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EXHIBIT 10.37
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (the "AGREEMENT"), dated as of January
22, 1997, by and among JTS Corporation, a Delaware corporation, with
headquarters located at ▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ (the
"COMPANY"), and the investors listed on the Schedule of Investors attached
hereto (individually, a "BUYER" and collectively, the "BUYERS").
WHEREAS:
A. The Company and the Buyers are executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by Rule 506 of Regulation D ("REGULATION D") as promulgated by the United
States Securities and Exchange Commission (the "SEC") under the Securities Act
of 1933, as amended (the "1933 ACT");
B. The Company has authorized the following new series of its
Preferred Stock, $.001 par value per share (the "PREFERRED STOCK"): the
Company's Series C Convertible Preferred Stock (the "SERIES C PREFERRED
SHARES"), which shall be convertible into shares of the Company's Common Stock,
$.001 par value per share (the "COMMON STOCK") (as converted, the "CONVERSION
SHARES"), in accordance with the terms of the Company's Certificate of
Designations, Preferences and Rights of the Series C Preferred Shares,
substantially in the form attached hereto as Exhibit A (the "CERTIFICATE OF
DESIGNATIONS");
C. The Buyers wish to purchase, upon the terms and conditions
stated in this Agreement, an aggregate of up to 25,000 shares of the Series C
Preferred Shares in the respective amounts set forth opposite each Buyer's name
on the Schedule of Investors; and
D. Contemporaneously with the execution and delivery of this
Agreement, the parties hereto are executing and delivering a Registration
Rights Agreement substantially in the form attached hereto as Exhibit B (the
"REGISTRATION RIGHTS AGREEMENT") pursuant to which the Company has agreed to
provide certain registration rights under the 1933 Act and the rules and
regulations promulgated thereunder, and applicable state securities laws.
NOW THEREFORE, the Company and the Buyers hereby agree as follows:
1. PURCHASE AND SALE OF SERIES C PREFERRED SHARES.
a. Purchase of Series C Preferred Shares. Subject to
the satisfaction (or waiver) of the conditions set forth in Sections 6 and 7
below, the Company shall issue and sell to the Buyers and the Buyers shall
purchase from the Company an aggregate of 25,000 Series C Preferred Shares, in
the respective amounts set forth opposite each Buyer's name on the Schedule of
Investors (the "CLOSING"). The per share purchase price (the "PURCHASE PRICE")
of the Series C Preferred Shares shall be $1,000.00.
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b. Closing Date. The date and time of the Closing (the
"CLOSING DATE") shall be 10:00 a.m. Central Standard Time, within five (5)
business days following the date hereof, subject to notification of
satisfaction (or waiver) of the conditions to the Closing set forth in Sections
6 and 7 below (or such later date as is mutually agreed to by the Company and
the Buyers). The Closing shall occur on the Closing Date at the offices of
▇▇▇▇▇▇ ▇▇▇▇▇▇ & ▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇
▇▇▇▇▇-▇▇▇▇.
c. Form of Payment. On the Closing Date, (i) each Buyer
shall pay the Purchase Price to the Company for the Series C Preferred Shares
to be issued and sold to such Buyer at the Closing, by wire transfer of
immediately available funds in accordance with the Company's written wire
instructions, and (ii) the Company shall deliver to each Buyer, a stock
certificate representing such number of the Series C Preferred Shares which
such Buyer is then purchasing (as indicated opposite such Buyer's name on the
Schedule of Investors), duly executed on behalf of the Company and registered
in the name of such Buyer or its designee (the "STOCK CERTIFICATES").
2. BUYER'S REPRESENTATIONS AND WARRANTIES.
Each Buyer represents and warrants with respect to only itself
that:
a. Investment Purpose. Such Buyer (i) is acquiring the
Series C Preferred Shares and (ii) upon conversion of the Series C Preferred
Shares, will acquire the Conversion Shares then issuable, for its own account
for investment only and not with a view towards, or for resale in connection
with, the public sale or distribution thereof, except pursuant to sales
registered or exempted under the 1933 Act; provided, however, that by making
the representations herein, such Buyer does not agree to hold the Series C
Preferred Shares for any minimum or other specific term and reserves the right
to dispose of the Series C Preferred Shares at any time in accordance with or
pursuant to a registration statement or an exemption under the 1933 Act.
b. Accredited Investor Status. Such Buyer is an
"accredited investor" as that term is defined in Rule 501(a)(3) of Regulation
D.
c. Reliance on Exemptions. Such Buyer understands that
the Series C Preferred Shares and the Conversion Shares are being offered and
sold to it in reliance on specific exemptions from the registration
requirements of United States federal and state securities laws and that the
Company is relying in part upon the truth and accuracy of, and such Buyer's
compliance with, the representations, warranties, agreements, acknowledgments
and understandings of such Buyer set forth herein in order to determine the
availability of such exemptions and the eligibility of such Buyer to acquire
the Series C Preferred Shares and the Conversion Shares.
d. Information. Such Buyer and its advisors, if any,
have been furnished with all materials relating to the business, finances and
operations of the Company and materials relating to the offer and sale of the
Series C Preferred Shares and the Conversion Shares which have been requested
by such Buyer. Such Buyer and its advisors, if any, have been afforded the
opportunity to ask questions of the Company. Neither such inquiries nor any
other due
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diligence investigations conducted by such Buyer or its advisors, if any, or
its representatives shall modify, amend or affect such Buyer's right to rely on
the Company's representations and warranties contained in Section 3 below.
Such Buyer understands that its investment in the Series C Preferred Shares and
the Conversion Shares involves a high degree of risk. Such Buyer has sought
such accounting, legal and tax advice as it has considered necessary to make an
informed investment decision with respect to its acquisition of the Series C
Preferred Shares and the Conversion Shares.
e. No Governmental Review. Such Buyer understands that
no United States federal or state agency or any other government or
governmental agency has passed on or made any recommendation or endorsement of
the Series C Preferred Shares or the Conversion Shares or the fairness or
suitability of the investment in the Series C Preferred Shares or the
Conversion Shares nor have such authorities passed upon or endorsed the merits
of the offering of the Series C Preferred Shares or the Conversion Shares.
f. Transfer or Resale. Such Buyer understands that
except as provided in the Registration Rights Agreement: (i) the Series C
Preferred Shares and the Conversion Shares have not been and are not being
registered under the 1933 Act or any state securities laws, and may not be
offered for sale, sold, assigned or transferred unless (A) subsequently
registered thereunder, (B) such Buyer shall have delivered to the Company an
opinion of counsel, in a generally acceptable form, to the effect that such
securities to be sold, assigned or transferred may be sold, assigned or
transferred pursuant to an exemption from such registration, or (C) such Buyer
provides the Company with reasonable assurance that such securities can be
sold, assigned or transferred pursuant to Rule 144 promulgated under the 1933
Act (or a successor rule thereto); (ii) any sale of such securities made in
reliance on Rule 144 promulgated under the 1933 Act (or a successor rule
thereto) ("RULE 144") may be made only in accordance with the terms of Rule 144
and further, if Rule 144 is not applicable, any resale of such securities under
circumstances in which the seller (or the person through whom the sale is made)
may be deemed to be an underwriter (as that term is defined in the ▇▇▇▇ ▇▇▇)
may require compliance with some other exemption under the 1933 Act or the
rules and regulations of the SEC thereunder; and (iii) neither the Company nor
any other person is under any obligation to register such securities under the
1933 Act or any state securities laws or to comply with the terms and
conditions of any exemption thereunder.
g. Legends. Such Buyer understands that the
certificates or other instruments representing the Series C Preferred Shares
and, until such time as the sale of the Conversion Shares have been registered
under the 1933 Act as contemplated by the Registration Rights Agreement, the
stock certificates representing the Conversion Shares, shall bear a restrictive
legend in substantially the following form (and a stop-transfer order may be
placed against transfer of such stock certificates):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE
STATE SECURITIES LAWS. THE SECURITIES HAVE BEEN ACQUIRED FOR
INVESTMENT AND MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR
ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE
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SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE
STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL, IN A GENERALLY
ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR
APPLICABLE STATE SECURITIES LAWS OR UNLESS SOLD PURSUANT TO RULE 144
UNDER SAID ACT.
The legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of the Series C Preferred Shares
or the Conversion Shares upon which it is stamped, if, unless otherwise
required by state securities laws, (i) the sale of the Conversion Shares is
registered under the 1933 Act, (ii) in connection with a sale transaction, such
holder provides the Company with an opinion of counsel, in a generally
acceptable form, to the effect that a public sale, assignment or transfer of
the Series C Preferred Shares or the Conversion Shares may be made without
registration under the 1933 Act, or (iii) such holder provides the Company with
reasonable assurances that the Series C Preferred Share or the Conversion
Shares can be sold pursuant to Rule 144 without any restriction as to the
number of securities acquired as of a particular date that can then be
immediately sold. Such Buyer agrees to sell the Conversion Shares, including
those represented by certificate(s) from which the legend has been removed, in
compliance with all applicable securities laws, including any prospectus
delivery requirements.
h. Authorization; Enforcement. This Agreement has been
duly and validly authorized, executed and delivered on behalf of such Buyer and
is a valid and binding agreement of such Buyer enforceable in accordance with
its terms, subject as to enforceability to general principles of equity and to
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation and
other similar laws relating to, or affecting generally, the enforcement of
applicable creditors' rights and remedies.
i. Residency. Such Buyer is a resident of that country
specified in its address on the Schedule of Investors.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to each of the Buyers
that:
a. Organization and Qualification. The Company and its
significant subsidiaries (as defined in Rule 1-02(w) of Regulation S-X
promulgated by the SEC under the 1933 Act and which are set forth in Schedule
3(a)) are corporations duly organized and validly existing in good standing
under the laws of the jurisdiction in which they are incorporated, and have the
requisite corporate power to own their properties and to carry on their
business as now being conducted. Each of the Company and its subsidiaries is
duly qualified as a foreign corporation to do business and is in good standing
in every jurisdiction in which the nature of the business conducted by it makes
such qualification necessary, except to the extent that the failure to be so
qualified or be in good standing would not have a material adverse effect on
the Company and its subsidiaries taken as a whole.
b. Authorization; Enforcement; Compliance with Other
Instruments. (i) The Company has the requisite corporate power and authority
to enter into and perform this
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Agreement and the Registration Rights Agreement, and to issue the Series C
Preferred Shares and the Conversion Shares in accordance with the terms hereof
and thereof, (ii) the execution and delivery of this Agreement and the
Registration Rights Agreement by the Company and the consummation by it of the
transactions contemplated hereby and thereby, including without limitation the
issuance of the Series C Preferred Shares and the reservation for issuance and
the issuance of the Conversion Shares issuable upon conversion thereof, have
been duly authorized by the Company's Board of Directors and no further consent
or authorization is required by the Company, its Board of Directors or its
stockholders, (iii) this Agreement and the Registration Rights Agreement have
been duly executed and delivered by the Company, (iv) this Agreement and the
Registration Rights Agreement constitute the valid and binding obligations of
the Company enforceable against the Company in accordance with their terms,
except as such enforceability may be limited by general principles of equity or
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or
similar laws relating to, or affecting generally, the enforcement of creditors'
rights and remedies, and (v) prior to the Closing Date, the Certificate of
Designations 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 its terms.
c. Capitalization. As of the date hereof, the
authorized capital stock of the Company consists of 150,000,000 shares of
Common Stock, of which as of January 14, 1997, 104,756,027 shares were issued
and outstanding, and 10,000,000 shares of Preferred Stock, of which as of
January 15, 1997, 15,000 shares were issued and outstanding. All of such
outstanding shares have been validly issued and are fully paid and
nonassessable. Except as disclosed in Schedule 3(c), no shares of Common Stock
or Preferred Stock are subject to preemptive rights or any other similar rights
or any liens or encumbrances suffered or permitted by the Company. Except as
disclosed in Schedule 3(c), as of the effective date of this Agreement, (i)
there are no outstanding options, warrants, scrip, rights to subscribe to,
calls or commitments of any character whatsoever relating to, or securities or
rights convertible into, any shares of capital stock of the Company or any of
its subsidiaries, or contracts, commitments, understandings or arrangements by
which the Company or any of its subsidiaries is or may become bound to issue
additional shares of capital stock of the Company or any of its subsidiaries or
options, warrants, scrip, rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities or rights convertible into, any
shares of capital stock of the Company or any of its subsidiaries, (ii) there
are no outstanding debt securities and (iii) there are no agreements or
arrangements under which the Company or any of its subsidiaries is obligated to
register the sale of any of their securities under the 1933 Act (except the
Registration Rights Agreement). There are no securities or instruments
containing anti-dilution or similar provisions that will be triggered by the
issuance of the Series C Preferred Shares or the Conversion Shares as described
in this Agreement. The Company has furnished to the Buyer true and correct
copies of the Company's Certificate of Incorporation, as amended and as in
effect on the date hereof (the "CERTIFICATE OF INCORPORATION"), and the
Company's By-laws, as in effect on the date hereof (the "BY-LAWS"), and the
terms of all securities convertible into or exercisable for Common Stock and
the material rights of the holders thereof in respect thereto.
d. Issuance of Securities. The Series C Preferred
Shares are duly authorized and, upon issuance in accordance with the terms
hereof, shall be (i) validly issued, fully paid
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and non-assessable, (ii) free from all taxes, liens and charges with respect to
the issue thereof and (iii) entitled to the rights and preferences set forth in
the Certificate of Designations. The Conversion Shares issuable upon
conversion of the Series C Preferred Shares have been duly authorized and
reserved for issuance and upon conversion or exercise in accordance with the
Certificate of Designations will be validly issued, fully paid and
nonassessable and free from all taxes, liens and charges with respect to the
issue thereof, with the holders being entitled to all rights accorded to a
holder of Common Stock.
e. No Conflicts. Except as disclosed in Schedule 3(e),
the execution, delivery and performance of this Agreement by the Company and
the consummation by the Company of the transactions contemplated hereby will
not (i) result in a violation of the 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 material
agreement, indenture or instrument to which the Company or any of its
subsidiaries is a party, or result in a violation of any law, rule, regulation,
order, judgment or decree (including federal and state securities laws and
regulations and the rules and regulations of the principal market or exchange
on which the Common Stock is traded or listed) applicable to the Company or any
of its subsidiaries or by which any property or asset of the Company or any of
its subsidiaries is bound or affected. Except as disclosed in Schedule 3(e),
neither the Company nor its subsidiaries is in violation of any term of or in
default under its Certificate of Incorporation or By-laws or their
organizational charter or by-laws, respectively, or any material contract,
agreement, mortgage, indebtedness, indenture, instrument, judgment, decree or
order or any statute, rule or regulation applicable to the Company or its
subsidiaries. The business of the Company and its subsidiaries is not being
conducted, and shall not be conducted so long as the Buyers hold any Series C
Preferred Shares or Conversion Shares, in violation of any law, ordinance,
regulation of any governmental entity. Except as specifically contemplated by
this Agreement and as required under the 1933 Act and any applicable state
securities laws, the Company is not required 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 or contemplated by this Agreement or the Registration
Rights Agreement in accordance with the terms hereof or thereof. Except as
disclosed in Schedule 3(e), all consents, authorizations, orders, filings and
registrations which the Company is required to obtain pursuant to the preceding
sentence have been obtained or effected on or prior to the date hereof. The
Company and its subsidiaries are unaware of any facts or circumstances which
might give rise to any of the foregoing.
f. SEC Documents; Financial Statements. Since July 31,
1996, the Company has filed all reports, schedules, forms, statements and other
documents required to be filed by it with the SEC pursuant to the reporting
requirements of the Securities Exchange Act of 1934, as amended (the "1934
ACT") (all of the foregoing filed prior to the date hereof and all exhibits
included therein and financial statements and schedules thereto and documents
incorporated by reference therein and the Company's Registration Statements on
Form S-4 filed on June 24, 1996, as amended, and on Form S-1 filed on November
29, 1996 and all exhibits included therein and financial statements and
schedules thereto and documents incorporated by reference therein, being
hereinafter referred to as the "SEC DOCUMENTS"). The Company has delivered to
the Buyer or its representative true and complete copies of the SEC Documents.
As of their respective dates, the SEC Documents complied in all material
respects with the requirements of
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the 1934 Act and the rules and regulations of the SEC promulgated thereunder
applicable to the SEC Documents, and none of the SEC Documents, at the time
they were filed with the SEC, contained any untrue statement of a material fact
or omitted to state a material fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances under
which they were made, not misleading. As of their respective dates, the
financial statements of the Company included in the SEC Documents complied as
to form in all material respects with applicable accounting requirements and
the published rules and regulations of the SEC with respect thereto. Such
financial statements have been prepared in accordance with generally accepted
accounting principles, consistently applied, during the periods involved
(except (i) as may be otherwise indicated in such financial statements or the
notes thereto, or (ii) in the case of unaudited interim statements, to the
extent they may exclude footnotes or may be condensed or summary statements)
and fairly present in all material respects the financial position of the
Company as of the dates thereof and the results of its operations and cash
flows for the periods then ended (subject, in the case of unaudited statements,
to normal year-end audit adjustments). No other information provided by or on
behalf of the Company to the Buyer which is not included in the SEC Documents,
including, without limitation, information referred to in Section 2(d) of this
Agreement, contains any untrue statement of a material fact or omits to state
any material fact necessary in order to make the statements therein, in the
light of the circumstance under which they are or were made, not misleading.
g. Absence of Certain Changes. Except as disclosed in
Schedule 3(g), since October 27, 1996 there has been no material adverse change
and no material adverse development in the business, properties, operations,
financial condition, results of operations or prospects of the Company or its
subsidiaries. The Company has not taken any steps, and does not currently
expect to take any steps, to seek protection pursuant to any bankruptcy law nor
does the Company or its subsidiaries have any knowledge or reason to believe
that its creditors intend to initiate involuntary bankruptcy proceedings.
h. Absence of Litigation. There is no action, suit,
proceeding, inquiry or investigation before or by any court, public board,
government agency, self-regulatory organization or body pending or, to the
knowledge of the Company or any of its subsidiaries, threatened against or
affecting the Company, the Common Stock or any of the Company's subsidiaries,
wherein an unfavorable decision, ruling or finding would (i) have a material
adverse effect on the transactions contemplated hereby (ii) adversely affect
the validity or enforceability of, or the authority or ability of the Company
to perform its obligations under, this Agreement or any of the documents
contemplated herein or (iii), except as expressly set forth in the SEC
Documents or in Schedule 3(h), have a material adverse effect on the business,
operations, properties, financial condition or results of operation of the
Company and its subsidiaries taken as a whole.
i. Acknowledgement Regarding Buyers' Purchase of Series
C Preferred Shares. The Company acknowledges and agrees that each of the
Buyers is acting solely in the capacity of arm's length purchaser with respect
to this Agreement and the transactions contemplated hereby. The Company
further acknowledges that each Buyer is not acting as a financial advisor or
fiduciary of the Company (or in any similar capacity) with respect to this
Agreement and the transactions contemplated hereby and any advice given by any
of the Buyers or any of their respective representatives or agents in
connection with this Agreement and the
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transactions contemplated hereby is merely incidental to such Buyer's purchase
of the Series C Preferred Shares or the Conversion Shares. The Company further
represents to each Buyer that the Company's decision to enter into this
Agreement has been based solely on the independent evaluation by the Company
and its representatives.
j. No 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, was
required to be publicly disclosed or announced by the Company but which has not
been so publicly announced or disclosed.
k. No General Solicitation. Neither the Company, nor
any of its affiliates, nor any person acting on its or their behalf, has
engaged in any form of general solicitation or general advertising (within the
meaning of Regulation D under the ▇▇▇▇ ▇▇▇) in connection with the offer or
sale of the Series C Preferred Shares or the Conversion Shares.
l. 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
Series C Preferred Shares or the Conversion Shares under the 1933 Act or cause
this offering of Series C Preferred Shares and Conversion Shares to be
integrated with prior offerings by the Company for purposes of the 1933 Act or
the stockholder approval provisions of the rules and regulations of The
American Stock Exchange, Inc. ("AMEX").
m. Employee Relations. Neither the Company nor any of
its subsidiaries is involved in any union labor dispute nor, to the knowledge
of the Company or any of its subsidiaries, is any such dispute threatened. None
of the Company's or its subsidiaries' employees is a member of a union and the
Company and its subsidiaries believe that their relations with their employees
are good.
n. Intellectual Property Rights. The Company and its
subsidiaries own or possess adequate rights or licenses to use all trademarks,
trade names, service marks, service ▇▇▇▇ registrations, service names, patents,
patent rights, copyrights, inventions, licenses, approvals, governmental
authorizations, trade secrets and rights necessary to conduct their respective
businesses as now conducted. Except as set forth on Schedule 3(n), none of the
Company's trademarks, trade names, service marks, service ▇▇▇▇ registrations,
service names, patents, patent rights, copyrights, inventions, licenses,
approvals, government authorizations, trade secrets or other intellectual
property rights have expired or terminated, or are expected to expire or
terminate in the near future. The Company and its subsidiaries do not have any
knowledge of any infringement by the Company or its subsidiaries of trademark,
trade name rights, patents, patent rights, copyrights, inventions, licenses,
service names, service marks, service ▇▇▇▇ registrations, trade secret or other
similar rights of others, or of any such development of similar or identical
trade secrets or technical information by others and, except as set forth on
Schedule 3(n), there is no claim, action or proceeding being made or brought
against, or to the Company's knowledge, being threatened against, the Company
or its subsidiaries regarding trademark, trade name, patents, patent rights,
invention, copyright, license, service names, service marks, service ▇▇▇▇
registrations, trade secret or other
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infringement; and the Company and its subsidiaries are unaware of any facts or
circumstances which might give rise to any of the foregoing. The Company and
its subsidiaries have taken reasonable security measures to protect the
secrecy, confidentiality and value of all of their intellectual properties.
o. Environmental Laws. The Company and its subsidiaries
are (i) in compliance with any and all applicable foreign, federal, state and
local laws and regulations relating to the protection of human health and
safety, the environment or hazardous or toxic substances or wastes, pollutants
or contaminants ("ENVIRONMENTAL LAWS"), (ii) have received all permits,
licenses or other approvals required of them under applicable Environmental
Laws to conduct their respective businesses and (iii) are in compliance with
all terms and conditions of any such permit, license or approval.
p. Title. The Company and its subsidiaries have good
and marketable title in fee simple to all real property and good and marketable
title to all personal property owned by them which is material to the business
of the Company and its subsidiaries, in each case free and clear of all liens,
encumbrances and defects except such as are described in Schedule 3(p) or such
as do not materially affect the value of such property and do not interfere
with the use made and proposed to be made of such property by the Company and
its subsidiaries. Any real property and facilities held under lease by the
Company and its subsidiaries are held by them under valid, subsisting and
enforceable leases with such exceptions as are not material and do not
interfere with the use made and proposed to be made of such property and
buildings by the Company and its subsidiaries.
q. Insurance. The Company and each of its subsidiaries
are insured by insurers of recognized financial responsibility against such
losses and risks and in such amounts as management of the Company believes to
be prudent and customary in the businesses in which the Company and its
subsidiaries are engaged. Neither the Company nor any such subsidiary has been
refused any insurance coverage sought or applied for and neither the Company
nor any such subsidiary has any reason to believe that it will not be able to
renew its existing insurance coverage as and when such coverage expires or to
obtain similar coverage from similar insurers as may be necessary to continue
its business at a cost that would not materially and adversely affect the
condition, financial or otherwise, or the earnings, business or operations of
the Company and its subsidiaries, taken as a whole.
r. Regulatory Permits. The Company and its subsidiaries
possess all certificates, authorizations and permits issued by the appropriate
federal, state or foreign regulatory authorities necessary to conduct their
respective businesses, and neither the Company nor any such subsidiary has
received any notice of proceedings relating to the revocation or modification
of any such certificate, authorization or permit.
s. Internal Accounting Controls. The Company and each
of its subsidiaries maintain a system of internal accounting controls
sufficient to provide reasonable assurance that (i) transactions are executed
in accordance with management's general or specific authorizations, (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain asset accountability, (iii) access to assets is permitted only in
accordance with management's general or specific
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authorization and (iv) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken
with respect to any differences.
t. No Materially Adverse Contracts, Etc. Neither the
Company nor any of its subsidiaries is subject to any charter, corporate or
other legal restriction, or any judgment, decree, order, rule or regulation
which in the judgment of the Company's officers has or is expected in the
future to have a material adverse effect on the business, properties,
operations, financial condition, results of operations or prospects of the
Company or its subsidiaries. Neither the Company nor any of its subsidiaries
is a party to any contract or agreement which in the judgment of the Company's
officers has or is expected to have a material adverse effect on the business,
properties, operations, financial condition, results of operations or prospects
of the Company or its subsidiaries.
u. Tax Status. Except as set forth on Schedule 3(u),
the Company and each of its subsidiaries has made or filed all federal and
state income and all other tax returns, reports and declarations required by
any jurisdiction to which it is subject (unless and only to the extent that the
Company and each of its subsidiaries has set aside on its books provisions
reasonably adequate for the payment of all unpaid and unreported taxes) and has
paid all taxes and other governmental assessments and charges that are material
in amount, shown or determined to be due on such returns, reports and
declarations, except those being contested in good faith and has set aside on
its books provision reasonably adequate for the payment of all taxes for
periods subsequent to the periods to which such returns, reports or
declarations apply. There are no unpaid taxes in any material amount claimed
to be due by the taxing authority of any jurisdiction, and the officers of the
Company know of no basis for any such claim.
v. Certain Transactions. Except as set forth on
Schedule 3(v) and in the SEC Documents and except for arm's length transactions
pursuant to which the Company makes payments in the ordinary course of business
upon terms no less favorable than the Company could obtain from third parties
and other than the grant of stock options disclosed on Schedule 3(c), none of
the officers, directors, or employees of the Company is presently a party to
any transaction with the Company (other than for services as employees,
officers and directors), including any contract, agreement or other arrangement
providing for the furnishing of services to or by, providing for rental of real
or personal property to or from, or otherwise requiring payments to or from any
officer, director or such employee or, to the knowledge of the Company, any
corporation, partnership, trust or other entity in which any officer, director,
or any such employee has a substantial interest or is an officer, director,
trustee or partner.
w. Corporate Existence. So long as a Buyer beneficially
owns any Series C Preferred Shares, the Company shall maintain its corporate
existence, except in the event of a merger, consolidation or sale of all or
substantially all of the Company's assets, as long as the surviving or
successor entity in such transaction (i) assumes the Company's obligations
hereunder and under the agreements and instruments entered into in connection
herewith and (ii) is a publicly traded corporation whose Common Stock is listed
for trading on AMEX, or the New York Stock Exchange, Inc.
x. Dilutive Effect. The Company understands and
acknowledges that the number of Conversion Shares issuable upon conversion of
the Series C Preferred Shares will
-10-
11
increase in certain circumstances. The Company further acknowledges that its
obligation to issue Conversion Shares upon conversion of the Series C Preferred
Shares in accordance with this Agreement and the Certificate of Designations is
absolute and unconditional regardless of the dilutive effect that such issuance
may have on the ownership interests of other stockholders of the Company.
4. COVENANTS.
a. Best Efforts. Each party shall use its best efforts
timely to satisfy each of the conditions to be satisfied by it as provided in
Sections 6 and 7 of this Agreement.
b. Form D. The Company agrees to file a Form D with
respect to the Series C Preferred Shares and the Conversion Shares as required
under Regulation D and to provide a copy thereof to each Buyer promptly after
such filing. The Company shall, on or before the Closing Date, take such
action as the Company shall reasonably determine is necessary to qualify the
Series C Preferred Shares and the Conversion Shares for, or obtain exemption
for the Series C Preferred Shares and the Conversion Shares for, sale to the
Buyers at the Closing pursuant to this Agreement under applicable securities or
"Blue Sky" laws of the states of the United States, and shall provide evidence
of any such action so taken to the Buyers on or prior to the Closing Date.
c. Reporting Status. Until the earlier of (i) the date
as of which the Investors (as that term is defined in the Registration Rights
Agreement) may sell all of the Conversion Shares without restriction pursuant
to Rule 144(k) promulgated under the 1933 Act (or successor thereto), or (ii)
the date on which (A) the Investors shall have sold all the Conversion Shares
and (B) none of the Series C Preferred Shares is outstanding (the "REGISTRATION
PERIOD"), the Company shall file all reports required to be filed with the SEC
pursuant to the 1934 Act, and the Company shall not terminate its status as an
issuer required to file reports under the 1934 Act even if the 1934 Act or the
rules and regulations thereunder would permit such termination.
d. Use of Proceeds. The Company will use the proceeds
from the sale of the Series C Preferred Shares for substantially the same
purposes and in substantially the same amounts as indicated in Schedule 4(d).
e. Financial Information. The Company agrees to send
the following to each Buyer during the Registration Period: (i) within five (5)
days after the filing thereof with the SEC, a copy of its Annual Reports on
Form 10-K, its Quarterly Reports on Form 10-Q and any Current Reports on Form
8-K; (ii) within one (1) day after release thereof, copies of all press
releases issued by the Company or any of its subsidiaries and (iii) copies of
the same notices and other information given to the stockholders of the Company
generally, contemporaneously with the giving thereof to the stockholders.
f. Additional Equity Capital; Right of First Offer. The
Company agrees that during the period beginning on the date hereof and ending
on, and including, the earlier of (i) May 19, 1997 or (ii) the date on which
seventy-five percent (75%) of the Series C Preferred Shares initially issued
pursuant to this Agreement shall have been converted into Common Stock by the
Buyers, the Company will not, without the prior written consent of the Buyers
holding
-11-
12
two-thirds (2/3) of the Series C Preferred Shares then outstanding, negotiate
or contract with any party to obtain additional equity financings (including
debt financing with an equity component) in any form ("FUTURE OFFERINGS");
provided, however, that such lock-up right of the Buyers shall not apply to the
Company's issuance of securities pursuant to a firm commitment, underwritten
public offering. In addition, the Company will not conduct any Future
Offerings during the period beginning on the date hereof and ending one (1)
year after the Closing Date unless it shall have first delivered to each Buyer
or a designee appointed by such Buyer written notice (the "FUTURE OFFERING
NOTICE") describing the proposed Future Offering, including the terms and
conditions thereof, and providing each Buyer an option to purchase up to its
Aggregate Percentage (as defined below), as of the date of delivery of the
Future Offering Notice, in the Future Offering (the limitations referred to in
this sentence are collectively referred to as the "CAPITAL RAISING
LIMITATION"). For purposes of this Section 4(f), "AGGREGATE PERCENTAGE" at any
time with respect to any Buyer shall mean the percentage obtained by dividing
(i) the aggregate number of Conversion Shares issued or issuable, as if a
conversion occurred on such date, upon conversion of the Series C Preferred
Shares initially owned by such Buyer by (ii) the aggregate number of Conversion
Shares issued or issuable, as if a conversion occurred on such date, upon
conversion of the Series C Preferred Shares initially held by the Buyers. A
Buyer can exercise its option to participate in a Future Offering by delivering
written notice thereof to participate to the Company within three (3) business
days of receipt of a Future Offering Notice, which notice shall state the
quantity of securities being offered in the Future Offering that such Buyer
will purchase, up to its Aggregate Percentage, and that number of securities it
is willing to purchase in excess of its Aggregate Percentage. In the event the
Buyers fail to elect to fully participate in the Future Offering within the
periods described in this Section 4(f), the Company shall have sixty (60) days
thereafter to sell the securities of the Future Offering respecting which such
Buyer's rights were not exercised, upon the principal economic terms and
conditions, no more favorable to the purchasers thereof than specified in the
Future Offering Notice; provided, however, it is understood that legal
documentation may differ significantly from investor to investor, but the
principal economic terms will remain no more favorable to the purchaser thereof
than those specified in the Future Offering Notice. In the event the Company
has not sold such securities of the Future Offering within such sixty (60) day
period, the Company shall not thereafter issue or sell such securities without
first offering such securities to the Buyers in the manner provided in this
Section 4(f). The Capital Raising Limitation shall not apply to a loan from a
commercial bank or any transaction involving the Company's issuances of
securities in connection with a merger, consolidation or sale of assets, or in
connection with any strategic partnership or joint venture (the primary purpose
of which is not to raise equity capital), or in connection with the disposition
or acquisition of a business, product or license by the Company or exercise of
options by employees, consultants or directors. The Capital Raising Limitation
also shall not apply to the issuance of securities pursuant to a firm
commitment, underwritten public offering or upon exercise or conversion of the
Company's options, warrants or other convertible securities outstanding as of
the date hereof or to the grant of additional options or warrants, or the
issuance of additional securities, under any Company stock option or restricted
stock plan for the benefit of the Company's employees, directors or
consultants.
g. Reservation of Shares. The Company shall take all
action necessary to at all times have authorized, and reserved for the purpose
of issuance, no less than 200% of the number of shares of Common Stock needed
to provide for the issuance of the Conversion
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Shares; provided that all shares of the Common Stock authorized and not
otherwise reserved for other purposes as of the date hereof shall be reserved
for the purpose of issuance of the Conversion Shares.
h. Listing. The Company shall promptly secure the
listing of the Conversion Shares upon each national securities exchange or
automated quotation system, if any, upon which shares of Common Stock are then
listed (subject to official notice of issuance) and shall maintain, so long as
any other shares of Common Stock shall be so listed, such listing of all
Conversion Shares from time to time issuable under the terms of this Agreement
and the Registration Rights Agreement. The Company shall maintain the Common
Stock's authorization for quotation on AMEX, the Nasdaq National Market, or The
New York Stock Exchange, Inc. The Company shall promptly provide to each Buyer
copies of any notices it receives from AMEX regarding the continued eligibility
of the Common Stock for listing on AMEX.
i. Expenses. Subject to Section 9(1) below, at the
Closing, the Company shall pay a nonaccountable expense allowance of Fifteen
Thousand Dollars ($15,000) to the Buyers or their designee(s).
j. Proxy. The Company shall provide each stockholder
entitled to vote at the next annual stockholder meeting, a proxy statement,
which has been previously reviewed by the Buyers and a counsel of their choice,
soliciting each such stockholder's affirmative vote at such annual stockholder
meeting for (i) approval of the Company's issuance of Series C Preferred Shares
and Conversion Shares as described in this Agreement and (ii) authorization of
an increase in the number of authorized shares of Common Stock to at least
200,000,000 shares of Common Stock, and the Company shall use its best efforts
to solicit its stockholders' approval of such issuance of Common Stock and such
increase in authorized shares of Common Stock.
5. TRANSFER AGENT INSTRUCTIONS.
The Company shall issue irrevocable instructions to its
transfer agent to issue certificates, registered in the name of each Buyer or
its respective nominee(s), for the Conversion Shares in such amounts as
specified from time to time by each Buyer to the Company upon conversion of the
Series C Preferred Shares (the "IRREVOCABLE TRANSFER AGENT INSTRUCTIONS").
Prior to registration of the Conversion Shares under the 1933 Act, all such
certificates shall bear the restrictive legend specified in Section 2(g) of
this Agreement. The Company warrants that no instruction other than the
Irrevocable Transfer Agent Instructions referred to in this Section 5, and stop
transfer instructions to give effect to Section 2(f) hereof (in the case of the
Conversion Shares, prior to registration of the Conversion Shares under the
▇▇▇▇ ▇▇▇) will be given by the Company to its transfer agent and that the
Series C Preferred Shares and the Conversion Shares shall otherwise be freely
transferable on the books and records of the Company as and to the extent
provided in this Agreement and the Registration Rights Agreement. Nothing in
this Section 5 shall affect in any way each Buyer's obligations and agreement
to comply with all applicable securities laws upon resale of the Series C
Preferred Shares or Conversion Shares. If a Buyer provides the Company with an
opinion of counsel, reasonably satisfactory in form, and substance to the
Company, that registration of a resale by such Buyer of any of the Series C
Preferred Shares or the Conversion Shares is not required
-13-
14
under the 1933 Act, the Company shall permit the transfer, and, in the case of
the Conversion Shares, promptly instruct its transfer agent to issue one or
more certificates in such name and in such denominations as specified by such
Buyer. The Company acknowledges that a breach by it of its obligations
hereunder will cause irreparable harm to the Buyers by vitiating the intent and
purpose of the transaction contemplated hereby. Accordingly, the Company
acknowledges that the remedy at law for a breach of its obligations under this
Section 5 will be inadequate and agrees, in the event of a breach or threatened
breach by the Company of the provisions of this Section 5, that the Buyers
shall be entitled, in addition to all other available remedies, to an
injunction restraining any breach and requiring immediate issuance and
transfer, without the necessity of showing economic loss and without any bond
or other security being required.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
The obligation of the Company hereunder to issue and sell the
Series C Preferred Shares to each Buyer at the Closing is subject to the
satisfaction, at or before the Closing Date, of each of the following
conditions, provided that these conditions are for the Company's sole benefit
and may be waived by the Company at any time in its sole discretion:
a. Such Buyer shall have executed this Agreement and the
Registration Rights Agreement and delivered the same to the Company.
b. The Certificate of Designations shall have been filed
with the Secretary of State of the State of Delaware.
c. Such Buyer shall have delivered to the Company the
Purchase Price for the Series C Preferred Shares being purchased by such Buyer
at the Closing by wire transfer of immediately available funds pursuant to the
wire instructions provided by the Company.
d. The representations and warranties of such Buyer
shall be true and correct in all material respects as of the date when made and
as of the Closing Date as though made at that time (except for representations
and warranties that speak as of a specific date), and such Buyer shall have
performed, satisfied and complied in all material respects with the covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by such Buyer at or prior to the Closing Date.
7. CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE.
The obligation of each Buyer hereunder to purchase the Series
C Preferred Shares at the Closing is subject to the satisfaction, at or before
the Closing Date, of each of the following conditions, provided that these
conditions are for each Buyer's sole benefit and may be waived by such Buyer at
any time in its sole discretion:
a. The Company shall have executed this Agreement and
the Registration Rights Agreement, and delivered the same to such Buyer.
-14-
15
b. The Certificate of Designations, shall have been
filed with the Secretary of State of the State of Delaware, and a copy thereof
certified by such Secretary of State shall have been delivered to such Buyer.
c. The Common Stock shall be authorized for quotation on
AMEX, the Nasdaq National Market or The New York Stock Exchange, Inc., trading
in the Common Stock issuable upon conversion of the Series C Preferred Shares
to be traded on AMEX, the Nasdaq National Market or The New York Stock
Exchange, Inc. shall not have been suspended by the SEC, AMEX, The Nasdaq Stock
Market, Inc., or The New York Stock Exchange, Inc. and all of the Conversion
Shares issuable upon conversion of the Series C Preferred Shares to be sold at
the Closing shall be listed upon AMEX, the Nasdaq National Market or The New
York Stock Exchange, Inc.
d. The representations and warranties of the Company
shall be true and correct in all material respects (except to the extent that
any of such representations and warranties is already qualified as to
materiality in Section 3 above, in which case, such representations and
warranties shall be true and correct without further qualification) as of the
date when made and as of the Closing Date as though made at that time (except
for representations and warranties that speak as of a specific date) and the
Company shall have performed, satisfied and complied in all material respects
with the covenants, agreements and conditions required by this Agreement to be
performed, satisfied or complied with by the Company at or prior to the Closing
Date. Such Buyer shall have received a certificate, executed by the Chief
Executive Officer of the Company, dated as of the Closing Date, to the
foregoing effect and as to such other matters as may be reasonably requested by
such Buyer including, without limitation, an update as of the Closing Date
regarding the representation contained in Section 3(c) above.
e. Such Buyer shall have received the opinion of the
Company's counsel dated as of the Closing Date, in form, scope and substance
reasonably satisfactory to such Buyer and in substantially the form of Exhibit
C attached hereto.
f. The Company shall have executed and delivered to such
Buyer the Stock Certificates (in such denominations as such Buyer shall
request) for the Series C Preferred Shares being purchased by such Buyer at the
Closing.
g. The Board of Directors of the Company shall have
adopted the resolutions in substantially the form of Exhibit D attached hereto.
h. As of the Closing Date, such Buyer shall have
received a copy of letter agreements executed by stockholders of the Company
who hold at least twenty-five percent (25%) of the Common Stock outstanding as
of the Closing Date (collectively, the "APPROVING STOCKHOLDERS") to the effect
that each of the Approving Stockholders, as common stockholders of the Company,
consents to the Company's issuance of Series C Preferred Shares and Conversion
Shares as described in this Agreement and covenants to vote such Approving
Stockholder's shares of Common Stock in favor of (i) the issuance of Series C
Preferred Shares and Conversion Shares as described in this Agreement and (ii)
the increase in the number of
-15-
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authorized shares of Common Stock described in Section 4(j) above, at the next
annual stockholders meeting at which such vote is solicited, as described in
Section 4(j) above.
i. The Irrevocable Transfer Agent Instructions, in form
and substance satisfactory to the Buyers, shall have been delivered to and
acknowledged in writing by the Company's transfer agent.
8. INDEMNIFICATION. In consideration of each Buyer's execution
and delivery of this Agreement and acquiring the Series C Preferred Shares and
Conversion Shares hereunder and in addition to all of the Company's other
obligations under this Agreement, the Company shall defend, protect, indemnify
and hold harmless each Buyer and each other holder of Series C Preferred Shares
and Conversion Shares and all of their officers, directors, employees and
agents (including, without limitation, those retained in connection with the
transactions contemplated by this Agreement) (collectively, the "INDEMNITEES")
from and against any and all actions, causes of action, suits, claims, losses,
costs, penalties, fees, liabilities and damages, and expenses in connection
therewith (irrespective of whether any such Indemnitee is a party to the action
for which indemnification hereunder is sought), and including reasonable
attorneys' fees and disbursements (the "INDEMNIFIED LIABILITIES"), incurred by
the Indemnitees or any of them as a result of, or arising out of, or relating
to (a) any misrepresentation or breach of any representation or warranty made
by the Company in this Agreement, the Certificate of Designations or the
Registration Rights Agreement or any other certificate, instrument or document
contemplated hereby or thereby, (b) any breach of any covenant, agreement or
obligation of the Company contained in this Agreement, the Certificate of
Designations or the Registration Rights Agreement or any other certificate,
instrument or document contemplated hereby or thereby, or (c) any cause of
action, suit or claim brought or made against such Indemnitee and arising out
of or resulting from the execution, delivery, performance or enforcement of
this Agreement or any other instrument, document or agreement executed pursuant
hereto by any of the Indemnitees, any transaction financed or to be financed in
whole or in part, directly or indirectly, with the proceeds of the issuance of
the Series C Preferred Shares or the status of such Buyer or holder of the
Series C Preferred Shares or the Conversion Shares as an investor in the
Company. To the extent that the foregoing undertaking by the Company may be
unenforceable for any reason, the Company shall make the maximum contribution
to the payment and satisfaction of each of the Indemnified Liabilities which is
permissible under applicable law.
9. GOVERNING LAW; MISCELLANEOUS.
a. Governing Law. This Agreement shall be governed by
and interpreted in accordance with the laws of the State of California without
regard to the principles of conflict of laws.
b. Counterparts. This Agreement may be executed in two
or more identical counterparts, all of which shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party. In the event any signature page
is delivered by facsimile transmission, the party using such means of delivery
shall cause four (4) additional original executed signature pages to be
physically delivered to the other party within five (5) days of the execution
and delivery hereof.
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c. Headings. The headings of this Agreement are for
convenience of reference and shall not form part of, or affect the
interpretation of, this Agreement.
d. Severability. If any provision of this Agreement
shall be invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement in that jurisdiction or the validity or
enforceability of any provision of this Agreement in any other jurisdiction.
e. Entire Agreement; Amendments. This Agreement
supersedes all other prior oral or written agreements between the Buyers, the
Company, their affiliates and persons acting on their behalf with respect to
the matters discussed herein, and this Agreement and the instruments referenced
herein contain the entire understanding of the parties with respect to the
matters covered herein and therein and, except as specifically set forth herein
or therein, neither the Company nor any Buyer makes any representation,
warranty, covenant or undertaking with respect to such matters. No provision
of this Agreement may be waived or amended other than by an instrument in
writing signed by the party to be charged with enforcement.
f. Notices. Any notices consents, waivers or other
communications required or permitted to be given under the terms of this
Agreement must be in writing and will be deemed to have been delivered (i) upon
receipt, when delivered personally; (ii) upon receipt, when sent by facsimile,
provided a copy is mailed by U.S. certified mail, return receipt requested;
(iii) three (3) days after being sent by U.S. certified mail, return receipt
requested, or (iv) one (1) day after deposit with a nationally recognized
overnight delivery service, in each case properly addressed to the party to
receive the same. The addresses and facsimile numbers for such communications
shall be:
If to the Company:
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: President
-17-
18
With a copy to:
Cooley Godward LLP
3000 El Camino Real
▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇, Esq.
If to the Transfer Agent:
Registrar and Transfer Company
▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
If to a Buyer, to its address and facsimile number on the Schedule of
Investors, with copies to such Buyer's counsel as set forth on the Schedule of
Investors. Each party shall provide five (5) days' prior written notice to the
other party of any change in address or facsimile number.
g. Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of the parties and their respective
successors and assigns. The Company shall not assign this Agreement or any
rights or obligations hereunder without the prior written consent of the Buyer.
A Buyer may assign its rights hereunder without the consent of the Company,
provided, however, that any such assignment shall not release such Buyer from
its obligations hereunder unless such obligations are assumed by such assignee
and the Company has consented to such assignment and assumption.
h. No Third Party Beneficiaries. This Agreement is
intended for the benefit of the parties hereto and their respective permitted
successors and assigns, and is not for the benefit of, nor may any provision
hereof be enforced by, any other person.
i. Survival. Unless this Agreement is terminated under
Section 9(l), the representations and warranties of the Company and the Buyers
contained in Sections 2 and 3, the agreements and covenants set forth in
Sections 4, 5, 9(g), 9(h), 9(j) and 9(k), the indemnification provisions set
forth in Section 8 and this Section 9(i), shall survive the Closing. Each
Buyer shall be responsible only for its own representations, warranties,
agreements and covenants hereunder.
j. Publicity. The Company and each Buyer shall have the
right to approve before issuance any press releases or any other public
statements with respect to the transactions contemplated hereby; provided,
however, that the Company shall be entitled, without the prior approval of any
Buyer, to make any press release or other public disclosure with respect to
such
-18-
19
transactions as is required by applicable law and regulations (although each
Buyer shall be consulted by the Company in connection with any such press
release or other public disclosure prior to its release and shall be provided
with a copy thereof).
k. Further Assurances. Each party shall do and perform,
or cause to be done and performed, all such further acts and things, and shall
execute and deliver all such other agreements, certificates, instruments and
documents, as the other party may reasonably request in order to carry out the
intent and accomplish the purposes of this Agreement and the consummation of
the transactions contemplated hereby.
l. Termination. In the event that the Closing shall not
have occurred with respect to a Buyer on or before five (5) business days from
the date hereof due to the Company's or such Buyer's failure to satisfy the
conditions set forth in Sections 6 and 7 above (and the nonbreaching party's
failure to waive such unsatisfied condition(s)), the nonbreaching party shall
have the option to terminate this Agreement with respect to such breaching
party at the close of business on such date without liability of any party to
any other party; provided, however, that if this Agreement is terminated
pursuant to this Section 9(l), the Company shall remain obligated to reimburse
the Buyers for the expenses described in Section 4(i) above.
m. Placement Agent. The Company acknowledges that it
has engaged a placement agent in connection with the sale of the Series C
Preferred Shares, which placement agent may have formally or informally engaged
other agents on its behalf. The Company shall be responsible for the payment
of any placement agent's fees relating to or arising out of the transactions
contemplated hereby.
n. No Strict Construction. The language used in this
Agreement will be deemed to be the language chosen by the parties to express
their mutual intent, and no rules of strict construction will be applied
against any party.
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IN WITNESS WHEREOF, the Buyers and the Company have caused this
Securities Purchase Agreement to be duly executed as of the date first written
above.
COMPANY: BUYERS:
-------- -------
JTS CORPORATION ▇▇▇▇▇▇ PARTNERS
By: By:
------------------------- -------------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ Name: ▇▇▇▇ ▇▇▇▇▇
Its: President and Chief Its: Officer
Executive Officer
OLYMPUS SECURITIES, LTD.
By:
---------------------------------
Name: ▇▇▇▇ ▇▇▇▇▇
Its: Alternate Director
RGC INTERNATIONAL INVESTORS, LDC
By: ▇▇▇▇ ▇▇▇▇ Capital Management, L.P.,
as Investment Manager
By: RGC General Partner Corp.,
as General Partner
By:
---------------------------------
Name: ▇▇▇▇▇ ▇▇▇▇▇
Its: Managing Director
CAPITAL VENTURES INTERNATIONAL
By: Bala International Inc.,
as agent
By:
---------------------------------
Name: ▇▇▇▇▇▇ ▇▇▇▇▇
Its: Director
21
SCHEDULE OF INVESTORS
Number of
Series C
Investor Address Preferred Investor's Legal Counsel
Investor Name and Facsimile Number Shares and Counsel's Address
----------------------- ----------------------------- --------- --------------------------------
▇▇▇▇▇▇ Partners c/oLeeds Management Services 6,250 Citadel Investment Group, L.L.C.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇ ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇ ▇▇▇▇▇ Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇ ▇▇▇▇▇▇▇ ▇. Simpler
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇ & ▇▇▇▇▇
▇▇▇ ▇. ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Esq.
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq.
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Olympus Securities, Ltd. c/oLeeds Management Services 6,250 Citadel Investment Group, L.L.C.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇ ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇ ▇▇▇▇▇ Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇ ▇▇▇▇▇▇▇ ▇. Simpler
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇ & ▇▇▇▇▇
▇▇▇ ▇. ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Esq.
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq.
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
RGC International Investors, LDC c/o ▇▇▇▇ ▇▇▇▇ Capital Management, L.P. 7,500
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇ ▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Residency: Cayman Islands
Capital Ventures International c/o Bala International Inc. 5,000
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Residency: Cayman Islands
22
JTS DISCLOSURE SCHEDULES
1.
23
SECTION 3(a)
ORGANIZATION AND QUALIFICATION
JTS has the following Significant Subsidiaries: Note: JTS owns approximately
ninety-nine percent (99%) of the capital stock of Moduler Electronics through
its wholly-owned subsidiaries, Asperal, Dexar and Mauritius:
Asperal Holdings, Inc., a corporation organized under the laws of
Panama ("Asperal").
Dexar Holdings Inc., a corporation organized under the laws of Panama
("Dexar").
JTS Mauritius Holdings, a corporation organized under the laws of
Mauritius ("Mauritius").
JTS Technology Pvt. Ltd., formerly known as Modular Electronics Pvt.
Ltd., a corporation organized under the laws of India ("Moduler
Electronics").
Certain intellectual property rights covered by Section 3(n) of the Agreement
are owned or licensed through the above noted subsidiaries.
The balance of the ownership of Moduler Electronics is held by members of the
family of ▇▇. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, an officer and director of the Company, or by
entities controlled by such family (reference also to Section 3(v) of the
Agreement).
2.
24
SECTION 3(b)
AUTHORIZATION; ENFORCEMENT; COMPLIANCE WITH OTHER INSTRUMENTS
Please note that stockholder approval is required to increase the number of
authorized shares of Common Stock to more than 150,000,000. As a result, in
certain circumstances, prior to receipt of such approval, the Company may not
be able to issue all of the Conversion Shares (reference also to Sections 3(d),
3(e) and 3(x) of the Agreement).
3.
25
SECTION 3(c)
CAPITALIZATION
a) OPTIONS:
Attached hereto as Schedule 3(c)(1) is a list of outstanding option holders of
JTS as of January 18, 1997.
b) RESTRICTED STOCK PURCHASE AGREEMENTS:
In January 1996, JTS made loans to each of ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇. ▇▇▇▇
and ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ in connection with the purchase by such individuals of
2,000,000 shares, 300,000 shares, and 250,000 shares of JTS Common Stock,
respectively, at a purchase price of $0.25 per share. Each purchaser executed
a restricted stock purchase agreement (each, a "Restricted Stock Purchase
Agreement") granting JTS a right of repurchase as to such shares in the event
the purchasers' employment with JTS terminates. With respect to ▇▇. ▇▇▇▇▇▇▇▇,
250,000 shares of the JTS Common Stock purchased were immediately vested, and
JTS' repurchase right lapses monthly with respect to the remainder of such
shares at the rate of 1/48th per month. With respect to the shares purchased
by Mr. Wing, JTS' repurchase right lapsed as to one-eighth of such shares in
January 1996 and as to 1/48th of such shares monthly thereafter. With respect
to the shares purchased by ▇▇. ▇▇▇▇▇▇, JTS' repurchase right lapsed as to
one-eighth of such shares in May 1996 and as to 1/48th of such shares monthly
thereafter. In addition, the Restricted Stock Purchase Agreements provide that
JTS' repurchase right shall lapse entirely upon certain events following a
change in control of JTS. Mr. Wing and ▇▇. ▇▇▇▇▇▇ liquidated a portion of
their vested holdings subsequent to July 30, 1996.
In March 1996, ▇▇. ▇▇▇▇▇▇▇▇ and ▇▇. ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ each purchased 1,000,000
shares of JTS Common Stock at a purchase price of $1.00 per share. All of such
shares are subject to a right of repurchase at cost in favor of JTS, which
repurchase option lapses as to all such shares after five years of service with
JTS; provided, however, that with respect to each individual, JTS' right of
repurchase will lapse at the rate of one-eighth of the total shares purchased
in September 1996 and as to 1/48th of the total shares purchased per month
thereafter. In addition, at the discretion of JTS' Board of Directors, the
right of repurchase with respect to ▇▇. ▇▇▇▇▇▇▇▇'▇ 1,000,000 shares of JTS
Common Stock may be caused to lapse as to all such shares at any time.
c) WARRANTS:
JTS has issued a Common Stock Purchase Warrant dated as of December 18, 1995
with respect to 50,000 shares of Common Stock at an exercise price of $3.00 per
share to Silicon Valley Bank in connection with a line of credit of up to
$5,000,000 provided by Silicon Valley Bank.
4.
26
JTS has issued a Common Stock Purchase Warrant dated as of April 4, 1996 with
respect to 750,000 shares of Common Stock at an exercise price of $.25 per
share to Lunenburg S.A., a Tandon family affiliated entity. The Common Stock
Purchase Warrant was immediately exercisable as to 500,000 shares of Common
Stock, and contingently exercisable as to 250,000 shares of Common Stock at
such time as there became available to Moduler Electronics credit facilities in
India aggregating at least $29,000,000. Lunenburg S.A. exercised the Common
Stock Purchase Warrant as to 500,000 shares of Common Stock on June 25, 1996.
The Common Stock Purchase Warrant shall expire on February 25, 2001.
JTS has issued to GFL Advantage Fund Limited and Genesee Fund Limited (each, a
"Series B Investor") the right to convert all or a portion of the Series B
Preferred Stock into units consisting of Common Stock and Investor Warrants.
For every 10 shares of Common Stock issued upon conversion of the Series B
Preferred Stock, the holder thereof shall be entitled to receive an Investor
Warrant to purchase one share of Common Stock. Each Investor Warrant is
exercisable for one share of Common Stock at 110% of the lower of the average
closing bid price of the Company's Common Stock for the five days immediately
preceding (i) the conversion notice date or (ii) the Series B Closing. The
Investor Warrants are exercisable for up to three years after the issuance date
of the Investor Warrants.
JTS has issued to ▇▇▇▇▇▇▇ Capital Corporation, the placement agent in the
November 1996 private placement transaction in which the Company issued Series
B Preferred Stock, warrants to purchase 37,500 shares of Common Stock at
$4.2625 per share ("Finder's Warrants"). The Finder's Warrants are
exercisable through November 5, 1999.
d) REGISTRATION RIGHTS
Under that certain Registration Rights Agreement, dated as of February 3, 1995,
as amended on August 7, 1995, and as further amended on April 4, 1996, by and
among JTS and the holders of Registrable Securities (as defined therein), JTS
has granted certain registration rights to such holders.
In connection with the Common Stock Purchase Warrants issued to VLLI and
Silicon Valley Bank, JTS has granted certain registration rights.
Under those certain Registration Rights Agreements between JTS and each of GFL
Advantage Fund Limited and Genesee Fund Limited - Portfolio B (collectively,
"Series B Investors"), dated as of October 31, 1996, JTS has granted certain
registration rights to the Series B Investors.
e) DEBT SECURITIES
In connection with JTS' acquisition of Atari, JTS is a party to certain Atari
Indenture Agreements and supplements thereto ("Atari Debentures"). The Atari
Debentures are
5.
27
convertible into JTS Common Stock at a conversion price of $16.3125 per share
and are due on April 29, 2002. The Atari Debentures are more fully set forth
in the SEC Documents.
6.
28
SECTION 3(e)
NO CONFLICTS
None
7.
29
SECTION 3(g)
ABSENCE OF CERTAIN CHANGES
Although the Company does not believe that the following will have a material
adverse effect on the Company, please note the disclosures relating to Sections
3(e), 3(h) and 3(u) herewith.
8.
30
SECTION 3(h)
ABSENCE OF LITIGATION
1. JTS, via its merger with Atari, is a party to the following suits:
a. Atari Corporation v. Philips Laser Magnetic Storage, and Does 1-10.
No. CV 754767
Superior Court of Santa ▇▇▇▇▇ County. Filed December
22, 1995. Suit for breach of contract for Philips for failure to
ship CD players. Philips has asserted a counterclaim against Atari
for approximately $1,000,000.
b. Atari Corporation v. Probe Entertainment Limited, Acclaim
Entertainment, Inc. and Does-10.
No. CV 754749
United States District Court, San Francisco. Filed December 21,
1995. Action for breach of software license agreements related to
the Jaguar products. Acclaim has claims for failure to pay
royalties of approximately $1,250,000.
▇. ▇▇▇▇▇, ▇▇▇▇▇▇▇ and Company v. Atari Computer
No. CV 750697
Superior Court of Santa ▇▇▇▇▇ County. Filed 6/30/95. Sears seeks
approximately $91,000 for credits on its accounts.
d. In re The Federated Group, Inc., Alleged Debtor.
No. 92-50412-JRG Chapter 7
U.S.B.C. (N.D. Cal. Div. 5)
Certain debenture holders filed an involuntary bankruptcy petition
against The Federated Group, Inc., a subsidiary of Atari
Corporation, in 1992. The Federated Group, Inc. prevailed at trial.
Presently, the case is on appeal before the Ninth Circuit.
e. Interinvest S.A. v. Atari Corporation, et al.
Court of ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ #▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇
Filed May 24, 1995
Interinvest seeks approximately $500,000 in damages.
f. Citizens v. Atari Computer
Superior Court of Santa ▇▇▇▇▇ County.
Citizen seeks approximately $900,000 on accounts.
g. Yercaf v. Atari Computer
No. CV 758843
Superior Court of Santa ▇▇▇▇▇ County. Filed June 21, 1996.
9.
▇▇
▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ seeks approximately $70,000.
h. Extron Contract Manufacturing Company v. Atari Computer
No. CV 758563
Superior Court of Santa ▇▇▇▇▇ County. Filed June 10, 1996.
Former Atari supplier in dispute over inventory seeks
approximately $215,000 on accounts.
i. Integrated Silicon Solutions, Inc. v. Atari Computer
No. DC 96330055
Municipal Court Santa ▇▇▇▇▇ County. Filed June 3, 1996.
ISS seeks $22,348.70 on account.
j. Trans World Computer, Gmbh. vs. JTS Corporation and JT Storage,
Inc.
No. ▇▇▇▇▇▇▇▇▇▇▇▇▇
▇.▇. ▇▇▇▇▇▇▇▇ ▇▇▇▇▇. Filed October 24, 1996.
Trans World seeks $19,720 on account.
▇. ▇▇▇▇▇▇▇▇▇ Incorporated v. Atari Computer
▇▇. ▇▇▇▇▇▇▇▇▇▇▇
▇.▇. ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇. Filed March
21, 1995.
▇▇▇▇▇▇▇▇▇ claims breach of contract and seeks damages of
approximately $50,000. Atari is counter claiming for
approximately $1,000,000.
l. JTS Corporation v. Creative Edge Software Limited
No. CV 762624
Superior Court of Santa ▇▇▇▇▇ County. Filed December 6, 1996.
JTS is seeking $75,000 for breach of contract.
2. JTS is involved in a matter with Dusseldorf Securities Limited as is
further described in the letters set forth on Schedule 3(h)(l).
3. The foregoing matters may also pertain to Sections 3(e) (only with
respect to paragraph 2 above), 3(j) and 3(t) (only with respect to
paragraph 2 above) of the Agreement.
10.
32
SECTION 3(n)
INTELLECTUAL PROPERTY RIGHTS
1. JTS believes that Sony U.S.A is infringing one of Atari's patents:
- U.S. Patent 4,471,465 entitled "Video Display System
with Multicolor Graphic Selection" issued September 11,
1984 (the "465 PATENT").
2. JTS also believes that several major manufacturers of graphics boards
for computers are using technology which infringes JTS' 465 Patent.
11.
33
SECTION 3(p)
TITLE
a) FINANCING STATEMENTS WITH RESPECT TO JTS
Silicon Valley Bank has filed a financing statement in connection with certain
collateral.
JLA Credit Corporation has filed a financing statement in connection with a
certain Toshiba Perception "E" Telephone system.
Compaq Computer Corporation has filed a financing statement in connection with
certain rights to receive royalty payments from Western digital Corporation
pursuant to the Technology Transfer and License Agreement by and among JTS and
Western Digital Corporation.
Copelco has filed a financing statement in connection with certain equipment.
Phoenix Leasing Incorporated has filed a financing statement in connection with
the leasing of certain equipment, fixtures and other collateral.
Ecolab has filed a financing statement in connection with the leasing of
certain equipment.
Telogy, Inc., has filed a financing statement in connection with the leasing of
certain equipment.
b) MODULER ELECTRONICS EQUIPMENT LEASES
Moduler Electronics is a party to a hire purchase agreement (capitalized
personal property lease) with Sundaram Finance Limited.
c) MODULER ALLOTMENT LETTERS
JTS' Madras manufacturing facilities are held pursuant to allotment letters
with certain governmental entities in India.
12.
34
SECTION 3(r)
REGULATORY PERMITS
Although the Company does not believe that the following will have a material
adverse effect on the Company, please note the disclosure relating to Sections,
3(e) herewith.
13.
35
SECTION 3(u)
TAX STATUS
Moduler Electronics tax return for the fiscal tax year ending March 31, 1995
was filed late, however, no taxes were due.
Moduler Electronics was informed of a sales tax dispute related to the sale of
certain of Moduler Electronics' fixed assets to another Tandon Group Company.
Moduler Electronics believes that the dispute is without merit and expects that
the dispute will be resolved without additional payment.
An audit of Forms 1099 of the former Atari is being conducted for 1993 and 1994.
There is a state tax lien on the assets of Federated which has been adequately
reserved for in the JTS Financial statements.
Certain of JTS' inactive subsidiaries have not filed tax returns for the last
several fiscal years. JTS does not expect any material tax liability to result
from the filing of these returns.
The foregoing disclosures may also pertain to Sections 3(h) and 3(j) of the
Agreement.
14.
36
SECTION 3(v)
CERTAIN TRANSACTIONS
JTS has made interest-free loans to certain employees as follows:
JTS has made a forgivable loan to Messrs. Pickford, Singh, Sidu, Wing,
Dawes, and ▇. ▇▇▇▇▇▇ in the amounts of $50,000.00; $35,000.00;
$40,000.00; $245,000.00; $20,000.00; and $100,000.00, respectively.
JTS has made a personal loan to Mr. Kaczeus in the amount of $26,000.00,
of which $21,000.00 is still outstanding.
Aside from accrual salary in the ordinary course of business, JTS is obligated
to certain employees as follows:
JTS has committed to make a bonus payment to ▇▇. ▇▇▇▇▇▇▇▇ in the amounts
of $20,000.00. JTS has not yet disbursed these funds.
15.
37
SCHEDULE 3(c)(1)
JTS Stock Option Holder Table
38
SCHEDULE 3(h)(1)
JTS-Dusseldorf Securities Limited Letters