EXHIBIT 4.1
AMENDED AND RESTATED
6% SERIES D CONVERTIBLE PREFERRED STOCK SUBSCRIPTION AGREEMENT
FORMERLY KNOWN AS
PRIVATE EQUITY LINE OF CREDIT AGREEMENT
6% SERIES D CONVERTIBLE PREFERRED STOCK SUBSCRIPTION
AGREEMENT, dated as of December 30, 1998 (the "Agreement"), among the entities
listed on Schedule A attached hereto (referred to as the "Investor" or
"Investors"), SETTONDOWN CAPITAL INTERNATIONAL LTD. (the "Placement Agent")
located at ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇.▇. ▇▇▇ ▇. ▇▇▇▇, ▇▇▇▇▇▇, Bahamas,
organized and existing under the laws of the Bahamas, and OBJECTSOFT CORPORATION
(Nasdaq Small Cap Stock Market Symbol "OSFT"), a corporation organized and
existing under the laws of the State of Delaware (the "Company").
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue and sell to the Investors,
from time to time as provided herein, and the Investors shall purchase (i) up to
Two Million ($2,000,000) Dollars aggregate value of Preferred Stock (as defined
below) in three tranches, and (ii) Warrants to purchase an aggregate of up to
100,000 Warrant Shares (as defined below); and
WHEREAS, the Company shall issue to the Placement Agent, in return for
services rendered the fees as set forth in Section 12.7 below; and
WHEREAS, such investments will be made in reliance upon the provisions
of Section 4(2) ("Section 4(2)") and Regulation D ("Regulation D") of the United
States Securities Act of 1933, as amended, and the regulations promulgated
thereunder (the "Securities Act"), and/or upon such other exemption from the
registration requirements of the Securities Act as may be available with respect
to any or all of the investments in Common Stock to be made hereunder.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
Certain Definitions
Section 1.1 "Bid Price" shall mean the closing bid price (as reported
by Bloomberg L.P.) of the Common Stock on the Principal Market.
Section 1.2 "Capital Shares" shall mean the Common Stock and any shares
of any other class of common stock whether now or hereafter authorized, having
the right to participate in the distribution of earnings and assets of the
Company.
Section 1.3 "Capital Shares Equivalents" shall mean any securities,
rights, or obligations that are convertible into or exchangeable for, or giving
any right to, subscribe for any Capital Shares of the Company or any warrants,
options or other rights to subscribe for or purchase Capital Shares or any such
convertible or exchangeable securities.
Section 1.4 "Certificate of Designation" shall mean the Company's
Certificate of Designation setting forth all of the rights, privileges and
preferences of the Series D Preferred Stock, as annexed hereto as Exhibit A.
Section 1.5 "Closing" shall mean one of the closings of a purchase and
sale of the Preferred Stock and Warrants pursuant to Article II below.
Section 1.6 "Closing Date" shall mean, with respect to the purchase of
the first tranche of Preferred Stock, on the Subscription Date. The Closing Date
for the second tranche of Preferred Stock shall be on a Trading Day ninety (90)
days after the first tranche's Effective Date subject to the satisfaction of
each of the conditions as set forth in Section 2.1. The Closing Date for the
third tranche shall be ninety (90) days from the later of the second tranche's
Effective Date or the ninetieth (90th) day following the Closing Date of the
second tranche. For each Closing Date, all conditions contained in this
Agreement must have been fulfilled at or prior to each Closing Date. In the
event such date shall fall on a holiday or a weekend, then the next business day
thereafter shall be the Closing Date.
Section 1.7 "Commitment Amount" shall mean up to the $2,000,000 which
the Investor has agreed to provide to the Company in order to purchase the
Preferred Shares and Warrants pursuant to the terms and conditions of this
Agreement.
Section 1.8 "Common Stock" shall mean the Company's common stock, par
value $0.0001 per share.
Section 1.9 "Compliance Certificate" shall mean a written notice to
each of the Investors certifying that the Company has complied in all material
respects with all obligations and conditions contained in this Agreement, in the
form annexed hereto as Exhibit D.
Section 1.10 "Damages" shall mean any loss, claim, damage, liability,
costs and expenses which shall include, but not be limited to, reasonable
attorney's fees, disbursements, costs and expenses of expert witnesses and
investigation.
Section 1.11 "Effective Date" shall mean the date on which the SEC
first declares effective Registration Statement(s) registering the resale of the
Underlying Shares and Warrant Shares (as of the date the Registration Statement
is filed).
Section 1.12 "Escrow Agent" shall mean the law firm of ▇▇▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇▇ & ▇▇▇▇, LLP, pursuant to the terms of the Escrow Agreement attached as
Exhibit E.
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Section 1.13 "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended, and the rules and regulations promulgated thereunder.
Section 1.14 "Legend" shall have the meaning set forth in Section 8.1.
Section 1.15 "Material Adverse Effect" shall mean any effect on the
business, operations, properties, prospects, or financial condition of the
Company that is material and adverse to the Company and its subsidiaries and
affiliates, taken as a whole, and/or any condition, circumstance, or situation
that would prohibit or otherwise in any material respect interfere with the
ability of the Company to enter into and perform any of its obligations under
this Agreement, the Registration Rights Agreement, the Escrow Agreement, the
Certificate of Designation or the Warrants in any material respect.
Section 1.16 "NASD" shall mean the National Association of Securities
Dealers, Inc.
Section 1.17 "Outstanding" when used with reference to shares of Common
Stock, Preferred Stock or Capital Shares (collectively the "Shares"), shall
mean, at any date as of which the number of such Shares is to be determined, all
issued and outstanding Shares, and shall include all such Shares issuable in
respect of outstanding scrip or any certificates representing fractional
interests in such Shares; provided, however, that "Outstanding" shall not mean
any such Shares then directly or indirectly owned or held by or for the account
of the Company.
Section 1.18 "Person" shall mean an individual, a corporation, a
partnership, an association, a limited liability company, a trust or other
entity or organization, including a government or political subdivision or an
agency or instrumentality thereof.
Section 1.19 "Preferred Stock" shall mean the Company's Series D
Preferred Stock with the rights, privileges and preferences, as set forth in the
Certificate of Designation attached hereto as Exhibit A.
Section 1.20 "Principal Market" shall mean the Nasdaq National Market,
or the Nasdaq SmallCap Market, whichever is at the time the principal trading
exchange or market for the Common Stock.
Section 1.21 "Purchase Price" shall mean an amount equal to the
"Purchase Price" of each share of Preferred Stock, as set forth in the
Certificate of Designation.
Section 1.22 "Registrable Securities" shall mean the Underlying Shares
and the Warrant Shares (i) in respect of which the Registration Statement
(covering these securities) has not been declared effective by the SEC, (ii)
which have not been sold under circumstances under which all of the applicable
conditions of Rule 144 (or any similar provision then in force) under the
Securities Act ("Rule 144") are met, (iii) which have not been otherwise
transferred to holders who may trade such shares without restriction under the
Securities Act, and (iv) the sales of which, in the opinion of
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counsel to the Company, are subject to any time, volume or manner limitations
pursuant to Rule 144 (or any similar provision then in effect) under the
Securities Act.
Section 1.23 "Registration Rights Agreement" shall mean the agreement
regarding the filing of the Registration Statement for the resale of the
Registrable Securities, entered into between the Company, the Placement Agent,
and the Investors on the Subscription Date annexed hereto as Exhibit B.
Section 1.24 "Registration Statement" shall mean a registration
statement on Form S-3 (if use of such form is then available to the Company
pursuant to the rules of the SEC and, if not, on such other form promulgated by
the SEC for which the Company then qualifies and which counsel for the Company
shall deem appropriate, and which form shall be available for the resale of the
Registrable Securities to be registered thereunder in accordance with the
provisions of this Agreement, the Registration Rights Agreement, and the
Warrants and in accordance with the intended method of distribution of such
securities), for the registration of the resale by the Investors and the
Placement Agent of the Registrable Securities under the Securities Act.
Section 1.25 "Regulation D" shall have the meaning set forth in the
recitals of this Agreement.
Section 1.26 "SEC" shall mean the Securities and Exchange Commission.
Section 1.27 "Section 4(2)" shall have the meaning set forth in the
recitals of this Agreement.
Section 1.28 "Securities" shall mean the Preferred Stock, the
Underlying Shares and the Warrant Shares.
Section 1.29 "Securities Act" shall have the meaning set forth in the
recitals of this Agreement.
Section 1.30 "SEC Documents" shall mean the Company's latest Form 10-K
(and all amendments thereto) or 10-KSB (and all amendments thereto) as of the
time in question, all Form 10-Qs or 10-QSBs, Form 8-Ks filed thereafter and all
subsequent filings, including a Post- Effective Amendment to a Registration
Statement on Form SB-2 dated August 11, 1998 and amendment to Form S-3 declared
effective September 29, 1998, and the Proxy Statement for its latest fiscal year
as of the time in question, until such time as the Company no longer has an
obligation to maintain the effectiveness of a Registration Statement as set
forth in the Registration Rights Agreement.
Section 1.31 "Subscription Date" shall mean the date on which this
Agreement and all Exhibits and attachments hereto, are executed and delivered by
the parties hereto and all of the conditions relating to the first tranche
purchase shall have been fulfilled.
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Section 1.32 "Trading Day" shall mean any day during which the New York
Stock Exchange shall be open for business.
Section 1.33 "Underlying Shares" shall mean all shares of Common Stock
or other securities issued or issuable pursuant to conversion of the Preferred
Stock or exercise of the Warrants.
Section 1.34 "Warrants" shall mean the Warrant attached hereto as the
Warrant.
Section 1.35 "Warrant Shares" shall mean all shares of Common Stock or
other securities issued or issuable pursuant to the exercise of the Warrants.
ARTICLE II
Purchase and Sale of Preferred Stock and Warrants
Section 2.1 Preferred Stock. The Company agrees to sell and the
Investors agree to purchase up to an aggregate principal amount of Two Million
($2,000,000) Dollars principal amount of Series D Preferred Stock in three
separate tranches as set forth in (a), (b) and (c) below. The number of shares
of Common Stock issuable upon conversion of the Preferred Stock shall be
determined by dividing $2,000,000 by the conversion formula contained in the
Certificate of Designation.
(a) First Tranche. The Investors shall purchase (pro rata) an
aggregate principal amount of One Million ($1,000,000) Dollars (the "First
Tranche Investment Amount") principal amount of Preferred Stock on the
Subscription Date upon the satisfaction of the following conditions:
(i) delivery into escrow by the Company of an aggregate
principal amount of One Million ($1,000,000) Dollars of original Preferred
Stock, as more fully set forth in the Escrow Agreement attached hereto as
Exhibit E;
(ii) the Investors shall have received an opinion of counsel
of the Company as set forth in this Agreement;
(iii) the Investors shall have received a copy of the filed
Certificate of Designation, and any amendments thereto;
(iv) the Company shall have obtained all permits and
qualifications required by any state for the offer and sale of the Preferred
Stock, or shall have the availability of exemptions therefrom. To the knowledge
of the Company, the sale and issuance of the Preferred Stock shall be legally
permitted by all laws and regulations to which the Company is subject;
(v) the Company shall have performed, satisfied and complied
in all material respects with all covenants, agreements and conditions required
by this Agreement and all Exhibits
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hereto, the Certificate of Designation, the Escrow Agreement, the Registration
Rights Agreement and the Warrants, to be performed, satisfied or complied with
by the Company at or prior to the Closing Date for the first tranche of the
Preferred Stock;
(vi) 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 that prohibits
or directly and adversely affects any of the transactions contemplated by this
Agreement, and no proceeding shall have been commenced that may have the effect
of prohibiting or adversely affecting any of the transactions contemplated by
this Agreement;
(vii) since the date of filing of the Company's most recent
SEC Document, no event that had or is reasonably likely to have a Material
Adverse Effect has occurred;
(viii) the trading of the Common Stock is not suspended by the
SEC or the Principal Market, and the Common Stock shall have been approved for
listing or quotation on and shall not have been delisted from the Principal
Market. The issuance of the Securities with respect to the Closing for the first
tranche of the Preferred Stock shall not violate the shareholder approval
requirements of the Principal Market. Except as set forth on Schedule A attached
hereto, the Company shall not have been contacted by Nasdaq concerning the
delisting of the Common Stock on the Principal Market, and the Company currently
meets all listing requirements during the thirty (30) day period immediately
preceding the Closing Date for the first tranche; and
(ix) payment of fees as applicable as set forth in Section
12.7 below.
(b) Second Tranche. At the Company's sole option, as the
Company has the option to terminate the second tranche for any reason, the
Investors shall purchase (pro rata) an aggregate principal amount of Five
Hundred Thousand ($500,000) Dollars (the "Second Tranche Investment Amount")
principal amount of Preferred Stock, on the ninetieth (90th) day following the
first tranche's Effective Date and at the Company's request in writing ten (10)
days prior to the second tranche Closing Date, upon the satisfaction of the
following conditions:
(i) delivery into escrow by the Company of an aggregate
principal amount of Five Hundred Thousand ($500,000) Dollars of original
Preferred Stock, as more fully set forth in the Escrow Agreement attached hereto
as Exhibit E;
(ii) the Investors shall have received an opinion of counsel
of the Company as set forth in this Agreement;
(iii) the Investors shall have received certification from the
Company that the Certificate of Designation previously supplied to the Investors
on the Closing Date for the first tranche has not been altered and remains in
full force and effect;
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(iv) the Company shall have obtained all permits and
qualifications required by any state for the offer and sale of the
Preferred Stock, or shall have the availability of exemptions
therefrom. The sale and issuance of the Preferred Stock shall be
legally permitted by all laws and regulations to which the Company is
subject;
(v) the Investors shall have received written certification
that the representations and warranties of the Company are true and
correct in all material respects as of the Closing Date for the second
tranche of the Preferred Stock as though made at each such time (except
for representations and warranties specifically made as of a particular
date) with respect to all periods, and as to all events and
circumstances occurring or existing to and including the Closing Date
for the second tranche of the Preferred Stock;
(vi) the Company shall have performed, satisfied and complied
in all material respects with all covenants, agreements and conditions
required by this Agreement, the Certificate of Designation, the
Registration Rights Agreement and the Warrants, to be performed,
satisfied or complied with by the Company at or prior to the Closing
Date for the second tranche of the Preferred Stock;
(vii) 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 that prohibits or directly and adversely affects any of
the transactions contemplated by this Agreement, and no proceeding
shall have been commenced that may have the effect of prohibiting or
adversely affecting any of the transactions contemplated by this
Agreement;
(viii) since the date of filing of the Company's most recent
SEC Document, no event that had or is reasonably likely to have a
Material Adverse Effect has occurred;
(ix) the trading of the Common Stock is not suspended by the
SEC or the Principal Market, and the Common Stock shall have been
approved for listing or quotation on and shall not have been delisted
from the Principal Market. The issuance of the Securities with respect
to the Closing for the first tranche of the Preferred Stock shall not
violate the shareholder approval requirements of the Principal Market.
Except as set forth on Schedule A attached hereto, the Company shall
not have been contacted by the NASD concerning the delisting of the
Common Stock on the Principal Market, and the Company currently meets
all listing requirements during the thirty (30) day period immediately
preceding the Closing Date for the second tranche;
(x) payment of fees as set forth in Section 12.7 below; and
(xi) the Investors shall have received and been reasonably
satisfied with such other certificates and documents as shall have been
reasonably requested by the Investors in order for the Investor to
confirm the Company's satisfaction of the conditions set forth in this
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Section, including, without limitation, a certificate in substantially
the form and substance of Exhibit C hereto, executed in either case by
an executive officer of the Company and to the effect that all the
conditions to such Closing shall have been satisfied as at the date of
each such certificate.
(c) Third Tranche. At the Company's sole option, as the
Company has the option to terminate the third tranche for any reason (in the
event the Company has terminated the second tranche for any reason, the third
tranche is automatically terminated), the Investors shall purchase (pro rata) an
aggregate principal amount of Five Hundred Thousand ($500,000) Dollars (the
"Third Tranche Investment Amount") principal amount of Preferred Stock, on the
ninetieth (90th) day following the later of (a) the second tranche's Effective
Date or (b) the Closing Date for the second tranche, and upon the Company's
request in writing ten (10) days prior to the date of the third tranche's
Closing Date, upon the satisfaction of the following conditions:
(i) delivery into escrow by the Company of an aggregate
principal amount of Five Hundred Thousand ($500,000) Dollars of
original Preferred Stock, as more fully set forth in the Escrow
Agreement attached hereto as Exhibit E;
(ii) the Investors shall have received an opinion of counsel
of the Company as set forth in this Agreement;
(iii) the Investors shall have received certification from the
Company that the Certificate of Designation previously supplied to the
Investors on the Closing Date for the first and second tranches has not
been altered and remain in full force and effect;
(iv) the Company shall have obtained all permits and
qualifications required by any state for the offer and sale of the
Preferred Stock, or shall have the availability of exemptions
therefrom. The sale and issuance of the Preferred Stock shall be
legally permitted by all laws and regulations to which the Company is
subject;
(v) the Investors shall have received written certification
that the representations and warranties of the Company are true and
correct in all material respects as of the Closing Date for the third
tranche of the Preferred Stock as though made at each such time (except
for representations and warranties specifically made as of a particular
date) with respect to all periods, and as to all events and
circumstances occurring or existing to and including the Closing Date
for the third tranche of the Preferred Stock;
(vi) the Company shall have performed, satisfied and complied
in all material respects with all covenants, agreements and conditions
required by this Agreement, the Certificate of Designation, the
Registration Rights Agreement and the Warrants, to be performed,
satisfied or complied with by the Company at or prior to the Closing
Date for the third tranche of the Preferred Stock;
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(vii) 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 that prohibits or directly and adversely affects any of
the transactions contemplated by this Agreement, and no proceeding
shall have been commenced that may have the effect of prohibiting or
adversely affecting any of the transactions contemplated by this
Agreement;
(viii) since the date of filing of the Company's most recent
SEC Document, no event that had or is reasonably likely to have a
Material Adverse Effect has occurred;
(ix) the trading of the Common Stock is not suspended by the
SEC or the Principal Market, and the Common Stock shall have been
approved for listing or quotation on and shall not have been delisted
from the Principal Market. The issuance of the Securities with respect
to the Closings for the first and second tranches of the Preferred
Stock shall not violate the shareholder approval requirements of the
Principal Market. Except as set forth on Schedule A attached hereto,
the Company shall not have been contacted by the NASD concerning the
delisting of the Common Stock on the Principal Market, and the Company
currently meets all listing requirements during the thirty (30) day
period immediately preceding the Closing Date for the third tranche;
(x) payment of fees as set forth in Section 12.7 below; and
(xi) the Investors shall have received and been reasonably
satisfied with such other certificates and documents as shall have been
reasonably requested by the Investors in order for the Investor to
confirm the Company's satisfaction of the conditions set forth in this
Section, including, without limitation, a certificate in substantially
the form and substance of Exhibit C hereto, executed in either case by
an executive officer of the Company and to the effect that all the
conditions to such Closing shall have been satisfied as at the date of
each such certificate.
In no event shall the Investors be obligated to purchase any shares of
Preferred Stock if a Registration Statement including the Underlying Shares is
not declared effective prior to eighteen (18) months after the Subscription
Date. The Company has the sole option of terminating its obligations to issue
the Preferred Stock in these Sections with respect to the second and/or third
tranches, by giving written notice to the Placement Agent and each of the
Investors at any time prior to eighty (80) days after the Effective Date with
respect to the previous tranche. The Preferred Stock shall be convertible
pursuant to the terms and conditions of the Certificate of Designation.
Section 2.2 The Warrants. On the Closing Dates of the first, second,
and third tranches, respectively, the Company will issue to the Investors and
the Placement Agent a Warrant, exercisable beginning on the Subscription Date or
Closing Date and then exercisable any time over the five year period there
following, to purchase an aggregate of 50,000 Warrant Shares pro rata for the
Investors for the first tranche and 25,000 Warrant Shares pro rata for the
Investors
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for each of the second and third tranches and 40,000 Warrant Shares for the
Placement Agent for the first tranche and 20,000 Warrant Shares for the
Placement Agent for each of the second and third tranches at the Exercise Price
(as defined in the Warrant). The Warrants shall be delivered by the Company to
the Escrow Agent, and delivered to the Investors and Placement Agent pursuant to
the terms of this Agreement and the Escrow Agreement. The Warrant Shares shall
be registered for resale pursuant to the Registration Rights Agreement.
ARTICLE III
Representations and Warranties of the Investors
Each of the Investors represent and warrant to the Company that:
Section 3.1 Intent. Each of the Investors are entering into this
Agreement for its own account and have no present arrangement (whether or not
legally binding) at any time to sell the Securities to or through any person or
entity; provided, however, that by making the representations herein, the
Investors do not agree to hold the Common Stock for any minimum or other
specific term and reserves the right to dispose of the Common Stock at any time
in accordance with federal and state securities laws applicable to such
disposition.
Section 3.2 Sophisticated Investor. Each of the Investors are
sophisticated investors (as described in Rule 506(b)(2)(ii) of Regulation D) and
accredited investors (as defined in Rule 501 of Regulation D), and the Investors
have such experience in business and financial matters that they are capable of
evaluating the merits and risks of an investment in the Securities. Each of the
Investors acknowledge that an investment in the Common Stock is speculative and
involves a high degree of risk. Each of the Investors has the ability to fund
the purchase of the Preferred Stock and Warrants.
Section 3.3 Authority. This Agreement has been duly authorized and
validly executed and delivered by each of the Investors and is a valid and
binding agreement of the Investors enforceable against each of them in
accordance with its terms, subject to applicable bankruptcy, insolvency, or
similar laws relating to, or affecting generally the enforcement of, creditors'
rights and remedies or by other equitable principles of general application.
Section 3.4 Not an Affiliate. None of the Investors is an officer,
director or "affiliate" (as that term is defined in Rule 405 of the Securities
Act) of the Company.
Section 3.5 Organization and Standing. Each of the Investors are duly
organized, validly existing, and in good standing under the laws of the
countries and/or states of their incorporation or organization.
Section 3.6 Absence of Conflicts. The execution and delivery of this
Agreement and any other document or instrument executed in connection herewith,
and the consummation of the transactions contemplated thereby, and compliance
with the requirements thereof, will not violate any law, rule, regulation,
order, writ, judgment, injunction, decree or award binding on Investors, or, to
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the Investors knowledge, (a) violate any provision of any indenture, instrument
or agreement to which any of the Investors are a party or are subject, or by
which any of the Investors or any of their assets is bound; (b) conflict with or
constitute a material default thereunder; (c) result in the creation or
imposition of any lien pursuant to the terms of any such indenture, instrument
or agreement, or constitute a breach of any fiduciary duty owed by Investors to
any third party; or (d) require the approval of any third-party (which has not
been obtained) pursuant to any material contract, agreement, instrument,
relationship or legal obligation to which any of the Investors is subject or to
which any of their assets, operations or management may be subject.
Section 3.7 Disclosure; Access to Information. Each of the Investors
have received all documents, records, books and other information pertaining to
Investors investment in the Company that have been requested by Investors,
including the opportunity to ask questions and receive answers. The Company is
subject to the periodic reporting requirements of the Exchange Act, and each of
the Investors has reviewed or received copies of any such reports that have been
requested by it. Each of the Investors represents that it has reviewed the
Company's, (i) Form 10-K for the year ended December 31, 1996, (ii) Form 10-K
for the year ended December 31, 1997, including the amendment thereto, filed on
or about ▇▇▇▇▇ ▇▇, ▇▇▇▇, (▇▇▇) Form 10-Q's filed for the previous twelve months,
(iv) prospectus' dated October 22, 1997, (iv) Post-Effective Amendment to a
Registration Statement on Form SB-2 dated August 11, 1998, and (v) an amendment
to Form S-3 declared effective on September 29, 1998.
Section 3.8 Manner of Sale. At no time were any of the Investors
presented with or solicited by or through any leaflet, public promotional
meeting, television advertisement or any other form of general solicitation or
advertising.
Section 3.9 Registration or Exemption Requirements. Each of the
Investors further acknowledge and understand that the Securities may not be
transferred, resold or otherwise disposed of except in a transaction registered
under the Securities Act and any applicable state securities laws, or unless an
exemption from such registration is available. Each of the Investors understands
that the certificate(s) evidencing these Securities will be imprinted with a
legend that prohibits the transfer of these Securities unless (i) they are
registered or such registration is not required, and (ii) if the transfer is
pursuant to an exemption from registration other than Rule 144 under the
Securities Act and, if the Company shall so request in writing, an opinion of
counsel reasonably satisfactory to the Company is obtained to the effect that
the transaction is so exempt.
Section 3.10 No Legal, Tax or Investment Advice. Each of the Investors
understands that nothing in this Agreement or any other materials presented to
the Investors in connection with the purchase and sale of the Securities
constitutes legal, tax or investment advice. The Investors have relied on, and
has consulted with, such legal, tax and investment advisors as it, in their sole
discretion, have deemed necessary or appropriate in connection with its purchase
of the Securities.
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Section 3.11 Put/Short Positions. Neither the Investors, nor any
affiliate of the Investors, have any present intention of entering into any put
option, short position or other similar position with respect to the Securities.
ARTICLE IV
Representations and Warranties of the Company
The Company represents and warrants to the Investors and the Placement
Agent that:
Section 4.1 Organization of the Company. The Company is a corporation
duly incorporated and existing in good standing under the laws of the State of
Delaware and has all requisite corporate authority to own its properties and to
carry on its business as now being conducted except as described in the SEC
Documents. The Company is duly qualified as a foreign corporation to do business
and is in good standing in every jurisdiction in which the nature of the
business conducted or property owned by it makes such qualification necessary,
other than those in which the failure so to qualify would not reasonably be
expected to have a Material Adverse Effect.
Section 4.2 Authority. (i) The Company has the requisite corporate
power and authority to enter into and, subject to Shareholder approval in
regards to the issuance by the Company of more than 20% of the outstanding
shares of Common Stock, perform its obligations under this Agreement, the
Registration Rights Agreement, the Escrow Agreement, the Certificate of
Designation and Underlying Shares, Preferred Stock and the Warrant Shares, (ii)
the execution, issuance and delivery of this Agreement, the Registration Rights
Agreement, the Escrow Agreement, the Certificate of Designation, the Preferred
Stock, and the Warrants by the Company and the consummation by it of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action and, other than the approval by the Company's Shareholders in
regards to the issuance by the Company of more than 20% of the outstanding
shares of Common Stock at a discount, no further consent or authorization of the
Company or its Board of Directors is required, and (iii) this Agreement, the
Registration Rights Agreement, the Escrow Agreement, the Certificate of
Designation, the Preferred Stock, and the Warrants have been duly executed and
delivered by the Company and constitute valid and binding obligations of the
Company enforceable against the Company in accordance with their terms, except
as such enforceability may be limited by applicable bankruptcy, insolvency, or
similar laws relating to, or affecting generally the enforcement of, creditors'
rights and remedies or by other equitable principles of general application.
Section 4.3 Capitalization. The authorized capital stock of the Company
consists of 20,000,000 shares of Common Stock, par value $0.0001, of which
6,820,769 shares are issued and outstanding, and 5,000,000 shares of Preferred
Stock, par value $0.0001, none of which are issued and outstanding. Except as
set forth in the SEC Documents or on Schedule 4.3 hereto, there are no
outstanding Capital Shares Equivalents. All of the outstanding shares of Common
Stock of the Company have been duly and validly authorized and issued and are
fully paid and nonassessable.
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Section 4.4 Common Stock. The Company has registered its Common Stock
pursuant to Section 12 of the Exchange Act and is in substantial compliance with
all reporting requirements of the Exchange Act, and the Company has maintained
all requirements for the continued listing or quotation of its Common Stock, and
such Common Stock is currently listed or quoted on the Principal Market. As of
the date hereof, the Principal Market is the Nasdaq Small Cap Stock Market.
Section 4.5 SEC Documents. The Company has delivered or made available
to the Investors true and complete copies of the SEC Documents filed by the
Company with the SEC during the twelve (12) months immediately preceding the
Subscription Date (including, without limitation, proxy information and
solicitation materials). The Company has not provided to any of the Investors
any information that, according to applicable law, rule or regulation, should
have been disclosed publicly prior to the date hereof by the Company, but which
has not been so disclosed. As of their respective dates, the SEC Documents
complied in all material respects with the requirements of the Securities Act or
the Exchange Act, as the case may be, and rules and regulations of the SEC
promulgated thereunder and none of the SEC Documents 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. The financial
statements of the Company included in the SEC Documents comply as to form in all
material respects with applicable accounting requirements and the published
rules and regulations of the SEC or other applicable rules and regulations with
respect thereto. Such financial statements have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis during
the periods involved (except (i) as may be otherwise indicated in such financial
statements or the notes thereto or (ii) in the case of unaudited interim
statements, to the extent they may not include footnotes or may be condensed or
summary statements) and fairly present in all material respects the financial
position of the Company as of 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).
Section 4.6 Valid Issuances. When issued and payment has been made
therefor, the Preferred Stock, the Underlying Shares and the Warrants will be
duly and validly issued, fully paid, and nonassessable. Neither the issuance of
Preferred Stock, the Underlying Shares or Warrants to the Placement Agent, nor
the sales of the Preferred Stock, the Underlying Shares and the Warrants
pursuant to, nor the Company's performance of its obligations under, this
Agreement, the Registration Rights Agreement, the Escrow Agreement, the
Certificate of Designation, or the Warrants will (i) result in the creation or
imposition by the Company of any liens, charges, claims or other encumbrances
upon the Securities issued to the Placement Agent, the Preferred Stock, the
Underlying Shares, the Warrant Shares or any of the assets of the Company, or
(ii) entitle the holders of Outstanding Capital Shares to preemptive or other
rights to subscribe to or acquire the Capital Shares or other securities of the
Company.
Section 4.7 No General Solicitation or Advertising in Regard to this
Transaction. Neither the Company nor any of its affiliates nor any distributor
or any person acting on its or their behalf (i) has conducted or will conduct
any general solicitation (as that term is used in Rule 502(c) of
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Regulation D) or general advertising with respect to any of the Preferred Stock,
the Underlying Shares, the Warrants, or (ii) made any offers or sales of any
security or solicited any offers to buy any security under any circumstances
that would require registration of the Common Stock issued to the Placement
Agent, the Preferred Stock, the Underlying Shares and the Warrants under the
Securities Act.
Section 4.8 Corporate Documents. The Company has furnished or made
available to each of the Investors true and correct copies of the Company's
Certificate of Incorporation, as amended and in effect on the date hereof (the
"Certificate"), and the Company's By-Laws, as amended and in effect on the date
hereof (the "By-Laws").
Section 4.9 No Conflicts. The execution, delivery and performance of
this Agreement by the Company and the consummation by the Company of the
transactions contemplated hereby, including without limitation the issuance of
the Preferred Stock and the Warrants, do not and will not (i) result in a
violation of the Company's Certificate of Incorporation or By-Laws or (ii)
conflict with, or constitute a material default (or an event that 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, instrument or any "lock-up" or similar provision of any
underwriting or similar agreement to which the Company is a party (with the
caveat contained in the Schedule attached hereto), or (iii) result in a
violation of any federal, state or local law, rule, regulation, order, judgment
or decree (including federal and state securities laws and regulations)
applicable to the Company or by which any property or asset of the Company is
bound or affected (except for such conflicts, defaults, terminations,
amendments, accelerations, cancellations and violations as would not reasonably
be expected to have, individually or in the aggregate, a Material Adverse
Effect), nor is the Company otherwise in violation of, conflict with or in
default under any of the foregoing as would not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect. The business of the
Company is not being conducted in violation of any law, ordinance or regulation
of any governmental entity, except for possible violations that either singly or
in the aggregate would not reasonably be expected to have a Material Adverse
Effect. The Company is not required under federal, state or local law, rule or
regulation to obtain any consent, authorization or order of, or make any filing
or registration with, any court or governmental agency in order for it to
execute, deliver or perform any of its obligations under this Agreement or issue
and sell the Preferred Stock, or Warrants, in accordance with the terms hereof
(other than any SEC, NASD, Nasdaq or state securities filings that may be
required to be made by the Company before or subsequent to any Closing, any
registration statement that may be filed pursuant hereto, and any shareholder
approval required by the rules applicable to companies whose common stock trades
on the Nasdaq Small Cap Market, including the Nasdaq Small Cap notification form
listing the additional shares of Common Stock issuable hereunder, which the
Company shall file with the Nasdaq Stock Market promptly after the Subscription
Dat or the Closing Date for each tranche); provided that, for purposes of the
representation made in this sentence, the Company is assuming and relying upon
the accuracy of the relevant representations and agreements of the Investors
herein.
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Section 4.10 No Material Adverse Change. Since December 31, 1997, no
Material Adverse Effect has occurred or exists with respect to the Company,
except as disclosed in the SEC Documents.
Section 4.11 No Undisclosed Liabilities. The Company has no liabilities
or obligations which are material, individually or in the aggregate, and are not
disclosed in the SEC Documents or otherwise publicly announced, other than those
set forth in the Company's financial statements or as incurred in the ordinary
course of the Company's businesses since December 31, 1997, and which,
individually or in the aggregate, would not reasonably be expected to have a
Material Adverse Effect.
Section 4.12 No Undisclosed Events or Circumstances. Since December 31,
1997, no event or circumstance has occurred or exists with respect to the
Company or its businesses, properties, prospects, operations or financial
condition, that, under applicable law, rule or regulation, requires public
disclosure or announcement prior to the date hereof by the Company but which has
not been so publicly announced or disclosed in the SEC Documents.
Section 4.13 No Integrated Offering. To the Company's knowledge,
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, other than pursuant to
this Agreement, under circumstances that would require registration of the
Common Stock under the Securities Act, except as set forth in the SEC Documents.
Section 4.14 Litigation and Other Proceedings. Except as may be set
forth in the SEC Documents, there are no lawsuits or proceedings pending or to
the knowledge of the Company threatened, against the Company, nor has the
Company received any written or oral notice of any such action, suit, proceeding
or investigation, which would reasonably be expected to have a Material Adverse
Effect. Except as set forth in the SEC Documents, no judgment, order, writ,
injunction or decree or award has been issued by or, so far as is known by the
Company, requested of any court, arbitrator or governmental agency which would
be reasonably expected to result in a Material Adverse Effect.
Section 4.15 Restrictions On Future Financings. The Company represents
that, unless it obtains the written approval of all of the Investors (which
approval will not be unreasonably withheld), the Company will not enter into any
other equity financing agreement, or other financing arrangement, that would:
(a) cause the Common Stock issued in such financing to be salable and freely
tradeable before forty-five (45) days from the Effective Date of the last
tranche funded or closed, or (b) affect the timeliness of the Registration
Statement being declared effective.
Section 4.16 Conversion Limitations. The Company represents that,
except as permitted by the Certificate of Designation, the total number of
shares of Common Stock issuable upon the Preferred Stock issued at the first
tranche Closing Date pursuant to the Certificate of Designation and/or upon
exercise of the Warrants shall not exceed 19.99% of the number of shares of
Common Stock outstanding as of the First Tranche Closing. In the event the
number of shares of Common
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Stock of the Company issuable pursuant to the terms of the Certificate of
Designation and/or exercise of the Warrants exceeds 15% of the number of shares
of Common Stock outstanding as of the First Tranche Closing Date and the Company
is subject to the aforementioned Nasdaq Marketplace Rule, or such other similar
requirement, the Company agrees that it shall include a resolution for approval
on its annual meeting of stockholders projected to take place in May 1999 for
the purpose of approving below market price issuances of Common Stock to the
Investors in excess of 20% of the number of shares of Common Stock outstanding
as of the First Tranche Closing Date as required by Section 4460(i)(1)(D)(ii) of
the Nasdaq Marketplace Rules, or such other similar requirement. In the event
that the aforementioned proposal is not ratified by the stockholders and the
number of shares issuable under the Certificate of Designation exceeds 19.99% of
the number of shares of Common Stock outstanding as of the First Tranche Closing
Date, the Company will seek a waiver from the Nasdaq Stock Market (or other
applicable market or exchange) to permit such issuances.
The Purchasers shall have the option to convert or exercise the
remainder of their Securities positions at the closing bid price of the previous
day any remaining amount in excess of twenty (20%) percent at any time. In the
event at any time the total number of shares of Common Stock issued from prior
tranches, added to the Underlying Shares which can be fully converted pursuant
to the Certificate of Designation and/or a full exercise of any Warrants, added
to the potential conversion of the new tranche (based upon the last closing bid
price) and the potential exercise of Warrants held but not exercised, equals
seventeen (17%) percent or above, the Investors shall have no obligation to fund
tranches second and/or third unless shareholders approval or a waiver from the
Nasdaq Stock Market is received.
ARTICLE V
Covenants of the Investors
Section 5.1 Compliance with Law. Each of the Investor's trading
activities with respect to shares of the Company's Common Stock will be in
compliance with all applicable state and federal securities laws, rules and
regulations and rules and regulations of the Principal Market on which the
Company's Common Stock is listed.
Section 5.2 Agreement To Vote. For so long as the Company has not
committed a material breach of this Agreement and the Exhibits annexed hereto,
and this Agreement has not been terminated, the Investors agree to vote all
shares of Common Stock beneficially held by them in favor of all nominees to the
Company's board of directors who are nominated by the then current Board of
Directors of the Company.
Section 5.3 Put/Short Positions. Neither the Investors, nor any
affiliate of the Investors, have any present intention of entering into any put
option, short position or other similar position with respect to the Securities.
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ARTICLE VI
Covenants of the Company
Section 6.1 Registration Rights. The Company shall cause the
Registration Rights Agreement to remain in full force and effect so long as any
Registrable Securities remain outstanding and the Company shall comply in all
material respects with the terms thereof.
Section 6.2 Reservation of Common Stock. As of the date hereof, the
Company has reserved and the Company shall continue to reserve and keep
available at all times, free of preemptive rights, shares of Common Stock for
the purpose of enabling the Company to satisfy any obligation to issue the
Underlying Shares; such amount of shares of Common Stock to be reserved shall be
calculated based upon the minimum Purchase Price therefor under the terms of
this Agreement, the Certificate of Designation and the Warrants. The number of
shares so reserved from time to time, as theretofore increased or reduced as
hereinafter provided, may be reduced by the number of shares actually delivered
hereunder and the number of shares so reserved shall be increased or decreased
to reflect potential increases or decreases in the Common Stock that the Company
may thereafter be so obligated to issue by reason of adjustments to the
Preferred Stock and the Warrants.
Section 6.3 Listing of Common Stock. The Company hereby agrees to use
its best efforts to maintain the listing of the Common Stock on a Principal
Market, and as soon as practicable (but in any event prior to the commencement
of the Commitment Period) to list the Underlying Shares. The Company further
agrees, if the Company applies to have the Common Stock traded on any other
Principal Market, it will include in such application the Underlying Shares, and
will take such other action as is reasonably necessary or desirable in the
opinion of the Investors to cause the Common Stock to be listed on such other
Principal Market as promptly as possible. The Company will use its best efforts
to comply with the listing and trading of its Common Stock on the Principal
Market (including, without limitation, maintaining sufficient net tangible
assets) and will comply in all respects with the Company's reporting, filing and
other obligations under the bylaws or rules of the Principal Market. In the
event the Company receives notification from Nasdaq concerning delisting of the
Common Stock on the Principal Market, the Company will use its best efforts to
comply with all applicable listing standards of the Principal Market.
Section 6.4 Exchange Act Registration. The Company will cause its
Common Stock to continue to be registered under Section 12 of the Exchange Act,
will comply in all respects with its reporting and filing obligations under the
Exchange Act, and will not take any action or file any document (whether or not
permitted by Exchange Act or the rules thereunder) to terminate or suspend such
registration or to terminate or suspend its reporting and filing obligations
under said Act.
Section 6.5 Legends. The certificates evidencing the Common Stock to be
sold by the Investors pursuant to Article VIII shall be free of legends, except
as set forth in Article VIII.
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Section 6.6 Corporate Existence. The Company will take all steps
necessary to preserve and continue the corporate existence of the Company.
Section 6.7 Notice of Certain Events Affecting Registration or to have
a Closing For the Preferred Stock. The Company will immediately notify each of
the Investors upon the occurrence of any of the following events in respect of a
registration statement or related prospectus in respect of an offering of
Registrable Securities: (i) receipt of any request for additional information by
the SEC or any other federal or state governmental authority during the period
of effectiveness of the Registration Statement for amendments or supplements to
the Registration Statement or related prospectus; (ii) the issuance by the SEC
or any other federal or state governmental authority of any stop order
suspending the effectiveness of the Registration Statement or the initiation of
any proceedings for that purpose; (iii) receipt of any notification with respect
to the suspension of the qualification or exemption from qualification of any of
the Registrable Securities for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose; (iv) the happening of any event
that makes any statement made in the Registration Statement or related
prospectus or any document incorporated or deemed to be incorporated therein by
reference untrue in any material respect or that requires the making of any
changes in the Registration Statement, related prospectus or documents so that,
in the case of the Registration Statement, it will not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading, and
that in the case of the related prospectus, it will not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; and (v) the Company's
reasonable determination that a post-effective amendment to the Registration
Statement would be appropriate; and the Company will promptly make available to
the Investors any such supplement or amendment to the related prospectus. The
Company shall not request the Investors to proceed with closing either the
second or third tranches of Preferred Stock during the continuation of any of
the foregoing events.
Section 6.8 Consolidation; Merger. The Company shall not, at any time
after the date hereof, effect any merger or consolidation of the Company with or
into, or a transfer of all or substantially all of the assets of the Company to,
another entity (a "Consolidation Event") unless the resulting successor or
acquiring entity (if not the Company) assumes by written instrument the
obligation to deliver to the Investors such shares of stock and/or securities as
the Investors are entitled to receive pursuant to this Agreement.
Section 6.9 Issuance of the Underlying Shares. The issuance of the
Underlying Shares pursuant to exercise of the Warrants, and the conversion of
the Preferred Stock, shall be made in accordance with the provisions and
requirements of Section 4(2) of Regulation D and any applicable state securities
law.
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Section 6.10 Legal Opinion. The Company's independent counsel shall
deliver to the Investors upon execution of this Agreement, and upon the Closings
for the second and third tranches in the form of Exhibit F annexed hereto.
ARTICLE VII
Due Diligence Review; Non-Disclosure of Non-Public Information
Section 7.1 Due Diligence Review. The Company shall make available for
inspection and review by the Investors, advisors to and representatives of the
Investors (who may or may not be affiliated with the Investors and who are
reasonably acceptable to the Company), any underwriter participating in any
disposition of the Registrable Securities on behalf of the Investors pursuant to
the Registration Statement, any such registration statement or amendment or
supplement thereto or any blue sky, NASD or other filing, all financial and
other records, all SEC Documents and other filings with the SEC, and all other
corporate documents and properties of the Company as may be reasonably necessary
for the purpose of such review, and cause the Company's officers, directors and
employees to supply all such information reasonably requested by any of the
Investors or any such representative, advisor or underwriter in connection with
such Registration Statement (including, without limitation, in response to all
questions and other inquiries reasonably made or submitted by any of them),
prior to and from time to time after the filing and effectiveness of the
Registration Statement for the sole purpose of enabling the Investors and such
representatives, advisors and underwriters and their respective accountants and
attorneys to conduct initial and ongoing due diligence with respect to the
Company and the accuracy of the Registration Statement.
Section 7.2 Non-Disclosure of Non-Public Information
(a) The Company shall not disclose non-public information to
the Investors, advisors to, or representatives of, the Investors unless prior to
disclosure of such information the Company identifies such information as being
non-public information and provides each Investor, and its advisors and
representatives with the opportunity to accept or refuse to accept such
non-public information for review. The Company may, as a condition to disclosing
any non-public information hereunder, require each of the Investors advisors and
representatives to enter into a confidentiality agreement in form reasonably
satisfactory to the Company and the Investors.
(b) Nothing herein shall require the Company to disclose
non-public information to any of the Investors or their advisors or
representatives, and the Company represents that it does not disseminate
non-public information to any investors who purchase stock in the Company in a
public offering, to money managers or to securities analysts, provided, however,
that notwithstanding anything herein to the contrary, the Company will, as
hereinabove provided, immediately notify the advisors and representatives of the
Investors and, if any, underwriters, of any event or the existence of any
circumstance (without any obligation to disclose the specific event or
circumstance) of which it becomes aware, constituting non-public information
(whether or not requested of the Company specifically or generally during the
course of due diligence by such persons or entities), which, if not
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disclosed in the prospectus included in the Registration Statement would cause
such prospectus to include a material misstatement or to omit a material fact
required to be stated therein in order to make the statements, therein, in light
of the circumstances in which they were made, not misleading. Nothing contained
in this Section shall be construed to mean that such persons or entities other
than the Investors (without the written consent of the Investors prior to
disclosure of such information) may not obtain non-public information in the
course of conducting due diligence in accordance with the terms of this
Agreement and nothing herein shall prevent any such persons or entities from
notifying the Company of their opinion that based on such due diligence by such
persons or entities, that the Registration Statement contains an untrue
statement of a material fact or omits a material fact required to be stated in
the Registration Statement or necessary to make the statements contained
therein, in light of the circumstances in which they were made, not misleading.
ARTICLE VIII
Legends
Section 8.1 Legends. Unless otherwise provided below, each certificate
representing the Securities will bear the following legend (the "Legend"):
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), OR ANY OTHER APPLICABLE SECURITIES LAWS AND HAVE BEEN ISSUED IN
RELIANCE UPON AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT AND SUCH OTHER SECURITIES LAWS. NEITHER THIS SECURITY
NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD,
ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED, HYPOTHECATED OR OTHERWISE
DISPOSED OF, EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OR PURSUANT TO A TRANSACTION THAT IS EXEMPT
FROM, OR NOT SUBJECT TO, SUCH REGISTRATION. THE HOLDER OF THIS
CERTIFICATE IS THE BENEFICIARY OF CERTAIN OBLIGATIONS OF THE COMPANY
SET FORTH IN A 6% SERIES D CONVERTIBLE PREFERRED STOCK SUBSCRIPTION
AGREEMENT DATED AS OF DECEMBER 30, 1998. A COPY OF THE PORTION OF THE
AFORESAID AGREEMENT EVIDENCING SUCH OBLIGATIONS MAY BE OBTAINED FROM
THE COMPANY'S EXECUTIVE OFFICES.
Upon the execution and delivery hereof, the Company is issuing to the
transfer agent for its Common Stock (and to any substitute or replacement
transfer agent for its Common Stock upon the Company's appointment of any such
substitute or replacement transfer agent) instructions in substantially the form
of Exhibit G hereto. Such instructions shall be irrevocable by the Company from
and after the date hereof or from and after the issuance thereof to any such
substitute or replacement transfer agent, as the case may be, except as
otherwise expressly provided in the
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Registration Rights Agreement. It is the intent and purpose of such
instructions, as provided therein, to require the transfer agent for the Common
Stock from time to time upon transfer of Registrable Securities by the Investors
to issue certificates evidencing such Registrable Securities free of the Legend
during the following periods and under the following circumstances and without
consultation by the transfer agent with the Company or its counsel and without
the need for any further advice or instruction or documentation to the transfer
agent by or from the Company or its counsel or the Investors:
(a) at any time after the Effective Date, upon surrender of
one or more certificates evidencing Common Stock that bear the Legend, to the
extent accompanied by a notice requesting the issuance of new certificates free
of the Legend to replace those surrendered; provided that (i) the Registration
Statement shall then be effective; (ii) the Investor(s) confirm to the transfer
agent that it has sold, pledged or otherwise transferred or agreed to sell,
pledge or otherwise transfer such Common Stock in a bona fide transaction to a
third party that is not an affiliate of the Company; and (iii) the Investor(s)
confirm to the transfer agent that the Investor(s) have complied with the
prospectus delivery requirement. The requirement set forth in subsection
8.1(a)(ii) shall only apply in the event the Company registers the Common Stock
pursuant to a Form S-3 registration statement pursuant to the Registration
Rights Agreement. In the event the Company registers the Common Stock by means
of a registration statement other then a Form S-3 registration statement, than
only the conditions in subsection 8.1(a)(i) and 8.1(a)(iii) herein shall apply.
(b) at any time upon any surrender of one or more certificates
evidencing Registrable Securities that bear the Legend, to the extent
accompanied by a notice requesting the issuance of new certificates free of the
Legend to replace those surrendered and containing representations that (i) the
Investor(s) is permitted to dispose of such Registrable Securities without
limitation as to amount or manner of sale pursuant to Rule 144(k) under the
Securities Act or (ii) the Investor(s) has sold, pledged or otherwise
transferred or agreed to sell, pledge or otherwise transfer such Registrable
Securities in a manner other than pursuant to an effective registration
statement, to a transferee who will upon such transfer be entitled to freely
tradeable securities.
Any of the notices referred to above in this Section 8.1 may be sent by
facsimile to the Company's transfer agent.
Section 8.2 No Other Legend or Stock Transfer Restrictions. No legend
other than the one specified in Section 8.1 has been or shall be placed on the
share certificates representing the Common Stock, and no instructions or "stop
transfer orders," so called, "stock transfer restrictions," or other
restrictions have been or shall be given to the Company's transfer agent with
respect thereto other than as expressly set forth in this Article VIII.
Section 8.3 Investor's Compliance. Nothing in this Article shall affect
in any way any of the Investors obligations under any agreement to comply with
all applicable securities laws upon resale of the Common Stock.
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ARTICLE IX
Choice of Law
Section 9.1 Choice of Law; Venue; Jurisdiction. This Agreement will be
construed and enforced in accordance with and governed by the laws of the State
of New York, except for matters arising under the Securities Act, without
reference to principles of conflicts of law. Each of the parties consents to the
jurisdiction of the U.S. District Court sitting in the Southern District of the
State of New York or the state courts of the State of New York sitting in
Manhattan in connection with any dispute arising under this Agreement and hereby
waives, to the maximum extent permitted by law, any objection, including any
objection based on forum non conveniens, to the bringing of any such proceeding
in such jurisdictions. Each party hereby agrees that if another party to this
Agreement obtains a judgment against it in such a proceeding, the party which
obtained such judgment may enforce same by summary judgment in the courts of any
country having jurisdiction over the party against whom such judgment was
obtained, and each party hereby waives any defenses available to it under local
law and agrees to the enforcement of such a judgment. Each party to this
Agreement irrevocably consents to the service of process in any such proceeding
by the mailing of copies thereof by registered or certified mail, postage
prepaid, to such party at its address set forth herein. Nothing herein shall
affect the right of any party to serve process in any other manner permitted by
law. Each party waives its right to a trial by jury.
ARTICLE X
Assignment; Entire Agreement, Amendment; Termination
Section 10.1 Assignment. The provisions of this Agreement shall inure
to the benefit of, and be enforceable by, any transferee of any of the Common
Stock and Preferred Stock (except any transferee (i) who was a purchaser on the
open market, or pursuant to Rule 144 , or (ii) who is an owner of less than ten
(10%) percent of the original number of shares of Common Stock issued hereunder)
purchased or acquired by the Investors hereunder with respect to the Common
Stock and Preferred Stock held by such person, and upon the prior written
consent of the Company, which consent shall not unreasonably be withheld, the
Investor's interest in this Agreement may be assigned at any time, in whole or
in part, to any affiliate of the Investors who agrees to make the
representations and warranties contained in Article III and who agrees to be
bound by the covenants of Article V.
Section 10.2 Termination. This Agreement shall terminate upon the
earliest of (i) the date that all the Registrable Securities have been sold by
the Investors pursuant to the Registration Statement; (ii) the date the
Investors receive an opinion from counsel to the Company that all of the
Registrable Securities may be sold and all Registered Securities are, in fact,
sold under the provisions of Rule 144 with no limitations; or (iii) five and
one-half years after the last tranche purchased; provided, however, that the
provisions of Articles III, IV, V, VI (as long as the Securities are
beneficially owned by any of the Investors or the Placement Agent, or their
permitted assigns), VII, VIII, IX, X, and XI, herein, and the registration
rights provisions for the Registrable Securities held
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by the Investors and the Placement Agent set forth in this Agreement, and the
Registration Rights Agreement, shall survive the termination of this Agreement.
ARTICLE XI
Notices
Section 11.1 Notices. All notices, demands, requests, consents,
approvals, and other communications required or permitted hereunder shall be in
writing and, unless otherwise specified herein, shall be (i) personally served,
(ii) deposited in the mail, registered or certified, return receipt requested,
postage prepaid, (iii) delivered by reputable air courier service with charges
prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile, addressed
as set forth below or to such other address as such party shall have specified
most recently by written notice. Any notice or other communication required or
permitted to be given hereunder shall be deemed effective (a) upon hand delivery
or delivery by facsimile, with accurate confirmation generated by the
transmitting facsimile machine, at the address or number designated below (if
delivered on a business day during normal business hours where such notice is to
be received), or the first business day following such delivery (if delivered
other than on a business day during normal business hours where such notice is
to be received) or (b) on the second business day following the date of mailing
by reputable courier service, fully prepaid, addressed to such address, or upon
actual receipt of such mailing, whichever shall first occur. The addresses for
such communications shall be:
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If to ObjectSoft Corporation:
▇▇▇▇▇ ▇▇▇▇▇, President
Continental Plaza III
▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, Esq.
▇▇▇▇▇▇ ▇▇▇▇▇▇ Flattau & Klimpl, LLP
▇▇▇▇ ▇▇▇▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
If to the Investors at the addresses set forth on Schedule A attached
hereto.
with a copy to:
(shall not constitute notice) ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, Esq.
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ & ▇▇▇▇, LLP
▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Either party hereto may from time to time change its address or
facsimile number for notices under this Section 11.1 by giving at least ten (10)
days' prior written notice of such changed address or facsimile number to the
other party hereto.
Section 11.2 Indemnification. The Company agrees to indemnify and hold
harmless each of the Investors and each officer, director of the Investors or
person, if any, who controls the Investor within the meaning of the Securities
Act against any losses, claims, damages or liabilities, joint or several (which
shall, for all purposes of this Agreement, include, but not be limited to, all
costs of defense and investigation and all attorneys' fees), to which the
Investors may become subject, under the Securities Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon the breach of any term of this Agreement. This
indemnity agreement will be in addition to any liability which the Company may
otherwise have.
Each Investor agrees that it will indemnify and hold harmless the
Company, and each officer, director of the Company or person, if any, who
controls the Company within the meaning of the Securities Act, against any
losses, claims, damages or liabilities (which shall, for all purposes of this
Agreement, include, but not be limited to, all costs of defense and
investigation and all attorneys' fees) to which the Company or any such officer,
director or controlling person may become subject under the Securities Act or
otherwise, insofar as such losses claims, damages or liabilities (or actions in
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respect thereof) arise out of or are based upon the breach of any term of this
Agreement. This indemnity agreement will be in addition to any liability which
the Investors or any subsequent assignee may otherwise have.
Promptly after receipt by an indemnified party under this Section of
notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under this
Section, notify the indemnifying party of the commencement thereof; but the
omission so to notify the indemnifying party will not relieve the indemnifying
party from any liability which it may have to any indemnified party otherwise
than as to the particular item as to which indemnification is then being sought
solely pursuant to this Section. In case any such action is brought against any
indemnified party, and it notifies the indemnifying party of the commencement
thereof, the indemnifying party will be entitled to participate in, and, to the
extent that it may wish, jointly with any other indemnifying party similarly
notified, assume the defense thereof, subject to the provisions herein stated
and after notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party will not be
liable to such indemnified party under this Section for any legal or other
expenses subsequently incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation, unless the
indemnifying party shall not pursue the action to its final conclusion. The
indemnified party shall have the right to employ separate counsel in any such
action and to participate in the defense thereof, but the fees and expenses of
such counsel shall not be at the expense of the indemnifying party if the
indemnifying party has assumed the defense of the action with counsel reasonably
satisfactory to the indemnified party; provided that if the indemnified party is
one of the Investors, the fees and expenses of such counsel shall be at the
expense of the indemnifying party if (i) the employment of such counsel has been
specifically authorized in writing by the indemnifying party, or (ii) the named
parties to any such action (including any impleaded parties) include both the
Investor and the indemnifying party and the Investor shall have been advised by
such counsel that there may be one or more legal defenses available to the
indemnifying party different from or in conflict with any legal defenses which
may be available to the Investors (in which case the indemnifying party shall
not have the right to assume the defense of such action on behalf of the
Investors, it being understood, however, that the indemnifying party shall in
connection with any one such action or separate but substantially similar or
related actions in the same jurisdiction arising out of the same general
allegations or circumstances, be liable only for the reasonable fees and
expenses of one separate firm of attorneys for the Investor(s), which firm shall
be designated in writing by the Investor(s)). No settlement of any action
against an indemnified party shall be made without the prior written consent of
the indemnified party, which consent shall not be unreasonably withheld.
Section 11.3 Contribution. In order to provide for just and equitable
contribution under the Securities Act in any case in which (i) the indemnified
party makes a claim for indemnification pursuant to Section 11.2 hereof but is
judicially determined (by the entry of a final judgment or decree by a court of
competent jurisdiction and the expiration of time to appeal or the denial of the
last right of appeal) that such indemnification may not be enforced in such case
notwithstanding the fact that the express provisions of Section 11.2 hereof
provide for indemnification in such case, or (ii) contribution under the
Securities Act may be required on the part of any indemnified party, then the
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Company and the applicable Investor shall contribute to the aggregate losses,
claims, damages or liabilities to which they may be subject (which shall, for
all purposes of this Agreement, include, but not be limited to, all costs of
defense and investigation and all attorneys' fees), in either such case (after
contribution from others) on the basis of relative fault as well as any other
relevant equitable considerations. The amount paid or payable by an indemnified
party as a result of the losses, claims, damages or liabilities (or actions in
respect thereof) referred to above in Section 11.2 shall be deemed to include
any legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contributions from any person who was
not guilty of such fraudulent representation.
ARTICLE XII
Miscellaneous
Section 12.1 Counterparts; Facsimile; Amendments. This Agreement may be
executed in multiple counterparts, each of which may be executed by less than
all of the parties and shall be deemed to be an original instrument which shall
be enforceable against the parties actually executing such counterparts and all
of which together shall constitute one and the same instrument. Except as
otherwise stated herein, in lieu of the original documents, a facsimile
transmission or copy of the original documents shall be as effective and
enforceable as the original. This Agreement may be amended only by a writing
executed by the Company on the one hand, and a majority of the Investors, and
the Placement Agent, on the other hand, or the Company on the one hand, and all
of the Investors on the other hand.
Section 12.2 Entire Agreement. This Agreement, the Exhibits or
Attachments hereto, which include, but are not limited to the Certificate of
Designation, the Warrants, the Escrow Agreement, and the Registration Rights
Agreement set forth the entire agreement and understanding of the parties
relating to the subject matter hereof and supersedes all prior and
contemporaneous agreements, negotiations and understandings between the parties,
both oral and written relating to the subject matter hereof. The terms and
conditions of all Exhibits and Attachments to this Agreement are incorporated
herein by this reference and shall constitute part of this Agreement as is fully
set forth herein.
Section 12.3 Survival; Severability. The representations, warranties,
covenants and agreements of the parties hereto shall survive each Closing
hereunder. In the event that any provision of this Agreement becomes or is
declared by a court of competent jurisdiction to be illegal, unenforceable or
void, this Agreement shall continue in full force and effect without said
provision; provided that such severability shall be ineffective if it materially
changes the economic benefit of this Agreement to any party.
Section 12.4 Title and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
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Section 12.5 Reporting Entity for the Common Stock. The reporting
entity relied upon for the determination of the trading price or trading volume
of the Common Stock on any given Trading Day for the purposes of this Agreement
and all Exhibits shall be Bloomberg, L.P. or any successor thereto. The written
mutual consent of the Investor and the Company shall be required to employ any
other reporting entity.
Section 12.6 Replacement of Certificates. Upon (i) receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of a certificate representing the Put Shares and (ii) in the case of
any such loss, theft or destruction of such certificate, upon delivery of an
indemnity agreement or security reasonably satisfactory in form and amount to
the Company or (iii) in the case of any such mutilation, on surrender and
cancellation of such certificate, the Company at its expense will execute and
deliver, in lieu thereof, a new certificate of like tenor.
Section 12.7 Fees and Expenses. Each of the Company and the Investor
agrees to pay its own expenses incident to the performance of its obligations
hereunder, except that the Company shall pay on the Closing Date for the First
Tranche, (i) to the Placement Agent, (a) two (2%) percent of the First Tranche
Investment Amount in cash, (b) five (5%) percent of the number of shares of
Preferred Stock issued to the Investors on such Closing Date on the same terms
as Investors, and (c) as provided in Section 2.2, a Warrant to purchase 40,000
shares of Common Stock, and (ii) to ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ & ▇▇▇▇, LLP, Ten
Thousand ($10,000) Dollars in cash. The Company also agrees to pay, on the
Closings for both the second and third tranches of Preferred Stock, (i) to the
Placement Agent (a) two (2%) percent of the Second and Third Tranche Investment
Amount, in cash, (b) five (5%) percent of the number of shares of Preferred
Stock issued to the Investors, and (c) as provided in Section 2.2, a Warrant to
purchase twenty thousand (20,000) shares of Common Stock, on the Closings for
the second and third tranches, as applicable, and (ii) to ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ &
▇▇▇▇, LLP, for legal and escrow expenses, Three Thousand ($3,000) Dollars, for
each of the second and third tranche Closings.
[Remainder of Page Intentionally Left Blank]
[Signature Page Follows]
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IN WITNESS WHEREOF, the parties hereto have caused this 6% Series D
Convertible Preferred Stock Subscription Agreement to be executed by the
undersigned, thereunto duly authorized, as of the date first set forth above.
OBJECTSOFT CORPORATION
By_________________________
SETTONDOWN CAPITAL INTER-
NATIONAL LTD.
By_________________________
AVALON CAPITAL, INC.
By_________________________
AUSTOST ANSTALT ▇▇▇▇▇▇
By_________________________
BALMORE FUNDS S.A.
By_________________________
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