6% SERIES G CONVERTIBLE PREFERRED STOCK SUBSCRIPTION
AGREEMENT
STOCK SUBSCRIPTION AGREEMENT, dated as of December
30, 1999 (the
"Agreement"), among the entities listed on Schedule A annexed
hereto (referred
to as the "Investor" or "Investors") and OBJECTSOFT CORPORATION
(Nasdaq SmallCap
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
and the Investors shall purchase (i) up to $2,500,000 in
aggregate value of
Preferred Stock (as defined below), and (ii) Warrants to
purchase an aggregate
of up to 250,000 Warrant Shares (as defined 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"), 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. "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 1.2. "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 1.3. "Certificate of Designation" shall mean
the Company's
Certificate of Designation setting forth all of the rights,
privileges and
preferences of the Series G Preferred Stock, as annexed hereto as
Exhibit A.
Section 1.4. "Closing" shall mean each closing of the
purchase and sale
of each tranche of the Preferred Stock and Warrants pursuant
to Article II
herein.
Section 1.5. "Closing Date" shall mean, with
respect to the first
tranche, the Subscription Date, and with respect to the second
tranche, February
1, 2000.
Section 1.6. "Commitment Amount" shall mean up to the
$2,500,000 which
the Investors have 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 1.7. "Common Stock" shall mean the Company's
common stock, par
value $0.0001 per share.
Section 1.8. "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 1.9. "Effective Date" shall mean the date on
which the SEC
first declares effective a Registration Statement(s) registering
the resale of
the Underlying Shares and Warrant Shares.
Section 1.10. "Escrow Agent" shall mean the law firm of
Parker Chapin
Flattau & Klimpl, LLP, pursuant to the terms of the Escrow
Agreement annexed
hereto as Exhibit C.
Section 1.11. "Exchange Act" shall mean the Securities
Exchange Act of
1934, as amended, and the rules and regulations promulgated
thereunder.
Section 1.12. "First Tranche Investors" shall mean all
the Investors
other than The Second Tranche Investor.
Section 1.13. "Legend" shall have the meaning set forth
in Section 8.1.
Section 1.14. "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 1.15. "NASD" shall mean the National Association
of Securities
Dealers, Inc.
Section 1.16. "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.
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Section 1.17. "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 1.18. "Placement Agent" shall mean
Intercoastal Financial
Services Corp.
Section 1.19. "Preferred Stock" shall mean the
Company's Series G
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
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 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 U.S. Securities
and Exchange
Commission.
Section 1.27. "Second Tranche Investor" shall mean The
Acqua Wellington
Small Cap Value Fund, Ltd.
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Section 1.28. "Section 4(2)" shall have the meaning
set forth in the
recitals of this Agreement.
Section 1.29. "Securities" shall mean the
Preferred Stock, the
Underlying Shares and the Warrant Shares.
Section 1.30. "Securities Act" shall have the meaning
set forth in the
recitals of this Agreement.
Section 1.31. "SEC Documents" shall mean the
Company's latest Form
10-KSB (and all amendments thereto) as of the time in
question, all Forms
10-QSB, all Forms 8-K filed thereafter, and the Proxy Statements
for its latest
fiscal year as of the time in question and for all special
Meetings of the
stockholders of the Company, and all subsequent filings 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 1.32. "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 of the Preferred Stock shall have been fulfilled.
Section 1.33. "Trading Day" shall mean any day during
which The Nasdaq
Stock Market, Inc. shall be open for business.
Section 1.34. "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 1.35. "Warrants" shall mean the Warrants
issued in the form
attached hereto as Exhibit D.
Section 1.36. "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, in two or more tranches, as
agreed upon by the
Company and the Investors, up to an aggregate principal amount
of $2,500,000
principal amount of Series G Preferred Stock as set forth in (a)
and (b) below.
The number of shares of Common Stock issuable upon conversion of
the Preferred
Stock shall be determined by dividing $2,500,000 by the
conversion formula
contained in the Certificate of Designation.
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(a) First Tranche. The First Tranche
Investors shall
purchase (pro rata) an aggregate principal amount of $2,000,000
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
$2,000,000 of
original Preferred Stock, as more
fully set forth
in the Escrow Agreement attached
hereto as Exhibit
C;
(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
offer, 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
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
Subscription Date;
(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
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delisted from the Principal Market.
The issuance
of the Securities with respect to
the Closing of
the Preferred Stock shall not
violate the
stockholder approval or other
requirements of the
Principal Market or the NASD. 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 day period
immediately preceding the Closing
Date; and
(ix) the representations and
warranties of the
Company set forth in this Agreement
shall be true
and correct in all material respects
(except as to
representations and warranties,
or portions
thereof, which by their terms are
subject to a
materiality or similar standard,
in which case
such representations and warranties
shall be true
and correct) as of the date of this
Agreement and
as of the Subscription Date as
though made on and
as of the Subscription Date
(except that
representations and warranties that
by their terms
speak as of the date of this
Agreement or some
other date shall be true and
correct only as of
such date) and the Investors shall
have received a
certificate, dated the Subscription
Date, signed
by an officer on behalf of the
Company to such
effect.
(b) Second Tranche. The Second Tranche
Investor shall
purchase an aggregate principal amount of $500,000 principal
amount of Preferred
Stock on February 1, 2000 upon delivery into escrow by the
Company of an
aggregate principal amount of $500,000 of original Preferred
Stock, as more
fully set forth in the Escrow Agreement attached hereto as
Exhibit C.
Section 2.2. Warrants. On each Closing Date, the Company
will issue to
the Investors Warrants, exercisable beginning on each
Closing Date and
exercisable thereafter any time over the five-year period
subsequent to each
Closing Date, to purchase an aggregate of 250,000 Warrant Shares
(allocated pro
rata with respect to each Investor) 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 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 severally (as to itself) and
not jointly
represents and warrants to the Company that:
Section 3.1. Intent. Such Investor is entering into this
Agreement for
its own account and has no present arrangement (whether or not
legally binding)
at any time to sell the Securities
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to or through any person or entity; provided, however, that
by making the
representations herein, such Investor does not agree to
hold any of the
Securities for any minimum or other specific term and reserves
the right to
dispose of the Securities at any time in accordance with
federal and state
securities laws applicable to such disposition.
Section 3.2. Sophisticated Investor. Such Investor is a
sophisticated
investor (as described in Rule 506(b)(2)(ii) of Regulation D) and
an accredited
investor (as defined in Rule 501 of Regulation D), and such
Investor has such
experience in business and financial matters that it is capable
of evaluating
the merits and risks of an investment in the Securities.
Such Investor
acknowledges that an investment in the Common Stock is
speculative and involves
a high degree of risk. Such Investor has the ability to fund the
purchase of the
Preferred Stock and Warrants, hold the Preferred Stock and the
Warrants for an
indefinite period of time and is in a financial position to
risk loss of its
entire investment contemplated hereby.
Section 3.3. Authority. This Agreement has been duly
authorized and
validly executed and delivered by such Investor and is a
valid and binding
agreement of such Investor enforceable against it 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. Such Investor is
not 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. Such
Investor is 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 hereby and
thereby, and
compliance with the requirements thereof, will not violate
any law, rule,
regulation, order, writ, judgment, injunction, decree or award
binding on such
Investor, or, to the Investor's knowledge, (a) violate any
provision of any
indenture, instrument or agreement to which such Investor is
a party or is
subject, or by which such Investor or any of its 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
such Investor
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 such Investor is
subject or to which
any of its assets, operations or management may be subject.
Section 3.7. Disclosure; Access to Information. Such
Investor has
received all documents, records, books and other information
pertaining to its
investment in the Company that has been requested thereof,
including the
opportunity to ask questions of, and receive answers from, the
Company. The
Company is subject to the periodic reporting requirements of the
Exchange Act,
and such Investor has reviewed or received copies of any such
reports that have
been requested by it. Such Investor represents that it has
reviewed the
Company's (i) Form
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10-KSB for the year ended December 31, 1997, (ii) Form 10-KSB for
the year ended
December 31, 1998, (iii) Forms 10-QSB for the quarters ended
March 31, 1999,
June 30, 1999 and September 30, 1999, (iv) prospectuses dated
February 24, 1999,
April 30, 1999 and September 30, 1999, (iv) Post-Effective
Amendment to a
Registration Statement on Form SB-2 dated May 20, 1999 and (v)
Current Reports
on Forms 8-K filed January 15, 1999 and March 23, 1999.
Section 3.8. Manner of Sale. At no time was such
Investor presented
with or solicited by or through any leaflet, public
promotional meeting,
television advertisement or any other form of general
solicitation or
advertising in connection with the offer and sale of the
Securities.
Section 3.9. Registration or Exemption Requirements.
Such Investor
further acknowledges and understands 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. Such Investor
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. Such Investor understands that the Preferred Stock
and Warrants are
being offered and sold in reliance on transactional
exemptions from the
registration requirements of federal and state securities
laws and that the
Company is relying upon the truth and accuracy of the
representations,
warranties, agreements, acknowledgments and understandings of
such Investor set
forth herein in order to determine the applicability of such
exemptions and the
suitability of such Investor to acquire the Preferred Stock and
Warrants.
Section 3.10. No Legal, Tax or Investment Advice.
Such Investor
understands that nothing in this Agreement or any other materials
presented to
such Investor in connection with the purchase and sale of
the Securities
constitutes legal, tax or investment advice. Such Investor has
relied on, and
has consulted with, such legal, tax and investment advisors as
such Investor, in
its sole discretion, has deemed necessary or appropriate in
connection with its
purchase of the Securities.
Section 3.11. Put/Short Positions. Neither such
Investor, nor any
affiliate of such Investor, 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
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
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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 stockholder
approval in
regards to the issuance by the Company of more than 19.99% 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 the 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
Stockholders in
regards to the issuance by the Company of more than 19.99% 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 50,000,000 shares of Common Stock, par
value $0.0001, of
which 4,081,764 shares are issued and outstanding, and
5,000,000 shares of
Preferred Stock, par value $0.0001, of which [500] 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.
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 SmallCap 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 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
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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 U.S.
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 and the
holders of the
Underlying Shares shall be entitled to all rights and preferences
accorded to a
holder of Common Stock. Neither the issuance of the Preferred
Stock and the
Underlying Shares, 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 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 any 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
Regulation D)
or general advertising in connection with the offer and sale of
the Preferred
Stock, the Underlying Shares or 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
Preferred Stock, the
Underlying Shares or 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, the Warrants and the Underlying Shares, 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
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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, patent, patent license,
instrument or any
"lock-up" or similar provision of any underwriting or similar
agreement to which
the Company is a party, 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, in conflict with or in default under any of the foregoing
except 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 individually 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, and issue the Underlying Shares upon conversion
or exercise
thereof, 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 stockholder approval required
by the rules
applicable to companies whose common stock trades on The Nasdaq
SmallCap Market,
including the Nasdaq SmallCap 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 Date); 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.
Section 4.10. No Material Adverse Change. Since
September 30, 1999, 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 September
30, 1999, 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 September
30, 1999, 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
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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 could 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 shall 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 days from the Effective Date,
or (b) affect
the timeliness of the Registration Statement being declared
effective.
Section 4.16. Brokers. Except for the Placement Agent,
the Company has
taken no action which would give rise to any claim by any person
for brokerage
commissions, finder's fees or similar payments by the Company
or any Investor
relating to this Agreement or the transactions contemplated
hereby.
Section 4.17. Acknowledgment of Dilution. The
number of shares of
Common Stock constituting Warrant Shares may increase
substantially in certain
circumstances, including the circumstance where the trading price
of the Common
Stock declines. The Company acknowledges that its obligation to
issue Underlying
Shares upon conversion of shares of Preferred Stock and
Warrant Shares upon
exercise of the Warrants is absolute and unconditional,
regardless of the
dilution that such issuance may have on other stockholders of the
Company.
ARTICLE V
COVENANTS OF THE INVESTORS
Section 5.1. Compliance with Law. Each of the
Investor's trading
activities with respect to shares of 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 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.
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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.
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 (i) maintain the listing of the Common Stock
on a Principal
Market, and (ii) as soon as practicable list the Underlying
Shares. The Company
further agrees, if the Company applies to have the Common Stock
traded on any
other Principal Market or other exchange or automated
interdealer quotation
system, 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
or other exchange or automated interdealer quotation system
as promptly as
possible. The Company will use its best efforts to comply with
the rules and
regulations governing 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 material 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 notify each Investor and 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 material 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 the 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.
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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.
Section 6.6. Corporate Existence. The Company will
take all steps
reasonably necessary to preserve and continue the corporate
existence of the
Company.
Section 6.7. Notice of Certain Events Affecting
Registration or
Affecting each Closing of 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 or 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.
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.
Section 6.10. Conversion Limitations. The Company and
the Investors
agree that, unless and until the approval of the Company's
stockholders or a
waiver from The Nasdaq Stock Market is obtained as hereinafter
set forth, the
total number of shares of Common Stock issued and issuable upon
the conversion
of the Preferred Stock issued pursuant to the Certificate of
Designation and/or
upon exercise of the Warrants shall not exceed 19.99% of the
number of
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shares of Common Stock outstanding as of the first Closing
Date. The Company
agrees that it shall include a resolution for approval at its
annual meeting of
stockholders projected to take place in May 2000 for the purpose
of approving
below market price issuances of Common Stock to the Investors and
the Placement
Agent equal to or in excess of 20% of the number of shares of
Common Stock
outstanding as of the first Closing Date as required by
Section 4310
(c)(25)(H)(i) 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 issued and potentially
issuable under
the Certificate of Designation and upon exercise of the Warrants
exceeds in the
aggregate 19.99% of the number of shares of Common Stock
outstanding as of the
first Closing Date, the Company will use its reasonable
efforts to obtain a
waiver from The Nasdaq Stock Market (or other applicable market
or exchange) to
permit such issuances.
Section 6.11. Securities Compliance. The Company shall
notify the SEC
and The Nasdaq SmallCap Market, in accordance with their
requirements, of the
transactions contemplated by this Agreement, the Preferred
Stock, the
Registration Rights Agreement and the Warrants, and shall
take all other
necessary action and proceedings as may be required and permitted
by applicable
law, rule and regulation, for the legal and valid issuance of
the Preferred
Stock hereunder, the Underlying Shares issuable upon conversion
thereof, the
Warrants and Warrant Shares issuable upon exercise of the
Warrants.
Section 6.12. Notices. The Company agrees to provide
all holders of
Preferred Stock and Warrants with copies of all notices and
information,
including without limitation, notices and proxy statements in
connection with
any meetings, that are provided generally to the holders of
shares of Common
Stock, contemporaneously with the delivery of such notices or
information to
such Common Stock holders.
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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), and 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, or 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
Investor's 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 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
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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 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 THESE
SECURITIES 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, IN THE WRITTEN OPINION OF LEGAL
COUNSEL REASONABLY
ACCEPTABLE TO THE COMPANY, PURSUANT TO A TRANSACTION
THAT IS EXEMPT
FROM, OR NOT SUBJECT TO, SUCH REGISTRATION REQUIREMENTS.
THE HOLDER OF
THIS CERTIFICATE IS THE BENEFICIARY OF CERTAIN
OBLIGATIONS OF THE
COMPANY SET FORTH IN A 6% SERIES G CONVERTIBLE
PREFERRED STOCK
SUBSCRIPTION AGREEMENT DATED AS OF DECEMBER 30, 1999.
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 F 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 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
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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, then
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, in the opinion of counsel reasonably
acceptable to the
Company, 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 an Investor 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 Subscription Date; provided,
however, that the
provisions of Articles III, IV, V, VI (as long as the
Se
