EXHIBIT 4.2
CONVERTIBLE SUBORDINATED DEBENTURE
PURCHASE AGREEMENT
CONVERTIBLE SUBORDINATED DEBENTURE PURCHASE AGREEMENT ("Agreement")
dated as of February 2, 1999 between ZITEL CORPORATION, a California
corporation (the "Company"), and each person or entity listed as an investor
on Schedule I attached to this Agreement (each individually an "Investor" and
collectively the "Investors").
WITNESSETH
WHEREAS, the Company desires to sell and issue to the Investors, and the
Investors wish to purchase from the Company, 3% Convertible Subordinated
Debentures due February 1, 2000 (the "Debentures"), in the aggregate
principal amount of $5,000,000 at an aggregate price of $5,000,000, having
the rights and privileges set forth in the Debentures in the form of EXHIBIT
1.1A attached hereto (the "Issuance"), on the terms and conditions set forth
herein; and
WHEREAS, the Debentures will be convertible into shares ("COMMON
SHARES") of common stock, no par value of the Company ("COMMON STOCK"),
pursuant to the terms of the Debentures, and the Investors will have
registration rights with respect to such Common Shares and the Warrant Shares
(as defined herein), pursuant to the terms of that certain Registration
Rights Agreement to be entered into between the Company and the Investors
substantially in the form of EXHIBIT 4.2(f) hereto ("REGISTRATION RIGHTS
AGREEMENT"); and
WHEREAS, to induce the Investors to purchase the Debentures, the Company
has agreed to issue to the Investors warrants exercisable for 75,000 shares
of Common Stock, in the form attached as EXHIBIT 1.1B (the "WARRANTS");
NOW, THEREFORE, in consideration of the foregoing premises and the
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
ARTICLE 1
PURCHASE AND SALE OF DEBENTURES AND WARRANTS
1.1 ISSUANCE OF DEBENTURES AND WARRANTS. Upon the following terms and
conditions, the Company shall issue and sell to each Investor severally, and
each Investor severally shall purchase from the Company, the outstanding
principal amount of Debentures indicated next to such Investor's name on
Schedule I attached hereto.
(a) ISSUANCE. Upon the following terms and conditions, the
Company shall issue and sell to each Investor severally, and each Investor
severally shall purchase from the
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Company, the principal amount of Debentures and the number of Warrants
indicated next to such Investor's name on SCHEDULE I attached hereto.
(b) PURCHASE PRICE. The purchase price for the Debentures to be
acquired by each Investor (the "PURCHASE PRICE") shall be the Purchase Price
set forth next to such Investor's name on SCHEDULE I.
(c) THE CLOSING.
(i) The closing of the purchase and sale of the Debentures
and the Warrants (the "Closing"), shall take place at 10:00 am., local time
on the later of the following: (x) February 2, 1999, (y) the date on which
the last to be fulfilled or waived of the conditions set forth in Article IV
hereof and applicable to the Closing shall be fulfilled or waived in
accordance herewith, or (z) such other time and place and/or on such other
date as the Investors and the Company may agree. The date on which the
Closing occurs is referred to herein as the "Closing Date".
(ii) On the Closing Date, the Company shall deliver to each
Investor (x) certificates (with the number of and outstanding principal
amount of such certificates requested by such Investor) representing the
Debentures purchased hereunder by such Investor at the Closing registered in
the name of such Investor or its nominee and (y) the Warrants registered in
the name of Investor or its nominee in such denominations as reasonably
requested by such Investor, and such Investor shall deliver to the Company
the Purchase Price for the Debentures purchased by such Investor hereunder by
wire transfer in immediately available funds to an account designated in
writing by the Company. The delivery of payment by each Investor of the
Purchase Price applicable to it as set forth in this paragraph shall
constitute a payment delivered to the Company in satisfaction of such
Investor's obligation to pay the Purchase Price hereunder. In addition, each
party shall deliver all documents, instruments and writings required to be
delivered by such party pursuant to this Agreement at or prior to the
applicable Closing. Notwithstanding anything to the contrary herein, the
Closing may be conducted through LaSalle National Bank, 135 South LaSalle
Street, Chicago, Illinois 60603 (the "Escrow Agent") as set forth in that
certain escrow agreement dated as of January 27, 1999 among the Company, the
Escrow Agent and Rochon Capital Group, Ltd.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES
2.1 REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
makes the following representations and warranties to each of the Investors
as of the date hereof and on each Closing Date:
(a) ORGANIZATION AND QUALIFICATION; MATERIAL ADVERSE EFFECT. The
Company is a corporation duly incorporated and existing in good standing
under the laws of the State of California and has the requisite corporate
power to own its properties and to carry on its business as now being
conducted. The Company does not have any direct or indirect subsidiaries
other than the subsidiaries listed in Section 2.1(a) of the Company's
disclosure
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schedule delivered to the Investors and attached hereto (the "Disclosure
Schedule"). Except where specifically indicated to the contrary, all
references in this Agreement to subsidiaries shall be deemed to refer to all
direct and indirect subsidiaries of the Company. 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 have a Material Adverse Effect. "MATERIAL
ADVERSE EFFECT" means any adverse effect on the business, operations,
properties, prospects, or financial condition of the entity with respect to
which such term is used and which is (either alone or together with all other
adverse effects) material to such entity and other entities controlling or
controlled by such entity taken as a whole, and any material adverse effect
on the transactions contemplated under this Agreement, the Registration
Rights Agreement or any other agreement or document contemplated hereby or
thereby.
(b) AUTHORIZATION; ENFORCEMENT. (i) The Company has all requisite
corporate power and authority to enter into and perform this Agreement, the
Warrants and the Registration Rights Agreement and to issue the Debentures
and Warrants in accordance with the terms hereof and thereof, (ii) the
execution and delivery of this Agreement, the Warrants and the Registration
Rights Agreement by the Company and the consummation by it of the
transactions contemplated hereby and thereby, including the issuance of the
Debentures, the Common Shares and the Warrant Shares have been duly
authorized by all necessary corporate action, and no further consent or
authorization of the Company or its Board of Directors (or any committee or
subcommittee thereof) or stockholders is required, (iii) this Agreement, the
Warrants, the Debentures and the Registration Rights Agreement have been duly
executed and delivered by the Company, and (iv) this Agreement, the Warrants,
the Debentures and the Registration Rights Agreement 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, reorganization, moratorium, liquidation or
similar laws relating to, or affecting generally the enforcement of
creditors' rights and remedies or by other equitable principles of general
application.
(c) CAPITALIZATION. As of January 15, 1999, the authorized
capital stock of the Company consisted of 40,000,000 shares of Common Stock
and 1,000,000 shares of preferred stock; there are 21,907,553 shares of
Common Stock and no shares of preferred stock issued and outstanding; and
3,402,031 shares of Common Stock and no shares of preferred stock are
reserved for issuance to persons other than the Investors. After the
Closing, 3,402,031 shares of Common Stock and no shares of preferred stock
will be reserved for issuance to persons other than the Investors. All of
the outstanding shares of the Company's Common Stock and preferred stock have
been validly issued and are fully paid and nonassessable. No shares of
capital stock are entitled to preemptive rights; and there are as of the date
hereof outstanding options for 1,861,551 shares of Common Stock and 150,000
outstanding warrants for shares of Common Stock (excluding the Warrants).
Except as set forth in Section 2.1(c) of the Disclosure Schedule, there are
no other scrip, rights to subscribe to, calls or commitments of any character
whatsoever relating to, or securities or rights exchangeable for or
convertible into, any shares of capital stock of the Company, or contracts,
commitments, understandings, or arrangements by which the Company is or may
become bound to issue additional shares of capital stock of the Company or
options, warrants, scrip, rights to subscribe to, or commitments to purchase
or acquire, any shares, or securities or rights convertible or exchangeable
into shares, of capital stock of the
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Company. Attached hereto as EXHIBIT 2.1(c)(i) is a true and correct copy of
the Company's Articles of Incorporation (the "CHARTER"), as in effect on the
date hereof, and attached hereto as EXHIBIT 2.1(c)(ii) is a true and correct
copy of the Company's By-Laws, as in effect on the date hereof (the
"BY-LAWS").
(d) ISSUANCE OF COMMON SHARES. The Common Shares and the shares
of Common Stock issuable upon the exercise of the Warrants (the "WARRANT
SHARES") are duly authorized and reserved for issuance and, upon such
conversion in accordance with the Debentures and/or exercise in accordance
with the Warrants such Common Shares and Warrant Shares will be validly
issued, fully paid and non-assessable, free and clear of any and all liens,
claims and encumbrances, and entitled to be traded on the Nasdaq National
Market System ("NASDAQ NMS") (or the American Stock Exchange or the New York
Stock Exchange, collectively with the Nasdaq NMS, the "APPROVED MARKETS"),
and the holders of such Common Shares and Warrant Shares shall be entitled to
all rights and preferences accorded to a holder of Common Stock. The
outstanding shares of Common Stock are currently listed on the Nasdaq NMS.
(e) NO CONFLICTS. The execution, delivery and performance of this
Agreement, the Registration Rights Agreement and the Warrants by the Company
and the consummation by the Company of the transactions contemplated hereby
and thereby and the issuance of the Debentures and the Warrants do not and
will not (i) result in a violation of the Company's Charter or By-Laws or
(ii) conflict with, or constitute a default (or an event which with notice or
lapse of time or both would become a default) under, or give to others any
rights of termination, amendment, acceleration or cancellation of, any
agreement, indenture, patent, patent license or instrument to which the
Company or any of its subsidiaries is a party, or (iii) result in a violation
of any federal, state, local or foreign law, rule, regulation, order,
judgment or decree (including Federal and state securities laws and
regulations) applicable to the Company or any of its subsidiaries or by which
any property or asset of the Company or any of its subsidiaries is bound or
affected. The business of the Company and its direct and indirect
subsidiaries is being conducted in material compliance with all applicable
laws, ordinances or regulations of any governmental entity. The Company is
not required under Federal, state, local or foreign 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, the
Registration Rights Agreement, the Debentures and the Warrants or issue and
sell the Debentures in accordance with the terms hereof and issue the Common
Shares upon conversion thereof and issue the Warrant Shares on exercise of
the Warrants and for the registration provisions provided in the Registration
Rights Agreement, except as specified herein and in the Registration Rights
Agreement and the Warrant.
(f) SEC DOCUMENTS; NO NON-PUBLIC INFORMATION; FINANCIAL
STATEMENTS. The Common Stock of the Company is registered pursuant to Section
12(g) of the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT")
and the Company has filed all reports, schedules, forms, statements and other
documents required to be filed by it with the Securities and Exchange
Commission ("SEC") pursuant to the reporting requirements of the Exchange
Act, including material filed pursuant to Section 13(a) or 15(d), in addition
to one or more registration statements and amendments thereto heretofore
filed by the Company with the SEC
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(all of the foregoing including filings incorporated by reference therein
being referred to herein as the "SEC DOCUMENTS"). The Company has delivered
or made available to the Investors true and complete copies of all SEC
Documents (including, without limitation, proxy information and solicitation
materials and registration statements) filed with the SEC since September 30,
1998, all annual SEC Documents filed with the SEC since September 30, 1997,
and all press releases issued by the Company since May 28, 1998 as set forth
in Section 2.1(f) of the Disclosure Schedule (the "Press Releases"). The
Company has not directly or indirectly provided to the Investor any
information that currently constitutes material non-public information or any
information which, according to applicable law, rule or regulation, should
have been disclosed publicly by the Company but which has not been so
disclosed. As of their respective dates, the SEC Documents complied in all
material respects with the requirements of the Exchange Act and the rules and
regulations of the SEC promulgated thereunder and other federal, state and
local laws, rules and regulations applicable to such SEC Documents, 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 SEC Documents and Press Releases
contain all material information concerning the Company, and no event or
circumstance has occurred which would require the Company to disclose such
event or circumstance in order to make the statements in the SEC Documents
and the Press Releases not misleading on the date hereof or on the Closing
Date but which has not been so disclosed. The financial statements of the
Company included in the SEC Documents comply as to form and substance 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 United States generally accepted accounting principles
(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).
(g) PRINCIPAL EXCHANGE/MARKET. The principal market on which the
Common Stock is currently traded is the Nasdaq NMS.
(h) NO MATERIAL ADVERSE CHANGE. Since September 30, 1998, no
Material Adverse Effect has occurred or exists, and no event or circumstance
which has not been disclosed in the SEC Documents and Press Releases has
occurred that with notice or the passage of time or both is reasonably likely
to result in a Material Adverse Effect with respect to the Company or its
subsidiaries.
(i) NO UNDISCLOSED LIABILITIES. Except as disclosed in Section
2.1(i) of the Company Disclosure Schedule, the Company and its subsidiaries
have no liabilities or obligations not disclosed in the SEC Documents or the
Press Releases, other than those liabilities incurred in the ordinary course
of the Company's or its subsidiaries' respective businesses since September
30, 1998, which liabilities, individually or in the aggregate, do not or
would not have a Material Adverse Effect on the Company or its direct or
indirect subsidiaries.
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(j) NO UNDISCLOSED EVENTS OR CIRCUMSTANCES. No event or
circumstance has occurred or exists with respect to the Company or its direct
or indirect subsidiaries or their respective businesses, properties,
prospects, operations or financial condition, which, under applicable law,
rule or regulation, requires public disclosure or announcement by the Company
but which has not been so publicly announced or disclosed.
(k) NO GENERAL SOLICITATION. Neither the Company, nor any of its
affiliates, or, to its knowledge, any person acting on its or their behalf
has engaged in any form of general solicitation or general advertising
(within the meaning of Regulation D under the Securities Act of 1933, as
amended (the "Act")) in connection with the offer or sale of the Debentures
or Common Shares.
(l) NO INTEGRATED OFFERING. Neither the Company, nor any of its
affiliates, nor to its knowledge any person acting on its or their behalf
has, directly or indirectly, made any offers or sales of any security or
solicited any offers to buy any security, under circumstances that would
require registration of the Debentures, the Warrants or the Common Shares or
Warrant Shares under the Act. The issuance of the Debentures, Warrants,
Common Shares, or Warrant Shares to the Investors will not be integrated with
any other issuance of the Company's securities (past, current or future)
which requires stockholder approval under the rules of the Nasdaq NMS.
(m) FORM S-3. The Company is eligible to file a Registration
Statement (as defined in the Registration Rights Agreement) on Form S-3 under
the Act and rules promulgated thereunder for transactions involving secondary
offerings, and Form S-3 is permitted to be used for the transactions
contemplated by the Registration Rights Agreement involving secondary
offerings under the Act and rules promulgated thereunder.
(n) INTELLECTUAL PROPERTY. The Company (and/or its wholly-owned
subsidiaries) owns or has licenses to use certain patents, copyrights and
trademarks ("INTELLECTUAL PROPERTY") associated with its business. The
Company and its subsidiaries have all intellectual property rights which are
material to the conduct of the business of the Company and its subsidiaries
as it is now being conducted or as proposed to be conducted as disclosed in
the SEC Documents. The Company and its subsidiaries have no reason to
believe that the intellectual property rights which it owns are invalid or
unenforceable or that the use of such intellectual property by the Company or
its subsidiaries infringes upon or conflicts with any right of any third
party, and neither the Company nor any of its subsidiaries has received
notice of any such infringement or conflict. The Company and its
subsidiaries have no knowledge of any material infringement of its
intellectual property by any third party.
(o) SHAREHOLDER RIGHTS PLAN. None of the acquisition of
Debentures, Warrants, Common Shares or Warrant Shares nor the deemed
beneficial ownership of shares of Common Stock prior to, or the acquisition
of such shares pursuant to, the conversion of Debentures or the exercise of
the Warrants will trigger the poison pill provisions of any stockholders'
rights or similar agreements, or a substantially similar occurrence under any
successor or similar plan.
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(p) NO LITIGATION. Except as set forth in Section 2.1(p) of the
Disclosure Schedule, no litigation or claim (including those for unpaid
taxes) against the Company or any of its subsidiaries is pending or, to the
Company's knowledge, threatened, and no other event has occurred, which if
determined adversely could reasonably be expected to have a Material Adverse
Effect on the Company or could reasonably be expected to materially and
adversely effect the transactions contemplated hereby. The legal proceedings
described in the Disclosure Schedule will not have an effect on the
transactions contemplated hereby, and will not have a Material Adverse Effect
on the Company.
(q) BROKERS. The Company has taken no action which would give
rise to any claim by any person for brokerage commissions, finder's fees or
similar payments by the Company or any Investor relating to this Agreement or
the transactions contemplated hereby, except for amounts owing to Rochon
Capital Group, Ltd. which amounts shall be paid exclusively by the Company,
pursuant to a separate agreement.
(r) ACKNOWLEDGEMENT OF DILUTION. The number of shares of Common
Stock constituting Common Shares or 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 Common Shares upon conversion of Debentures and Warrant Shares upon
exercise of the Warrants is absolute and unconditional (except as limited by
NASD Rule 4460(i) and any similar rule of any other Approved Market on which
the Common Stock may then be trading, Section 12 of the Debentures and
Section 9 of the Warrants), regardless of the dilution that such issuance may
have on other shareholders of the Company.
(s) OTHER INVESTORS. Except as set forth in Section 2.1(s) of the
Disclosure Schedule, there are no outstanding securities issued by the
Company that are entitled to registration rights under the Act. Except as
set forth in SCHEDULE 2.1(s), there are no outstanding securities issued by
the Company that are directly or indirectly convertible into, exercisable
into, or exchangeable for, shares of Common Stock of the Company, that have
anti-dilution or similar rights that would be affected by the issuance of the
Debentures, the Common Shares, the Warrant Shares or the Warrants.
(t) CERTAIN TRANSACTIONS. Except as disclosed in the SEC
Documents and Section 2.1(t) of the Disclosure Schedule, none of the
officers, directors, or employees of the Company is presently a party to any
material transaction with the Company or any of its subsidiaries (other than
for services as employees, officers and directors), including any contract,
agreement or other arrangement providing for the furnishing of services to or
by, providing for rental of real or personal property to or from, or
otherwise requiring payments to or from any officer, director or such
employee or, to the knowledge of the Company, any corporation, partnership,
trust or other entity in which any officer, director, or any such employee
has a substantial interest or is an officer, director, trustee or partner.
(u) PERMITS; COMPLIANCE. The Company and each of its subsidiaries
is in possession of all material franchises, grants, authorizations,
licenses, permits, easements, variances, exemptions, consents, certificates,
approvals and orders necessary to own, lease and operate its properties and
to carry on its business as it is now being conducted (collectively, the
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"COMPANY PERMITS"), and there is no action pending or, to the knowledge of
the Company, threatened regarding suspension or cancellation of any of the
Company Permits except for such Company Permits the failure of which to
possess, or the cancellation or suspension of which, would not, individually
or in the aggregate, have a material effect on the Company. Neither the
Company nor any of its subsidiaries is in material conflict with, or in
material default or material violation of, any of the Company Permits. Since
September 30, 1998, neither the Company nor any of its subsidiaries has
received any notification with respect to possible material conflicts,
material defaults or material violations of applicable laws.
(v) INSURANCE. The Company and each of its subsidiaries are
insured by insurers of recognized financial responsibility against such
losses and risks and in such amounts as management of the Company believes to
be prudent and customary in the businesses in which the Company and its
direct and indirect subsidiaries are engaged. Neither the Company nor any
such subsidiary has any reason to believe that it will not be able to renew
its existing insurance coverage as and when such coverage expires or to
obtain similar coverage from similar insurers as may be necessary to continue
its business without a significant increase in cost.
(w) INTERNAL ACCOUNTING CONTROLS. The Company and each of its
subsidiaries maintain a system of internal accounting controls sufficient, in
the judgment of the Company's board of directors, to provide reasonable
assurance that (i) transactions are executed in accordance with management's
general or specific authorizations, (ii) transactions are recorded as
necessary to permit preparation of financial statements in conformity with
generally accepted accounting principles and to maintain asset
accountability, (iii) access to assets is permitted only in accordance with
management's general or specific authorization and (iv) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
(x) ENVIRONMENTAL MATTERS. Except as otherwise disclosed in the
SEC Documents, the Company and each of its subsidiaries is in compliance in
all material respects with all applicable state and federal environmental
laws and no event or condition has occurred that may interfere with the
compliance by the Company or any of its subsidiaries with any environmental
law or that may give rise to any liability under any environmental law that,
individually or in the aggregate, would have a Material Adverse Effect.
(y) SOLVENCY.
(i) The Company's fair saleable value of its assets exceeds
the amount that will be required to be paid on or in respect of the Company's
existing debts and other liabilities (including contingent liabilities) as
they mature.
(ii) The Company's assets do not constitute unreasonably
small capital to carry out its business as now conducted and as proposed to
be conducted including the Company's capital needs taking into account the
particular capital requirements of the business conducted by the Company, and
projected capital requirements and capital availability thereof.
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(iii) The Company does not intend to incur debts beyond its
ability to pay such debts as they mature (taking into account the timing and
amounts of cash to be payable on or in respect of its debt).
(iv) The Company does not intend, and does not believe, that
final judgments against the Company in actions for money damages will be
rendered at a time when, or in an amount such that, the Company will be
unable to satisfy any such judgments promptly in accordance with their terms
(taking into account the maximum reasonable amount of such judgments in any
such actions and the earliest reasonable time at which such judgments might
be rendered. The Company's cash flow, after taking into account all other
anticipated uses of the cash (including the payments on or in respect of debt
referred to in paragraph (iii) above), will at all times be sufficient to pay
all such judgments promptly in accordance with their terms.
Neither the Company nor any of its subsidiaries is subject to any
bankruptcy, insolvency or similar proceeding.
(z) TAXES. All federal, state, city and other tax returns,
reports and declarations required to be filed by or on behalf of the Company
have been filed and such returns are complete and accurate and disclose all
taxes (whether based upon income, operations, purchases, sales, payroll,
licenses, compensation, business, capital, properties or assets or otherwise)
required to be paid in the periods covered thereby. All taxes shown on such
returns and any deficiency assessments, penalties and interest have been
paid. All taxes required to be withheld by or on behalf of the Company in
connection with amounts paid or owing to any employees, independent
contractor, creditor or other party have been withheld, and such withheld
taxes have either been duly and timely paid to the proper governmental
authorities or set aside in accounts for such purposes.
2.2 REPRESENTATIONS AND WARRANTIES OF THE INVESTORS. Each of the
Investors, severally (as to itself) and not jointly, hereby makes the
following representations and warranties to the Company as of the date hereof
and on the Closing Date:
(a) AUTHORIZATION; ENFORCEMENT. (i) Such Investor has the
requisite power and authority to enter into and perform this Agreement and
the Registration Rights Agreement and to purchase the Debentures being sold
hereunder and to acquire the Warrant, (ii) the execution and delivery of this
Agreement and the Registration Rights Agreement by such Investor and the
consummation by it of the transactions contemplated hereby and thereby have
been duly authorized by all necessary corporate or partnership action, and
(iii) this Agreement and the Registration Rights Agreement constitute valid
and binding obligations of such Investor enforceable against such Investor in
accordance with their terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or
similar laws relating to, or affecting generally the enforcement of
creditors' rights and remedies or by other equitable principles of general
application.
(b) NO CONFLICTS. The execution, delivery and performance of this
Agreement and the Registration Rights Agreement and the performance under the
Debentures and Warrants and the consummation by such Investor of the
transactions contemplated hereby and thereby do not and will not (i) result
in a violation of such Investor's organizational documents, or (ii)
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conflict with any agreement, indenture or instrument to which such Investor
is a party, or (iii) result in a material violation of any law, rule, or
regulation, or any order, judgment or decree of any court or governmental
agency applicable to such Investor. Such Investor is not required to obtain
any consent or authorization of any governmental agency in order for it to
perform its obligations under this Agreement, the Registration Rights
Agreement, the Warrants or the Debentures.
(c) INVESTMENT REPRESENTATION. Such Investor is purchasing the
Debentures and the Warrants for its own account and not with a view to
distribution in violation of any securities laws. Such Investor has no
present intention to sell the Debentures, Warrants, Common Shares, or Warrant
Shares in violation of Federal or state securities laws and such Investor has
no present arrangement (whether or not legally binding) to sell the
Debentures, Warrants, Common Shares or Warrant Shares to or through any
person or entity; provided, however, that by making the representations
herein, such Investor does not agree to hold the Debentures, Warrants, Common
Shares or Warrant Shares for any minimum or other specific term and reserves
the right to dispose of the Debentures, Warrants, Common Shares or Warrant
Shares at any time in accordance with Federal and state securities laws
applicable to such disposition.
(d) ACCREDITED INVESTOR. Such Investor is an "accredited
investor" as defined in Rule 501 promulgated under the Act. The Investor has
such knowledge and experience in financial and business matters in general
and investments in particular, so that such Investor is able to evaluate the
merits and risks of an investment in the Debentures and to protect its own
interests in connection with such investment. In addition (but without
limiting the effect of the Company's representations and warranties contained
herein), such Investor has received such information as it considers
necessary or appropriate for deciding whether to purchase the Debentures
pursuant hereto.
(e) RULE 144. Such Investor understands that there is no public
trading market for the Debentures or Warrants, that none is expected to
develop, and that the Debentures and Warrants and the Common Shares and
Warrant Shares must be held indefinitely unless the Common Shares and Warrant
Shares are registered under the Act or an exemption from registration is
available. Such Investor has been advised or is aware of the provisions of
Rule 144 promulgated under the Act.
(f) BROKERS. Such Investor has taken no action which would give
rise to any claim by any person for brokerage commissions, finder's fees or
similar payments by the Company relating to this Agreement or the
transactions contemplated hereby, except for amounts owing to Rochon Capital
Group, Ltd., which amounts will be paid exclusively by the Company, pursuant
to a separate agreement.
(g) RELIANCE BY THE COMPANY. Such Investor understands that the
Debentures and Warrant are being offered and sold in reliance on a
transactional exemption 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 Debentures and Warrants.
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ARTICLE 3
COVENANTS
3.1 REGISTRATION AND LISTING; EFFECTIVE REGISTRATION. Until such time
as no Debentures or Warrants are outstanding, the Company will cause the
Common Stock to continue at all times to be registered under Section 12(g) 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 the Exchange Act or the rules
thereunder) to terminate or suspend such reporting and filing obligations.
Until such time as no Debentures or Warrants are outstanding, the Company
shall continue the listing or trading of the Common Stock on the Nasdaq NMS
or one of the other Approved Markets and comply in all respects with the
Company's reporting, filing and other obligations under the bylaws or rules
of the Approved Market on which the Common Stock is listed. The Company
shall cause the Common Shares and the Warrant Shares to be listed on the
Nasdaq NMS no later than the registration of the Common Shares or the Warrant
Shares under the Act, and at all times shall continue such listing(s) on one
of the Approved Markets. As used herein and in the Registration Rights
Agreement, the Debenture and the Warrants, the term "EFFECTIVE REGISTRATION"
shall mean that all registration obligations of the Company pursuant to the
Registration Rights Agreement and this Agreement have been satisfied, all
Registrable Securities (as defined in the Registration Rights Agreement) have
been registered for resale by the Investors, such registration is not subject
to any suspension or stop order, the prospectus for the Common Shares
issuable upon conversion of the Debentures and the Warrant Shares issuable
upon exercise of the Warrants is current and such Common Shares and Warrant
Shares are listed for trading on one of the Approved Markets and such trading
has not been suspended for any reason, none of the Company or any direct or
indirect subsidiary of the Company is subject to any bankruptcy, insolvency
or similar proceeding, and no Interfering Event (as defined in Section 2(b)
of the Registration Rights Agreement) exists.
3.2 DEBENTURES ON CONVERSION AND WARRANTS ON EXERCISE.
(a) Upon any conversion by an Investor (or then holder of
Debentures) of the Debentures pursuant to the terms thereof, the Company
shall issue and deliver to such Investor (or holder) within three (3) Trading
Days of the Conversion Date (as defined in the Debenture) a new certificate
or certificates for the number of Debentures which such Investor (or holder)
has not yet elected to convert but which are evidenced in part by the
certificate(s) submitted to the Company in connection with such conversion
(with the number of and denomination of such new certificate(s) designated by
such Investor or holder).
(b) Upon any partial exercise by an Investor (or then holder of
the Warrants) of the Warrants, the Company shall issue and deliver to such
Investor (or holder) within three (3) days of the date on which such Warrants
are exercised, a new Warrant or Warrants representing the number of adjusted
Warrant Shares, in accordance with the terms of Section 2 of the Warrants.
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3.3 REPLACEMENT DEBENTURES AND WARRANTS.
(a) The certificate(s) representing the Debentures held by any
Investor (or then holder) may be exchanged by such Investor (or such holder)
at any time and from time to time for certificates with different
denominations representing an equal aggregate number of Debentures, as
requested by such Investor (or such holder) upon surrendering the same. No
service charge will be made for such registration or transfer or exchange.
(b) The Warrants will be exchangeable at the option of the
Investor (or then holder of the Warrants) at the office of the Company for
other Warrants of different denominations entitling the holder thereof to
purchase in the aggregate the same number of Warrant Shares as are
purchasable under such Warrants. No service charge will be made for such
transfer or exchange.
3.4 EXPENSES. The Company shall pay in immediately available funds, at
the Closing and promptly upon receipt of any further invoices relating to
same, all reasonable due diligence fees and expenses and attorneys' fees and
expenses of Kleinberg, Kaplan, Wolff & Cohen, P.C. ("Investors' Counsel"), up
to a maximum amount of $30,000, incurred by the Investors in connection with
the preparation, negotiation, execution and delivery of this Agreement, the
Registration Rights Agreement, the Debentures, the Warrants and the related
agreements and documents and the transactions contemplated hereunder and
thereunder. At Closing, the Company shall pay the amount due for such fees
and expenses (which may include fees and expenses estimated to be incurred
for completion of the transaction including post-closing matters). In the
event such amount is ultimately less than the actual fees and expenses, the
Company shall promptly pay such deficiency upon receipt of an invoice
regarding same.
3.5 SECURITIES COMPLIANCE. The Company shall notify the SEC and the
Nasdaq NMS, in accordance with their requirements, of the transactions
contemplated by this Agreement, the Debenture, 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 Debentures hereunder, the
Common Shares issuable upon conversion thereof, the Warrants and the Warrant
Shares issuable upon exercise of the Warrants.
3.6 DIVIDENDS OR DISTRIBUTIONS. So long as any Debentures remain
outstanding, the Company agrees that it shall not (a) declare or pay any
dividends or make any distributions to any holder or holders of Common Stock,
or (b) purchase or otherwise acquire for value, directly or indirectly, any
Common Stock or other equity security of the Company.
3.7 NOTICES. The Company agrees to provide all holders of Debentures
and Warrants with copies of all notices and information, including without
limitation notices and proxy statements in connection with any meetings, that
are provided 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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3.8 USE OF PROCEEDS. The Company agrees that the proceeds received by
the Company from the sale of the Debentures hereunder shall be used for
working capital purposes and an investment in Matridigm Corporation.
3.9 RIGHT OF FIRST REFUSAL; ADJUSTMENTS.
(a) Until the expiration of twelve (12) months from the Closing
Date, the Company shall not (i) sell or otherwise issue or deliver any shares
of Common Stock or other equity securities or any securities which are
convertible into or exchangeable for shares of its Common Stock or other
equity securities or any convertible or exchangeable security, or any
warrants or other rights to subscribe for or to purchase or any options for
the purchase of shares of Common Stock or other equity securities to any
party other than the Investors or their affiliates (a "THIRD PARTY") (other
than in a bona-fide public offering conducted on the basis of a firm
commitment underwriting with a price to the public of at least $10,000,000
and other than shares or options issued or which may be issued pursuant to
the Company's currently existing employee or director option plans and
employee stock purchase plans as such plans may be amended from time to time
consistent with practices of other companies in the high-technology sector,
shares issued upon exercise of options, warrants or rights outstanding on the
Closing Date listed in Section 2.1(c) of the Disclosure Schedule or shares
issued in a Matridigm Transaction (as defined in Section 7.17), or (ii)
obtain any equity or equity related financing from any Third Party, unless
such offer, sale, issuance or financing ("FINANCING TRANSACTION") is first
offered to the Investors. The Company shall make such offer by providing
each Investor with written notice of the Company's intention to enter into
the Financing Transaction with such Third Party together with a term sheet
identifying all such Third Parties and containing all the economic terms and
significant provisions of the Financing Transaction (the "OFFER"). Such
Offer shall be given with respect to each Financing Transaction negotiated by
the Company with any Third Party. The Investors shall have ten (10) business
days from receipt of the Offer to deliver a written notice to the Company
that the Investors wish to accept the Offer in whole but not in part (subject
to satisfactory due diligence and reasonably acceptable definitive
documentation) for the Financing Transaction. If certain Investors choose
not to participate, the other Investors may increase their participation on a
proportional basis. If the Investors reject the Offer entirely or fail to
respond within such ten (10) business day period, then the Company shall be
permitted to complete such Financing Transaction with the Third Party within
thirty (30) days on terms and conditions identical to those contained in the
Offer. If any Financing Transaction is contemplated on terms and conditions
not identical to those contained in the Offer or with definitive
documentation not identical to that proposed by the Company with respect to
the Offer or if such Financing Transaction is not consummated with such Third
Party within 30 days, then such Financing Transaction shall be deemed a new
Financing Transaction and the Investors shall again be entitled to receive an
Offer for such Financing Transaction on such new terms and conditions (and/or
with such new definitive documentation if applicable) or upon the same terms
if the Third Party fails to consummate the Financing Transaction in the
period specified in this sentence. The rights of the Investors under this
paragraph 3.9 (a) as to any securities, instruments or rights issued which
are exercisable or exchangeable for, or convertible into, shares of Common
Stock, where (i) the exercise, exchange or conversion price is at a discount
of 10% or greater from the then market price of the Common Stock, or (ii)
holders of such securities, instruments or rights may acquire additional
shares of Common Stock as a result of a
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one-time or periodic adjustments to the exercise, exchange or conversion
price, shall survive a Change of Control Transaction, as defined in the
Debenture.
(b) If at any time within twelve (12) months from the Closing Date
the Company issues Common Stock (or securities or rights exercisable or
exchangeable for, or convertible into, Common Stock) in a private placement
at a discount greater than the discount specified in Section 5(c) of the
Debentures or at a ceiling, conversion, exercise or exchange price less than
the Conversion Price (as defined in the Debentures and as adjusted pursuant
to the terms thereof), then the Debentures will automatically (at the
Investor's request) be adjusted to provide for such greater discount or lower
or more favorable conversion, exercise or exchange price, as applicable.
This paragraph 3.9 (b) shall not apply to issuances pursuant to currently
existing employee or director option or stock purchase plans as such plans
may be amended from time to time consistent with practices of other companies
in the high-technology sector, issuances in a Matridigm Transaction or with
respect to the items listed in Section 2.1(c) of the Disclosure Schedule.
3.10 RESERVATION OF STOCK ISSUABLE UPON CONVERSION AND UPON EXERCISE OF
THE WARRANTS. The Company shall at all times reserve and keep available out
of its authorized but unissued shares of Common Stock, solely for the purpose
of effecting the conversion of the Debentures and the exercise of the
Warrants, such number of its shares of Common Stock as shall from time to
time be sufficient to effect the conversion of all outstanding Debentures and
the full exercise of the Warrants and if at any time the number of authorized
but unissued shares of Common Stock shall not be sufficient to effect the
conversion of all the then outstanding Debentures, the full exercise of the
Warrants, the Company will take such corporate action as may, in the opinion
of its counsel, be necessary to increase its authorized but unissued shares
of Common Stock to such number of shares as shall be sufficient for such
purpose, including without limitation engaging in best efforts to obtain the
requisite shareholder approval. Without in any way limiting the foregoing,
the Company agrees to reserve and at all times keep available solely for
purposes of conversion of Debentures and the exercise of the Warrants such
number of authorized but unissued shares of Common Stock that is at least
equal to 200% of the aggregate shares issuable upon conversion of Debentures,
and 200% of the aggregate shares issuable on exercise of Warrants, which
number may be reduced by the number of Common Shares or Warrant Shares
actually delivered pursuant to conversion of Debentures or exercise of the
Warrants and shall be appropriately adjusted for any stock split, reverse
split, stock dividend or reclassification of the Common Stock. When the
adjustments to the Conversion Price (as defined in the Debenture) pursuant to
Sections 5(d) and 5(e) of the Debenture have been completed, the percentages
set forth in the preceding sentence shall be reduced from "200%" to "103%".
If the Company falls below the reserves specified in the immediately
preceding sentence and does not cure such non-compliance within 30 days of
its start, then the Investors will be entitled to the discount adjustments
specified in Section 2(b)(i) of the Registration Rights Agreement. If at any
time the number of authorized but unissued shares of Common Stock is not
sufficient to effect the conversion of all the then outstanding Debentures or
the full exercise of the Warrants, the Investors shall be entitled to, INTER
ALIA, the premium price redemption rights provided in the Registration Rights
Agreement. The Company shall not be permitted to engage in any transaction
if, after giving effect thereto, the Company would not be in compliance with
the reservation requirements of this Section 3.10.
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3.11 BEST EFFORTS. The parties shall use their best efforts to satisfy
timely each of the conditions described in Article IV of this Agreement.
3.12 FORM D; BLUE SKY LAWS. The Company agrees to file a Form D with
respect to the Debentures, Warrants, Common Shares and Warrant Shares, as
required under Regulation D and to provide a copy thereof to each Investor
promptly after such filing. The Company shall, on or before each Closing
Date, take such action as the Company shall have reasonably determined is
necessary to qualify the Debentures, Warrants, Common Shares and Warrant
Shares for sale to the Investors at the applicable Closing pursuant to this
Agreement under applicable securities or "blue sky" laws of the states of the
United States (or to obtain an exemption from such qualification), and shall
provide evidence of any such action so taken to each Investor on or prior to
the Closing Date.
3.13 NO SENIOR INDEBTEDNESS; LIMITATIONS ON ISSUANCE OF EQUITY.
(a) So long as any Debentures remain outstanding, the Company
agrees that neither the Company nor any direct or indirect subsidiary of the
Company shall create, incur, assume, guarantee, secure or in any manner
become liable in respect of any indebtedness, except for Senior Debt as
defined in the Debenture, debt owed to a financial institution which debt is
unsecured other than by accounts receivable or trade payables incurred in the
ordinary course of business consistent with past practices or debt pursuant
to a Matridigm Transaction, unless junior to the Debentures in all respects.
For purposes of this Section 3.13, "financial institution" excludes, without
limitation, any investment company, or any entity that would be an investment
company, but for the exclusions provided by Section 3(c)(1) or Section
3(c)(7) of the Investment Company Act of 1940, as amended.
(b) Until the Registration Statement (as defined in the
Registration Rights Agreement) has been declared effective by the SEC and the
Common Shares are subject to Effective Registration, neither the Company nor
any of its subsidiaries will issue any equity securities or instruments or
rights convertible into or exchangeable or exercisable for any equity
securities, except pursuant to current employee and director option and stock
purchase plans in amounts and at prices consistent with past practice, in a
Matridigm Transaction and with respect to items listed in Section 2.1(c) of
the Disclosure Schedule.
ARTICLE 4
CONDITIONS TO CLOSINGS
4.1 CONDITIONS PRECEDENT TO THE OBLIGATION OF THE COMPANY TO SELL THE
DEBENTURES. The obligation hereunder of the Company to issue and/or sell the
Debentures to the Investors at the Closing (unless otherwise specified) is
subject to the satisfaction, at or before the Closing, of each of the
applicable conditions set forth below. These conditions are for the
Company's sole benefit and may be waived by the Company at any time in its
sole discretion.
(a) ACCURACY OF THE INVESTORS' REPRESENTATIONS AND WARRANTIES.
The representations and warranties of each Investor will be true and correct
in all material respects as of the date when made and as of the Closing Date
as though made at that time (except for
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representations and warranties as of an earlier date, which shall have been
true and correct in all material respects as of such date).
(b) PERFORMANCE BY THE INVESTORS. Each Investor shall have
performed all agreements and satisfied all conditions required to be
performed or satisfied by such Investor at or prior to the Closing.
(c) NO INJUNCTION. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction
which prohibits the consummation of any of the transactions contemplated by
this Agreement or the Registration Rights Agreement or the Debentures or the
Warrants.
4.2 CONDITIONS PRECEDENT TO THE OBLIGATION OF THE INVESTORS TO PURCHASE
THE DEBENTURES. The obligation hereunder of each Investor to acquire and pay
for the Debentures at the Closing (unless otherwise specified) is subject to
the satisfaction, at or before the Closing, of each of the applicable
conditions set forth below. These conditions are for each Investor's benefit
and may be waived by each Investor at any time in its sole discretion.
(a) ACCURACY OF THE COMPANY'S REPRESENTATIONS AND WARRANTIES. The
representations and warranties of the Company shall be true and correct in
all material respects as of the date when made and as of the Closing Date as
though made at that time (except for representations and warranties as of an
earlier date, which shall have been true and correct in all material respects
as of such date).
(b) PERFORMANCE BY THE COMPANY. The Company shall have performed
all agreements and satisfied all conditions required to be performed or
satisfied by the Company at or prior to the Closing.
(c) NASDAQ NMS. From the date hereof to the Closing Date, trading
in the Company's Common Stock shall not have been suspended by the SEC or the
Nasdaq NMS (or other Approved Market), and trading in securities generally as
reported by the Nasdaq NMS (or other Approved Market) shall not have been
suspended or limited, and the Common Stock shall not have been delisted from
the Nasdaq NMS (or any other Approved Market where they are currently listed).
(d) NO INJUNCTION. No statute, rule, regulation, executive,
judicial or administrative order, decree, ruling or injunction shall have
been enacted, entered, promulgated or endorsed by any court or governmental
authority of competent jurisdiction which prohibits the consummation of any
of the transactions contemplated by this Agreement or the Registration Rights
Agreement or the Debenture or the Warrants.
(e) OPINION OF COUNSEL. At the Closing, the Investors shall have
received an opinion of counsel to the Company in the form attached hereto as
Exhibit 4.2(e) and such other opinions, certificates and documents as the
Investors or their counsel shall reasonably require incident to the Closing.
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(f) REGISTRATION RIGHTS AGREEMENT. The Company and the Investors
shall have executed and delivered the Registration Rights Agreement in the
form and substance of Exhibit 4.2(f) attached hereto.
(g) ADVERSE CHANGES. Since December 31, 1997, no event which had
or is likely to have, in the reasonable judgment of the Investors, a Material
Adverse Effect on the Company or any of its direct or indirect subsidiaries
shall have occurred.
(h) OFFICER'S CERTIFICATE. The Company shall have delivered to
the Investors a certificate in form and substance satisfactory to the
Investors and the Investors' Counsel, executed by an officer of the Company,
certifying as to satisfaction of closing conditions, incumbency of signing
officers, and the true, correct and complete nature of the Charter, By-Laws,
good standing and authorizing resolutions of the Company.
(i) DEBENTURES AND WARRANTS. The Investors shall have received
certificates representing the Debentures and Warrants in the form and
substance of Exhibit 1.1A and Exhibit 1.1B hereto.
(j) DUE DILIGENCE. Each Investor shall have completed its
financial, accounting, operational and legal due diligence in a manner
satisfactory to such Investor in its sole discretion.
ARTICLE 5
LEGEND AND STOCK
The Company will issue one or more certificates representing the
Debentures and the Warrants in the name of the Investor and in such
denominations to be specified by the Investor prior to (or from time to time
subsequent to) Closing. Each certificate representing the Debentures and the
Warrants and any shares of Common Stock issued upon conversion or exercise
thereof initially shall be stamped or otherwise imprinted with a legend
substantially in the following form:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD OR OFFERED FOR SALE
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT AND ANY
APPLICABLE STATE SECURITIES LAW OR AN APPLICABLE EXEMPTION FROM SUCH
REGISTRATION REQUIREMENTS.
The Company agrees to reissue Debentures and Warrants without the legend
set forth above at such time as (i) the holder thereof is permitted to
dispose of such Debentures and/or Warrants and Common Stock issuable upon
conversion or exercise thereof pursuant to Rule 144(k) under the Act, or (ii)
such Debentures and/or Warrants are sold to a purchaser or purchasers who (in
the opinion of counsel to the seller or such purchaser(s), in form and
substance reasonably satisfactory to the Company and its counsel) are able to
dispose of such shares publicly without registration under the Act.
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Prior to the Registration Statement (as defined in the Registration
Rights Agreement) being declared effective, any Common Shares issued pursuant
to conversion of Debentures or Warrant Shares issued upon exercise of the
Warrants shall bear a legend in the same form as the legend indicated above.
Upon such Registration Statement becoming effective, the Company agrees to
promptly, but no later than three (3) business days thereafter, issue new
certificates representing such Common Shares and Warrant Shares without such
legend. Any Common Shares issued pursuant to conversion of Debentures or
Warrant Shares issued upon exercise of the Warrants after the Registration
Statement has become effective shall be free and clear of any legends,
transfer restrictions and stop orders. Notwithstanding the removal of such
legend, each Investor agrees to sell the Common Shares and Warrant Shares
represented by the new certificates in accordance with the applicable
prospectus delivery requirements or in accordance with an exemption from the
registration requirements of the Act.
Nothing herein shall limit the right of any holder to pledge these
securities pursuant to a bona fide margin account or lending arrangement.
ARTICLE 6
TERMINATION
6.1 TERMINATION BY MUTUAL CONSENT. This Agreement may be terminated at
any time prior to the Closing by the mutual written consent of the Company
and each of the Investors.
6.2 OTHER TERMINATION. This Agreement may be terminated by action of
the Board of Directors of the Company or by any of the Investors at any time
if the Closing shall not have been consummated by the fifth business day
following the date of this Agreement; provided, however, that the party (or
parties) prepared to close shall retain its (or their) right to sue for any
breach by the other party (or parties).
ARTICLE 7
MISCELLANEOUS
7.1 STAMP TAXES. The Company shall pay all stamp and other taxes and
duties levied in connection with the issuance of the Debentures pursuant
hereto, the Common Shares issued upon conversion thereof, and the Warrant
Shares issued upon exercise of the Warrants.
7.2 SPECIFIC PERFORMANCE; CONSENT TO JURISDICTION; JURY TRIAL.
(a) The Company and the Investors acknowledge and agree that
irreparable damage would occur in the event that any of the provisions of
this Agreement were not performed in accordance with their specific terms or
were otherwise breached. It is accordingly agreed that the parties shall be
entitled to an injunction or injunctions to prevent or cure breaches of the
provisions of this Agreement and to enforce specifically the terms and
provisions hereof, this being in addition to any other remedy to which any of
them may be entitled by law or equity.
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(b) THE COMPANY AND EACH OF THE INVESTORS (I) HEREBY IRREVOCABLY
SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT,
THE NEW YORK STATE COURTS AND OTHER COURTS OF THE UNITED STATES SITTING IN
NEW YORK COUNTY, NEW YORK FOR THE PURPOSES OF ANY SUIT, ACTION OR PROCEEDING
ARISING OUT OF OR RELATING TO THIS AGREEMENT AND (II) HEREBY WAIVES, AND
AGREES NOT TO ASSERT IN ANY SUCH SUIT ACTION OR PROCEEDING, ANY CLAIM THAT IT
IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF SUCH COURT, THAT THE SUIT,
ACTION OR PROCEEDING IS BROUGHT IN AN INCONVENIENT FORUM OR THAT THE VENUE OF
THE SUIT, ACTION OR PROCEEDING IS IMPROPER. THE COMPANY AND EACH OF THE
INVESTORS CONSENTS TO PROCESS BEING SERVED IN ANY SUCH SUIT, ACTION OR
PROCEEDING BY MAILING A COPY THEREOF TO SUCH PARTY AT THE ADDRESS IN EFFECT
FOR NOTICES TO IT UNDER THIS AGREEMENT AND AGREES THAT SUCH SERVICE SHALL
CONSTITUTE GOOD AND SUFFICIENT SERVICE OF PROCESS AND NOTICE THEREOF.
NOTHING IN THIS PARAGRAPH SHALL AFFECT OR LIMIT ANY RIGHT TO SERVE PROCESS IN
ANY OTHER MANNER PERMITTED BY APPLICABLE LAW.
(c) The Company and each Investor hereby waives all rights to a
trial by jury.
7.3 ENTIRE AGREEMENT; AMENDMENT. This Agreement, together with the
Registration Rights Agreement, the Warrants, the Debenture and the agreements
and documents executed in connection herewith and therewith, contains the
entire understanding of the parties with respect to the matters covered
hereby and thereby and, except as specifically set forth herein or therein,
neither the Company nor any Investor makes any representation, warranty,
covenant or undertaking with respect to such matters. No provision of this
Agreement may be waived or amended other than by a written instrument signed
by the party against whom enforcement of any such amendment or waiver is
sought.
7.4 NOTICES. Any notice or other communication required or permitted
to be given hereunder shall be in writing by mail, facsimile or personal
delivery and shall be effective upon actual receipt of such notice. The
addresses for such communications shall be:
to the Company:
Zitel Corporation
47211 Bayside Parkway
Fremont, California 94538
Attention: Chief Financial Officer
Facsimile: (510) 440-8526
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with copies to:
Cooley Godward LLP
One Maritime Plaza
20th Floor
San Francisco, California 94111
Attention: John L. Cardoza, Esq.
Facsimile: (415) 951-3699
to the Investors:
To each Investor at the address and/or fax number set
forth on Schedule I of this Agreement.
with copies to:
Kleinberg, Kaplan, Wolff & Cohen, P.C.
551 Fifth Avenue, 18th Floor
New York, New York 10176
Attention: Stephen M. Schultz, Esq.
Facsimile: (212) 986-8866
Any party hereto may from time to time change its address for notices by
giving at least 10 days' written notice of such changed address to the other
parties hereto.
7.5 INDEMNITY. Each party shall indemnify each other party against any
loss, cost or damages (including reasonable attorney's fees but excluding
consequential damages) incurred as a result of such parties' breach of any
representation, warranty, covenant or agreement in this Agreement.
7.6 WAIVERS. No waiver by any party of any default with respect to any
provision, condition or requirement of this Agreement shall be deemed to be a
continuing waiver in the future or a waiver of any other provision, condition
or requirement hereof, nor shall any delay or omission of any party to
exercise any right hereunder in any manner impair the exercise of any such
right accruing to it thereafter.
7.7 HEADINGS. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or
affect any of the provisions hereof.
7.8 SUCCESSORS AND ASSIGNS. Except as otherwise provided herein, this
Agreement shall be binding upon and inure to the benefit of the parties and
their successors and permitted assigns. The parties hereto may amend this
Agreement without notice to or the consent of any third party. The Company
may not assign this Agreement or any rights or obligations hereunder without
the prior written consent of all Investors, except that the Company may
assign this Agreement in connection with a Change of Control Transaction
occurring in excess of forty-five (45) days after the Effectiveness Date (as
defined in the Debenture) (such 45 days to be extended one day for every day
after that date on which there is not Effective Registration), so long as
such assignment places the Investors in a position economically equivalent to
that in which they
20
would have been but for such assignment, in accordance with the terms of the
Debentures and the Warrants. Any Investor may assign this Agreement (in
whole or in part) or any rights or obligations hereunder subject to the
consent of the Company (such consent not to be unreasonably withheld) in
connection with any sale or transfer of all or any portion of the Debentures
or Warrants held by such Investor, provided that no consent of the Company
will be required for any transfer or assignment by the Investor to (i) an
affiliate or affiliates of the Investor or (ii) any person or entity whose
investments are managed by an investment adviser that is the same as, or an
affiliate of, the investment manager of the Investor.
7.9 NO THIRD PARTY BENEFICIARIES. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns and is not for the benefit of, nor may any provision hereof be
enforced by, any other person.
7.10 GOVERNING LAW. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of New York applicable
to Agreements executed and to be performed entirely within such State.
7.11 SURVIVAL. The representations and warranties and the agreements
and covenants of the Company and each Investor contained herein shall survive
the Closing.
7.12 EXECUTION. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement, it
being understood that all parties need not sign the same counterpart.
7.13 PUBLICITY. The Company agrees that it will not disclose, and will
not include in any public announcement, the name of any Investor without its
consent, unless and until such disclosure is required by law or applicable
regulation, and then only to the extent of such requirement. The Company
agrees that a copy of any public announcement regarding the matters covered
by this Agreement or any agreement and document executed herewith and any
public announcement (other than the filing of this Agreement as an exhibit on
Form 8-K), including the name of an Investor will be approved by each
Investor in advance of the release of such announcements. The Company agrees
that prior to the opening of trading on the day following the Closing Date,
the Company shall issue a public announcement regarding the matters covered
by this Agreement and related documents, which announcement shall be subject
to the prior reasonable approval of the Investors.
7.14 SEVERABILITY. The parties acknowledge and agree that the Investors
are not agents, affiliates or partners of each other, that all
representations, warranties, covenants and agreements of the Investors
hereunder are several and not joint, that no Investor shall have any
responsibility or liability for the representations, warrants, agreements,
acts or omissions of any other Investor, and that any rights granted to
"Investors" hereunder shall be enforceable by each Investor hereunder.
7.15 LIKE TREATMENT OF HOLDERS; REDEMPTION. Neither the Company nor any
of its affiliates shall, directly or indirectly, pay or cause to be paid any
consideration (immediate or contingent), whether by way of interest, fee,
payment for the redemption or conversion of Debentures or exercise of the
Warrants, or otherwise, to any holder of Debentures or Warrants,
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for or as an inducement to, or in connection with the solicitation of, any
consent, waiver or amendment of any terms or provisions of the Debenture or
this Agreement or the Registration Rights Agreement or the Warrants, unless
such consideration is required to be paid to all holders of Debentures and
Warrants bound by such consent, waiver or amendment whether or not such
holders so consent, waive or agree to amend and whether or not such holders
tender their Debentures or Warrants for redemption, conversion or exercise.
The Company shall not, directly or indirectly, redeem any Debentures unless
such offer of redemption is made pro rata to all holders of Debentures on
identical terms.
7.16 NO STRICT CONSTRUCTION. The language used in this Agreement will
be deemed to be the language chosen by the parties to express their mutual
intent, and no rules of strict construction will be applied against any party.
7.17 MATRIDIGM TRANSACTION. As used herein and in the Debentures and
the Warrants the term "Matridigm Transaction" shall mean any transaction or
series of transactions whereby the Company acquires additional debt or equity
securities of Matridigm Corporation, a California corporation, or the
business of the Company and Matridigm are combined and shall include, without
limitation, the issuance for cash of shares of the Common Stock of the
Company with a fair market value not to exceed $2,000,000, as determined as
of the purchase date and pursuant to one-time reset provisions agreed to
between the Company and the purchasers, with the proceeds used to procure the
release of obligations of the purchasers to guarantee obligations of
Matridigm.
[SIGNATURE PAGES FOLLOW]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
ZITEL CORPORATION
By: Anna M. McCann
-----------------------------------
Name: Anna M. McCann
Title: V.P. Finance & Administration
INVESTORS:
HALIFAX FUND, L.P.
By: Jeffrey E. Devers
-----------------------------------
Name: Jeffrey E. Devers
Title: President
PALLADIN PARTNERS I, L.P.
By: PALLADIN GROUP L.P.
Attorney-in-Fact
By: Jeffrey E. Devers
-----------------------------------
Name: Jeffrey E. Devers
Title: President
PALLADIN OVERSEAS FUND LIMITED
By: PALLADIN GROUP L.P.
Attorney-in-Fact
By: Jeffrey E. Devers
-----------------------------------
Name: Jeffrey E. Devers
Title: President
[SIGNATURE PAGE TO ZITEL CORPORATION CONVERTIBLE SUBORDINATED
DEBENTURE PURCHASE AGREEMENT]
23
THE GLENEAGLES FUND COMPANY
By: PALLADIN GROUP L.P.
Attorney-in-Fact
By: Jeffrey E. Devers
-----------------------------------
Name: Jeffrey E. Devers
Title: President
PALLADIN SECURITIES, LLC
By: Jeffrey E. Devers
-----------------------------------
Name: Jeffrey E. Devers
Title: President
COLONIAL PENN LIFE INSURANCE COMPANY
By: PALLADIN GROUP L.P.
Attorney-in-Fact
By: Jeffrey E. Devers
-----------------------------------
Name: Jeffrey E. Devers
Title: President
LANCER SECURITIES LIMITED
By: PALLADIN GROUP L.P.
Attorney-in-Fact
By: Jeffrey E. Devers
-----------------------------------
Name: Jeffrey E. Devers
Title: President
[SIGNATURE PAGE TO ZITEL CORPORATION CONVERTIBLE SUBORDINATED
DEBENTURE PURCHASE AGREEMENT]
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