same without the
prior written consent of the Company so long as the Company is reasonably
contesting or defending the same in good faith. The Company shall not
compromise, settle or discharge any claim or action without the Purchasers'
consent, as applicable, which consent will not be unreasonably withheld, unless
there is no finding or admission of any violation of any law against the
indemnified party and the sole relief is monetary damages paid in full by the
Company. Any right to trial by jury with respect to any action or proceeding
arising in connection with or as a result of any matter referred to in this
Agreement is hereby waived by the parties hereto. The provisions of this Section
3.11 shall survive any termination or completion of the Transaction Documents.
16
3.12 [intentionally omitted]
3.13 Subsequent Sales and Registrations.
(a) Until the later of (i) 180 days after the Closing Date and
(ii) 60 days after all Underlying Shares and Warrant Shares have been
registered under the Securities Act pursuant to an effective
registration statement, the Company shall not, directly or indirectly,
without the prior written consent of 66 2/3% of the Purchasers, offer,
sell, grant any option to purchase, or otherwise dispose of (or
announce any offer, sale, grant of any option to purchase or other
disposition) any of its or its Affiliates' equity or equity-equivalent
securities or any instrument that permits the holder thereof to acquire
Common Stock, except (i) the granting of options or warrants to
employees, officers and directors, and the issuance of shares upon
exercise of options granted, under any stock option plan heretofore or
hereinafter duly adopted by the Company, (ii) shares issued upon
exercise of any currently outstanding warrants and upon conversion of
any currently outstanding convertible preferred stock in each case
disclosed in Schedule 2.1(c), (iii) shares of Common Stock issued upon
conversion of Shares or upon exercise of the Warrants, and (iv) shares
of Common Stock issued in connection with the transactions described on
Schedule 3.13.
(b) Other than Underlying Shares, Warrant Shares and other
"Registrable Securities" (as defined in the Registration Rights
Agreement) to be registered in accordance with the Registration Rights
Agreement, the Company shall not, for a period of not less than 90
Trading Days after the dates that any registration statement relating
to the Securities is declared effective by the Commission, without the
prior written consent of 66 2/3% of the Purchasers, (i) register for
resale any securities of the Company, or (ii) issue or sell any of its
or any of its Affiliates' equity or equity-equivalent securities except
for (A) securities issued upon the exercise or conversion of the
securities set forth on Schedule 2.1(c) or (B) securities sold pursuant
to the Company's employee benefit plans. Any days that any Purchaser is
unable to sell Underlying Shares or Warrant Shares under the
Registration Statement shall be added to such 90 Trading Day period for
the purposes of (i) and (ii) above.
3.14 Shareholder Approval. The Company shall, as promptly as possible,
but in no event later than 65 days after the Closing Date, convene a
shareholders' meeting, held in accordance with the Company's Certificate of
Incorporation and bylaws, and use its best efforts to obtain the approval
("Shareholder Approval") by a majority of the total votes cast on the proposal
at such shareholders' meeting, in person or by proxy, of (i) the issuance of the
Underlying Shares as a consequence of the conversion of the Shares and (ii) the
issuance of the Warrant Shares as a consequence of the exercise of the Warrants,
in each case in a number exceeding the maximum number of shares of Common Stock
issuable without shareholder approval at a price less than the greater of the
book or market value on the Original Issue Date as and to the extent required
pursuant to Rule 4460(i) of The Nasdaq Stock Market, Inc.'s Marketplace Rules
(or any successor or replacement provision thereof).
3.15 [intentionally omitted]
17
3.16 Incorporation of Certificate of Designation By Reference. The
Certificate of Designation is hereby incorporated herein by reference and made a
part hereof.
3.17 Board of Directors. If more than ten percent (10%) of the Shares
(other than Shares held by Olympus Securities, Ltd. or NP Partners or any of
their assignees) remain outstanding, the Purchasers (other than Olympus
Securities, Ltd. and NP Partners or any of their assignees) shall have the right
to approve the appointment of any new or replacement member to the Board of
Directors, such approval not to be unreasonably withheld; provided, however,
this provision shall not affect the ability of a Purchaser to vote its Shares in
the manner it deems fit.
3.18 Conversion of Preferred Stock and Exercise of Warrants. Each share
of Series E Preferred Stock held by the Purchasers listed on Schedule A shall be
convertible into shares of Common Stock at the option of such Purchasers in
whole or in part at any time after the Original Issue Date; provided, however,
that the number of shares of Common Stock issued by the Company to such
Purchasers (together with any shares of Common Stock issued upon exercise of the
Warrants) shall not exceed the number of shares set forth opposite each of the
Purchasers' names on Schedule A attached hereto until the date on which the
Company receives Shareholder Approval. Each Purchaser not listed on Schedule A
attached hereto shall not convert shares of Series E Preferred Stock (or
exercise Warrants issued to such Purchaser) until the earlier of (i) the date on
which the Company receives Shareholder Approval and (ii) the date which is 65
days after the Original Issuance Date. If the Company does not obtain
Shareholder Approval and on a Conversion Date (as defined in the Certificate of
Designation) the Company is listed for trading on the Nasdaq National Market,
the New York Stock Exchange, the American Stock Exchange or the Nasdaq SmallCap
Market, each share of Series E Preferred Stock shall be convertible in
accordance with Section 5(a)(ii) of the Certificate of Designation.
ARTICLE IV
CONDITIONS
4.1 Conditions Precedent to Sale of the Units.
(a) Conditions Precedent to the Obligation of the Company to
Sell the Units. The obligation of the Company to sell the Units
hereunder is subject to the satisfaction or waiver by the Company, at
or before the Closing, of each of the following conditions:
(i) Accuracy of the Purchasers' Representations and
Warranties. The representations and warranties of each
Purchaser shall be true and correct in all material respects
as of the date when made and as of the Closing Date, as though
made on and as of such date;
(ii) Performance by the Purchasers. Each Purchaser
shall have performed, satisfied and complied in all material
respects with all covenants,
18
agreements and conditions required by this Agreement to be
performed, satisfied or complied with by such Purchaser at or
prior to the Closing; and
(iii) 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 or the Registration Rights
Agreement.
(b) Conditions Precedent to the Obligation of the Purchasers
to Purchase the Units. The obligation of each Purchaser hereunder to
acquire and pay for the Units is subject to the satisfaction or waiver
by such Purchaser, at or before the Closing, of each of the following
conditions:
(i) Accuracy of the Company's Representations and
Warranties. The representations and warranties of the Company
set forth in this Agreement and in the Registration Rights
Agreement shall be true and correct in all material respects
as of the date when made and as of the Closing Date as though
made on and as of such date;
(ii) Performance by the Company. The Company shall
have performed, satisfied and complied with in all material
respects 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;
(iii) 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, the Certificate of
Designation, the Warrants or the Registration Rights
Agreement;
(iv) Adverse Changes. Since the date of the financial
statements included in the Company's Quarterly Report on Form
10-Q or Annual Report on Form 10-K, whichever is more recent,
last filed prior to the date of this Agreement, no event which
had a Material Adverse Effect and no material adverse change
in the financial condition of the Company shall have occurred
(for purposes hereof changes in the market price of the Common
Stock may be considered as a factor in determining whether
there has occurred an event which has had a Material Adverse
Effect or whether a material adverse change has occurred);
(v) No Suspensions of Trading in Common Stock. The
trading in the Common Stock shall not have been suspended by
the Commission or on The Nasdaq SmallCap Market which
suspension shall remain in effect;
19
(vi) Legal Opinion. The Company shall have delivered
to each of the Purchasers the opinion of ▇▇▇▇▇▇ ▇▇▇▇▇▇ Flattau
& Klimpl, LLP, outside counsel to the Company, in
substantially the forms annexed hereto as Exhibit D;
(vii) Required Approvals. All approvals required
pursuant to clauses (i) and (iv) of the definition of
"Required Approvals" shall have been obtained;
(viii) Shares of Common Stock. On or prior to the
Closing Date, the Company shall have duly reserved the number
of Underlying Shares and Warrant Shares required by the
Transaction Documents to be reserved for issuance upon
conversion of the Shares and upon exercise of the Warrants;
(ix) Delivery of Stock Certificates and Warrant
Certificates. The Company shall have delivered to each
Purchaser or such Purchaser's designee, (i) the stock
certificate(s) representing the Shares, registered in the name
of such Purchaser, each in form satisfactory to the Purchaser
and (ii) warrant certificate(s) representing the Warrants,
registered in the name of such Purchaser, in form satisfactory
to the Purchaser;
(x) Registration Rights Agreement. The Company shall
have executed and delivered the Registration Rights Agreement;
(xi) Certificate of Designation. The Certificate of
Designation shall have been duly approved by the Board of
Directors and filed with and accepted by the Secretary of
State of the State of Delaware, and the Company shall have
delivered a copy thereof to each Purchaser certified as filed
by the office of the Secretary of State of the State of
Delaware;
(xii) Transfer Agent Instructions. The Irrevocable
Transfer Agent Instructions, in the form of Exhibit E annexed
hereto, shall have been delivered to and acknowledged in
writing by the Company's transfer agent; and
(xiii) Officer's Certificate. On the Closing Date the
Company shall deliver to the Purchasers an Officer's
Certificate dated the Closing Date and signed by the President
and the Chief Financial Officer of the Company confirming the
accuracy of the Company's representations, warranties and
covenants as of such Closing Date and confirming the
compliance by the Company with the conditions precedent set
forth in this Section 4.1 as of the Closing Date.
(xiv) Secretary's Certificate. On the Closing Date
the Company shall deliver to the Purchaser a Secretary's
Certificate dated the Closing Date and signed by the President
and the Secretary of the Company certifying to (a) board
resolutions approving this Agreement and the transactions
contemplated hereby, (b) the Company's Bylaws and (c) the
Company's Certificate of Incorporation.
20
ARTICLE V
MISCELLANEOUS
5.1 Fees and Expenses. The Company shall pay the fees and expenses of
its advisers, counsel, accountants and other experts, if any, and all other
expenses incurred by the Company incident to the negotiation, preparation,
execution, delivery and performance of this Agreement and the other Transaction
Documents. The Company shall pay all stamp and other taxes and duties levied in
connection with the issuance of the Securities pursuant to the Transaction
Documents.
5.2 Entire Agreement; Amendments. This Agreement, together with the
Exhibits and Schedules hereto and the other Transaction Documents, contain the
entire understanding of the parties with respect to the subject matter hereof
and supersede all prior agreements and understandings, oral or written, with
respect to such matters.
5.3 Notices. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earlier of (i) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile
telephone number specified for notice prior to 5:00 p.m., San Diego time, on a
Business Day, (ii) the Business Day after the date of transmission, if such
notice or communication is delivered via facsimile at the facsimile telephone
number specified for notice later than 5:00 p.m., San Diego time, on any date
and earlier than 11:59 p.m., San Diego time, on such date, (iii) the Business
Day following the date of mailing, if sent by nationally recognized overnight
courier service or (iv) actual receipt by the party to whom such notice is
required to be given. The addresses for such communications shall be with
respect to each Purchaser at its address set forth under its name on Schedule 1
attached hereto, or with respect to the Company, addressed to:
Imaging Technologies Corporation
▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
or to such other address or addresses or facsimile number or numbers as any such
party may most recently have designated in writing to the other parties hereto
by such notice. Copies of notices to any Purchaser shall be sent to such
addresses as set forth on Schedule 1 attached hereto, if applicable. Copies of
notices to the Company shall be sent to ▇▇▇▇▇▇ ▇▇▇▇▇▇ Flattau & Klimpl, LLP,
▇▇▇▇ ▇▇▇▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, Attention: ▇▇▇▇▇▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇, Esq., Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇.
5.4 Amendments; Waivers. No provision of this Agreement may be waived
or amended except in a written instrument signed, in the case of an amendment,
by both the Company and the
21
Purchasers; or, in the case of a waiver, by the party against whom enforcement
of any such waiver is sought. No waiver of any default with respect to any
provision, condition or requirement of this Agreement shall be deemed to be a
continuing waiver in the future or a waiver of any other provision, condition or
requirement hereof, nor shall any delay or omission of either party to exercise
any right hereunder in any manner impair the exercise of any such right accruing
to it thereafter. Notwithstanding the foregoing, no such amendment shall be
effective to the extent that it applies to less than all of the holders of the
Units outstanding. The Company shall not offer or pay any consideration to a
Purchaser for consenting to such an amendment or waiver unless the same
consideration is offered to each Purchaser and the same consideration is paid to
each Purchaser which consents to such amendment or waiver.
5.5 Headings. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof.
5.6 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and permitted assigns.
The Company may not assign this Agreement or any rights or obligations hereunder
without the prior written consent of each of the Purchasers. Each Purchaser may
assign this Agreement or any rights or obligations hereunder (i) to its
affiliates or to another Purchaser without the prior written consent of the
Company and (ii) to any other Person with the prior written consent of the
Company, such consent not to be unreasonably withheld, except that any assignee
must make the representations and warranties set forth in Section 2.2 and
otherwise comply with the terms of this Agreement otherwise applicable to its
assignor. This provision shall not limit a Purchaser's right to transfer
securities or transfer or assign rights under the Registration Rights Agreement.
5.7 No Third Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person.
5.8 Governing Law. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of California, without
regard to the principles of conflicts of law thereof.
5.9 Survival. The agreements, covenants, representations, warranties
and provisions contained in this Agreement shall survive the delivery of the
Units pursuant to this Agreement and each Closing hereunder and any conversion
of the Shares or exercise of the Warrants.
5.10 Execution. This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party, it being understood that all
parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile transmission, such signature shall create a valid and
binding obligation of the party executing (or on whose behalf such signature is
executed) the same with the same force and effect as if such facsimile signature
page were an original thereof.
22
5.11 Publicity. The Company and each Purchaser shall consult with each
other in issuing any press releases or otherwise making public statements with
respect to the transactions contemplated hereby and neither party shall issue
any such press release or otherwise make any such public statement without the
prior written consent of the other, which consent shall not be unreasonably
withheld or delayed, except that no prior consent shall be required if such
disclosure is required by law, in which such case the disclosing party shall
provide the other Party with prior notice of such public statement. The Company
shall not publicly or otherwise disclose the names of any of the Purchasers
without each such Purchaser's prior written consent unless otherwise required by
law, in which case the Company shall inform such Purchaser of such disclosure in
writing prior to making such disclosure.
5.12 Consent to Jurisdiction; Attorneys' Fees
(a) The Company (including, but not limited to, its
affiliates, subsidiaries, officers, directors and controlling persons)
and each Purchaser hereby (i) irrevocably submits to the non-exclusive
jurisdiction of any California State court or Federal court sitting in
San Diego in any action related to, connected with or arising out of,
in whole or in part, the Transaction Documents, including, but not
limited to, transactions in the securities of the Company subsequent to
the purchase by such Purchaser or Persons claimed to be affiliated with
such Purchaser, (ii) agrees that all claims in such action shall be
decided in such court, (iii) waives, to the fullest extent it may
effectively do so, the defense of inconvenient forum and (iv) consents
to the service of process by certified mail, return receipt requested.
Nothing herein shall affect the right of any party to serve legal
process in any manner permitted by law or affect its right to bring any
action in any other court.
(b) In connection with any dispute between the Company and any
Purchaser, related to, connected with or arising out of, in whole or in
part, the Transaction Documents including, but not limited to,
transactions in the securities of the Company subsequent to the
purchase, by a Purchaser or Persons claimed to be affiliated to a
Purchaser, the prevailing party shall be awarded all reasonable
attorneys' fees and expenses incurred by it. In that connection fees
and expenses actually paid by a party in connection with the litigation
of any dispute shall be deemed presumably reasonable.
(c) In the event that any Purchaser or any Person claimed to
be affiliated or associated with such Purchaser becomes involved in any
capacity in any action, proceeding or investigation brought by or
against any Person, including shareholders of the Company, in
connection with or as a result of any matter referred to in the
Transaction Documents, the Company will reimburse such Purchaser and/or
those claimed to be affiliated or associated with such Purchaser for
its legal fees and expenses and other expenses (including the cost of
any investigation and preparation) incurred in connection therewith, as
those fees and expenses are incurred; provided, however, that if at the
conclusion of such action, proceeding or investigation it shall be
finally judicially determined by a court of competent jurisdiction that
indemnity for such fees and expenses is contrary to law, or that such
Purchaser is not the
23
prevailing party then in that event, such Purchaser and/or any other
Person having received such advances of fees and expenses shall
reimburse the Company in full for the sums advanced.
(d) The provisions of this Section 5.12 shall survive any
termination or completion of the Transaction Documents.
5.13 Waiver of Jury Trial
(a) The parties hereto each waive their respective rights to a
trial by jury of any claim or cause of action based upon or arising out
of or related to the Transaction Documents, or the transactions
contemplated by the Transaction Documents, in any action, proceeding or
other litigation of any type brought by any of the parties against any
other party or parties, whether with respect to contract claims, tort
claims, or otherwise. The parties hereto each agree that any such claim
or cause of action shall be tried by a court trial without a jury.
Without limiting the foregoing, the parties further agree that their
respective right to a trial by jury is waived by operation of this
Section 5.13 as to any action, counterclaim or other proceeding which
seeks, in whole or in part, to challenge the validity or enforceability
of any of the Transaction Documents or any provision hereof or thereof.
The waiver shall apply to any subsequent amendments, renewals,
supplements or modifications to any of the Transaction Documents.
(b) The provisions of this Section 5.13 shall survive any
termination or completion of the Transaction Documents.
5.14 Severability. If any term, provision, covenant or restriction of
this Agreement is held to be invalid, illegal, void or unenforceable in any
respect, the remainder of the terms, provisions, covenants and restrictions set
forth herein shall remain in full force and effect and shall in no way be
affected, impaired or invalidated, and the parties hereto shall use their
reasonable efforts to find and employ an alternative means to achieve the same
or substantially the same result as that contemplated by such term, provision,
covenant or restriction. It is hereby stipulated and declared to be the
intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such that may be
hereafter declared invalid, illegal, void or unenforceable.
5.15 Remedies. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, the Purchasers
will be entitled to specific performance of the obligations of the Company under
the Transaction Documents and injunctive relief. Each of the Company and the
Purchasers (severally and not jointly) agree that monetary damages would not be
adequate compensation for any loss incurred by reason of any breach of its
obligations described in the foregoing sentence and hereby agrees to waive in
any action for specific performance of any such obligation or injunctive relief
the defense that a remedy at law would be adequate.
24
5.16 Independent Nature of Purchasers' Obligations and Rights. The
obligations of each Purchaser hereunder is several and not joint with the
obligations of the other Purchasers hereunder, and no Purchaser shall be
responsible in any way for the performance of the obligations of any other
Purchaser hereunder. Nothing contained herein or in any other agreement or
document delivered at any Closing, and no action taken by any Purchaser pursuant
hereto or thereto, shall be deemed to constitute the Purchasers as a
partnership, an association, a joint venture or any other kind of entity, or
create a presumption that the Purchasers are in any way acting in concert with
respect to such obligations or the transactions contemplated by this Agreement.
Each Purchaser shall be entitled to protect and enforce its rights, including
without limitation the rights arising out of this Agreement or out of the other
Transaction Documents, and it shall not be necessary for any other Purchaser to
be joined as an additional party in any proceeding for such purpose.
IN WITNESS WHEREOF, the parties hereto have caused this Securities
Purchase Agreement to be duly executed by their respective authorized persons as
of the date first indicated above.
IMAGING TECHNOLOGIES CORPORATION
By:_____________________________________
Name: ▇▇▇▇▇ ▇▇▇▇▇
Title: President
▇▇▇▇▇ ▇. ▇▇▇▇ TRUST UTA DATED 7/19/92
By:_____________________________________
Name:
Title:
SAAL FAMILY CHARITABLE LEAD TRUST
UTA DATED 2/25/98
By:_____________________________________
Name:
Title:
---------------------------------------
▇.▇. ▇▇▇▇▇▇
25
NESHER, INC.
By:_____________________________________
Name:
Title:
MANOR INVESTMENT
By:_____________________________________
Name:
Title:
---------------------------------------
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
CASHCO FLP
By:_____________________________________
Name:
Title:
MANCHESTER ASSET MANAGEMENT
By:_____________________________________
Name:
Title:
GILSTON CORPORATION, LTD.
By:_____________________________________
Name:
Title:
THE CUTTYHUNK FUND, LIMITED
By:_____________________________________
Name:
Title: