EXHIBIT 10.6
WARRANT PURCHASE AGREEMENT
BY AND BETWEEN
▇▇▇▇▇-▇▇▇▇▇▇▇▇ CORPORATION
A DELAWARE CORPORATION
(THE "COMPANY")
AND
▇▇▇▇▇ FARGO ENERGY CAPITAL, INC.
A TEXAS CORPORATION
("PURCHASER")
CONCERNING THE
PURCHASE OF WARRANTS TO PURCHASE 1,500,000
SHARES OF THE COMPANY'S COMMON STOCK
EFFECTIVE FEBRUARY 1, 2002
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TABLE OF CONTENTS
WARRANT PURCHASE AGREEMENT
Page
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ARTICLE I. PURCHASE AND SALE OF WARRANTS....................................................1
Section 1.1. Sale and Issuance......................................................1
Section 1.2. Purchase; Purchase Price...............................................2
Section 1.3. Termination of Shareholder Agreement
ARTICLE II. CLOSING DATE; DELIVERY..........................................................2
Section 2.1. Closing Date...........................................................2
Section 2.2. Payment; Delivery......................................................2
ARTICLE III. REPRESENTATIONS AND WARRANTIES.................................................2
Section 3.1. Representations and Warranties of the Company..........................2
(a) Organization and Standing; Certificate and By-Laws.....................2
(b) Corporate Power........................................................2
(c) Authorization..........................................................3
(d) Capitalization.........................................................3
(e) Governmental Consent, etc..............................................4
(f) Offering...............................................................4
(g) Brokers or Finders.....................................................4
Section 3.2. Representations and Warranties of Purchaser............................4
ARTICLE IV. CONDITIONS TO CLOSING...........................................................5
Section 4.1. Purchaser's Conditions.................................................5
(a) Representations and Warranties Correct.................................5
(b) Covenants..............................................................6
(c) Compliance Certificate.................................................6
(d) Consents...............................................................6
(e) Consummation of Loan Agreement.........................................6
Section 4.2. Company's Conditions...................................................6
(a) Representations........................................................6
(b) Closing of Loan Agreement..............................................6
ARTICLE V. AFFIRMATIVE COVENANTS OF THE COMPANY.............................................6
Section 5.1. Financial Information..................................................6
(a) SEC Reports............................................................6
(b) Other Reports..........................................................7
Section 5.2. Transactions with Affiliates...........................................7
Section 5.3. Restrictions on Dividend Payments......................................7
(a) Restriction............................................................7
(b) Permitted Dividends....................................................7
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Section 5.4. Access.................................................................8
Section 5.5. Rule 144 Reporting.....................................................8
ARTICLE VI. THE COMPANY'S INDEMNIFICATION...................................................8
Section 6.1. Indemnification........................................................8
ARTICLE VII. WARRANT A PUT AND CALL OPTIONS.................................................8
ARTICLE VIII. WARRANT B PUT AND CALL OPTIONS
ARTICLE IX. MISCELLANEOUS..................................................................14
Section 9.1. Governing Law.........................................................14
Section 9.2. Survival..............................................................14
Section 9.3. Successors and Assigns................................................14
Section 9.4. Entire Agreement, Amendment...........................................14
Section 9.5. Notices, etc..........................................................14
Section 9.6. Delays or Omissions...................................................15
Section 9.7. Counterparts..........................................................15
Section 9.8. Severability..........................................................15
Section 9.9. Titles and Subtitles..................................................15
Section 9.10 Specific Performance..................................................15
WARRANTS
ARTICLE I. EXERCISE OF WARRANT..............................................................1
Section 1.1. Manner of Exercise.....................................................1
Section 1.2. When Exercise Effective................................................1
Section 1.3. Delivery of Stock Certificates, etc....................................1
(a) Certificates...........................................................2
(b) Warrant................................................................2
ARTICLE II. ADJUSTMENT OF COMMON STOCK ISSUABLE UPON EXERCISE................................2
Section 2.1. General; Warrant Price.................................................2
Section 2.2. Issuance of Additional Shares of Common Stock..........................2
Section 2.3. Extraordinary Dividends and Distributions..............................3
Section 2.4. Treatment of Options and Convertible Securities........................3
Section 2.5. Treatment of Stock Dividends, Stock Splits, etc........................4
Section 2.6. Computation of Consideration...........................................4
(a) Shares Actually Issued.................................................4
(b) Shares Deemed Issued...................................................4
(c) Stock Dividends, Etc...................................................5
(d) Services...............................................................5
Section 2.7. Adjustments for Combinations, etc......................................5
Section 2.8. Dilution in Case of Other Securities...................................5
Section 2.9. Appreciation Rights....................................................6
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(b) Value Based on Liquidating Distributions...............................6
(c) Value Based on Dividends and Liquidating Distributions.................6
(d) Other Profits..........................................................6
ARTICLE III. CONSOLIDATION, MERGER, ETC.....................................................6
Section 3.2. Assumption of Obligations..............................................6
ARTICLE IV. OTHER PROVISIONS CONCERNING DILUTION............................................7
Section 4.1. Other Dilutive Events..................................................7
Section 4.2. No Dilution or Impairment..............................................7
Section 4.3. Accountant's and Company's Report as to Adjustments....................7
Section 4.4. Notices of Corporate Action............................................8
Section 4.5. Registration of Common Stock...........................................8
Section 4.6. Availability of Information............................................9
Section 4.7. Reservation of Stock, etc..............................................9
ARTICLE V. RESTRICTIONS ON TRANSFER.........................................................9
Section 5.1. Restrictive Legends....................................................9
Section 5.2. Notice of Proposed Transfer; Opinions of Counsel.......................9
Section 5.3. Termination of Restrictions...........................................10
ARTICLE VI. OWNERSHIP, TRANSFER AND SUBSTITUTION OF WARRANTS................................10
Section 6.1. Ownership of Warrants.................................................10
Section 6.2. Office, Transfer and Exchange of Warrants.............................10
(a) Office................................................................10
(b) New Warrant...........................................................10
Section 6.3. Replacement of Warrants...............................................10
ARTICLE VII. DEFINITIONS...................................................................11
ARTICLE VIII. MISCELLANEOUS.................................................................14
Section 8.1. Remedies..............................................................14
Section 8.2. No Rights or Liabilities as Stockholder...............................14
Section 8.3. Notices...............................................................14
Section 8.4. Miscellaneous.........................................................14
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WARRANT PURCHASE AGREEMENT
This Warrant Purchase Agreement ( the "AGREEMENT") is made and entered
into as of February 1, 2002 , by and between ▇▇▇▇▇-▇▇▇▇▇▇▇▇ Corporation, a
Delaware corporation (the "COMPANY"), and ▇▇▇▇▇ Fargo Energy Capital, Inc., a
Texas corporation (the "PURCHASER").
W I T N E S S E T H:
WHEREAS, the Company and Purchaser have agreed to (i) the cancellation
and termination of that certain Warrant (the "PRIOR WARRANT") to purchase
1,350,000 shares of the common stock, par value $0.01 per share, of Mountain
Compressed Air, Inc., a Texas corporation ("MCAI") and wholly-owned subsidiary
of OilQuip Rentals, Inc., a Delaware corporation ("OILQUIP"), which is a
wholly-owned subsidiary of the Company, dated as of February 6, 2001, held by
Purchaser, and (ii) the cancellation and termination of that certain
Shareholders Agreement (the "PRIOR SHAREHOLDERS' AGREEMENT") dated as of
February 6, 2001 by and among Purchaser, OilQuip, and MCAI (collectively, the
"TERMINATIONS"); and
WHEREAS, in connection with the Terminations and the transactions
contemplated by that certain Credit Agreement between Purchaser and the Company,
dated as of even date herewith, as same may be amended or restated from time to
time (the "LOAN AGREEMENT"), Purchaser and the Company have agreed to (i) the
issuance by the Company to Purchaser, in accordance with the terms of this
Agreement, of Warrants to purchase an aggregate of 1,500,000 shares of the
common stock, par value $0.15 per share, of the Company (the "COMMON STOCK");
(ii) enter into that certain Registration Rights Agreement (the "REGISTRATION
RIGHTS AGREEMENT"), dated as of even date herewith, to provide Purchaser with
certain rights with respect to the shares of Common Stock or other securities
into which the Warrants will be exercisable upon payment of the purchase price
as set forth in the Warrants (the "SHARES"); and (iii) enter into that certain
Shareholders' Agreement (the "SHAREHOLDERS' AGREEMENT"), dated as of even date
herewith, with ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇▇ ("HIDAYATALLAH") and Energy Spectrum
Partners, LP, a Delaware limited partnership ("ENERGY SPECTRUM"), to provide
Purchaser with certain rights with respect to the Shares.
NOW, THEREFORE, for and in consideration of the mutual covenants and
promises herein contained, as well as for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties,
intending to be legally bound, contract and agree as follows:
ARTICLE I. PURCHASE AND SALE OF WARRANTS
Section 1.1. Sale and Issuance. The Company shall sell and issue to
Purchaser at the Closing (as hereinafter defined) (i) a Warrant, dated effective
as of the Closing Date, to purchase 465,000 shares of Common Stock ("WARRANT
A"), the form of which is attached hereto as EXHIBIT A and incorporated herein,
(ii) a Warrant, dated effective as of the Closing Date (as hereinafter defined),
purchase 700,000 shares of Common Stock ("WARRANT B"), the form of which is
attached hereto as EXHIBIT B and incorporated herein, and (iii) a Warrant, dated
effective as of the Closing Date, to purchase 335,000 shares of Common Stock
("WARRANT C"), the form of which is attached hereto as EXHIBIT C and
incorporated herein (collectively, the "WARRANTS"), each on the terms and
subject to adjustment as provided for therein.
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Section 1.2. Purchase; Purchase Price. Subject to the terms and
conditions set forth herein, for and in consideration of the sale and issuance
of the Warrants, Purchaser hereby (i) consents to the Terminations and (ii)
agrees to enter into the Loan Agreement.
Section 1.3. Termination of Prior Warrant. Purchaser, the Company and
MCAI do hereby agree to terminate and cancel in all respects the Prior Warrant.
Section 1.4. Termination of Prior Shareholders' Agreement. Purchaser,
the Company, OilQuip and MCAI do hereby agree to terminate and cancel in all
respects the Prior Shareholders' Agreement.
Section 1.5. New Shareholders' Agreement. Purchaser, the Company,
Hidayatallah and Energy Spectrum, do hereby agree to enter into the
Shareholders' Agreement on mutually agreeable terms as of the date hereof.
Section 1.6. Registration Rights Agreement. Purchaser and the Company do
hereby agree to enter into the Registration Rights Agreement on mutually
agreeable terms as of the date hereof.
ARTICLE II. CLOSING DATE; DELIVERY
Section 2.1. Closing Date. The closing ("CLOSING") of the purchase and
sale of the Warrants hereunder shall be held contemporaneously with the
transactions contemplated by the Loan Agreement (the "CLOSING DATE") or at such
other time and place upon which the Company and Purchaser shall agree.
Section 2.2. Payment; Delivery. At the Closing, the Company will deliver
to Purchaser the duly executed Warrants registered in the name of Purchaser,
together with delivery by the Company of such other documents, certificates and
opinions of counsel as may be required to be delivered by the Company to
Purchaser as a condition to Purchaser's consummation of this Agreement.
ARTICLE III. REPRESENTATIONS AND WARRANTIES
Section 3.1. Representations and Warranties of the Company. In order to
induce Purchaser to enter into this Agreement, the Company hereby represents and
warrants to Purchaser and each subsequent holder of Warrants, as follows:
(a) Organization and Standing; Certificate and By-Laws. The
Company is a corporation legally incorporated, duly organized, validly
existing, and in good standing under the laws of the State of Delaware.
The Company has all requisite corporate power and authority to own and
operate its properties and assets, and to carry on its business as
presently conducted and as proposed to be conducted. The Company is
qualified to do business as a foreign corporation and is in good
standing in all jurisdictions in which the Company owns or leases
property or in which the failure to be so qualified would have a
material adverse affect on the Company's business as currently
conducted.
(b) Corporate Power. The Company has, and will have at the
Closing and at all times during which the Warrants are exercisable, all
requisite corporate power and authority to execute and deliver this
Agreement, to sell and issue the Warrants hereunder,
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to issue the Shares upon exercise of the Warrants and to carry out and
perform its obligations under the terms of this Agreement and the
Warrants.
(c) Authorization. All corporate action necessary for the
authorization, execution, delivery and performance of this Agreement by
the Company, the authorization, sale, issuance and delivery of the
Warrants and (upon exercise of the Warrant) the Shares and the
performance of all of the Company's obligations hereunder and under the
Warrants have been taken. This Agreement and the Warrants each
constitutes a valid and binding obligation of the Company, enforceable
in accordance with its terms, except as may be limited by insolvency,
bankruptcy, moratorium or other laws affecting the rights of creditors
in general. The Shares have been duly and validly reserved and, when
issued in compliance with the provisions of this Agreement and the
Warrants, will be validly issued, fully paid and nonassessable. Upon
issuance upon exercise of the Warrants, the Shares will be free of any
liens, claims or encumbrances. The Shares are not subject to any
preemptive rights or rights of first refusal.
(d) Capitalization. The authorized capital stock of the Company
consists of 100,000,000 shares of Common Stock, of which 11,588,128
shares are issued and outstanding as of the date hereof, and 10,000,000
shares of preferred stock, par value $0.01 per share (the "PREFERRED
STOCK"), of which no shares are issued and outstanding. The outstanding
shares have been duly authorized and validly issued, and are fully paid
and nonassessable. All outstanding securities of the Company were issued
in compliance with applicable federal and state securities laws. The
Company has reserved 1,035,000 shares of Common Stock for issuance upon
exercise of the Warrants. After giving effect to all of the transactions
contemplated by the Loan Agreement, the authorized capital stock of the
Company shall consist of 100,000,000 shares of Common Stock, of which [
] shares shall be issued and outstanding, and 10,000,000 shares of
Preferred Stock, of which 3,500,000 shares shall be issued and
outstanding and designated as Series A 10% Cumulative Convertible
Preferred Stock. Such shares shall be duly authorized and validly
issued, shall be fully paid and nonassessable, and shall be issued in
compliance with applicable federal and state securities laws. Other than
as set forth on Schedule 3.1(d) attached hereto and made a part hereof,
and except as specifically described above, the Company does not have,
and will not have after giving effect to all of the transactions
contemplated by the Loan Agreement, any outstanding capital stock or
securities convertible into or exchangeable for any shares
of its capital stock, or any outstanding rights (either preemptive or
other) to subscribe for or to purchase, or any outstanding rights or
options for the purchase of, or any agreements providing for the
issuance (contingent or otherwise) of, or any outstanding calls,
commitments or claims of any character relating to, any capital stock or
any stock or securities convertible into or exchangeable for any capital
stock of the Company. Except as provided in the Warrants and other than
as set forth on Schedule 3.1(d) attached hereto and made a part hereof,
the Company is not subject to any obligation (contingent or otherwise)
to repurchase or otherwise acquire or retire any shares of its capital
stock or any convertible securities, rights or options of the type
described in the preceding sentence. Other than as set forth on Schedule
3.1(d) attached hereto and made a part hereof, the Company is not a
party to any agreement (except as set forth in this Agreement)
restricting the transfer of any shares
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of the Company's capital stock as of the date hereof or after giving
effect to all of the transactions contemplated by the Loan Agreement.
(e) Governmental Consent, etc. No consent, approval or
authorization of (or designation, declaration or filing with) any
governmental authority or the National Association of Securities
Dealers, Inc., on the part of the Company is required in connection with
the valid execution, delivery or performance of this Agreement, or the
offer, sale or issuance of the Warrants and the Shares pursuant hereto,
or the consummation of any other transaction contemplated hereby.
(f) Offering. The offer, sale and issuance of the Warrants, and
the issuance of the Shares upon exercise of the Warrants, constitute
transactions exempt from the registration and prospectus delivery
requirements of the Securities Act of 1933 (the "SECURITIES ACT") and
any applicable state securities laws.
(g) Brokers or Finders. The Company has not incurred, and will
not incur, directly or indirectly, as a result of any action taken by
the Company, any liability for brokerage or finders' fees or agents'
commissions or any similar charges in connection with this Agreement.
Section 3.2. Representations and Warranties of Purchaser. Purchaser
hereby represents and warrants to the Company as follows:
(a) Organization and Standing. Purchaser is a corporation duly
organized, validly existing, and in good standing under the laws of
Texas, and has full power and authority to own and operate its
properties and assets and to carry on its business as presently
conducted and as contemplated.
(b) Authorization. All corporate action on the part of the
Purchaser, its officers, directors and shareholders necessary for the
authorization, execution and delivery of this Agreement and the other
agreements and documents contemplated herein, the performance of all the
Purchaser's obligations hereunder have been taken. This Agreement and
the other agreements and documents contemplated herein, when executed
and delivered, shall constitute valid and legally binding obligations of
the Purchaser enforceable in accordance with their respective terms,
subject to, except as may be limited by insolvency, bankruptcy,
moratorium or other laws affecting the rights of creditors in general.
(c) Compliance with Other Instruments. Assuming the accuracy of
the Company's representations and warranties under this Agreement, the
execution, delivery, and performance of and compliance with this
Agreement will not result in any violation of any term of the
Certificate or Articles of Incorporation or Bylaws of the Purchaser.
(d) Investment. The Purchaser has been advised that the Warrants
and Shares have not been registered under the Securities Act of 1933 (as
amended from time
170
to time, the "Securities Act") nor qualified under any state securities
law, on the ground that no distribution or public offering of the
Securities is to be effected, and that in this connection the Company is
relying in part on the representations of the Purchaser set forth in
this Section 3.2. The Purchaser represents that:
(i) Investment Intent. The Warrants acquired by the
Purchaser pursuant to this Agreement are being acquired by such
Purchaser solely for such Purchaser's own account, for investment
purposes only, and with no present intent to make any distribution (as
such term is used in Section 2(11) of the Securities Act) of the
Warrants or the Shares upon exercise of the Warrants;
(ii) Sophistication. The Purchaser is an experienced and
sophisticated investor, is able to fend for itself in the transactions
contemplated by this Agreement, and has such knowledge and experience in
financial and business matters that such Purchaser is capable of
evaluating the risks and merits of acquiring the Warrants. The Purchaser
has had, during the course of this transaction and prior to its purchase
of the Warrants, the opportunity to ask questions of, and receive
answers from, the Company and its management concerning the Company and
the terms and conditions of this Agreement. The Purchaser hereby
acknowledges that such Purchaser has received all such information as
such Purchaser considers necessary for evaluating the risks and merits
of acquiring the Warrants or upon exercise the Shares and for verifying
the accuracy of any information furnished to it or to which it had
access. The Purchaser understands that there is no public market for the
Warrants or upon exercise the Shares and that there may never be such a
public market, and that even if a market develops it may never be able
to sell or dispose of the Shares and may thus have to bear the risk of
its investment for a substantial period of time, or forever. The
Purchaser is aware that the Warrants or upon exercise the Shares may not
be sold pursuant to Rule 144 adopted under the Securities Act unless
certain conditions have been met and until the Purchaser or such
Purchaser's qualified transferees have held the Shares for at least a
year.
(iii) Accredited Investor. The Purchaser is an "accredited
investor" for purposes of Regulation D promulgated by the Securities and
Exchange Commission under the Securities Act.
ARTICLE IV. CONDITIONS TO CLOSING
Section 4.1. Purchaser's Conditions. Purchaser's obligations to purchase
the Warrants at the Closing are subject to the fulfillment of the following
conditions, the waiver of which shall not be effective against Purchaser unless
specifically consented to in writing:
(a) Representations and Warranties Correct. The representations
and warranties made by the Company in Section 3.1 hereof (including any
representations of the Company incorporated by reference) shall be true
and correct when made, and shall be true and correct on the Closing
Date.
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(b) Covenants. All covenants, agreements and conditions contained
in this Agreement to be performed by the Company on or prior to the
Closing Date shall have been performed or complied with in all respects.
(c) Compliance Certificate. The Company shall have delivered to
Purchaser a certificate of the Company, executed by the President and
Secretary of the Company, dated the Closing Date, and certifying, that
all representations and warranties of the Company contained in the
Agreement are true and correct on the Closing Date as if made on such
date, that all conditions to the obligations of Purchaser to close the
transactions contemplated by this Agreement have been satisfied or
waived in writing by Purchaser and that the Company has complied with
all covenants or obligations set forth in this Agreement.
(d) Consents. Any consent, approval, authorization or order of
any court or governmental agency or administrative body required for the
consummation of the transactions contemplated by this Agreement, shall
have been obtained and shall be in effect on the Closing Date.
(e) Consummation of Loan Agreement. The Company shall have
satisfied all conditions precedent to the obligation of the Purchaser to
advance funds under the Loan Agreement in compliance with all applicable
laws.
Section 4.2. Company's Conditions. The Company's obligation to sell and
issue the Warrants at the Closing is, at the option of the Company, subject to
the fulfillment as of the Closing Date of the following conditions:
(a) Representations. The representations made by Purchaser in
Section 3.2 hereof shall be true and correct when made, and shall be
true and correct on the Closing Date.
(b) Closing of Loan Agreement. The loan contemplated by the Loan
Agreement shall have been consummated in accordance with the terms of
such commitment.
ARTICLE V. AFFIRMATIVE COVENANTS OF THE COMPANY
Section 5.1. Financial Information. The Company will mail to each holder
of any of the Warrants or Shares:
(a) SEC Reports. The Company shall promptly mail copies of all
quarterly and annual reports and of the information, documents and other
reports which the Company is required to file with the Securities and
Exchange Commission (the "COMMISSION"), exclusive of any exhibits to
such reports and exclusive of registration statements on Form S-8.
172
(b) Other Reports. If the Company is not subject to the
requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934 (the "EXCHANGE ACT"), the Company shall mail within five days after
it would have been required to file with the Commission, annual and
quarterly financial statements, including notes thereto accompanied by
the auditor's report relating thereto.
Section 5.2. Transactions with Affiliates. The Company will not, and
will not permit any of its Subsidiaries (as defined in Article VII of the
Warrants), except as provided in Schedule 5.2 attached hereto, , (i) enter into
any transaction or series of related transactions with any Affiliate or
Affiliates (other than a wholly-owned Subsidiary) including shareholders,
directors and officers and their respective Affiliates, if the aggregate amount
paid or payable to such persons with respect to such transaction or series of
transactions is in excess of $100,000 unless such transaction (a) is fair to the
Company, (b) is not materially adverse to the rights of the holders of Warrants,
and (c) is on terms equivalent to those available on an arm's length basis, or
(ii) issue, or agree to issue, any shares of capital stock (including rights or
warrants with respect thereto) or stock appreciation rights, stock benefit
plans, phantom stock rights or plans or any similar plans or rights or other
rights measured by earnings, profits, or revenues of the Company or its
Subsidiaries to any Affiliate including shareholders, directors and officers and
their respective Affiliates, unless such transaction (a) is fair to the Company,
(b) is not materially adverse to the rights to the holders of Warrants, and (c)
is on terms equivalent to those available on an arm's length basis. If a
transaction referred to in subsection (i) or (ii) hereof is approved by a
majority of Independent Directors, such approval shall be presumptive evidence
that such transaction complies with the provisions of this Section. As used
herein, an "Independent Director" shall mean any director who is not an officer
or employee of the Company and who does not beneficially own more than 5% of any
outstanding class or series of capital stock of the Company and who is not
related by blood or marriage to any of the foregoing. As used herein,
"Affiliate" means any person or entity that, directly or indirectly, controls or
is controlled by or is under common control with the Company, including without
limitation, any partnership, group, joint venture, corporation, association or
other entity, except that the Persons (as defined in Article VII of the
Warrants) that directly or indirectly own Purchaser shall not be deemed
Affiliates of the Company.
Section 5.3. Restrictions on Dividend Payments.
(a) Restriction. For so long as the Warrants are outstanding and
except as provided in 5.3(b), the Company shall not pay any dividends
with respect to its Common Stock (other than dividends payable in shares
of its Common Stock) out of its surplus or otherwise or return any
capital to its stockholders as such or authorize or make any other
distribution, payment or delivery of property or cash to its holders of
Common Stock as such, or redeem, retire, purchase or otherwise acquire,
directly or indirectly, for a consideration (otherwise than in exchange
for, or from the proceeds of the substantially concurrent sale of, other
shares of capital stock of the Company), any shares of any class of its
Common Stock now or hereafter outstanding.
(b) Permitted Dividends. The Company may pay dividends to the
holders of its Common Stock, provided that (i) contemporaneously with
the declaration of any such dividend, the Company will set aside for
payment to the holders of Warrants an amount equal to the total Dividend
Amount (as hereinafter defined) payable to all holders of Warrants and
(ii) on the date of
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payment of such dividend, will pay to each holder of Warrants the
Dividend Amount multiplied times the number of Warrants owned by such
holder as reflected on the Warrantholders' List. Such payment shall be
made by Company check to such holder of Warrants at the address of such
Holder as reflected on the Warrantholders' List. As used herein, the
Dividend Amount shall equal the dividend declared or paid (as the case
may be) with respect to one share of Common Stock multiplied times the
Dilution Factor on the date of declaration or payment.
Section 5.4. Access. The Company will allow, and will cause its
Subsidiaries to allow, any holder of Warrants or proposed assignee of Warrants
designated by such holder, and their respective representatives, upon two
Business Days prior telephonic notice, to visit and inspect any of its property,
to examine its books of record and account, and to discuss its affairs, finances
and accounts with its officers, provided, (i) the holder of Warrants, proposed
assignee or representative signs a customary confidentiality agreement if
requested by the Company and (ii) the examination will not unreasonably disrupt,
in any material manner, the operations of the Company.
Section 5.5. Rule 144 Reporting. The Company agrees that for so long as
any class of its securities is registered under Section 12(b) or 12(g) of the
Exchange Act, it shall:
(a) Make and keep "adequate public information" available, as
those terms are understood and defined in Rule 144 under the Securities
Act, at all times from and after the date hereof;
(b) File with the Commission in a timely manner all reports and
other documents required of the Company under the Securities Act and the
Exchange Act; and
(c) So long as Purchaser owns any Shares, furnish to Purchaser
promptly upon request a written statement by the Company as to its
compliance with the reporting requirements (i) necessary to cause
"adequate public information" to be available under Rule 144, and (ii)
of the Securities Act and Exchange Act.
ARTICLE VI. THE COMPANY'S INDEMNIFICATION
Section 6.1. Indemnification. The Company will indemnify and hold
harmless Purchaser, and its respective officers, directors, employees, agents,
representatives and affiliates (collectively "INDEMNITEES") from and against any
and all expenses, claims, charges, losses, damages, fines or penalties,
including without limitation reasonable attorneys' fees incurred in defending or
resisting any claims, actions or proceedings or in enforcing this indemnity
(hereinafter "DAMAGES"), that an Indemnitee may suffer, sustain, incur or become
subject to, whether directly or indirectly, arising out of, based upon,
resulting from any violation or inaccuracy of any representations, warranties,
obligations or covenants of the Company contained, disclosed or set forth in
this Agreement or the Warrant.
ARTICLE VII. WARRANT A PUT AND CALL OPTIONS
Section 7.1 Purchaser's Option to Cause Purchase. From and after the
earlier to occur of (i) February 6, 2004 and (ii) the date the Indebtedness (as
defined in that certain Credit Agreement between Purchaser and MCAI, dated as of
February 6, 2001, as same may be amended or restated from time to time)
174
is paid in full ("WARRANT A COMMENCEMENT DATE") but before February 6, 2006,
Purchaser shall have the right and option to cause the Company to purchase all
(and not any portion) of Warrant A, in the following manner:
(a) Exercise Notice. In order to exercise its right and option to
cause the Company to purchase Warrant A, a holder desiring to cause the
Company to purchase Warrant A (a "WARRANT A SELLING HOLDER"), shall
notify ("WARRANT A EXERCISE NOTICE") the Company of its intent to sell
Warrant A to the Company. The Warrant A Exercise Notice shall specify
the proposed closing date of such purchase which shall be a Business Day
at least ten and no more than thirty Business Days from the date of such
notice.
(b) Purchase Price. The purchase price (the "WARRANT A PUT
PURCHASE PRICE") for Warrant A shall be $600,000.
(c) Closing. The closing shall be held at the principal executive
offices of the Company at 10:00 a.m., local time on the date specified
in the Warrant A Exercise Notice, or such other time and place as the
Warrant A Selling Holder and the Company shall agree in writing. At the
closing, the Company shall pay the Warrant A Selling Holder the purchase
price by cashier's check or wire transfer of immediately available
funds. The Warrant A Selling Holder shall deliver Warrant A duly
endorsed for transfer to the Company.
(d) Purchaser's Representations and Warranties. At the closing,
the Warrant A Selling Holder shall make customary representations and
warranties as to the following, and shall not be required to make any
additional representations or warranties:
(i) That Warrant A Selling Holder has the power and authority
to transfer Warrant A to the Company;
(ii) That the transfer of Warrant A has been duly authorized
by the Warrant A Selling Holder; and
(iii) That Warrant A will be transferred to the Company free
and clear of any liens, claims, pledges, and encumbrances created
by the Warrant A Selling Holder.
(e) Company's Representations and Warranties. At the closing, the
Company shall make customary representations and warranties as to the
following, and shall not be required to make any additional
representations or warranties:
(i) That the Company has the power and authority to purchase
Warrant A from the Warrant A Selling Holder;
(ii) That the purchase of Warrant A has been duly authorized
by the Company;
(iii) That the purchase of Warrant A is in compliance with
applicable state corporate laws governing the Company's
repurchase of its securities;
175
(iv) That Warrant A is not being purchased with a view toward
distribution in violation of applicable securities laws; and
(v) That purchase of Warrant A does not render the Company
insolvent.
Section 7.2. Restrictions on Company's Ability to Purchase.
(a) Dividend Restriction. Whenever Warrant A is required to be
purchased by the Company pursuant to this Agreement, if the Company
shall not be able lawfully to purchase the entire Warrant on the closing
date under the provisions of applicable state corporate law dealing with
impairment of surplus, the Company shall purchase on the closing date so
much of Warrant A as it may lawfully purchase. In the event the Company
purchases less than all of Warrant A on the closing date, then the
Company shall not, without the written consent of the Warrant A Selling
Holder, pay dividends, distributions or other payments to any
stockholder or make any loans to stockholders, other than reasonable
salary and benefits payments, until the remainder of Warrant A is
purchased in accordance with the terms of this Agreement.
(b) Restrictions on Certain Capital Transactions. The Company
will not, without the written consent of the holder of Warrant A,
increase the par value of any Shares or effect a transfer from the
retained earnings account of the Company to the capital or additional
paid in capital accounts of the Company if, at the time of such transfer
and after giving effect thereto and to any concurrent or then
contemplated transactions, the ability of the Company to lawfully
discharge its obligations to purchase Warrant A pursuant to this
Agreement would be materially or adversely impaired.
(c) Continuing Obligation. If the Company is unable on the
closing date lawfully to purchase all of Warrant A, the obligation of
the Company to purchase such portion of Warrant A that the Company could
not lawfully purchase shall continue until such time as the Company may
lawfully discharge such obligation; provided, however, that the purchase
price shall be increased by an amount equal to interest on the purchase
price at the rate of 20% per annum.
Section 7.3 Company's Option to Purchase. On February 6, 2006, if
Warrant A has not previously been exercised or put to the Company, the Company
shall have the right and option to purchase all, but not less than all, of
Warrant A, in the following manner:
(a) Purchase Notice. In order to exercise its right and option to
cause the holder of Warrant A to sell all of Warrant A to the Company,
the Company shall notify ("WARRANT A PURCHASE NOTICE") the holder
("WARRANT A REDEEMED HOLDER") of its intent to purchase Warrant A. The
Warrant A Purchase Notice shall state the proposed closing date of such
purchase which shall be a Business Day at least ten and no more than
thirty Business Days from the date of such notice. In the event that the
Warrant A Redeemed Holder properly exercises Warrant A in full prior to
the closing date set forth in the Warrant A Purchase Notice, the
Company's option to purchase set forth in this Section 7.3 shall lapse
and be of no further force and effect.
(b) Purchase Price. The purchase price for Warrant A shall be the
Warrant A Put
176
Purchase Price.
(c) Closing. The closing of any purchase pursuant to this Section
7.3 shall be held at the principal executive offices of the Company at
10:00 a.m., local time, on the date specified in the Warrant A Purchase
Notice, or such other time and place as the Company and Purchaser shall
agree in writing. At the closing, the Company shall pay the Warrant A
Redeemed Holder the Warrant A Purchase Price by cashier's check or wire
transfer of immediately available funds. The Warrant A Redeemed Holder
shall deliver Warrant A duly endorsed for transfer to the Company.
(d) Representations and Warranties. At the Closing, the Warrant A
Redeemed Holder shall make the representations and warranties specified
in Section 7.1(d) and the Company shall make the representations and
warranties specified in 7.1(e).
(e) Legend. Purchaser agrees to maintain a legend on Warrant A
referring to the right and option set forth in this Section.
(f) Restrictions on Purchases. The Company shall not have the
right and option to purchase Warrant A as provided in this Section
unless the Company is legally able to purchase all of Warrant A
outstanding under applicable corporate law.
(g) No Restriction on Transfer. Nothing in this Article VII shall
restrict or limit the ability of the holder to sell Warrant A, except
that from and after receipt of the Warrant A Purchase Notice until the
purchase of Warrant A as provided in this Section, the holder shall not
sell, assign, transfer or pledge Warrant A.
(h) Breach of Loan Agreement or Other Documents. Notwithstanding
any other provision herein, the Company shall not have the right or
option to cause the holder to sell Warrant A to the Company if the
Company has breached, is in default or an event of default has occurred
under the Loan Agreement, this Agreement, the Shareholders' Agreement,
the Registration Rights Agreement or Warrant A, which default has not
been cured.
ARTICLE VIII. WARRANT B PUT AND CALL OPTIONS
Section 8.1 Purchaser's Option to Cause Purchase. From and after the
earlier to occur of (i) the three-year anniversary of the Closing Date and (ii)
the date the Indebtedness (as defined in the Loan Agreement) is paid in full
("WARRANT B COMMENCEMENT DATE") but before the fifth anniversary of the Closing,
Purchaser shall have the right and option to cause the Company to purchase all
(and not any portion) of Warrant B, in the following manner:
(a) Exercise Notice. In order to exercise its right and option to
cause the Company to purchase Warrant B, a holder desiring to cause the
Company to purchase Warrant B (a "WARRANT B SELLING HOLDER"), shall
notify ("WARRANT B EXERCISE NOTICE") the Company of its intent to sell
Warrant B to the Company. The Warrant B Exercise Notice shall specify
the proposed closing date of such purchase which shall be a Business Day
at least ten and no more than thirty Business Days from the date of such
notice.
177
(b) Purchase Price. The purchase price (the "Warrant B Put
Purchase Price") for Warrant B shall be $900,000.
(c) Closing. The closing shall be held at the principal executive
offices of the Company at 10:00 a.m., local time on the date specified
in the Warrant B Exercise Notice, or such other time and place as the
Warrant B Selling Holder and the Company shall agree in writing. At the
closing, the Company shall pay the Warrant B Selling Holder the purchase
price by cashier's check or wire transfer of immediately available
funds. The Warrant B Selling Holder shall deliver Warrant B duly
endorsed for transfer to the Company.
(d) Purchaser's Representations and Warranties. At the closing,
the Warrant B Selling Holder shall make customary representations and
warranties as to the following, and shall not be required to make any
additional representations or warranties:
(i) That Warrant B Selling Holder has the power and authority
to transfer Warrant B to the Company;
(ii) That the transfer of Warrant B has been duly authorized
by the Warrant B Selling Holder; and
(iii) That Warrant B will be transferred to the Company free
and clear of any liens, claims, pledges, and encumbrances created
by the Warrant B Selling Holder.
(e) Company's Representations and Warranties. At the closing, the
Company shall make customary representations and warranties as to the
following, and shall not be required to make any additional
representations or warranties:
(i) That the Company has the power and authority to purchase
Warrant B from the Warrant B Selling Holder;
(ii) That the purchase of Warrant B has been duly authorized
by the Company;
(iii) That the purchase of Warrant B is in compliance with
applicable state corporate laws governing the Company's
repurchase of its securities;
(iv) That Warrant B is not being purchased with a view toward
distribution in violation of applicable securities laws; and
(v) That purchase of Warrant B does not render the Company
insolvent.
Section 8.2. Restrictions on Company's Ability to Purchase.
(a) Dividend Restriction. Whenever Warrant B is required to be
purchased by the Company pursuant to this Agreement, if the Company
shall not be able lawfully to purchase the
178
entire Warrant on the closing date under the provisions of applicable
state corporate law dealing with impairment of surplus, the Company
shall purchase on the closing date so much of Warrant B as it may
lawfully purchase. In the event the Company purchases less than all of
Warrant B on the closing date, then the Company shall not, without the
written consent of the Warrant B Selling Holder, pay dividends,
distributions or other payments to any stockholder or make any loans to
stockholders, other than reasonable salary and benefits payments, until
the remainder of Warrant B is purchased in accordance with the terms of
this Agreement.
(b) Restrictions on Certain Capital Transactions. The Company
will not, without the written consent of the holder of Warrant B,
increase the par value of any Shares or effect a transfer from the
retained earnings account of the Company to the capital or additional
paid in capital accounts of the Company if, at the time of such transfer
and after giving effect thereto and to any concurrent or then
contemplated transactions, the ability of the Company to lawfully
discharge its obligations to purchase Warrant B pursuant to this
Agreement would be materially or adversely impaired.
(c) Continuing Obligation. If the Company is unable on the
closing date lawfully to purchase all of Warrant B, the obligation of
the Company to purchase such portion of Warrant B that the Company could
not lawfully purchase shall continue until such time as the Company may
lawfully discharge such obligation; provided, however, that the purchase
price shall be increased by an amount equal to interest on the purchase
price at the rate of 20% per annum.
Section 8.3 Company's Option to Purchase. On the fifth anniversary of
the Closing, if Warrant B has not previously been exercised or put to the
Company, the Company shall have the right and option to purchase all, but not
less than all, of Warrant B, in the following manner:
(a) Purchase Notice. In order to exercise its right and option to
cause the holder of Warrant B to sell all of Warrant B to the Company,
the Company shall notify ("WARRANT B PURCHASE NOTICE") the holder
("WARRANT B REDEEMED HOLDER") of its intent to purchase Warrant B. The
Warrant B Purchase Notice shall state the proposed closing date of such
purchase which shall be a Business Day at least ten and no more than
thirty Business Days from the date of such notice. In the event that the
Warrant B Redeemed Holder properly exercises Warrant B in full prior to
the closing date set forth in the Warrant B Purchase Notice, the
Company's option to purchase set forth in this Section 8.3 shall lapse
and be of no further force and effect.
(b) Purchase Price. The purchase price for Warrant B shall be the
Warrant B Put Purchase Price.
(c) Closing. The closing of any purchase pursuant to this Section
8.3 shall be held at the principal executive offices of the Company at
10:00 a.m., local time, on the date specified in the Warrant B Purchase
Notice, or such other time and place as the Company and Purchaser shall
agree in writing. At the closing, the Company shall pay the Warrant B
Redeemed Holder the Warrant B Purchase Price by cashier's check or wire
transfer of immediately available funds. The Warrant B Redeemed Holder
shall deliver Warrant B duly endorsed for transfer to the Company.
179
(d) Representations and Warranties. At the Closing, the Warrant B
Redeemed Holder shall make the representations and warranties specified
in Section 8.1(d) and the Company shall make the representations and
warranties specified in 8.1(e).
(e) Legend. Purchaser agrees to maintain a legend on Warrant B
referring to the right and option set forth in this Section.
(f) Restrictions on Purchases. The Company shall not have the
right and option to purchase Warrant B as provided in this Section
unless the Company is legally able to purchase all of Warrant B
outstanding under applicable corporate law.
(g) No Restriction on Transfer. Nothing in this Article VIII
shall restrict or limit the ability of the holder to sell Warrant B,
except that from and after receipt of the Warrant B Purchase Notice
until the purchase of Warrant B as provided in this Section, the holder
shall not sell, assign, transfer or pledge Warrant B.
(h) Breach of Loan Agreement or Other Documents. Notwithstanding
any other provision herein, the Company shall not have the right or
option to cause the holder to sell Warrant B to the Company if the
Company has breached, is in default or an event of default has occurred
under the Loan Agreement, this Agreement, the Shareholders' Agreement,
the Registration Rights Agreement or Warrant B, which default has not
been cured.
ARTICLE IX. MISCELLANEOUS
Section 9.1. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED IN ALL
RESPECTS BY THE INTERNAL LAWS OF THE STATE OF TEXAS.
Section 9.2. Survival. The representations, warranties, covenants and
agreements made herein shall survive any investigation made by Purchaser and the
closing of the transactions contemplated hereby.
Section 9.3. Successors and Assigns. Except as otherwise provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto.
Section 9.4. Entire Agreement, Amendment. This Agreement and the other
documents delivered pursuant hereto at the Closing constitute the full and
entire understanding and agreement between the parties with regard to the
subjects hereof and thereof, and no party shall be liable or bound to any other
party in any manner by any warranties, representations or covenants except as
specifically set forth herein or therein. Except as expressly provided herein,
neither this Agreement nor any term hereof may be amended, waived, discharged or
terminated other than by a written instrument signed by the party against whom
enforcement of any such amendment, waiver, discharge or termination is sought.
Section 9.5. Notices, etc. All notices and other communications required
or permitted hereunder shall be in writing and shall be mailed by registered or
certified mail, postage prepaid, or otherwise delivered by hand or by messenger,
addressed (a) if to Purchaser, at: ▇▇▇▇▇ Fargo Energy Capital, Inc., ▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇, Attention: ▇▇▇▇ ▇▇▇▇▇▇▇, Senior
Vice President,
180
or at such other address as Purchaser shall have furnished to the Company in
writing, or (b) if to any other holder of any Warrants or Shares, at such
address as such holder shall have furnished the Company in writing, or, until
any such holder so furnishes an address to the Company, then to and at the
address of the last holder of such Warrants or Shares who has so furnished an
address to the Company, or (c) if to the Company, to its address set forth on
the signature page of this Agreement and addressed to the attention of the
Corporate Secretary, or at such other address as the Company shall have
furnished to Purchaser.
Section 9.6. Delays or Omissions. Except as expressly provided herein,
no delay or omission to exercise any right, power or remedy accruing to any
holder of any Shares, upon any breach or default of the Company under this
Agreement, shall impair any such right, power or remedy of such holder nor shall
it be construed to be a waiver of any such breach or default, or an acquiescence
therein, or of or in any similar breach or default thereafter occurring; nor
shall any waiver of any single breach or default be deemed a waiver of any other
breach or default theretofore or thereafter occurring. Any waiver, permit,
consent or approval of any kind or character on the part of any holder of any
breach or default under this Agreement, or any waiver on the part of any holder
of any provisions or conditions of this agreement, must be in writing and shall
be effective only to the extent specifically set forth in such writing. All
remedies, either under this Agreement or by law or otherwise afforded to any
holder, shall be cumulative and not alternative.
Section 9.7. Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be an original, and all of which together
shall constitute one agreement.
Section 9.8. Severability. In the event that any provision of this
Agreement becomes or is declared by a court of competent jurisdiction to be
illegal, unenforceable or void, this Agreement shall continue in full force and
effect without said provision; provided that no such severability shall be
effective if it materially changes the economic benefit of this Agreement to any
party.
Section 9.9. Titles and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not considered in construing or
interpreting this Agreement.
Section 9.10 Specific Performance. The Company acknowledges that any
breaches of the agreements and covenants contained in of this Agreement would
cause irreparable injury to Purchaser for which Purchaser would have no adequate
remedy at law. In addition to any other remedy that Purchaser may be entitled
to, the parties agree that Purchaser shall be entitled to the remedy of specific
performance.
181
The foregoing Agreement is hereby executed as of the date first above
written. Mountain Compressed Air, Inc. is executing solely for purposes of
Sections 1.3 and 1.4 herein. OilQuip Rentals, Inc. is executing solely for
purposes of Section 1.4 herein. ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇▇, individually, and
Energy Spectrum Partners, LP are executing solely for purposes of Section 1.5
herein.
Address: ____________________________ ▇▇▇▇▇-▇▇▇▇▇▇▇▇ Corporation
____________________________
By:____________________________________
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇▇
Chairman and Chief Executive Officer
Address: 1000 Louisiana, Sixth Floor ▇▇▇▇▇ Fargo Energy Capital, Inc.
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
By:____________________________________
▇▇▇▇ ▇▇▇▇▇▇▇
Senior Vice President
Address: ▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ Compressed Air, Inc.
▇▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
By:____________________________________
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇▇
Chairman and Chief Executive Officer
Address: ▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ OilQuip Rentals, Inc.
▇▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
By:____________________________________
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇▇
Chairman and Chief Executive Officer
Address: ____________________________
____________________________ ____________________________________
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇▇
182
Address: ____________________________ Energy Spectrum Partners, LP
____________________________
By:____________________________________
Name:__________________________________
Title:_________________________________
183
EXHIBIT A TO
WARRANT PURCHASE AGREEMENT
================================================================================
WARRANT
▇▇▇▇▇-▇▇▇▇▇▇▇▇ CORPORATION
A DELAWARE CORPORATION
(THE "COMPANY")
TO PURCHASE 465,000
SHARES OF THE COMPANY'S COMMON STOCK
ISSUED TO
▇▇▇▇▇ FARGO ENERGY CAPITAL, INC.
A TEXAS CORPORATION
("WARRANTHOLDER")
EFFECTIVE FEBRUARY 1, 2002
This Warrant and the Shares issued upon exercise thereof are subject to
repurchase by the Company as provided in the Warrant Purchase Agreement dated
effective February 1, 2002.
This Warrant and any Shares acquired upon the exercise of this Warrant
have not been registered under the Securities Act of 1933, as amended, and may
not be transferred, sold or otherwise disposed of in the absence of such
registration or an exemption therefrom under such Act. This Warrant and such
Shares may be transferred only in compliance with the conditions specified in
this Warrant and the Warrant Purchase Agreement, a copy of which is available
from the Company to holders of this Warrant.
================================================================================
184
▇▇▇▇▇-▇▇▇▇▇▇▇▇ Corporation
Warrant
No. W-A February 1, 2002
▇▇▇▇▇-▇▇▇▇▇▇▇▇ Corporation (the "Company"), a Delaware corporation, for
value received, hereby certifies that ▇▇▇▇▇ Fargo Energy Capital, Inc., a Texas
Corporation, or registered assigns, is entitled to purchase from the Company
465,000 duly authorized, validly issued, fully paid and nonassessable shares of
Common Stock, $0.15 par value (the "Common Stock") at any time or from time to
time prior to 5:00 p.m., Houston, Texas time, on the Expiration Date (as herein
defined), all subject to terms, conditions and adjustments set forth in this
Warrant.
This is the Warrant (the "Warrant") (such term to include any warrants
issued in substitution therefor) originally issued pursuant to the Warrant
Purchase Agreement. Certain capitalized terms used in this Warrant are defined
in Article VII; unless otherwise specified, references to an "Exhibit" mean one
of the exhibits attached to this Warrant, references to an "Article" mean one of
the articles in this Warrant and references to a "Section" mean one of the
sections of this Warrant.
ARTICLE I. EXERCISE OF WARRANT
Section 1.1. Manner of Exercise. This Warrant may be exercised by the
holder hereof, in whole or in part, during normal business hours on any Business
Day, by surrender of this Warrant to the Company at its office maintained
pursuant to subdivision (a) of Section 6.2, accompanied by a subscription in
substantially the form attached to this Warrant (or a reasonable facsimile
thereof) duly executed by such holder and accompanied by payment, in cash or by
certified or official bank check payable to the order of the Company in the
amount obtained by multiplying (a) the number of shares of Common Stock (without
giving effect to any adjustment thereof) designated in such subscription by (b)
the Initial Price, and such holder shall thereupon be entitled to receive the
number of duly authorized, validly issued, fully paid and nonassessable shares
of Common Stock (or Other Securities) determined as provided in Articles II
through IV.
Section 1.2. When Exercise Effective. Each exercise of this Warrant
shall be deemed to have been effected immediately prior to the close of business
on the Business Day on which this Warrant shall have been surrendered to the
Company as provided in Section 1.1, and at such time the Person or Persons in
whose name or names any certificate or certificates for shares of Common Stock
(or Other Securities) shall be issuable upon such exercise as provided in
Section 1.3 shall be deemed to have become the holder or holders of record
thereof.
Section 1.3. Delivery of Stock Certificates, etc. As soon as practicable
after each exercise of this Warrant, in whole or in part, and in any event
within five Business Days thereafter, the Company, at its expense (including the
payment by it of any applicable issue taxes), will cause to be issued in the
name of and delivered to the holder hereof, subject to Article V, as such holder
(upon payment by such holder of any applicable transfer taxes) may direct, the
following:
185
(a) Certificates. A certificate or certificates for the number of
duly authorized, validly issued, fully paid and nonassessable shares of
Common Stock (or Other Securities) to which such holder shall be
entitled upon such exercise plus, in lieu of any fractional share to
which such holder would otherwise be entitled, cash in an amount equal
to the same fraction of the Market Price per share on the Business Day
next preceding the date of such exercise.
(b) Warrant. In case such exercise is in part only, a new Warrant
or Warrants of like tenor dated the date hereof, calling in the
aggregate on the face or faces thereof for the number of shares of
Common Stock equal (without giving effect to any adjustment thereof) to
the number of such shares called for on the face of this Warrant minus
the number of such shares designated by the holder upon such exercise as
provided in Section 1.1.
ARTICLE II. ADJUSTMENT OF COMMON STOCK ISSUABLE UPON EXERCISE
Section 2.1. General; Warrant Price. The number of shares of Common
Stock which the holder of this Warrant shall be entitled to receive upon each
exercise hereof shall be determined by multiplying the number of shares of
Common Stock which would otherwise (but for the provisions of this Article II)
be issuable upon such exercise, as designated by the holder hereof pursuant to
Section 1.1, by a fraction (the "Dilution Factor") (a) the numerator of which is
the Initial Price and (b) the denominator of which is the Warrant Price in
effect at the effective time of such exercise (as provided in Section 1.2). The
"Warrant Price" shall initially be the Initial Price, shall be adjusted and
readjusted from time to time as provided in this Article II and, as so adjusted
or readjusted, shall remain in effect until a further adjustment or readjustment
thereof is required by this Article II.
Section 2.2. Issuance of Additional Shares of Common Stock. In case the
Company at any time or from time to time after the date hereof shall issue or
sell Additional Shares of Common Stock (including Additional Shares of Common
Stock deemed to be issued pursuant to section 2.4 or 2.5) without consideration
or for a consideration per share less than the Dilutive Basis, then, and in each
such case, such Warrant Price shall be reduced, concurrently with such issue or
sale, to the lower of the prices (calculated to the nearest cent) determined as
follows:
(a) by multiplying the Warrant Price then in existence by a
fraction, the numerator of which shall be (i) the number of shares of
Common Stock outstanding immediately prior to such issue or sale plus
(ii) the number of shares of Common Stock which the aggregate
consideration received by the Company for the total number of such
Additional Shares of Common Stock so issued or sold would purchase at
the Current Market Price, and the denominator of which shall be the
number of shares of Common Stock outstanding immediately after such
issue or sale, provided that, for the purposes of this Section 2.2, (i)
immediately after any Additional Shares of Common Stock are deemed to
have been issued pursuant to Section 2.4 or 2.5, such Additional Shares
of Common Stock shall be deemed to be outstanding, and (ii) treasury
shares shall not be deemed to be outstanding; and
(b) by dividing (i) an amount equal to the sum of (1) the number
of shares of Common Stock outstanding immediately prior to such issuance
or sale multiplied times the then effective
186
Warrant Price plus (2) the total consideration, if any, received and
deemed received by the Company upon such issue or sale, by (ii) the
total number of shares of Common Stock outstanding and deemed
outstanding immediately after such issue or sale.
Section 2.3. Extraordinary Dividends and Distributions. If the Company
at any time or from time to time after the date hereof shall declare, order, pay
or make a dividend or other distribution (including, without limitation, any
distribution of other or additional stock or Other Securities or property or
Options by way of dividend or spin-off, reclassification, recapitalization or
similar corporate rearrangement) on the Common Stock, other than (a) a dividend
payable in Additional Shares of Common Stock or (b) a dividend payable in cash
or other property and declared out of the earned surplus of the Company as at
the date thereof as increased by any credits (other than credits resulting from
a revaluation of property) and decreased by any debits made thereto, then, and
in each such case, the Warrant Price in effect immediately prior to the close of
business on the record date fixed for the determination of holders of any class
of securities entitled to receive such dividend or distribution shall be
reduced, effective as of the close of business on such record date, to a price
(calculated to the nearest cent) determined by multiplying such Warrant Price by
a fraction:
(a) the numerator of which shall be the Current Market Price in
effect on such record date or, if the Common Stock trades on an
ex-dividend basis, on the date prior to the commencement of ex-dividend
trading, less the amount of such dividend or distribution (as determined
in good faith by the Board of Directors of the Company) applicable to
one share of Common Stock, and
(b) the denominator of which shall be the Current Market Price on
such record date, or if the Common Stock trades on an ex-dividend basis,
on the date prior to the commencement of ex-dividend trading.
Section 2.4. Treatment of Options and Convertible Securities. In case
the Company at any time or from time to time after the date hereof shall issue,
sell, grant or assume, or shall fix a record date for the determination of
holders of any class of securities entitled to receive, any Options or
Convertible Securities, then, and in each such case, the maximum number of
Additional Shares of Common Stock (as set forth in the instrument relating
thereto, without regard to any provisions contained therein for a subsequent
adjustment of such number) issuable upon the exercise of such Options or, in the
case of Convertible Securities and Options therefor, the conversion or exchange
of such Convertible Securities, or, in the case of Appreciation Rights, the
number computed in Section 2.9, shall be deemed to be the number of Additional
Shares of Common Stock issued as of the time of such issue, sale, grant or
assumption or, in case such a record date shall have been fixed, as of the close
of business on such record date (or, if the Common Stock trades on an
ex-dividend basis, on the date prior to the commencement of ex-dividend
trading); provided that such Additional Shares of Common Stock shall not be
deemed to have been issued unless the consideration per share (determined
pursuant to Section 2.6) of such shares would be less than the Dilutive Basis in
effect on the date of and immediately prior to such issue, sale, grant or
assumption or immediately prior to the close of business on such record date
(or, if the Common Stock trades on an ex-dividend basis, on the date prior to
the commencement of ex-dividend trading), as the case may be; and provided,
further, that in any such case in which Additional Shares of Common Stock are
deemed to be issued no further adjustment of the Warrant Price shall be made
upon the subsequent issue or sale of Convertible Securities or
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Additional Shares of Common Stock upon the exercise of such Options or the
conversion or exchange of such Convertible Securities.
Section 2.5. Treatment of Stock Dividends, Stock Splits, etc. In case
the Company at any time or from time to time after the date hereof shall declare
or pay any dividend on the Common Stock payable in Common Stock, or shall effect
a subdivision of the outstanding shares of Common Stock into a greater number of
shares of Common Stock (by reclassification or otherwise than by payment of a
dividend in Common Stock), then, and in each such case, Additional Shares of
Common Stock shall be deemed to have been issued (a) in the case of any such
dividend, immediately after the close of business on the record date for the
determination of holders of any class of securities entitled to receive such
dividend, or (b) in the case of any such subdivision, at the close of business
on the day immediately prior to the day upon which such corporate action becomes
effective.
Section 2.6. Computation of Consideration. For the purpose of Article
II, the following shall be used to determine the consideration received or
deemed received by the Company:
(a) Shares Actually Issued. The consideration for the issue or
sale of any Additional Shares of Common Stock shall, irrespective of the
accounting treatment of such consideration,
(i) insofar as it consists of cash, be computed at the net
amount of cash received by the Company, without deducting any
expenses paid or incurred by the Company or any commissions or
compensations paid or concessions or discounts allowed to
underwriters, dealers or others performing similar services in
connection with such issue or sale,
(ii) insofar as it consists of property (including
securities) other than cash, be computed at the fair value
thereof at the time of such issue or sale, as determined in good
faith by the Board of Directors of the Company, and
(iii) in case Additional Shares of Common Stock are issued
or sold together with other stock or securities or other assets
of the Company for a consideration which covers both, be the
portion of such consideration so received, computed as provided
in clauses (i) and (ii) above, applicable to such Additional
Shares of Common Stock, all as determined in good faith by the
Board of Directors of the Company.
(b) Shares Deemed Issued. Additional Shares of Common Stock
deemed to have been issued pursuant to Section 2.4, relating to Options
and Convertible Securities, shall be deemed to have been issued for a
consideration per share determined by dividing,
(i) the present value (using a discount factor equal to
the average interest rate on the Company's outstanding
indebtedness to financial institutions and assuming any
consideration receivable by the Company shall be received at the
latest date possible under the terms of such Options or
Convertible Securities) of the total amount, if any, received and
receivable by the Company as consideration for the issue, sale,
grant or assumption of the Options or Convertible Securities in
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question, plus the present value (using a discount factor equal
to the average interest rate on the Company's outstanding
indebtedness to financial institutions and assuming any
consideration receivable by the Company shall be received at the
latest date possible under the terms of the Options and
Convertible Securities) of the minimum aggregate amount of
additional consideration (as set forth in the instruments
relating thereto, without regard to any provision contained
therein for a subsequent adjustment of such consideration to
protect against dilution) payable to the Company upon the
exercise in full of such Options or the conversion or exchange of
such Convertible Securities or, in the case of Options for
Convertible Securities, the exercise of such Options for
Convertible Securities and the conversion or exchange of such
Convertible Securities, in each case computing such consideration
as provided in the foregoing subdivision (a),
by
(ii) the maximum number of Additional Shares of Common
Stock (as set forth in the instruments relating thereto, without
regard to any provision contained therein for a subsequent
adjustment of such number to protect against dilution) issuable
upon the exercise of such Options or the conversion or exchange
of such Convertible Securities.
(c) Stock Dividends, Etc. Additional Shares of Common Stock
issued or deemed to have been issued pursuant to Section 2.5, relating
to stock dividends, stock splits, etc., shall be deemed to have been
issued for no consideration.
(d) Services. Additional Shares of Common Stock issued or sold or
deemed issued or sold in exchange for services or the promise of future
services shall be deemed to have been issued for no consideration.
Section 2.7. Adjustments for Combinations, etc. In case the outstanding
shares of Common Stock shall be combined or consolidated, by reclassification or
otherwise, into a lesser number of shares of Common Stock, the Warrant Price in
effect immediately prior to such combination or consolidation shall,
concurrently with the effectiveness of such combination or consolidation, be
proportionately increased.
Section 2.8. Dilution in Case of Other Securities. In case any Other
Securities shall be issued or sold or shall become subject to issue or sale upon
the conversion or exchange of any stock (or Other Securities) of the Company (or
any issuer of Other Securities or any other Person referred to in Article II) or
to subscription, purchase or other acquisition pursuant to any Options issued or
granted by the Company (or any such other issuer or Person) for a consideration
such as to dilute, on a basis consistent with the standards established in the
other provisions of this Article II, the purchase rights granted by this
Warrant, then, and in each such case, the computations, adjustments and
readjustments provided for in this Article II with respect to the Warrant Price
shall be made as nearly as possible in the manner so provided and applied to
determine the amount of Other Securities from time to time receivable upon the
exercise of the Warrant, so as to protect the holder of the Warrant against the
effect of such dilution.
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Section 2.9. Appreciation Rights. If the Company issues or sells
Appreciation Rights, a number of Additional Shares of Common Stock shall be
deemed issued for purposes of this Article II and shall be computed as follows:
(a) Value Based on Dividends. If the Appreciation Rights entitle
the holder thereof to distributions or payments based on or determined
with reference to dividends paid or payable on Common Stock, the number
of Additional Shares of Common Stock deemed issued will be the number of
shares of Common Stock that would be required to be issued such that the
holder thereof would receive distribution payments equal to those paid
or payable with respect to such Appreciation Rights.
(b) Value Based on Liquidating Distributions. If the Appreciation
Rights entitle the holder thereof to distributions or payments based on
or determined with reference to liquidation distributions paid or
payable on, or consideration received, in connection with the sale,
exchange or transfer of Common Stock, the number of Additional Shares of
Common Stock deemed issued will be the number of shares of Common Stock
that would be required to be issued such that the holder thereof would
receive distributions or payments equal to those paid or payable with
respect to such Appreciation rights.
(c) Value Based on Dividends and Liquidating Distributions. If
the Appreciation Rights entitle the holder thereof to distributions
based on or determined with reference to either dividends paid or
payable on Common Stock and liquidating distributions paid or payable or
on consolidation received in connection with the sale, exchange or
transfer of Common Stock, the number of Additional Shares of Common
Stock deemed issued will be the greater of the amount computed under (a)
or (b) above.
(d) Other Profits. If the Appreciation Rights entitle the holder
thereof to distributions based on or determined with reference to any
other measure of profit of the Company, the number of Additional Shares
of Common Stock deemed issued will be the value of the Appreciation
Right, as determined in the good faith judgment of the Board of
Directors, divided by the Current Market Price of the Common Stock on
the date of issuance of the Appreciation Right.
ARTICLE III. CONSOLIDATION, MERGER, ETC.
Section 3.1. Assumption of Obligations. Notwithstanding anything
contained in this Warrant to the contrary, the Company will not (a) consolidate
with or merge into any other Person if the Company is not the continuing or
surviving corporation of such consolidation or merger, or (b) permit any other
Person to consolidate with or merge into the Company even though the Company
shall be the continuing or surviving Person if, in connection with such
consolidation or merger, the Common Stock or Other Securities shall be changed
into or exchanged for stock or other securities of any other Person or cash or
any other property, or (c) transfer all or substantially all of its properties
or asset to any other Person, or (d) effect a capital reorganization or
reclassification of the Common Stock or Other Securities (other than a capital
reorganization or reclassification resulting in the issue of Additional Shares
of Common Stock for which adjustment in the Warrant Price is provided in Section
2.2 or 2.3) of Section 3.1 unless, prior to the consummation thereof, each
Person (other than the Company) which may be required to deliver any stock,
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securities, cash or property upon the exercise of this Warrant as provided
herein shall assume, by written instrument delivered to, and reasonably
satisfactory to, the holder of this Warrant, (i) the obligations of the Company
under this Warrant (and if the Company shall survive the consummation of such
transaction, such assumption shall be in addition to, and shall not release the
Company from, any continuing obligations of the Company under this Warrant) and
(ii) the obligation to deliver to such holder such shares of stock, securities,
cash or property as such holder may be entitled to receive. Nothing in this
Article III shall be deemed to authorize the Company to enter into any
transaction not otherwise permitted by the Loan Agreement (as defined in the
Warrant Purchase Agreement).
ARTICLE IV. OTHER PROVISIONS CONCERNING DILUTION
Section 4.1. Other Dilutive Events. In case any event shall occur as to
which the provisions of Article II or III are not strictly applicable but the
failure to make any adjustment would not fairly protect the purchase rights
represented by this Warrant in accordance with the essential intent and
principles of such sections, then, in each such case, the Company shall appoint
a firm of independent certified public accountants of recognized national
standing (which may be the regular auditors of the Company), which shall give
their opinion upon the adjustment, if any, on a basis consistent with the
essential intent and principles established in Articles II and III, necessary to
preserve, without dilution, the purchase rights represented by this Warrant.
Upon receipt of such opinion, the Company will promptly mail a copy thereof to
the holder of this Warrant and shall make the adjustments described therein.
Section 4.2. No Dilution or Impairment. The Company will not, by
amendment of its certificate of incorporation or through any consolidation,
merger, reorganization, transfer of assets, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms of this Warrant, but will at all times in
good faith assist in the carrying out of all such terms and in the taking of all
such action as may be necessary or appropriate in order to protect the rights of
the holder of this Warrant against dilution or other impairment. Without
limiting the generality of the foregoing, the Company (a) will not permit the
par value of any shares of stock receivable upon the exercise of this Warrant to
exceed the amount payable therefor upon such exercise, (b) will take all such
action as may be necessary or appropriate in order that the Company may validly
and legally issue fully paid and nonassessable shares of Common Stock on the
exercise of the Warrant from time to time outstanding, and (c) will not take any
action which results in any adjustment of the Warrant Price if the total number
of shares of Common Stock (or Other Securities) issuable after the action upon
the exercise of the Warrant would exceed the total number of shares of Common
Stock (or Other Securities) then authorized by the Company's certificate of
incorporation and available for the purpose of issuance upon such exercise.
Section 4.3. Accountant's and Company's Report as to Adjustments. In
each case of any adjustment or readjustment in the shares of Common Stock (or
Other Securities) issuable upon the exercise of this Warrant, the Company at its
expense will promptly compute such adjustment or readjustment in accordance with
the terms of this Warrant and cause independent certified public accountants of
recognized national standing (which may be the regular auditors of the Company)
selected by the Company to verify such computation (other than any computation
of the fair value of property as determined in good faith by the Board of
Directors of the Company) and prepare a report setting forth such adjustment or
readjustment and showing in reasonable detail the method of calculation thereof
and the facts upon which such adjustment or readjustment is based, including a
statement of (a) the consideration received or to be
191
received by the Company for any Additional Shares of Common Stock issued or sold
or deemed to have been issued, (b) the number of shares of Common Stock
outstanding or deemed to be outstanding, and (c) the Warrant Price in effect
immediately prior to such issue or sale and as adjusted and readjusted (if
required by Article II) on account thereof. The Company shall also prepare and
certify a report stating that any computation of the fair value of property by
the Board of Directors was done in good faith by the Board of Directors as
required herein. The Company will forthwith mail a copy of each such report to
each holder of a Warrant and will, upon the written request at any time of any
holder of a Warrant, furnish to such holder a like report setting forth the
Warrant Price at the time in effect and showing in reasonable detail the manner
in which it was calculated. The Company will also keep copies of all such
reports at its office maintained pursuant to subdivision (a) of Section 6.2 and
will cause the same to be available for inspection at such office during normal
business hours by any holder of a Warrant or any prospective purchaser of a
Warrant designated by the holder thereof.
Section 4.4. Notices of Corporate Action. In the event that any of the
following occurs,
(a) any taking by the Company of a record of the holders of any
class of securities for the purpose of determining the holders thereof
who are entitled to receive any dividend (other than a regular periodic
dividend payable in cash out of earned surplus in an amount not
exceeding the amount of the immediately preceding cash dividend for such
period) or other distribution, or any right to subscribe for, purchase
or otherwise acquire any shares of stock of any class or any other
securities or property, or to receive any other right, or
(b) any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the Company
or any consolidation or merger involving the Company and any other
Person or any transfer of all or substantially all the assets of the
company to any other Person, or
(c) any voluntary or involuntary dissolution, liquidation or
winding-up of the Company,
the Company will mail to each holder of a Warrant a notice specifying (i) the
date or expected date as of which any such record is to be taken for the purpose
of such dividend, distribution or right, and the amount and character of such
dividend, distribution or right, and (ii) the date or expected date on which any
such reorganization, reclassification, recapitalization, consolidation, merger,
transfer, dissolution, liquidation or winding-up is to take place and the time,
if any such time is to be fixed, as of which the holders of record of Common
Stock (or Other Securities) shall be entitled to exchange their shares of Common
Stock (or Other Securities) for the securities or other property deliverable
upon such reorganization, reclassification,
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recapitalization, consolidation, merger, transfer, dissolution, liquidation or
winding-up. Such notice shall be mailed at least 20 days prior to the date
therein specified.
Section 4.5. Registration of Common Stock. If any shares of Common Stock
required to be reserved for purposes of exercise of this Warrant require
registration with or approval of any governmental authority under any federal or
state law (other than the Securities Act) before such shares may be issued upon
exercise, the Company will, at its expense and as expeditiously as possible, use
its best efforts to cause such shares to be duly registered or approved, as the
case may be. At any such time as Common Stock is listed on any national
securities exchange, the Company will, at its expense, obtain the a notice of
issuance, of the shares of Common Stock issuable upon exercise of the Warrant
and maintain the listing of such shares after their issuance; and the Company
will also list on such national securities exchange, will register under the
Exchange Act and will maintain such listing of, any Other Securities that at any
time are issuable upon exercise of the Warrant, if and at the time that any
securities of the same class shall be listed on such national securities
exchange by the Company.
Section 4.6. Availability of Information. The Company will cooperate
with each holder of any Warrant or Restricted Security in supplying such
information as may be reasonably requested by such holder to complete and file
any information reporting forms presently or hereafter required by the
Commission to report such holder's beneficial ownership of Common Stock or Other
Securities or as a condition to the availability of an exemption from the
provisions of the Securities Act for the sale of any Restricted Securities.
Section 4.7. Reservation of Stock, etc. The Company will at all times
reserve and keep available, solely for issuance and delivery upon exercise of
the Warrant, the number of shares of Common Stock (or Other Securities) from
time to time issuable upon exercise of the Warrant. All shares of Common Stock
(or Other Securities) issuable upon exercise of the Warrant shall be duly
authorized and, when issued upon such exercise, shall be validly issued and, in
the case of shares, fully paid and non-assessable with no liability on the part
of the holders thereof.
ARTICLE V. RESTRICTIONS ON TRANSFER
Section 5.1. Restrictive Legends. Except as otherwise permitted by this
Article V, each Warrant (including each Warrant issued upon the transfer of any
Warrant) shall be stamped or otherwise imprinted with a legend in substantially
the following form:
"This Warrant and any shares acquired upon the exercise of this
Warrant have not been registered under the Securities Act of 1933, as
amended, and may not be transferred, sold or otherwise disposed of in
the absence of such registration or an exemption therefrom under such
Act. This Warrant and such Shares may be transferred only in compliance
with the conditions specified in this Warrant."
Except as otherwise permitted by this Article V, each certificate for Common
Stock (or Other Securities) issued upon the exercise of any Warrant, and each
certificate issued upon the transfer of any such Common Stock (or Other
Securities), shall be stamped or otherwise imprinted with a legend in
substantially the following form:
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"The shares represented by this certificate have not been
registered under the Securities Act of 1933 and may not be transferred
in the absence of such registration or an exemption therefrom under such
Act."
Section 5.2. Notice of Proposed Transfer; Opinions of Counsel. Prior to
any transfer of any Restricted Securities which are not registered under an
effective registration statement under the Securities Act, the holder thereof,
will give written notice to the Company of such holder's intention to effect
such transfer and to comply in all other respects with this Section 5.2. Each
such notice (a) shall describe the manner and circumstances of the proposed
transfer and (b) shall include an opinion of legal counsel addressed to the
Company, in form and substance reasonably satisfactory to the Company, to the
effect that such transfer does not violate the Securities Act of 1933 and
applicable state securities laws.
Section 5.3. Termination of Restrictions. The restrictions imposed by
this Article V upon the transferability of Restricted Securities shall cease and
terminate as to any particular Restricted Securities when such securities shall
have been sold pursuant to an effective registration statement under the
Securities Act or otherwise become freely transferable by the holder thereof.
Whenever such restrictions shall cease and terminate as to any Restricted
Securities, the holder thereof shall be entitled to receive from the Company,
without expense (other than applicable transfer taxes, if any), new certificates
representing the securities not bearing the applicable legends required by
Section 5.1.
ARTICLE VI. OWNERSHIP, TRANSFER AND SUBSTITUTION OF WARRANT
Section 6.1. Ownership of Warrant. The Company may treat the person in
whose name any Warrant is registered on the register kept at the office of the
Company maintained pursuant to subdivision (a) of Section 6.2 as the owner and
holder thereof for all purposes, notwithstanding any notice to the contrary,
except that, if and when any Warrant is properly assigned in blank, the Company
may (but shall not be obligated to) treat the bearer thereof as the owner of
such Warrant for all purposes, notwithstanding any notice to the contrary.
Subject to Article V, a Warrant, if properly assigned, may be exercised by a new
holder without a new Warrant first having been issued.
Section 6.2. Office, Transfer and Exchange of Warrant.
(a) Office. The Company will maintain an office in where notices,
presentations and demands in respect of this Warrant may be made upon
it. Such office shall be maintained at ▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇
▇▇▇▇▇, until such time as the Company shall notify each holder of the
Warrant of any change of location of such office.
(b) New Warrant. Upon the surrender of any Warrant, properly
endorsed, for registration of transfer or for exchange at the office of
the Company maintained pursuant to subdivision (a) of this Section 6.2,
the Company at its expense will (subject to compliance with Article V,
if applicable) execute and deliver to or upon the order of the holder
thereof a new Warrant or Warrants of like tenor, in the name of such
holder or as such holder (upon payment by such holder of any applicable
transfer taxes) may direct, calling in the aggregate on the face or
faces
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thereof for the number of shares of Common Stock called for on the face
or faces of the Warrant or Warrants so surrendered.
Section 6.3. Replacement of Warrant. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of any
Warrant and, in the case of any such loss, theft or destruction of any Warrant
held by a Person other than Purchaser or any institutional investor, upon
delivery of indemnity reasonably satisfactory to the Company in form and amount
or, in the case of any such mutilation, upon surrender of such Warrant for
cancellation at the office of the Company maintained pursuant to subdivision (a)
of Section 6.2, the Company at its expense will execute and deliver, in lieu
thereof, a new Warrant of like tenor.
ARTICLE VII. DEFINITIONS
As used herein, unless the context otherwise requires, the following
terms have the following respective meanings:
Additional Shares of Common Stock: All shares (including treasury
shares) of Common Stock issued or sold (or pursuant to Section 2.4, 2.5 or 2.9,
deemed to be issued) by the Company after the date hereof, whether or not
subsequently reacquired or retired by the Company, other than
(a) shares issued, (i) upon exercise of this Warrant, (ii) upon
exercise of options and warrants described in Schedule 3.1(d) to the
Warrant Purchase Agreement, on the terms and conditions currently in
effect, (iii) to ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇▇, or his assignees, pursuant to
the terms of the compensation agreement described in Schedule 3.1(d) to
the Warrant Purchase Agreement, on the terms and conditions currently in
effect, (iv) pursuant to any employee benefit plan or plans subsequently
adopted by the Company, to the extent that such plans do not provide for
the issuance of shares constituting in excess of 10% of the outstanding
common stock of the Company on a fully-diluted basis.
(b) such additional number of shares as may become issuable upon
the exercise of any of the securities referred to in the foregoing
clause (a) by reason of adjustments required pursuant to anti-dilution
provisions applicable to such securities as in effect on the date
hereof, but only if and to the extent that such adjustments are required
as the result of the original issuance of the Warrant, and
(c) such additional number of shares as may become issuable upon
the exercise of any of the securities referred to in the foregoing
clause (a) by reason of adjustments required pursuant to anti-dilution
provisions applicable to such securities as in effect on the date
hereof, in order to reflect any subdivision or combination of Common
Stock, by reclassification or otherwise, or any dividend on Common Stock
payable in Common Stock.
Appreciation Rights: All stock appreciation rights, net profits
interests or other rights entitling the holder or owner thereof to receive
payments based upon or determined with reference to the distributions to holders
of Common Stock or the profits of the Company.
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Business Day: Any day other than a Saturday or a Sunday or a day on
which commercial banking institutions in the States of Texas or New York are
authorized by law to be closed. Any reference to "days" (unless Business Days
are specified) shall mean calendar days.
Commission: The Securities and Exchange Commission or any other federal
agency at the time administering the Securities Act.
Common Stock: As defined in the introduction to this Warrant, such term
to include (i) any stock into which such Common Stock shall have been changed or
any stock resulting from any reclassification of such Common Stock, (ii) all
other stock of any class or classes (however designated) of the Company the
holders of which have the right, without limitation as to amount, either to all
or to a share of the balance of current dividends and liquidating dividends
after the payment of dividends and distributions on any shares entitled to
preference and (iii) all stock appreciation rights, phantom stock and similar
contract rights the holders of which are entitled to payments based on or
determined by reference to the value of the Common Stock, dividends payable with
respect to Common Stock, or liquidating distributions payable with respect to
Common Stock.
Company: As defined in the introduction to this Warrant, such term to
include any Person which shall succeed to or assume the obligations of the
Company hereunder in compliance with Article III.
Convertible Securities: Any evidences of indebtedness, shares of stock
(other than Common Stock) or other securities directly or indirectly convertible
into or exchangeable for Additional Shares of Common Stock.
Current Market Price: On any date specified herein, the average daily
Market Price during the period of the most recent 20 days, ending on such date,
on which the national securities exchanges were open for trading, except that if
no Common Stock is then listed or admitted to trading on any national securities
exchange or quoted in the over-the-counter market, the Current Market Price
shall be the Market Price on such date.
Dilution Factor: As defined in Section 2.1.
Dilutive Basis: With respect to any issuance or sale or any deemed
issuance or sale of Additional Shares of Common Stock from and after the date
hereof, the greater of (i) the Current Market Price on the day immediately
before issuance or deemed issuance and (ii) the Warrant Price on the day before
issuance or deemed issuance.
Exchange Act: The Securities Exchange Act of 1934, or any similar
federal statute, and the rules and regulations of the Commission thereunder, all
as the same shall be in effect at the time.
Expiration Date: February 6, 2011.
GAAP: Generally accepted accounting principles set forth in the Opinions
of the Accounting Principles Board of the American Institute of Certified Public
Accountants and in statements by the Financial Accounting Standards Board or in
such other statement by such other entity as may be approved
196
by a significant segment of the accounting profession; and the requirement that
such principles be applied on a consistent basis shall mean that the accounting
principles observed in a current period are comparable in all material respects
to those applied in a preceding period.
Initial Price: $0.15.
Market Price: On any date specified herein, the amount per share of the
Common Stock, equal to (a) the last sale price of such Common Stock, regular
way, on such date or, if no such sale takes place on such date, the average of
the closing bid and asked prices thereof on such date, in each case as
officially reported on the principal national securities exchange on which such
Common Stock is then listed or admitted to trading, or (b) if such Common Stock
is not then listed or admitted to trading on any national securities exchange
but is designated as a national market system security by the NASD, the last
trading price of the Common Stock on such date, or (c) if there shall have been
no trading on such date or if the Common Stock is not so designated, the average
of the closing bid and asked prices of the Common Stock on such date as shown by
the NASD automated quotation system, or (d) if such Common Stock is not then
listed or admitted to trading on any national exchange or quoted in the
over-the-counter market, the fair value thereof determined in good faith by the
Board of Directors of the Company as of a date which is within 20 days of the
date as of which the determination is to be made.
NASD: The National Association of Securities Dealers, Inc.
Options: Rights, options or warrants to subscribe for, purchase or
otherwise acquire either Additional Shares of Common Stock or Convertible
Securities.
Other Securities: Any stock (other than Common Stock) and other
securities of the Company or any other Person (corporate or otherwise) which the
holder of the Warrant at any time shall be entitled to receive, or shall have
received upon the exercise of the Warrant, in lieu of or in addition to Common
Stock, or which at any time shall be issuable or shall have been issued in
exchange for or in replacement of Common Stock or Other Securities pursuant to
Article III or otherwise.
Person: Any corporation, association, partnership, joint venture, trust,
estate, limited liability company, organization, business, individual,
government or political subdivision thereof or governmental agency.
Restricted Securities: All of the following: (a) any Warrant bearing the
applicable legend or legends referred to in Section 5.1, (b) any shares of
Common Stock (or Other Securities) which have been issued upon the exercise of
the Warrant and which are evidenced by a certificate or certificates bearing the
applicable legend or legends referred to in such section and (c) unless the
context otherwise requires, any shares of Common Stock (or Other Securities)
which are at the time issuable upon the exercise of the Warrant and which, when
so issued, will be evidenced by a certificate or certificates bearing the
applicable legend or legends referred to in such section.
Securities Act: The Securities Act of 1933, or any similar federal
statute, and the rules and regulations of the Commission thereunder, all as the
same shall be in effect at the time.
197
Subsidiary: With respect to any Person, any corporation with respect to
which more than 50% of the outstanding shares of stock of each class having
ordinary voting power (other than stock having such power only by reason of the
happening of a contingency) is at the time owned, directly or indirectly, by
such Person or by one or more Subsidiaries of such Person.
Transfer: Any sale, assignment, pledge or other disposition of any
security, or of any interest therein, which could constitute a "sale" as that
term is defined in section 2(3) of the Securities Act.
Purchaser: ▇▇▇▇▇ Fargo Energy Capital, Inc..
Warrant Price: As defined in Section 2.1 of this Warrant.
Warrant Purchase Agreement: That certain Warrant Purchase Agreement by
and between the Company and Purchaser, dated of even date herewith.
ARTICLE VIII. MISCELLANEOUS
Section 8.1. Remedies. The Company stipulates that the remedies at law
of the holder of this Warrant in the event of any default or threatened default
by the Company in the performance of or compliance with any of the terms of this
Warrant are not and will not be adequate and that, to the fullest extent
permitted by law, such terms may be specifically enforced by a decree for the
specific performance of any agreement contained herein or by an injunction
against a violation of any of the terms hereof or otherwise.
Section 8.2. No Rights or Liabilities as Stockholder. The holder of this
Warrant and all subsequent holders thereof hereby agree that except to the
extent set forth herein, no provision of this Warrant shall be construed as
conferring upon the holder hereof any rights as a stockholder of the Company or
as imposing any obligation on such holder to purchase any securities or as
imposing any liabilities on such holder as a stockholder of the Company, whether
such obligation or liabilities are asserted by the Company or by creditors of
the Company.
Section 8.3. Notices. All notices and other communications under this
Warrant shall be in writing and shall be mailed by registered or certified mail,
return receipt requested, addressed (a) if to any holder of any Warrant, to the
registered address of such holder as set forth in the register kept at the
principal office of the Company, or (b) if the Company, to the attention of its
President at its office maintained pursuant to subdivision (a) of Section 6.2,
provided that the exercise of any Warrant shall be effective in the manner
provided in Article I.
Section 8.4. Miscellaneous.
(a) This Warrant may be amended, waived, discharged or terminated
and the Company may take any action herein required to be performed by
it, only if the Company shall have obtained the written consent to such
amendment, action or omission to act, of the holder of the Warrant.
198
(b) THIS WARRANT SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE
WITH THE GOVERNED BY THE LAWS OF THE STATE OF TEXAS.
(c) The section headings in this Warrant are for purposes of
convenience only and shall not constitute a part hereof.
Section 8.5. Option, Warrants and Other Securities. The Company has
outstanding the following options and warrants:
(a) Options issued to ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ to purchase 500,000 shares
of Common Stock at $.50 per share.
(b) Warrants to Energy Spectrum Partners, LP, a Delaware limited
partnership ("ENERGY SPECTRUM"), for 437,500 shares of Common Stock at
$.15 per share and an agreement to issue an additional 875,000 warrants
at the same price pursuant to this Agreement in the event that the
Series A Preferred Stock of the Company held by Energy Spectrum is not
redeemed on or before the first anniversary of the date of issue.
Pursuant to its Certificate of Designation, the Series A Preferred Stock
has conversion rights, adjustments of the conversion price, certain
voting rights including the right to elect directors and both mandatory
and optional redemption. Energy Spectrum has certain demand and
piggyback registration rights pursuant to that certain Registration
Right Agreement with the Company.
(c) In connection with that certain Stock Purchase Agreement
("SPA") between the Company and ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, ▇▇. ("▇▇▇▇▇▇▇▇▇"),
(i) the Company is issuing to ▇▇▇▇▇▇▇▇▇ $1,625,000 in shares of Common
Stock valued at the average of the closing bid and offer price for
Common Stock 30 days prior to the closing date of the SPA, (ii)
▇▇▇▇▇▇▇▇▇ has an option to convert his 19% in stock of Jens' Oil Field
Service, Inc., Texas corporation, into shares of Common Stock in
accordance with terms of the option, and (iii) ▇▇▇▇▇▇▇▇▇ has one demand
registration right at his cost and piggyback registration rights.
(d) Employment Agreement of ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇▇ provides that
his incentive compensation may be paid in common stock of OilQuip
Rentals, Inc., a Delaware corporation ("OILQUIP") and wholly-owned
subsidiary of the Company. This may provide for such incentive
compensation to be paid in Common Stock.
(e) Mountain Compressed Air, Inc., a Texas corporation ("MCAI")
and wholly-owned subsidiary of OilQuip, issued warrants to Houlihan,
Lokey, ▇▇▇▇▇▇ & Zukin for 620,000 shares of its common stock, par value
$0.01 per share.
(f) The Company has entered into that certain letter agreement
dated November 14, 2001 with Jefferies & Company, Inc. ("JEFFERIES"),
whereby Jefferies will act as exclusive financial adviser to the Company
and placement agent for up to $25,000,000 in securities of the Company.
There are fees and reimbursements of expenses for services thereunder
along with rights to manage or co-manage offerings, act as adviser in
mergers and receive fees described
199
therein.
(g) The Company has entered into an agreement dated October 4,
2001 with ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ ("▇▇▇▇▇▇") whereby ▇▇▇▇▇▇ will act as a
financial advisor to the Company regarding a private placement offering.
▇▇▇▇▇▇ will be entitled to (i) a success fee of 2.5% of funds raised in
the offering if the investors are originated by the Company or ▇▇▇▇▇▇,
or (ii) a success fee of 1% of funds raised in the offering if the
investors are originated by a third party.
(h) The Company has issued options to purchase 24,000 shares of
Common Stock at $2.75 per share to eight current or former directors
and/or officers of the Company, which expire March, 2010 and are not
subject to any plan. The Company has a Long Term Incentive Plan (1989)
(the "PLAN") which provides for grants to officers and key employees of
stock options, stock appreciation rights, performance shares, restricted
stock, restricted stock units and other stock-based awards. The maximum
number of shares of Common Stock which may be granted pursuant to the
plan is 50,000. No stock options or stock appreciation rights have been
granted to date under the Plan and the Plan should have terminated by
its terms.
(i) The Company has issued options to ▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇. to
purchase 10,000 shares of Common Stock at $2.75 per share.
200
This Warrant is hereby executed as of the date first above written.
▇▇▇▇▇-▇▇▇▇▇▇▇▇ Corporation
By: ________________________________________
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇▇
Chairman and Chief Executive Officer
201
FORM OF SUBSCRIPTION
To ___________________________:
The undersigned registered holder of the within Warrant hereby
irrevocably exercises such Warrant for, and purchases _________* shares of
Common Stock of _________________, and herewith makes payment of $___________
therefor, and requests that the certificates for such shares be issued in the
name of, and delivered to ___________________________, whose address is
______________________________ ___________.
Dated: ____________________________ _________________________________
(Signature must conform in all
respects to name of holder as
specified on the face or Warrant)
_________________________________
(▇▇▇▇▇▇ ▇▇▇▇▇▇▇)
_________________________________
(City) (State) (Zip Code)
_________________________________
*Insert the number of shares called for on the face of this Warrant (or,
in the case of a partial exercise, the portion thereof as to which this Warrant
is being exercised), in either case without making any adjustment for Additional
Shares of Common Stock or any other stock or other securities or property or
cash which, pursuant to the adjustment provisions of this Warrant, may be
delivered upon exercise. In the case of a partial exercise, a new Warrant or
Warrants will be issued and delivered, representing the unexercised portion of
the Warrant, to the holder surrendering the Warrant.
202
FORM OF ASSIGNMENT
[To be executed only upon transfer of Warrant]
For value received, the undersigned registered holder of the within
Warrant hereby sells, assigns and transfers unto _________________ the right
represented by such Warrant to purchase shares of Common Stock of to which such
Warrant relates, and appoints Attorney to make such transfer on the books of
maintained for such purpose, with full power of substitution in the premises.
Dated: ____________________________ _________________________________
(Signature must conform in all
respects to name of holder as
specified on the face or Warrant)
_________________________________
(▇▇▇▇▇▇ ▇▇▇▇▇▇▇)
_________________________________
(City) (State) (Zip Code)
_________________________________
Signed in the presence of:
___________________________________
203
EXHIBIT B TO
WARRANT PURCHASE AGREEMENT
================================================================================
WARRANT
▇▇▇▇▇-▇▇▇▇▇▇▇▇ CORPORATION
A DELAWARE CORPORATION
(THE "COMPANY")
TO PURCHASE 700,000
SHARES OF THE COMPANY'S COMMON STOCK
ISSUED TO
▇▇▇▇▇ FARGO ENERGY CAPITAL, INC.
A TEXAS CORPORATION
("WARRANTHOLDER")
EFFECTIVE FEBRUARY 1, 2002
This Warrant and the Shares issued upon exercise thereof are subject to
repurchase by the Company as provided in the Warrant Purchase Agreement dated
effective February 1, 2002.
This Warrant and any Shares acquired upon the exercise of this Warrant
have not been registered under the Securities Act of 1933, as amended, and may
not be transferred, sold or otherwise disposed of in the absence of such
registration or an exemption therefrom under such Act. This Warrant and such
Shares may be transferred only in compliance with the conditions specified in
this Warrant and the Warrant Purchase Agreement, a copy of which is available
from the Company to holders of this Warrant.
================================================================================
204
▇▇▇▇▇-▇▇▇▇▇▇▇▇ Corporation
Warrant
No. W-B February 1, 2002
▇▇▇▇▇-▇▇▇▇▇▇▇▇ Corporation (the "Company"), a Delaware corporation, for
value received, hereby certifies that ▇▇▇▇▇ Fargo Energy Capital, Inc., a Texas
Corporation, or registered assigns, is entitled to purchase from the Company
700,000 duly authorized, validly issued, fully paid and nonassessable shares of
Common Stock, $0.15 par value (the "Common Stock") at any time or from time to
time prior to 5:00 p.m., Houston, Texas time, on the Expiration Date (as herein
defined), all subject to terms, conditions and adjustments set forth in this
Warrant.
This is the Warrant (the "Warrant") (such term to include any warrants
issued in substitution therefor) originally issued pursuant to the Warrant
Purchase Agreement. Certain capitalized terms used in this Warrant are defined
in Article VII; unless otherwise specified, references to an "Exhibit" mean one
of the exhibits attached to this Warrant, references to an "Article" mean one of
the articles in this Warrant and references to a "Section" mean one of the
sections of this Warrant.
ARTICLE I. EXERCISE OF WARRANT
Section 1.1. Manner of Exercise. This Warrant may be exercised by the
holder hereof, in whole or in part, during normal business hours on any Business
Day, by surrender of this Warrant to the Company at its office maintained
pursuant to subdivision (a) of Section 6.2, accompanied by a subscription in
substantially the form attached to this Warrant (or a reasonable facsimile
thereof) duly executed by such holder and accompanied by payment, in cash or by
certified or official bank check payable to the order of the Company in the
amount obtained by multiplying (a) the number of shares of Common Stock (without
giving effect to any adjustment thereof) designated in such subscription by (b)
the Initial Price, and such holder shall thereupon be entitled to receive the
number of duly authorized, validly issued, fully paid and nonassessable shares
of Common Stock (or Other Securities) determined as provided in Articles II
through IV.
Section 1.2. When Exercise Effective. Each exercise of this Warrant
shall be deemed to have been effected immediately prior to the close of business
on the Business Day on which this Warrant shall have been surrendered to the
Company as provided in Section 1.1, and at such time the Person or Persons in
whose name or names any certificate or certificates for shares of Common Stock
(or Other Securities) shall be issuable upon such exercise as provided in
Section 1.3 shall be deemed to have become the holder or holders of record
thereof.
Section 1.3. Delivery of Stock Certificates, etc. As soon as practicable
after each exercise of this Warrant, in whole or in part, and in any event
within five Business Days thereafter, the Company, at its expense (including the
payment by it of any applicable issue taxes), will cause to be issued in the
name of and delivered to the holder hereof, subject to Article V, as such holder
(upon payment by such holder of any applicable transfer taxes) may direct, the
following:
205
(a) Certificates. A certificate or certificates for the number of
duly authorized, validly issued, fully paid and nonassessable shares of
Common Stock (or Other Securities) to which such holder shall be
entitled upon such exercise plus, in lieu of any fractional share to
which such holder would otherwise be entitled, cash in an amount equal
to the same fraction of the Market Price per share on the Business Day
next preceding the date of such exercise.
(b) Warrant. In case such exercise is in part only, a new Warrant
or Warrants of like tenor dated the date hereof, calling in the
aggregate on the face or faces thereof for the number of shares of
Common Stock equal (without giving effect to any adjustment thereof) to
the number of such shares called for on the face of this Warrant minus
the number of such shares designated by the holder upon such exercise as
provided in Section 1.1.
ARTICLE II. ADJUSTMENT OF COMMON STOCK ISSUABLE UPON EXERCISE
Section 2.1. General; Warrant Price. The number of shares of Common
Stock which the holder of this Warrant shall be entitled to receive upon each
exercise hereof shall be determined by multiplying the number of shares of
Common Stock which would otherwise (but for the provisions of this Article II)
be issuable upon such exercise, as designated by the holder hereof pursuant to
Section 1.1, by a fraction (the "Dilution Factor") (a) the numerator of which is
the Initial Price and (b) the denominator of which is the Warrant Price in
effect at the effective time of such exercise (as provided in Section 1.2). The
"Warrant Price" shall initially be the Initial Price, shall be adjusted and
readjusted from time to time as provided in this Article II and, as so adjusted
or readjusted, shall remain in effect until a further adjustment or readjustment
thereof is required by this Article II.
Section 2.2. Issuance of Additional Shares of Common Stock. In case the
Company at any time or from time to time after the date hereof shall issue or
sell Additional Shares of Common Stock (including Additional Shares of Common
Stock deemed to be issued pursuant to section 2.4 or 2.5) without consideration
or for a consideration per share less than the Dilutive Basis, then, and in each
such case, such Warrant Price shall be reduced, concurrently with such issue or
sale, to the lower of the prices (calculated to the nearest cent) determined as
follows:
(a) by multiplying the Warrant Price then in existence by a
fraction, the numerator of which shall be (i) the number of shares of
Common Stock outstanding immediately prior to such issue or sale plus
(ii) the number of shares of Common Stock which the aggregate
consideration received by the Company for the total number of such
Additional Shares of Common Stock so issued or sold would purchase at
the Current Market Price, and the denominator of which shall be the
number of shares of Common Stock outstanding immediately after such
issue or sale, provided that, for the purposes of this Section 2.2, (i)
immediately after any Additional Shares of Common Stock are deemed to
have been issued pursuant to Section 2.4 or 2.5, such Additional Shares
of Common Stock shall be deemed to be outstanding, and (ii) treasury
shares shall not be deemed to be outstanding; and
(b) by dividing (i) an amount equal to the sum of (1) the number
of shares of Common Stock outstanding immediately prior to such issuance
or sale multiplied times the then effective
206
Warrant Price plus (2) the total consideration, if any, received and
deemed received by the Company upon such issue or sale, by (ii) the
total number of shares of Common Stock outstanding and deemed
outstanding immediately after such issue or sale.
Section 2.3. Extraordinary Dividends and Distributions. If the Company
at any time or from time to time after the date hereof shall declare, order, pay
or make a dividend or other distribution (including, without limitation, any
distribution of other or additional stock or Other Securities or property or
Options by way of dividend or spin-off, reclassification, recapitalization or
similar corporate rearrangement) on the Common Stock, other than (a) a dividend
payable in Additional Shares of Common Stock or (b) a dividend payable in cash
or other property and declared out of the earned surplus of the Company as at
the date thereof as increased by any credits (other than credits resulting from
a revaluation of property) and decreased by any debits made thereto, then, and
in each such case, the Warrant Price in effect immediately prior to the close of
business on the record date fixed for the determination of holders of any class
of securities entitled to receive such dividend or distribution shall be
reduced, effective as of the close of business on such record date, to a price
(calculated to the nearest cent) determined by multiplying such Warrant Price by
a fraction:
(a) the numerator of which shall be the Current Market Price in
effect on such record date or, if the Common Stock trades on an
ex-dividend basis, on the date prior to the commencement of ex-dividend
trading, less the amount of such dividend or distribution (as determined
in good faith by the Board of Directors of the Company) applicable to
one share of Common Stock, and
(b) the denominator of which shall be the Current Market Price on
such record date, or if the Common Stock trades on an ex-dividend basis,
on the date prior to the commencement of ex-dividend trading.
Section 2.4. Treatment of Options and Convertible Securities. In case
the Company at any time or from time to time after the date hereof shall issue,
sell, grant or assume, or shall fix a record date for the determination of
holders of any class of securities entitled to receive, any Options or
Convertible Securities, then, and in each such case, the maximum number of
Additional Shares of Common Stock (as set forth in the instrument relating
thereto, without regard to any provisions contained therein for a subsequent
adjustment of such number) issuable upon the exercise of such Options or, in the
case of Convertible Securities and Options therefor, the conversion or exchange
of such Convertible Securities, or, in the case of Appreciation Rights, the
number computed in Section 2.9, shall be deemed to be the number of Additional
Shares of Common Stock issued as of the time of such issue, sale, grant or
assumption or, in case such a record date shall have been fixed, as of the close
of business on such record date (or, if the Common Stock trades on an
ex-dividend basis, on the date prior to the commencement of ex-dividend
trading); provided that such Additional Shares of Common Stock shall not be
deemed to have been issued unless the consideration per share (determined
pursuant to Section 2.6) of such shares would be less than the Dilutive Basis in
effect on the date of and immediately prior to such issue, sale, grant or
assumption or immediately prior to the close of business on such record date
(or, if the Common Stock trades on an ex-dividend basis, on the date prior to
the commencement of ex-dividend trading), as the case may be; and provided,
further, that in any such case in which Additional Shares of Common Stock are
deemed to be issued no further adjustment of the Warrant Price shall be made
upon the subsequent issue or sale of Convertible Securities or
207
Additional Shares of Common Stock upon the exercise of such Options or the
conversion or exchange of such Convertible Securities.
Section 2.5. Treatment of Stock Dividends, Stock Splits, etc. In case
the Company at any time or from time to time after the date hereof shall declare
or pay any dividend on the Common Stock payable in Common Stock, or shall effect
a subdivision of the outstanding shares of Common Stock into a greater number of
shares of Common Stock (by reclassification or otherwise than by payment of a
dividend in Common Stock), then, and in each such case, Additional Shares of
Common Stock shall be deemed to have been issued (a) in the case of any such
dividend, immediately after the close of business on the record date for the
determination of holders of any class of securities entitled to receive such
dividend, or (b) in the case of any such subdivision, at the close of business
on the day immediately prior to the day upon which such corporate action becomes
effective.
Section 2.6. Computation of Consideration. For the purpose of Article
II, the following shall be used to determine the consideration received or
deemed received by the Company:
(a) Shares Actually Issued. The consideration for the issue or
sale of any Additional Shares of Common Stock shall, irrespective of the
accounting treatment of such consideration,
(i) insofar as it consists of cash, be computed at the net
amount of cash received by the Company, without deducting any
expenses paid or incurred by the Company or any commissions or
compensations paid or concessions or discounts allowed to
underwriters, dealers or others performing similar services in
connection with such issue or sale,
(ii) insofar as it consists of property (including
securities) other than cash, be computed at the fair value
thereof at the time of such issue or sale, as determined in good
faith by the Board of Directors of the Company, and
(iii) in case Additional Shares of Common Stock are issued or
sold together with other stock or securities or other assets of
the Company for a consideration which covers both, be the portion
of such consideration so received, computed as provided in
clauses (i) and (ii) above, applicable to such Additional Shares
of Common Stock, all as determined in good faith by the Board of
Directors of the Company.
(b) Shares Deemed Issued. Additional Shares of Common Stock
deemed to have been issued pursuant to Section 2.4, relating to Options
and Convertible Securities, shall be deemed to have been issued for a
consideration per share determined by dividing,
(i) the present value (using a discount factor equal to the
average interest rate on the Company's outstanding indebtedness
to financial institutions and assuming any consideration
receivable by the Company shall be received at the latest date
possible under the terms of such Options or Convertible
Securities) of the total amount, if any, received and receivable
by the Company as consideration for the issue, sale, grant or
assumption of the Options or Convertible Securities in
208
question, plus the present value (using a discount factor equal
to the average interest rate on the Company's outstanding
indebtedness to financial institutions and assuming any
consideration receivable by the Company shall be received at the
latest date possible under the terms of the Options and
Convertible Securities) of the minimum aggregate amount of
additional consideration (as set forth in the instruments
relating thereto, without regard to any provision contained
therein for a subsequent adjustment of such consideration to
protect against dilution) payable to the Company upon the
exercise in full of such Options or the conversion or exchange of
such Convertible Securities or, in the case of Options for
Convertible Securities, the exercise of such Options for
Convertible Securities and the conversion or exchange of such
Convertible Securities, in each case computing such consideration
as provided in the foregoing subdivision (a),
by
(ii) the maximum number of Additional Shares of Common Stock
(as set forth in the instruments relating thereto, without regard
to any provision contained therein for a subsequent adjustment of
such number to protect against dilution) issuable upon the
exercise of such Options or the conversion or exchange of such
Convertible Securities.
(c) Stock Dividends, Etc. Additional Shares of Common Stock
issued or deemed to have been issued pursuant to Section 2.5, relating
to stock dividends, stock splits, etc., shall be deemed to have been
issued for no consideration.
(d) Services. Additional Shares of Common Stock issued or sold or
deemed issued or sold in exchange for services or the promise of future
services shall be deemed to have been issued for no consideration.
Section 2.7. Adjustments for Combinations, etc. In case the outstanding
shares of Common Stock shall be combined or consolidated, by reclassification or
otherwise, into a lesser number of shares of Common Stock, the Warrant Price in
effect immediately prior to such combination or consolidation shall,
concurrently with the effectiveness of such combination or consolidation, be
proportionately increased.
Section 2.8. Dilution in Case of Other Securities. In case any Other
Securities shall be issued or sold or shall become subject to issue or sale upon
the conversion or exchange of any stock (or Other Securities) of the Company (or
any issuer of Other Securities or any other Person referred to in Article II) or
to subscription, purchase or other acquisition pursuant to any Options issued or
granted by the Company (or any such other issuer or Person) for a consideration
such as to dilute, on a basis consistent with the standards established in the
other provisions of this Article II, the purchase rights granted by this
Warrant, then, and in each such case, the computations, adjustments and
readjustments provided for in this Article II with respect to the Warrant Price
shall be made as nearly as possible in the manner so provided and applied to
determine the amount of Other Securities from time to time receivable upon the
exercise of the Warrant, so as to protect the holder of the Warrant against the
effect of such dilution.
209
Section 2.9. Appreciation Rights. If the Company issues or sells
Appreciation Rights, a number of Additional Shares of Common Stock shall be
deemed issued for purposes of this Article II and shall be computed as follows:
(a) Value Based on Dividends. If the Appreciation Rights entitle
the holder thereof to distributions or payments based on or determined
with reference to dividends paid or payable on Common Stock, the number
of Additional Shares of Common Stock deemed issued will be the number of
shares of Common Stock that would be required to be issued such that the
holder thereof would receive distribution payments equal to those paid
or payable with respect to such Appreciation Rights.
(b) Value Based on Liquidating Distributions. If the Appreciation
Rights entitle the holder thereof to distributions or payments based on
or determined with reference to liquidation distributions paid or
payable on, or consideration received, in connection with the sale,
exchange or transfer of Common Stock, the number of Additional Shares of
Common Stock deemed issued will be the number of shares of Common Stock
that would be required to be issued such that the holder thereof would
receive distributions or payments equal to those paid or payable with
respect to such Appreciation rights.
(c) Value Based on Dividends and Liquidating Distributions. If
the Appreciation Rights entitle the holder thereof to distributions
based on or determined with reference to either dividends paid or
payable on Common Stock and liquidating distributions paid or payable or
on consolidation received in connection with the sale, exchange or
transfer of Common Stock, the number of Additional Shares of Common
Stock deemed issued will be the greater of the amount computed under (a)
or (b) above.
(d) Other Profits. If the Appreciation Rights entitle the holder
thereof to distributions based on or determined with reference to any
other measure of profit of the Company, the number of Additional Shares
of Common Stock deemed issued will be the value of the Appreciation
Right, as determined in the good faith judgment of the Board of
Directors, divided by the Current Market Price of the Common Stock on
the date of issuance of the Appreciation Right.
ARTICLE III. CONSOLIDATION, MERGER, ETC.
Section 3.1. Assumption of Obligations. Notwithstanding anything
contained in this Warrant to the contrary, the Company will not (a) consolidate
with or merge into any other Person if the Company is not the continuing or
surviving corporation of such consolidation or merger, or (b) permit any other
Person to consolidate with or merge into the Company even though the Company
shall be the continuing or surviving Person if, in connection with such
consolidation or merger, the Common Stock or Other Securities shall be changed
into or exchanged for stock or other securities of any other Person or cash or
any other property, or (c) transfer all or substantially all of its properties
or asset to any other Person, or (d) effect a capital reorganization or
reclassification of the Common Stock or Other Securities (other than a capital
reorganization or reclassification resulting in the issue of Additional Shares
of Common Stock for which adjustment in the Warrant Price is provided in Section
2.2 or 2.3) of Section 3.1 unless, prior to the consummation thereof, each
Person (other than the Company) which may be required to deliver any stock,
210
securities, cash or property upon the exercise of this Warrant as provided
herein shall assume, by written instrument delivered to, and reasonably
satisfactory to, the holder of this Warrant, (i) the obligations of the Company
under this Warrant (and if the Company shall survive the consummation of such
transaction, such assumption shall be in addition to, and shall not release the
Company from, any continuing obligations of the Company under this Warrant) and
(ii) the obligation to deliver to such holder such shares of stock, securities,
cash or property as such holder may be entitled to receive. Nothing in this
Article III shall be deemed to authorize the Company to enter into any
transaction not otherwise permitted by the Loan Agreement (as defined in the
Warrant Purchase Agreement).
ARTICLE IV. OTHER PROVISIONS CONCERNING DILUTION
Section 4.1. Other Dilutive Events. In case any event shall occur as to
which the provisions of Article II or III are not strictly applicable but the
failure to make any adjustment would not fairly protect the purchase rights
represented by this Warrant in accordance with the essential intent and
principles of such sections, then, in each such case, the Company shall appoint
a firm of independent certified public accountants of recognized national
standing (which may be the regular auditors of the Company), which shall give
their opinion upon the adjustment, if any, on a basis consistent with the
essential intent and principles established in Articles II and III, necessary to
preserve, without dilution, the purchase rights represented by this Warrant.
Upon receipt of such opinion, the Company will promptly mail a copy thereof to
the holder of this Warrant and shall make the adjustments described therein.
Section 4.2. No Dilution or Impairment. The Company will not, by
amendment of its certificate of incorporation or through any consolidation,
merger, reorganization, transfer of assets, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms of this Warrant, but will at all times in
good faith assist in the carrying out of all such terms and in the taking of all
such action as may be necessary or appropriate in order to protect the rights of
the holder of this Warrant against dilution or other impairment. Without
limiting the generality of the foregoing, the Company (a) will not permit the
par value of any shares of stock receivable upon the exercise of this Warrant to
exceed the amount payable therefor upon such exercise, (b) will take all such
action as may be necessary or appropriate in order that the Company may validly
and legally issue fully paid and nonassessable shares of Common Stock on the
exercise of the Warrant from time to time outstanding, and (c) will not take any
action which results in any adjustment of the Warrant Price if the total number
of shares of Common Stock (or Other Securities) issuable after the action upon
the exercise of the Warrant would exceed the total number of shares of Common
Stock (or Other Securities) then authorized by the Company's certificate of
incorporation and available for the purpose of issuance upon such exercise.
Section 4.3. Accountant's and Company's Report as to Adjustments. In
each case of any adjustment or readjustment in the shares of Common Stock (or
Other Securities) issuable upon the exercise of this Warrant, the Company at its
expense will promptly compute such adjustment or readjustment in accordance with
the terms of this Warrant and cause independent certified public accountants of
recognized national standing (which may be the regular auditors of the Company)
selected by the Company to verify such computation (other than any computation
of the fair value of property as determined in good faith by the Board of
Directors of the Company) and prepare a report setting forth such adjustment or
readjustment and showing in reasonable detail the method of calculation thereof
and the facts upon which such adjustment or readjustment is based, including a
statement of (a) the consideration received or to be
211
received by the Company for any Additional Shares of Common Stock issued or sold
or deemed to have been issued, (b) the number of shares of Common Stock
outstanding or deemed to be outstanding, and (c) the Warrant Price in effect
immediately prior to such issue or sale and as adjusted and readjusted (if
required by Article II) on account thereof. The Company shall also prepare and
certify a report stating that any computation of the fair value of property by
the Board of Directors was done in good faith by the Board of Directors as
required herein. The Company will forthwith mail a copy of each such report to
each holder of a Warrant and will, upon the written request at any time of any
holder of a Warrant, furnish to such holder a like report setting forth the
Warrant Price at the time in effect and showing in reasonable detail the manner
in which it was calculated. The Company will also keep copies of all such
reports at its office maintained pursuant to subdivision (a) of Section 6.2 and
will cause the same to be available for inspection at such office during normal
business hours by any holder of a Warrant or any prospective purchaser of a
Warrant designated by the holder thereof.
Section 4.4. Notices of Corporate Action. In the event that any of the
following occurs,
(a) any taking by the Company of a record of the holders of any
class of securities for the purpose of determining the holders thereof
who are entitled to receive any dividend (other than a regular periodic
dividend payable in cash out of earned surplus in an amount not
exceeding the amount of the immediately preceding cash dividend for such
period) or other distribution, or any right to subscribe for, purchase
or otherwise acquire any shares of stock of any class or any other
securities or property, or to receive any other right, or
(b) any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the Company
or any consolidation or merger involving the Company and any other
Person or any transfer of all or substantially all the assets of the
company to any other Person, or
(c) any voluntary or involuntary dissolution, liquidation or
winding-up of the Company,
the Company will mail to each holder of a Warrant a notice specifying (i) the
date or expected date as of which any such record is to be taken for the purpose
of such dividend, distribution or right, and the amount and character of such
dividend, distribution or right, and (ii) the date or expected date on which any
such reorganization, reclassification, recapitalization, consolidation, merger,
transfer, dissolution, liquidation or winding-up is to take place and the time,
if any such time is to be fixed, as of which the holders of record of Common
Stock (or Other Securities) shall be entitled to exchange their shares of Common
Stock (or Other Securities) for the securities or other property deliverable
upon such reorganization, reclassification, recapitalization, consolidation,
merger, transfer, dissolution, liquidation or winding-up. Such notice shall be
mailed at least 20 days prior to the date therein specified.
Section 4.5. Registration of Common Stock. If any shares of Common Stock
required to be reserved for purposes of exercise of this Warrant require
registration with or approval of any governmental authority under any federal or
state law (other than the Securities Act) before such shares may be issued upon
exercise, the Company will, at its expense and as expeditiously as possible, use
its best efforts to cause such shares to be duly registered or approved, as the
case may be. At any such time as Common Stock is
212
listed on any national securities exchange, the Company will, at its expense,
obtain the a notice of issuance, of the shares of Common Stock issuable upon
exercise of the Warrant and maintain the listing of such shares after their
issuance; and the Company will also list on such national securities exchange,
will register under the Exchange Act and will maintain such listing of, any
Other Securities that at any time are issuable upon exercise of the Warrant, if
and at the time that any securities of the same class shall be listed on such
national securities exchange by the Company.
Section 4.6. Availability of Information. The Company will cooperate
with each holder of any Warrant or Restricted Security in supplying such
information as may be reasonably requested by such holder to complete and file
any information reporting forms presently or hereafter required by the
Commission to report such holder's beneficial ownership of Common Stock or Other
Securities or as a condition to the availability of an exemption from the
provisions of the Securities Act for the sale of any Restricted Securities.
Section 4.7. Reservation of Stock, etc. The Company will at all times
reserve and keep available, solely for issuance and delivery upon exercise of
the Warrant, the number of shares of Common Stock (or Other Securities) from
time to time issuable upon exercise of the Warrant. All shares of Common Stock
(or Other Securities) issuable upon exercise of the Warrant shall be duly
authorized and, when issued upon such exercise, shall be validly issued and, in
the case of shares, fully paid and non-assessable with no liability on the part
of the holders thereof.
ARTICLE V. RESTRICTIONS ON TRANSFER
Section 5.1. Restrictive Legends. Except as otherwise permitted by this
Article V, each Warrant (including each Warrant issued upon the transfer of any
Warrant) shall be stamped or otherwise imprinted with a legend in substantially
the following form:
"This Warrant and any shares acquired upon the exercise of this
Warrant have not been registered under the Securities Act of 1933, as
amended, and may not be transferred, sold or otherwise disposed of in
the absence of such registration or an exemption therefrom under such
Act. This Warrant and such Shares may be transferred only in compliance
with the conditions specified in this Warrant."
Except as otherwise permitted by this Article V, each certificate for Common
Stock (or Other Securities) issued upon the exercise of any Warrant, and each
certificate issued upon the transfer of any such Common Stock (or Other
Securities), shall be stamped or otherwise imprinted with a legend in
substantially the following form:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933 and may not be transferred
in the absence of such registration or an exemption therefrom under such
Act."
Section 5.2. Notice of Proposed Transfer; Opinions of Counsel. Prior to
any transfer of any Restricted Securities which are not registered under an
effective registration statement under the Securities Act, the holder thereof,
will give written notice to the Company of such holder's intention to effect
such
213
transfer and to comply in all other respects with this Section 5.2. Each such
notice (a) shall describe the manner and circumstances of the proposed transfer
and (b) shall include an opinion of legal counsel addressed to the Company, in
form and substance reasonably satisfactory to the Company, to the effect that
such transfer does not violate the Securities Act of 1933 and applicable state
securities laws.
Section 5.3. Termination of Restrictions. The restrictions imposed by
this Article V upon the transferability of Restricted Securities shall cease and
terminate as to any particular Restricted Securities when such securities shall
have been sold pursuant to an effective registration statement under the
Securities Act or otherwise become freely transferable by the holder thereof.
Whenever such restrictions shall cease and terminate as to any Restricted
Securities, the holder thereof shall be entitled to receive from the Company,
without expense (other than applicable transfer taxes, if any), new certificates
representing the securities not bearing the applicable legends required by
Section 5.1.
ARTICLE VI. OWNERSHIP, TRANSFER AND SUBSTITUTION OF WARRANT
Section 6.1. Ownership of Warrant. The Company may treat the person in
whose name any Warrant is registered on the register kept at the office of the
Company maintained pursuant to subdivision (a) of Section 6.2 as the owner and
holder thereof for all purposes, notwithstanding any notice to the contrary,
except that, if and when any Warrant is properly assigned in blank, the Company
may (but shall not be obligated to) treat the bearer thereof as the owner of
such Warrant for all purposes, notwithstanding any notice to the contrary.
Subject to Article V, a Warrant, if properly assigned, may be exercised by a new
holder without a new Warrant first having been issued.
Section 6.2. Office, Transfer and Exchange of Warrant.
(a) Office. The Company will maintain an office in where notices,
presentations and demands in respect of this Warrant may be made upon
it. Such office shall be maintained at ▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇
▇▇▇▇▇, until such time as the Company shall notify each holder of the
Warrant of any change of location of such office.
(b) New Warrant. Upon the surrender of any Warrant, properly
endorsed, for registration of transfer or for exchange at the office of
the Company maintained pursuant to subdivision (a) of this Section 6.2,
the Company at its expense will (subject to compliance with Article V,
if applicable) execute and deliver to or upon the order of the holder
thereof a new Warrant or Warrants of like tenor, in the name of such
holder or as such holder (upon payment by such holder of any applicable
transfer taxes) may direct, calling in the aggregate on the face or
faces thereof for the number of shares of Common Stock called for on the
face or faces of the Warrant or Warrants so surrendered.
Section 6.3. Replacement of Warrant. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of any
Warrant and, in the case of any such loss, theft or destruction of any Warrant
held by a Person other than Purchaser or any institutional investor, upon
delivery of indemnity reasonably satisfactory to the Company in form and amount
or, in the case of any such mutilation, upon surrender of such Warrant for
cancellation at the office of the Company maintained
214
pursuant to subdivision (a) of Section 6.2, the Company at its expense will
execute and deliver, in lieu thereof, a new Warrant of like tenor.
ARTICLE VII. DEFINITIONS
As used herein, unless the context otherwise requires, the following
terms have the following respective meanings:
Additional Shares of Common Stock: All shares (including treasury
shares) of Common Stock issued or sold (or pursuant to Section 2.4, 2.5 or 2.9,
deemed to be issued) by the Company after the date hereof, whether or not
subsequently reacquired or retired by the Company, other than
(a) shares issued, (i) upon exercise of this Warrant, (ii) upon
exercise of options and warrants described in Schedule 3.1(d) to the
Warrant Purchase Agreement, on the terms and conditions currently in
effect, (iii) to ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇▇, or his assignees, pursuant to
the terms of the compensation agreement described in Schedule 3.1(d) to
the Warrant Purchase Agreement, on the terms and conditions currently in
effect, (iv) pursuant to any employee benefit plan or plans subsequently
adopted by the Company, to the extent that such plans do not provide for
the issuance of shares constituting in excess of 10% of the outstanding
common stock of the Company on a fully-diluted basis.
(b) such additional number of shares as may become issuable upon
the exercise of any of the securities referred to in the foregoing
clause (a) by reason of adjustments required pursuant to anti-dilution
provisions applicable to such securities as in effect on the date
hereof, but only if and to the extent that such adjustments are required
as the result of the original issuance of the Warrant, and
(c) such additional number of shares as may become issuable upon
the exercise of any of the securities referred to in the foregoing
clause (a) by reason of adjustments required pursuant to anti-dilution
provisions applicable to such securities as in effect on the date
hereof, in order to reflect any subdivision or combination of Common
Stock, by reclassification or otherwise, or any dividend on Common Stock
payable in Common Stock.
Appreciation Rights: All stock appreciation rights, net profits
interests or other rights entitling the holder or owner thereof to receive
payments based upon or determined with reference to the distributions to holders
of Common Stock or the profits of the Company.
Business Day: Any day other than a Saturday or a Sunday or a day on
which commercial banking institutions in the States of Texas or New York are
authorized by law to be closed. Any reference to "days" (unless Business Days
are specified) shall mean calendar days.
Commission: The Securities and Exchange Commission or any other federal
agency at the time administering the Securities Act.
215
Common Stock: As defined in the introduction to this Warrant, such term
to include (i) any stock into which such Common Stock shall have been changed or
any stock resulting from any reclassification of such Common Stock, (ii) all
other stock of any class or classes (however designated) of the Company the
holders of which have the right, without limitation as to amount, either to all
or to a share of the balance of current dividends and liquidating dividends
after the payment of dividends and distributions on any shares entitled to
preference and (iii) all stock appreciation rights, phantom stock and similar
contract rights the holders of which are entitled to payments based on or
determined by reference to the value of the Common Stock, dividends payable with
respect to Common Stock, or liquidating distributions payable with respect to
Common Stock.
Company: As defined in the introduction to this Warrant, such term to
include any Person which shall succeed to or assume the obligations of the
Company hereunder in compliance with Article III.
Convertible Securities: Any evidences of indebtedness, shares of stock
(other than Common Stock) or other securities directly or indirectly convertible
into or exchangeable for Additional Shares of Common Stock.
Current Market Price: On any date specified herein, the average daily
Market Price during the period of the most recent 20 days, ending on such date,
on which the national securities exchanges were open for trading, except that if
no Common Stock is then listed or admitted to trading on any national securities
exchange or quoted in the over-the-counter market, the Current Market Price
shall be the Market Price on such date.
Dilution Factor: As defined in Section 2.1.
Dilutive Basis: With respect to any issuance or sale or any deemed
issuance or sale of Additional Shares of Common Stock from and after the date
hereof, the greater of (i) the Current Market Price on the day immediately
before issuance or deemed issuance and (ii) the Warrant Price on the day before
issuance or deemed issuance.
Exchange Act: The Securities Exchange Act of 1934, or any similar
federal statute, and the rules and regulations of the Commission thereunder, all
as the same shall be in effect at the time.
Expiration Date: The tenth anniversary of the date of issuance of this
Warrant.
GAAP: Generally accepted accounting principles set forth in the Opinions
of the Accounting Principles Board of the American Institute of Certified Public
Accountants and in statements by the Financial Accounting Standards Board or in
such other statement by such other entity as may be approved by a significant
segment of the accounting profession; and the requirement that such principles
be applied on a consistent basis shall mean that the accounting principles
observed in a current period are comparable in all material respects to those
applied in a preceding period.
Initial Price: $0.15.
216
Market Price: On any date specified herein, the amount per share of the
Common Stock, equal to (a) the last sale price of such Common Stock, regular
way, on such date or, if no such sale takes place on such date, the average of
the closing bid and asked prices thereof on such date, in each case as
officially reported on the principal national securities exchange on which such
Common Stock is then listed or admitted to trading, or (b) if such Common Stock
is not then listed or admitted to trading on any national securities exchange
but is designated as a national market system security by the NASD, the last
trading price of the Common Stock on such date, or (c) if there shall have been
no trading on such date or if the Common Stock is not so designated, the average
of the closing bid and asked prices of the Common Stock on such date as shown by
the NASD automated quotation system, or (d) if such Common Stock is not then
listed or admitted to trading on any national exchange or quoted in the
over-the-counter market, the fair value thereof determined in good faith by the
Board of Directors of the Company as of a date which is within 20 days of the
date as of which the determination is to be made.
NASD: The National Association of Securities Dealers, Inc.
Options: Rights, options or warrants to subscribe for, purchase or
otherwise acquire either Additional Shares of Common Stock or Convertible
Securities.
Other Securities: Any stock (other than Common Stock) and other
securities of the Company or any other Person (corporate or otherwise) which the
holder of the Warrant at any time shall be entitled to receive, or shall have
received upon the exercise of the Warrant, in lieu of or in addition to Common
Stock, or which at any time shall be issuable or shall have been issued in
exchange for or in replacement of Common Stock or Other Securities pursuant to
Article III or otherwise.
Person: Any corporation, association, partnership, joint venture, trust,
estate, limited liability company, organization, business, individual,
government or political subdivision thereof or governmental agency.
Restricted Securities: All of the following: (a) any Warrant bearing the
applicable legend or legends referred to in Section 5.1, (b) any shares of
Common Stock (or Other Securities) which have been issued upon the exercise of
the Warrant and which are evidenced by a certificate or certificates bearing the
applicable legend or legends referred to in such section and (c) unless the
context otherwise requires, any shares of Common Stock (or Other Securities)
which are at the time issuable upon the exercise of the Warrant and which, when
so issued, will be evidenced by a certificate or certificates bearing the
applicable legend or legends referred to in such section.
Securities Act: The Securities Act of 1933, or any similar federal
statute, and the rules and regulations of the Commission thereunder, all as the
same shall be in effect at the time.
Subsidiary: With respect to any Person, any corporation with respect to
which more than 50% of the outstanding shares of stock of each class having
ordinary voting power (other than stock having such power only by reason of the
happening of a contingency) is at the time owned, directly or indirectly, by
such Person or by one or more Subsidiaries of such Person.
217
Transfer: Any sale, assignment, pledge or other disposition of any
security, or of any interest therein, which could constitute a "sale" as that
term is defined in section 2(3) of the Securities Act.
Purchaser: ▇▇▇▇▇ Fargo Energy Capital, Inc..
Warrant Price: As defined in Section 2.1 of this Warrant.
Warrant Purchase Agreement: That certain Warrant Purchase Agreement by
and between the Company and Purchaser, dated of even date herewith.
ARTICLE VIII. MISCELLANEOUS
Section 8.1. Remedies. The Company stipulates that the remedies at law
of the holder of this Warrant in the event of any default or threatened default
by the Company in the performance of or compliance with any of the terms of this
Warrant are not and will not be adequate and that, to the fullest extent
permitted by law, such terms may be specifically enforced by a decree for the
specific performance of any agreement contained herein or by an injunction
against a violation of any of the terms hereof or otherwise.
Section 8.2. No Rights or Liabilities as Stockholder. The holder of this
Warrant and all subsequent holders thereof hereby agree that except to the
extent set forth herein, no provision of this Warrant shall be construed as
conferring upon the holder hereof any rights as a stockholder of the Company or
as imposing any obligation on such holder to purchase any securities or as
imposing any liabilities on such holder as a stockholder of the Company, whether
such obligation or liabilities are asserted by the Company or by creditors of
the Company.
Section 8.3. Notices. All notices and other communications under this
Warrant shall be in writing and shall be mailed by registered or certified mail,
return receipt requested, addressed (a) if to any holder of any Warrant, to the
registered address of such holder as set forth in the register kept at the
principal office of the Company, or (b) if the Company, to the attention of its
President at its office maintained pursuant to subdivision (a) of Section 6.2,
provided that the exercise of any Warrant shall be effective in the manner
provided in Article I.
Section 8.4. Miscellaneous.
(a) This Warrant may be amended, waived, discharged or terminated
and the Company may take any action herein required to be performed by
it, only if the Company shall have obtained the written consent to such
amendment, action or omission to act, of the holder of the Warrant.
(b) THIS WARRANT SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE
WITH THE GOVERNED BY THE LAWS OF THE STATE OF TEXAS.
(c) The section headings in this Warrant are for purposes of
convenience only and shall not constitute a part hereof.
218
Section 8.5. Option, Warrants and Other Securities. The Company
has outstanding the following options and warrants:
(a) Options issued to ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ to purchase 500,000 shares
of Common Stock at $.50 per share.
(b) Warrants to Energy Spectrum Partners, LP, a Delaware limited
partnership ("ENERGY SPECTRUM"), for 437,500 shares of Common Stock at
$.15 per share and an agreement to issue an additional 875,000 warrants
at the same price pursuant to this Agreement in the event that the
Series A Preferred Stock of the Company held by Energy Spectrum is not
redeemed on or before the first anniversary of the date of issue.
Pursuant to its Certificate of Designation, the Series A Preferred Stock
has conversion rights, adjustments of the conversion price, certain
voting rights including the right to elect directors and both mandatory
and optional redemption. Energy Spectrum has certain demand and
piggyback registration rights pursuant to that certain Registration
Right Agreement with the Company.
(c) In connection with that certain Stock Purchase Agreement
("SPA") between the Company and ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, ▇▇. ("▇▇▇▇▇▇▇▇▇"),
(i) the Company is issuing to ▇▇▇▇▇▇▇▇▇ $1,625,000 in shares of Common
Stock valued at the average of the closing bid and offer price for
Common Stock 30 days prior to the closing date of the SPA, (ii)
▇▇▇▇▇▇▇▇▇ has an option to convert his 19% in stock of Jens' Oil Field
Service, Inc., Texas corporation, into shares of Common Stock in
accordance with terms of the option, and (iii) ▇▇▇▇▇▇▇▇▇ has one demand
registration right at his cost and piggyback registration rights.
(d) Employment Agreement of ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇▇ provides that
his incentive compensation may be paid in common stock of OilQuip
Rentals, Inc., a Delaware corporation ("OILQUIP") and wholly-owned
subsidiary of the Company. This may provide for such incentive
compensation to be paid in Common Stock.
(e) Mountain Compressed Air, Inc., a Texas corporation ("MCAI")
and wholly-owned subsidiary of OilQuip, issued warrants to Houlihan,
Lokey, ▇▇▇▇▇▇ & Zukin for 620,000 shares of its common stock, par value
$0.01 per share.
(f) The Company has entered into that certain letter agreement
dated November 14, 2001 with Jefferies & Company, Inc. ("JEFFERIES"),
whereby Jefferies will act as exclusive financial adviser to the Company
and placement agent for up to $25,000,000 in securities of the Company.
There are fees and reimbursements of expenses for services thereunder
along with rights to manage or co-manage offerings, act as adviser in
mergers and receive fees described therein.
(g) The Company has entered into an agreement dated October 4,
2001 with ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ ("▇▇▇▇▇▇") whereby ▇▇▇▇▇▇ will act as a
financial advisor to the Company regarding a private placement offering.
▇▇▇▇▇▇ will be entitled to (i) a success fee of 2.5% of funds raised in
the offering if the investors are originated by the Company or ▇▇▇▇▇▇,
or (ii) a success fee of 1% of funds raised in the offering if the
investors are originated by a third party.
219
(h) The Company has issued options to purchase 24,000 shares of
Common Stock at $2.75 per share to eight current or former directors
and/or officers of the Company, which expire March, 2010 and are not
subject to any plan. The Company has a Long Term Incentive Plan (1989)
(the "PLAN") which provides for grants to officers and key employees of
stock options, stock appreciation rights, performance shares, restricted
stock, restricted stock units and other stock-based awards. The maximum
number of shares of Common Stock which may be granted pursuant to the
plan is 50,000. No stock options or stock appreciation rights have been
granted to date under the Plan and the Plan should have terminated by
its terms.
(i) The Company has issued options to ▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇. to
purchase 10,000 shares of Common Stock at $2.75 per share. 500 shares at
$0.15 per share, to be issued to Energy Spectrum Partners, LP in
connection with the transactions contemplated by the Loan Agreement,
such warrant to expire January 2012.
220
This Warrant is hereby executed as of the date first above written.
▇▇▇▇▇-▇▇▇▇▇▇▇▇ Corporation
By:_______________________________________
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇▇
Chairman and Chief Executive Officer
221
FORM OF SUBSCRIPTION
To ___________________________:
The undersigned registered holder of the within Warrant hereby
irrevocably exercises such Warrant for, and purchases _________* shares of
Common Stock of _________________, and herewith makes payment of $___________
therefor, and requests that the certificates for such shares be issued in the
name of, and delivered to ___________________________, whose address is
______________________________ ___________.
Dated: ____________________________ _________________________________
(Signature must conform in all
respects to name of holder as
specified on the face or Warrant)
_________________________________
(▇▇▇▇▇▇ ▇▇▇▇▇▇▇)
_________________________________
(City) (State) (Zip Code)
_________________________________
*Insert the number of shares called for on the face of this Warrant (or,
in the case of a partial exercise, the portion thereof as to which this Warrant
is being exercised), in either case without making any adjustment for Additional
Shares of Common Stock or any other stock or other securities or property or
cash which, pursuant to the adjustment provisions of this Warrant, may be
delivered upon exercise. In the case of a partial exercise, a new Warrant or
Warrants will be issued and delivered, representing the unexercised portion of
the Warrant, to the holder surrendering the Warrant.
222
FORM OF ASSIGNMENT
[To be executed only upon transfer of Warrant]
For value received, the undersigned registered holder of the within
Warrant hereby sells, assigns and transfers unto _________________ the right
represented by such Warrant to purchase shares of Common Stock of to which such
Warrant relates, and appoints Attorney to make such transfer on the books of
maintained for such purpose, with full power of substitution in the premises.
Dated: ____________________________ _________________________________
(Signature must conform in all
respects to name of holder as
specified on the face or Warrant)
_________________________________
(▇▇▇▇▇▇ ▇▇▇▇▇▇▇)
_________________________________
(City) (State) (Zip Code)
_________________________________
Signed in the presence of:
___________________________________
223
EXHIBIT C TO
WARRANT PURCHASE AGREEMENT
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WARRANT
▇▇▇▇▇-▇▇▇▇▇▇▇▇ CORPORATION
A DELAWARE CORPORATION
(THE "COMPANY")
TO PURCHASE 335,000
SHARES OF THE COMPANY'S COMMON STOCK
ISSUED TO
▇▇▇▇▇ FARGO ENERGY CAPITAL, INC.
A TEXAS CORPORATION
("WARRANTHOLDER")
EFFECTIVE FEBRUARY 1, 2002
This Warrant and any Shares acquired upon the exercise of this
Warrant have not been registered under the Securities Act of 1933, as
amended, and may not be transferred, sold or otherwise disposed of in
the absence of such registration or an exemption therefrom under such
Act. This Warrant and such Shares may be transferred only in compliance
with the conditions specified in this Warrant and the Warrant Purchase
Agreement, a copy of which is available from the Company to holders of
this Warrant.
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▇▇▇▇▇-▇▇▇▇▇▇▇▇ Corporation
Warrant
No. W-C February 1, 2002
▇▇▇▇▇-▇▇▇▇▇▇▇▇ Corporation (the "Company"), a Delaware corporation, for
value received, hereby certifies that ▇▇▇▇▇ Fargo Energy Capital, Inc., a Texas
Corporation, or registered assigns, is entitled to purchase from the Company
335,000 duly authorized, validly issued, fully paid and nonassessable shares of
Common Stock, $0.15 par value (the "Common Stock") at any time or from time to
time prior to 5:00 p.m., Houston, Texas time, on the Expiration Date (as herein
defined), all subject to terms, conditions and adjustments set forth in this
Warrant.
This is the Warrant (the "Warrant") (such term to include any warrants
issued in substitution therefor) originally issued pursuant to the Warrant
Purchase Agreement. Certain capitalized terms used in this Warrant are defined
in Article VII; unless otherwise specified, references to an "Exhibit" mean one
of the exhibits attached to this Warrant, references to an "Article" mean one of
the articles in this Warrant and references to a "Section" mean one of the
sections of this Warrant.
ARTICLE I. EXERCISE OF WARRANT
Section 1.1. Manner of Exercise. This Warrant may be exercised by the
holder hereof, in whole or in part, during normal business hours on any Business
Day, by surrender of this Warrant to the Company at its office maintained
pursuant to subdivision (a) of Section 6.2, accompanied by a subscription in
substantially the form attached to this Warrant (or a reasonable facsimile
thereof) duly executed by such holder and accompanied by payment, in cash or by
certified or official bank check payable to the order of the Company in the
amount obtained by multiplying (a) the number of shares of Common Stock (without
giving effect to any adjustment thereof) designated in such subscription by (b)
the Initial Price, and such holder shall thereupon be entitled to receive the
number of duly authorized, validly issued, fully paid and nonassessable shares
of Common Stock (or Other Securities) determined as provided in Articles II
through IV.
Section 1.2. When Exercise Effective. Each exercise of this Warrant
shall be deemed to have been effected immediately prior to the close of business
on the Business Day on which this Warrant shall have been surrendered to the
Company as provided in Section 1.1, and at such time the Person or Persons in
whose name or names any certificate or certificates for shares of Common Stock
(or Other Securities) shall be issuable upon such exercise as provided in
Section 1.3 shall be deemed to have become the holder or holders of record
thereof.
Section 1.3. Delivery of Stock Certificates, etc. As soon as practicable
after each exercise of this Warrant, in whole or in part, and in any event
within five Business Days thereafter, the Company, at its expense (including the
payment by it of any applicable issue taxes), will cause to be issued in the
name of and delivered to the holder hereof, subject to Article V, as such holder
(upon payment by such holder of any applicable transfer taxes) may direct, the
following:
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(a) Certificates. A certificate or certificates for the number
of duly authorized, validly issued, fully paid and nonassessable shares
of Common Stock (or Other Securities) to which such holder shall be
entitled upon such exercise plus, in lieu of any fractional share to
which such holder would otherwise be entitled, cash in an amount equal
to the same fraction of the Market Price per share on the Business Day
next preceding the date of such exercise.
(b) Warrant. In case such exercise is in part only, a new
Warrant or Warrants of like tenor dated the date hereof, calling in the
aggregate on the face or faces thereof for the number of shares of
Common Stock equal (without giving effect to any adjustment thereof) to
the number of such shares called for on the face of this Warrant minus
the number of such shares designated by the holder upon such exercise as
provided in Section 1.1.
ARTICLE II. ADJUSTMENT OF COMMON STOCK ISSUABLE UPON EXERCISE
Section 2.1. General; Warrant Price. The number of shares of Common
Stock which the holder of this Warrant shall be entitled to receive upon each
exercise hereof shall be determined by multiplying the number of shares of
Common Stock which would otherwise (but for the provisions of this Article II)
be issuable upon such exercise, as designated by the holder hereof pursuant to
Section 1.1, by a fraction (the "Dilution Factor") (a) the numerator of which is
the Initial Price and (b) the denominator of which is the Warrant Price in
effect at the effective time of such exercise (as provided in Section 1.2). The
"Warrant Price" shall initially be the Initial Price, shall be adjusted and
readjusted from time to time as provided in this Article II and, as so adjusted
or readjusted, shall remain in effect until a further adjustment or readjustment
thereof is required by this Article II.
Section 2.2. Issuance of Additional Shares of Common Stock. In case the
Company at any time or from time to time after the date hereof shall issue or
sell Additional Shares of Common Stock (including Additional Shares of Common
Stock deemed to be issued pursuant to section 2.4 or 2.5) without consideration
or for a consideration per share less than the Dilutive Basis, then, and in each
such case, such Warrant Price shall be reduced, concurrently with such issue or
sale, to the lower of the prices (calculated to the nearest cent) determined as
follows:
(a) by multiplying the Warrant Price then in existence by a
fraction, the numerator of which shall be (i) the number of shares of
Common Stock outstanding immediately prior to such issue or sale plus
(ii) the number of shares of Common Stock which the aggregate
consideration received by the Company for the total number of such
Additional Shares of Common Stock so issued or sold would purchase at
the Current Market Price, and the denominator of which shall be the
number of shares of Common Stock outstanding immediately after such
issue or sale, provided that, for the purposes of this Section 2.2, (i)
immediately after any Additional Shares of Common Stock are deemed to
have been issued pursuant to Section 2.4 or 2.5, such Additional Shares
of Common Stock shall be deemed to be outstanding, and (ii) treasury
shares shall not be deemed to be outstanding; and
(b) by dividing (i) an amount equal to the sum of (1) the number
of shares of Common Stock outstanding immediately prior to such issuance
or sale multiplied times the then effective
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Warrant Price plus (2) the total consideration, if any, received and
deemed received by the Company upon such issue or sale, by (ii) the
total number of shares of Common Stock outstanding and deemed
outstanding immediately after such issue or sale.
Section 2.3. Extraordinary Dividends and Distributions. If the Company
at any time or from time to time after the date hereof shall declare, order, pay
or make a dividend or other distribution (including, without limitation, any
distribution of other or additional stock or Other Securities or property or
Options by way of dividend or spin-off, reclassification, recapitalization or
similar corporate rearrangement) on the Common Stock, other than (a) a dividend
payable in Additional Shares of Common Stock or (b) a dividend payable in cash
or other property and declared out of the earned surplus of the Company as at
the date thereof as increased by any credits (other than credits resulting from
a revaluation of property) and decreased by any debits made thereto, then, and
in each such case, the Warrant Price in effect immediately prior to the close of
business on the record date fixed for the determination of holders of any class
of securities entitled to receive such dividend or distribution shall be
reduced, effective as of the close of business on such record date, to a price
(calculated to the nearest cent) determined by multiplying such Warrant Price by
a fraction:
(a) the numerator of which shall be the Current Market Price in
effect on such record date or, if the Common Stock trades on an
ex-dividend basis, on the date prior to the commencement of ex-dividend
trading, less the amount of such dividend or distribution (as determined
in good faith by the Board of Directors of the Company) applicable to
one share of Common Stock, and
(b) the denominator of which shall be the Current Market Price
on such record date, or if the Common Stock trades on an ex-dividend
basis, on the date prior to the commencement of ex-dividend trading.
Section 2.4. Treatment of Options and Convertible Securities. In case
the Company at any time or from time to time after the date hereof shall issue,
sell, grant or assume, or shall fix a record date for the determination of
holders of any class of securities entitled to receive, any Options or
Convertible Securities, then, and in each such case, the maximum number of
Additional Shares of Common Stock (as set forth in the instrument relating
thereto, without regard to any provisions contained therein for a subsequent
adjustment of such number) issuable upon the exercise of such Options or, in the
case of Convertible Securities and Options therefor, the conversion or exchange
of such Convertible Securities, or, in the case of Appreciation Rights, the
number computed in Section 2.9, shall be deemed to be the number of Additional
Shares of Common Stock issued as of the time of such issue, sale, grant or
assumption or, in case such a record date shall have been fixed, as of the close
of business on such record date (or, if the Common Stock trades on an
ex-dividend basis, on the date prior to the commencement of ex-dividend
trading); provided that such Additional Shares of Common Stock shall not be
deemed to have been issued unless the consideration per share (determined
pursuant to Section 2.6) of such shares would be less than the Dilutive Basis in
effect on the date of and immediately prior to such issue, sale, grant or
assumption or immediately prior to the close of business on such record date
(or, if the Common Stock trades on an ex-dividend basis, on the date prior to
the commencement of ex-dividend trading), as the case may be; and provided,
further, that in any such case in which Additional Shares of Common Stock are
deemed to be issued no further adjustment of the Warrant Price shall be made
upon the subsequent issue or sale of Convertible Securities or
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Additional Shares of Common Stock upon the exercise of such Options or the
conversion or exchange of such Convertible Securities.
Section 2.5. Treatment of Stock Dividends, Stock Splits, etc. In case
the Company at any time or from time to time after the date hereof shall declare
or pay any dividend on the Common Stock payable in Common Stock, or shall effect
a subdivision of the outstanding shares of Common Stock into a greater number of
shares of Common Stock (by reclassification or otherwise than by payment of a
dividend in Common Stock), then, and in each such case, Additional Shares of
Common Stock shall be deemed to have been issued (a) in the case of any such
dividend, immediately after the close of business on the record date for the
determination of holders of any class of securities entitled to receive such
dividend, or (b) in the case of any such subdivision, at the close of business
on the day immediately prior to the day upon which such corporate action becomes
effective.
Section 2.6. Computation of Consideration. For the purpose of Article
II, the following shall be used to determine the consideration received or
deemed received by the Company:
(a) Shares Actually Issued. The consideration for the issue or
sale of any Additional Shares of Common Stock shall, irrespective of the
accounting treatment of such consideration,
(i) insofar as it consists of cash, be computed at the net
amount of cash received by the Company, without deducting any
expenses paid or incurred by the Company or any commissions or
compensations paid or concessions or discounts allowed to
underwriters, dealers or others performing similar services in
connection with such issue or sale,
(ii) insofar as it consists of property (including securities)
other than cash, be computed at the fair value thereof at the
time of such issue or sale, as determined in good faith by the
Board of Directors of the Company, and
(iii) in case Additional Shares of Common Stock are issued or
sold together with other stock or securities or other assets of
the Company for a consideration which covers both, be the
portion of such consideration so received, computed as provided
in clauses (i) and (ii) above, applicable to such Additional
Shares of Common Stock, all as determined in good faith by the
Board of Directors of the Company.
(b) Shares Deemed Issued. Additional Shares of Common Stock
deemed to have been issued pursuant to Section 2.4, relating to Options
and Convertible Securities, shall be deemed to have been issued for a
consideration per share determined by dividing,
(i) the present value (using a discount factor equal to the
average interest rate on the Company's outstanding indebtedness
to financial institutions and assuming any consideration
receivable by the Company shall be received at the latest date
possible under the terms of such Options or Convertible
Securities) the total amount, if any, received and receivable by
the Company as consideration for the issue, sale, grant or
assumption of the Options or Convertible Securities in
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question, plus the present value (using a discount factor equal
to the average interest rate on the Company's outstanding
indebtedness to financial institutions and assuming any
consideration receivable by the Company shall be received at the
latest date possible under the terms of the Options and
Convertible Securities) of the minimum aggregate amount of
additional consideration (as set forth in the instruments
relating thereto, without regard to any provision contained
therein for a subsequent adjustment of such consideration to
protect against dilution) payable to the Company upon the
exercise in full of such Options or the conversion or exchange
of such Convertible Securities or, in the case of Options for
Convertible Securities, the exercise of such Options for
Convertible Securities and the conversion or exchange of such
Convertible Securities, in each case computing such
consideration as provided in the foregoing subdivision (a),
by
(ii) the maximum number of Additional Shares of Common Stock
(as set forth in the instruments relating thereto, without
regard to any provision contained therein for a subsequent
adjustment of such number to protect against dilution) issuable
upon the exercise of such Options or the conversion or exchange
of such Convertible Securities.
(c) Stock Dividends, Etc. Additional Shares of Common Stock
issued or deemed to have been issued pursuant to Section 2.5, relating
to stock dividends, stock splits, etc., shall be deemed to have been
issued for no consideration.
(d) Services. Additional Shares of Common Stock issued or sold
or deemed issued or sold in exchange for services or the promise of
future services shall be deemed to have been issued for no
consideration.
Section 2.7. Adjustments for Combinations, etc. In case the outstanding
shares of Common Stock shall be combined or consolidated, by reclassification or
otherwise, into a lesser number of shares of Common Stock, the Warrant Price in
effect immediately prior to such combination or consolidation shall,
concurrently with the effectiveness of such combination or consolidation, be
proportionately increased.
Section 2.8. Dilution in Case of Other Securities. In case any Other
Securities shall be issued or sold or shall become subject to issue or sale upon
the conversion or exchange of any stock (or Other Securities) of the Company (or
any issuer of Other Securities or any other Person referred to in Article II) or
to subscription, purchase or other acquisition pursuant to any Options issued or
granted by the Company (or any such other issuer or Person) for a consideration
such as to dilute, on a basis consistent with the standards established in the
other provisions of this Article II, the purchase rights granted by this
Warrant, then, and in each such case, the computations, adjustments and
readjustments provided for in this Article II with respect to the Warrant Price
shall be made as nearly as possible in the manner so provided and applied to
determine the amount of Other Securities from time to time receivable upon the
exercise of the Warrant, so as to protect the holder of the Warrant against the
effect of such dilution.
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Section 2.9. Appreciation Rights. If the Company issues or sells
Appreciation Rights, a number of Additional Shares of Common Stock shall be
deemed issued for purposes of this Article II and shall be computed as follows:
(a) Value Based on Dividends. If the Appreciation Rights entitle
the holder thereof to distributions or payments based on or determined
with reference to dividends paid or payable on Common Stock, the number
of Additional Shares of Common Stock deemed issued will be the number of
shares of Common Stock that would be required to be issued such that the
holder thereof would receive distribution payments equal to those paid
or payable with respect to such Appreciation Rights.
(b) Value Based on Liquidating Distributions. If the
Appreciation Rights entitle the holder thereof to distributions or
payments based on or determined with reference to liquidation
distributions paid or payable on, or consideration received, in
connection with the sale, exchange or transfer of Common Stock, the
number of Additional Shares of Common Stock deemed issued will be the
number of shares of Common Stock that would be required to be issued
such that the holder thereof would receive distributions or payments
equal to those paid or payable with respect to such Appreciation rights.
(c) Value Based on Dividends and Liquidating Distributions. If
the Appreciation Rights entitle the holder thereof to distributions
based on or determined with reference to either dividends paid or
payable on Common Stock and liquidating distributions paid or payable or
on consolidation received in connection with the sale, exchange or
transfer of Common Stock, the number of Additional Shares of Common
Stock deemed issued will be the greater of the amount computed under (a)
or (b) above.
(d) Other Profits. If the Appreciation Rights entitle the holder
thereof to distributions based on or determined with reference to any
other measure of profit of the Company, the number of Additional Shares
of Common Stock deemed issued will be the value of the Appreciation
Right, as determined in the good faith judgment of the Board of
Directors, divided by the Current Market Price of the Common Stock on
the date of issuance of the Appreciation Right.
ARTICLE III. CONSOLIDATION, MERGER, ETC.
Section 3.1. Assumption of Obligations. Notwithstanding anything
contained in this Warrant to the contrary, the Company will not (a) consolidate
with or merge into any other Person if the Company is not the continuing or
surviving corporation of such consolidation or merger, or (b) permit any other
Person to consolidate with or merge into the Company even though the Company
shall be the continuing or surviving Person if, in connection with such
consolidation or merger, the Common Stock or Other Securities shall be changed
into or exchanged for stock or other securities of any other Person or cash or
any other property, or (c) transfer all or substantially all of its properties
or asset to any other Person, or (d) effect a capital reorganization or
reclassification of the Common Stock or Other Securities (other than a capital
reorganization or reclassification resulting in the issue of Additional Shares
of Common Stock for which adjustment in the Warrant Price is provided in Section
2.2 or 2.3) of Section 3.1 unless, prior to the consummation thereof, each
Person (other than the Company) which may be required to deliver any stock,
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securities, cash or property upon the exercise of this Warrant as provided
herein shall assume, by written instrument delivered to, and reasonably
satisfactory to, the holder of this Warrant, (i) the obligations of the Company
under this Warrant (and if the Company shall survive the consummation of such
transaction, such assumption shall be in addition to, and shall not release the
Company from, any continuing obligations of the Company under this Warrant) and
(ii) the obligation to deliver to such holder such shares of stock, securities,
cash or property as such holder may be entitled to receive. Nothing in this
Article III shall be deemed to authorize the Company to enter into any
transaction not otherwise permitted by the Loan Agreement (as defined in the
Warrant Purchase Agreement).
ARTICLE IV. OTHER PROVISIONS CONCERNING DILUTION
Section 4.1. Other Dilutive Events. In case any event shall occur as to
which the provisions of Article II or III are not strictly applicable but the
failure to make any adjustment would not fairly protect the purchase rights
represented by this Warrant in accordance with the essential intent and
principles of such sections, then, in each such case, the Company shall appoint
a firm of independent certified public accountants of recognized national
standing (which may be the regular auditors of the Company), which shall give
their opinion upon the adjustment, if any, on a basis consistent with the
essential intent and principles established in Articles II and III, necessary to
preserve, without dilution, the purchase rights represented by this Warrant.
Upon receipt of such opinion, the Company will promptly mail a copy thereof to
the holder of this Warrant and shall make the adjustments described therein.
Section 4.2. No Dilution or Impairment. The Company will not, by
amendment of its certificate of incorporation or through any consolidation,
merger, reorganization, transfer of assets, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms of this Warrant, but will at all times in
good faith assist in the carrying out of all such terms and in the taking of all
such action as may be necessary or appropriate in order to protect the rights of
the holder of this Warrant against dilution or other impairment. Without
limiting the generality of the foregoing, the Company (a) will not permit the
par value of any shares of stock receivable upon the exercise of this Warrant to
exceed the amount payable therefor upon such exercise, (b) will take all such
action as may be necessary or appropriate in order that the Company may validly
and legally issue fully paid and nonassessable shares of Common Stock on the
exercise of the Warrant from time to time outstanding, and (c) will not take any
action which results in any adjustment of the Warrant Price if the total number
of shares of Common Stock (or Other Securities) issuable after the action upon
the exercise of the Warrant would exceed the total number of shares of Common
Stock (or Other Securities) then authorized by the Company's certificate of
incorporation and available for the purpose of issuance upon such exercise.
Section 4.3. Accountant's and Company's Report as to Adjustments. In
each case of any adjustment or readjustment in the shares of Common Stock (or
Other Securities) issuable upon the exercise of this Warrant, the Company at its
expense will promptly compute such adjustment or readjustment in accordance with
the terms of this Warrant and cause independent certified public accountants of
recognized national standing (which may be the regular auditors of the Company)
selected by the Company to verify such computation (other than any computation
of the fair value of property as determined in good faith by the Board of
Directors of the Company) and prepare a report setting forth such adjustment or
readjustment and showing in reasonable detail the method of calculation thereof
and the facts upon which such adjustment or readjustment is based, including a
statement of (a) the consideration received or to be
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received by the Company for any Additional Shares of Common Stock issued or sold
or deemed to have been issued, (b) the number of shares of Common Stock
outstanding or deemed to be outstanding, and (c) the Warrant Price in effect
immediately prior to such issue or sale and as adjusted and readjusted (if
required by Article II) on account thereof. The Company shall also prepare and
certify a report stating that any computation of the fair value of property by
the Board of Directors was done in good faith by the Board of Directors as
required herein. The Company will forthwith mail a copy of each such report to
each holder of a Warrant and will, upon the written request at any time of any
holder of a Warrant, furnish to such holder a like report setting forth the
Warrant Price at the time in effect and showing in reasonable detail the manner
in which it was calculated. The Company will also keep copies of all such
reports at its office maintained pursuant to subdivision (a) of Section 6.2 and
will cause the same to be available for inspection at such office during normal
business hours by any holder of a Warrant or any prospective purchaser of a
Warrant designated by the holder thereof.
Section 4.4. Notices of Corporate Action. In the event that any of the
following occurs,
(a) any taking by the Company of a record of the holders of any
class of securities for the purpose of determining the holders thereof
who are entitled to receive any dividend (other than a regular periodic
dividend payable in cash out of earned surplus in an amount not
exceeding the amount of the immediately preceding cash dividend for such
period) or other distribution, or any right to subscribe for, purchase
or otherwise acquire any shares of stock of any class or any other
securities or property, or to receive any other right, or
(b) any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the Company
or any consolidation or merger involving the Company and any other
Person or any transfer of all or substantially all the assets of the
company to any other Person, or
(c) any voluntary or involuntary dissolution, liquidation or
winding-up of the Company,
the Company will mail to each holder of a Warrant a notice specifying (i) the
date or expected date as of which any such record is to be taken for the purpose
of such dividend, distribution or right, and the amount and character of such
dividend, distribution or right, and (ii) the date or expected date on which any
such reorganization, reclassification, recapitalization, consolidation, merger,
transfer, dissolution, liquidation or winding-up is to take place and the time,
if any such time is to be fixed, as of which the holders of record of Common
Stock (or Other Securities) shall be entitled to exchange their shares of Common
Stock (or Other Securities) for the securities or other property deliverable
upon such reorganization, reclassification, recapitalization, consolidation,
merger, transfer, dissolution, liquidation or winding-up. Such notice shall be
mailed at least 20 days prior to the date therein specified.
Section 4.5. Registration of Common Stock. If any shares of Common Stock
required to be reserved for purposes of exercise of this Warrant require
registration with or approval of any governmental authority under any federal or
state law (other than the Securities Act) before such shares may be issued upon
exercise, the Company will, at its expense and as expeditiously as possible, use
its best efforts to cause such shares to be duly registered or approved, as the
case may be. At any such time as Common Stock is
232
listed on any national securities exchange, the Company will, at its expense,
obtain the a notice of issuance, of the shares of Common Stock issuable upon
exercise of the Warrant and maintain the listing of such shares after their
issuance; and the Company will also list on such national securities exchange,
will register under the Exchange Act and will maintain such listing of, any
Other Securities that at any time are issuable upon exercise of the Warrant, if
and at the time that any securities of the same class shall be listed on such
national securities exchange by the Company.
Section 4.6. Availability of Information. The Company will cooperate
with each holder of any Warrant or Restricted Security in supplying such
information as may be reasonably requested by such holder to complete and file
any information reporting forms presently or hereafter required by the
Commission to report such holder's beneficial ownership of Common Stock or Other
Securities or as a condition to the availability of an exemption from the
provisions of the Securities Act for the sale of any Restricted Securities.
Section 4.7. Reservation of Stock, etc. The Company will at all times
reserve and keep available, solely for issuance and delivery upon exercise of
the Warrant, the number of shares of Common Stock (or Other Securities) from
time to time issuable upon exercise of the Warrant. All shares of Common Stock
(or Other Securities) issuable upon exercise of the Warrant shall be duly
authorized and, when issued upon such exercise, shall be validly issued and, in
the case of shares, fully paid and non-assessable with no liability on the part
of the holders thereof.
ARTICLE V. RESTRICTIONS ON TRANSFER
Section 5.1. Restrictive Legends. Except as otherwise permitted by this
Article V, each Warrant (including each Warrant issued upon the transfer of any
Warrant) shall be stamped or otherwise imprinted with a legend in substantially
the following form:
"This Warrant and any shares acquired upon the exercise of this
Warrant have not been registered under the Securities Act of 1933, as
amended, and may not be transferred, sold or otherwise disposed of in
the absence of such registration or an exemption therefrom under such
Act. This Warrant and such Shares may be transferred only in compliance
with the conditions specified in this Warrant."
Except as otherwise permitted by this Article V, each certificate for Common
Stock (or Other Securities) issued upon the exercise of any Warrant, and each
certificate issued upon the transfer of any such Common Stock (or Other
Securities), shall be stamped or otherwise imprinted with a legend in
substantially the following form:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933 and may not be transferred
in the absence of such registration or an exemption therefrom under such
Act."
Section 5.2. Notice of Proposed Transfer; Opinions of Counsel. Prior to
any transfer of any Restricted Securities which are not registered under an
effective registration statement under the Securities Act, the holder thereof,
will give written notice to the Company of such holder's intention to effect
such
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transfer and to comply in all other respects with this Section 5.2. Each such
notice (a) shall describe the manner and circumstances of the proposed transfer
and (b) shall include an opinion of legal counsel addressed to the Company, in
form and substance reasonably satisfactory to the Company, to the effect that
such transfer does not violate the Securities Act of 1933 and applicable state
securities laws.
Section 5.3. Termination of Restrictions. The restrictions imposed by
this Article V upon the transferability of Restricted Securities shall cease and
terminate as to any particular Restricted Securities when such securities shall
have been sold pursuant to an effective registration statement under the
Securities Act or otherwise become freely transferable by the holder thereof.
Whenever such restrictions shall cease and terminate as to any Restricted
Securities, the holder thereof shall be entitled to receive from the Company,
without expense (other than applicable transfer taxes, if any), new certificates
representing the securities not bearing the applicable legends required by
Section 5.1.
ARTICLE VI. OWNERSHIP, TRANSFER AND SUBSTITUTION OF WARRANT
Section 6.1. Ownership of Warrant. The Company may treat the person in
whose name any Warrant is registered on the register kept at the office of the
Company maintained pursuant to subdivision (a) of Section 6.2 as the owner and
holder thereof for all purposes, notwithstanding any notice to the contrary,
except that, if and when any Warrant is properly assigned in blank, the Company
may (but shall not be obligated to) treat the bearer thereof as the owner of
such Warrant for all purposes, notwithstanding any notice to the contrary.
Subject to Article V, a Warrant, if properly assigned, may be exercised by a new
holder without a new Warrant first having been issued.
Section 6.2. Office, Transfer and Exchange of Warrant.
(a) Office. The Company will maintain an office in where
notices, presentations and demands in respect of this Warrant may be
made upon it. Such office shall be maintained at ▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇,
▇▇▇▇▇ ▇▇▇▇▇, until such time as the Company shall notify each holder of
the Warrant of any change of location of such office.
(b) New Warrant. Upon the surrender of any Warrant, properly
endorsed, for registration of transfer or for exchange at the office of
the Company maintained pursuant to subdivision (a) of this Section 6.2,
the Company at its expense will (subject to compliance with Article V,
if applicable) execute and deliver to or upon the order of the holder
thereof a new Warrant or Warrants of like tenor, in the name of such
holder or as such holder (upon payment by such holder of any applicable
transfer taxes) may direct, calling in the aggregate on the face or
faces thereof for the number of shares of Common Stock called for on the
face or faces of the Warrant or Warrants so surrendered.
Section 6.3. Replacement of Warrant. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of any
Warrant and, in the case of any such loss, theft or destruction of any Warrant
held by a Person other than Purchaser or any institutional investor, upon
delivery of indemnity reasonably satisfactory to the Company in form and amount
or, in the case of any such mutilation, upon surrender of such Warrant for
cancellation at the office of the Company maintained
235
pursuant to subdivision (a) of Section 6.2, the Company at its expense will
execute and deliver, in lieu thereof, a new Warrant of like tenor.
ARTICLE VII. DEFINITIONS
As used herein, unless the context otherwise requires, the following
terms have the following respective meanings:
Additional Shares of Common Stock: All shares (including treasury
shares) of Common Stock issued or sold (or pursuant to Section 2.4, 2.5 or 2.9,
deemed to be issued) by the Company after the date hereof, whether or not
subsequently reacquired or retired by the Company, other than
(a) shares issued, (i) upon exercise of this Warrant, (ii) upon
exercise of options and warrants described in Schedule 3.1(d) to the
Warrant Purchase Agreement, on the terms and conditions currently in
effect, (iii) to ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇▇, or his assignees, pursuant to
the terms of the compensation agreement described in Schedule 3.1(d) to
the Warrant Purchase Agreement, on the terms and conditions currently in
effect, (iv) pursuant to any employee benefit plan or plans subsequently
adopted by the Company, to the extent that such plans do not provide for
the issuance of shares constituting in excess of 10% of the outstanding
common stock of the Company on a fully-diluted basis.
(b) such additional number of shares as may become issuable upon
the exercise of any of the securities referred to in the foregoing
clause (a) by reason of adjustments required pursuant to anti-dilution
provisions applicable to such securities as in effect on the date
hereof, but only if and to the extent that such adjustments are required
as the result of the original issuance of the Warrant, and
(c) such additional number of shares as may become issuable upon
the exercise of any of the securities referred to in the foregoing
clause (a) by reason of adjustments required pursuant to anti-dilution
provisions applicable to such securities as in effect on the date
hereof, in order to reflect any subdivision or combination of Common
Stock, by reclassification or otherwise, or any dividend on Common Stock
payable in Common Stock.
Appreciation Rights: All stock appreciation rights, net profits
interests or other rights entitling the holder or owner thereof to receive
payments based upon or determined with reference to the distributions to holders
of Common Stock or the profits of the Company.
Business Day: Any day other than a Saturday or a Sunday or a day on
which commercial banking institutions in the States of Texas or New York are
authorized by law to be closed. Any reference to "days" (unless Business Days
are specified) shall mean calendar days.
Commission: The Securities and Exchange Commission or any other federal
agency at the time administering the Securities Act.
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Common Stock: As defined in the introduction to this Warrant, such term
to include (i) any stock into which such Common Stock shall have been changed or
any stock resulting from any reclassification of such Common Stock, (ii) all
other stock of any class or classes (however designated) of the Company the
holders of which have the right, without limitation as to amount, either to all
or to a share of the balance of current dividends and liquidating dividends
after the payment of dividends and distributions on any shares entitled to
preference and (iii) all stock appreciation rights, phantom stock and similar
contract rights the holders of which are entitled to payments based on or
determined by reference to the value of the Common Stock, dividends payable with
respect to Common Stock, or liquidating distributions payable with respect to
Common Stock.
Company: As defined in the introduction to this Warrant, such term to
include any Person which shall succeed to or assume the obligations of the
Company hereunder in compliance with Article III.
Convertible Securities: Any evidences of indebtedness, shares of stock
(other than Common Stock) or other securities directly or indirectly convertible
into or exchangeable for Additional Shares of Common Stock.
Current Market Price: On any date specified herein, the average daily
Market Price during the period of the most recent 20 days, ending on such date,
on which the national securities exchanges were open for trading, except that if
no Common Stock is then listed or admitted to trading on any national securities
exchange or quoted in the over-the-counter market, the Current Market Price
shall be the Market Price on such date.
Dilution Factor: As defined in Section 2.1.
Dilutive Basis: With respect to any issuance or sale or any deemed
issuance or sale of Additional Shares of Common Stock from and after the date
hereof, the greater of (i) the Current Market Price on the day immediately
before issuance or deemed issuance and (ii) the Warrant Price on the day before
issuance or deemed issuance.
Exchange Act: The Securities Exchange Act of 1934, or any similar
federal statute, and the rules and regulations of the Commission thereunder, all
as the same shall be in effect at the time.
Expiration Date: The tenth anniversary of the date of issuance of this
Warrant.
GAAP: Generally accepted accounting principles set forth in the Opinions
of the Accounting Principles Board of the American Institute of Certified Public
Accountants and in statements by the Financial Accounting Standards Board or in
such other statement by such other entity as may be approved by a significant
segment of the accounting profession; and the requirement that such principles
be applied on a consistent basis shall mean that the accounting principles
observed in a current period are comparable in all material respects to those
applied in a preceding period.
Initial Price: $1.00.
-12-
Market Price: On any date specified herein, the amount per share of the
Common Stock, equal to (a) the last sale price of such Common Stock, regular
way, on such date or, if no such sale takes place on such date, the average of
the closing bid and asked prices thereof on such date, in each case as
officially reported on the principal national securities exchange on which such
Common Stock is then listed or admitted to trading, or (b) if such Common Stock
is not then listed or admitted to trading on any national securities exchange
but is designated as a national market system security by the NASD, the last
trading price of the Common Stock on such date, or (c) if there shall have been
no trading on such date or if the Common Stock is not so designated, the average
of the closing bid and asked prices of the Common Stock on such date as shown by
the NASD automated quotation system, or (d) if such Common Stock is not then
listed or admitted to trading on any national exchange or quoted in the
over-the-counter market, the fair value thereof determined in good faith by the
Board of Directors of the Company as of a date which is within 20 days of the
date as of which the determination is to be made.
NASD: The National Association of Securities Dealers, Inc.
Options: Rights, options or warrants to subscribe for, purchase or
otherwise acquire either Additional Shares of Common Stock or Convertible
Securities.
Other Securities: Any stock (other than Common Stock) and other
securities of the Company or any other Person (corporate or otherwise) which the
holder of the Warrant at any time shall be entitled to receive, or shall have
received upon the exercise of the Warrant, in lieu of or in addition to Common
Stock, or which at any time shall be issuable or shall have been issued in
exchange for or in replacement of Common Stock or Other Securities pursuant to
Article III or otherwise.
Person: Any corporation, association, partnership, joint venture, trust,
estate, limited liability company, organization, business, individual,
government or political subdivision thereof or governmental agency.
Restricted Securities: All of the following: (a) any Warrant bearing the
applicable legend or legends referred to in Section 5.1, (b) any shares of
Common Stock (or Other Securities) which have been issued upon the exercise of
the Warrant and which are evidenced by a certificate or certificates bearing the
applicable legend or legends referred to in such section and (c) unless the
context otherwise requires, any shares of Common Stock (or Other Securities)
which are at the time issuable upon the exercise of the Warrant and which, when
so issued, will be evidenced by a certificate or certificates bearing the
applicable legend or legends referred to in such section.
Securities Act: The Securities Act of 1933, or any similar federal
statute, and the rules and regulations of the Commission thereunder, all as the
same shall be in effect at the time.
Subsidiary: With respect to any Person, any corporation with respect to
which more than 50% of the outstanding shares of stock of each class having
ordinary voting power (other than stock having such power only by reason of the
happening of a contingency) is at the time owned, directly or indirectly, by
such Person or by one or more Subsidiaries of such Person.
237
Transfer: Any sale, assignment, pledge or other disposition of any
security, or of any interest therein, which could constitute a "sale" as that
term is defined in section 2(3) of the Securities Act.
Purchaser: ▇▇▇▇▇ Fargo Energy Capital, Inc..
Warrant Price: As defined in Section 2.1 of this Warrant.
Warrant Purchase Agreement: That certain Warrant Purchase Agreement by
and between the Company and Purchaser, dated of even date herewith.
ARTICLE VIII. MISCELLANEOUS
Section 8.1. Remedies. The Company stipulates that the remedies at law
of the holder of this Warrant in the event of any default or threatened default
by the Company in the performance of or compliance with any of the terms of this
Warrant are not and will not be adequate and that, to the fullest extent
permitted by law, such terms may be specifically enforced by a decree for the
specific performance of any agreement contained herein or by an injunction
against a violation of any of the terms hereof or otherwise.
Section 8.2. No Rights or Liabilities as Stockholder. The holder of this
Warrant and all subsequent holders thereof hereby agree that except to the
extent set forth herein, no provision of this Warrant shall be construed as
conferring upon the holder hereof any rights as a stockholder of the Company or
as imposing any obligation on such holder to purchase any securities or as
imposing any liabilities on such holder as a stockholder of the Company, whether
such obligation or liabilities are asserted by the Company or by creditors of
the Company.
Section 8.3. Notices. All notices and other communications under this
Warrant shall be in writing and shall be mailed by registered or certified mail,
return receipt requested, addressed (a) if to any holder of any Warrant, to the
registered address of such holder as set forth in the register kept at the
principal office of the Company, or (b) if the Company, to the attention of its
President at its office maintained pursuant to subdivision (a) of Section 6.2,
provided that the exercise of any Warrant shall be effective in the manner
provided in Article I.
Section 8.4. Miscellaneous.
(a) This Warrant may be amended, waived, discharged or
terminated and the Company may take any action herein required to be
performed by it, only if the Company shall have obtained the written
consent to such amendment, action or omission to act, of the holder of
the Warrant.
(b) THIS WARRANT SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE
WITH THE GOVERNED BY THE LAWS OF THE STATE OF TEXAS.
(c) The section headings in this Warrant are for purposes of
convenience only and shall not constitute a part hereof.
238
Section 8.5. Option, Warrants and Other Securities. The Company has
outstanding the following options and warrants:
(a) Options issued to ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ to purchase 500,000
shares of Common Stock at $.50 per share.
(b) Warrants to Energy Spectrum Partners, LP, a Delaware limited
partnership ("ENERGY SPECTRUM"), for 437,500 shares of Common Stock at
$.15 per share and an agreement to issue an additional 875,000 warrants
at the same price pursuant to this Agreement in the event that the
Series A Preferred Stock of the Company held by Energy Spectrum is not
redeemed on or before the first anniversary of the date of issue.
Pursuant to its Certificate of Designation, the Series A Preferred Stock
has conversion rights, adjustments of the conversion price, certain
voting rights including the right to elect directors and both mandatory
and optional redemption. Energy Spectrum has certain demand and
piggyback registration rights pursuant to that certain Registration
Right Agreement with the Company.
(c) In connection with that certain Stock Purchase Agreement
("SPA") between the Company and ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, ▇▇. ("▇▇▇▇▇▇▇▇▇"),
(i) the Company is issuing to ▇▇▇▇▇▇▇▇▇ $1,625,000 in shares of Common
Stock valued at the average of the closing bid and offer price for
Common Stock 30 days prior to the closing date of the SPA, (ii)
▇▇▇▇▇▇▇▇▇ has an option to convert his 19% in stock of Jens' Oil Field
Service, Inc., Texas corporation, into shares of Common Stock in
accordance with terms of the option, and (iii) ▇▇▇▇▇▇▇▇▇ has one demand
registration right at his cost and piggyback registration rights.
(d) Employment Agreement of ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇▇ provides
that his incentive compensation may be paid in common stock of OilQuip
Rentals, Inc., a Delaware corporation ("OILQUIP") and wholly-owned
subsidiary of the Company. This may provide for such incentive
compensation to be paid in Common Stock.
(e) Mountain Compressed Air, Inc., a Texas corporation ("MCAI")
and wholly-owned subsidiary of OilQuip, issued warrants to Houlihan,
Lokey, ▇▇▇▇▇▇ & Zukin for 620,000 shares of its common stock, par value
$0.01 per share.
(f) The Company has entered into that certain letter agreement
dated November 14, 2001 with Jefferies & Company, Inc. ("JEFFERIES"),
whereby Jefferies will act as exclusive financial adviser to the Company
and placement agent for up to $25,000,000 in securities of the Company.
There are fees and reimbursements of expenses for services thereunder
along with rights to manage or co-manage offerings, act as adviser in
mergers and receive fees described therein.
(g) The Company has entered into an agreement dated October 4,
2001 with ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ ("▇▇▇▇▇▇") whereby ▇▇▇▇▇▇ will act as a
financial advisor to the Company regarding a private placement offering.
▇▇▇▇▇▇ will be entitled to (i) a success fee of 2.5% of funds raised in
the offering if the investors are originated by the Company or ▇▇▇▇▇▇,
or (ii) a success fee of 1% of funds raised in the offering if the
investors are originated by a third party.
239
(h) The Company has issued options to purchase 24,000 shares of
Common Stock at $2.75 per share to eight current or former directors
and/or officers of the Company, which expire March, 2010 and are not
subject to any plan. The Company has a Long Term Incentive Plan (1989)
(the "PLAN") which provides for grants to officers and key employees of
stock options, stock appreciation rights, performance shares, restricted
stock, restricted stock units and other stock-based awards. The maximum
number of shares of Common Stock which may be granted pursuant to the
plan is 50,000. No stock options or stock appreciation rights have been
granted to date under the Plan and the Plan should have terminated by
its terms.
(i) The Company has issued options to ▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇. to
purchase 10,000 shares of Common Stock at $2.75 per share.
240
This Warrant is hereby executed as of the date first above written.
▇▇▇▇▇-▇▇▇▇▇▇▇▇ Corporation
By:
-------------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇▇
Chairman and Chief Executive Officer
241
FORM OF SUBSCRIPTION
To ___________________________:
The undersigned registered holder of the within Warrant hereby
irrevocably exercises such Warrant for, and purchases _________* shares of
Common Stock of _________________, and herewith makes payment of $___________
therefor, and requests that the certificates for such shares be issued in the
name of, and delivered to ___________________________, whose address is
______________________________ ___________.
Dated: ____________________________ __________________________________
(Signature must conform in all
respects to name of holder as
specified on the face or Warrant)
__________________________________
(▇▇▇▇▇▇ ▇▇▇▇▇▇▇)
__________________________________
(City) (State) (Zip Code)
__________________________________
*Insert the number of shares called for on the face of this
Warrant (or, in the case of a partial exercise, the portion thereof as
to which this Warrant is being exercised), in either case without making
any adjustment for Additional Shares of Common Stock or any other stock
or other securities or property or cash which, pursuant to the
adjustment provisions of this Warrant, may be delivered upon exercise.
In the case of a partial exercise, a new Warrant or Warrants will be
issued and delivered, representing the unexercised portion of the
Warrant, to the holder surrendering the Warrant.
242
FORM OF ASSIGNMENT
[To be executed only upon transfer of Warrant]
For value received, the undersigned registered holder of the within
Warrant hereby sells, assigns and transfers unto _________________ the right
represented by such Warrant to purchase shares of Common Stock of to which such
Warrant relates, and appoints Attorney to make such transfer on the books of
maintained for such purpose, with full power of substitution in the premises.
Dated:____________________________ __________________________________
(Signature must conform in all
respects to name of holder as
specified on the face or Warrant)
__________________________________
(▇▇▇▇▇▇ ▇▇▇▇▇▇▇)
__________________________________
(City) (State) (Zip Code)
Signed in the presence of:
__________________________________
243
SCHEDULE 3.1(d) TO WARRANT PURCHASE AGREEMENT
OPTIONS, WARRANTS AND OTHER SECURITIES
(a) Options issued to ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ to purchase 500,000 shares of
Common Stock at $.50 per share.
(b) Warrants to Energy Spectrum Partners, LP, a Delaware limited
partnership ("ENERGY SPECTRUM"), for 437,500 shares of Common Stock at $.15 per
share and an agreement to issue an additional 875,000 warrants at the same price
pursuant to this Agreement in the event that the Series A Preferred Stock of the
Company held by Energy Spectrum is not redeemed on or before the first
anniversary of the date of issue. Pursuant to its Certificate of Designation,
the Series A Preferred Stock has conversion rights, adjustments of the
conversion price, certain voting rights including the right to elect directors
and both mandatory and optional redemption. Energy Spectrum has certain demand
and piggyback registration rights pursuant to that certain Registration Right
Agreement with the Company.
(c) In connection with that certain Stock Purchase Agreement ("SPA")
between the Company and ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, ▇▇. ("▇▇▇▇▇▇▇▇▇"), (i) the Company is
issuing to ▇▇▇▇▇▇▇▇▇ $1,625,000 in shares of Common Stock valued at the average
of the closing bid and offer price for Common Stock 30 days prior to the closing
date of the SPA, (ii) ▇▇▇▇▇▇▇▇▇ has an option to convert his 19% in stock of
Jens' Oil Field Service, Inc., Texas corporation, into shares of Common Stock in
accordance with terms of the option, and (iii) ▇▇▇▇▇▇▇▇▇ has one demand
registration right at his cost and piggyback registration rights.
(d) Employment Agreement of ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇▇ provides that his
incentive compensation may be paid in common stock of OilQuip Rentals, Inc., a
Delaware corporation ("OILQUIP") and wholly-owned subsidiary of the Company.
This may provide for such incentive compensation to be paid in Common Stock.
(e) Mountain Compressed Air, Inc., a Texas corporation ("MCAI") and
wholly-owned subsidiary of OilQuip, issued warrants to Houlihan, Lokey, ▇▇▇▇▇▇ &
Zukin for 620,000 shares of its common stock, par value $0.01 per share.
(f) The Company has entered into that certain letter agreement dated
November 14, 2001 with Jefferies & Company, Inc. ("JEFFERIES"), whereby
Jefferies will act as exclusive financial adviser to the Company and placement
agent for up to $25,000,000 in securities of the Company. There are fees and
reimbursements of expenses for services thereunder along with rights to manage
or co-manage offerings, act as adviser in mergers and receive fees described
therein.
(g) The Company has entered into an agreement dated October 4, 2001 with
244
▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ ("▇▇▇▇▇▇") whereby ▇▇▇▇▇▇ will act as a financial advisor to
the Company regarding a private placement offering. ▇▇▇▇▇▇ will be entitled to
(i) a success fee of 2.5% of funds raised in the offering if the investors are
originated by the Company or ▇▇▇▇▇▇, or (ii) a success fee of 1% of funds raised
in the offering if the investors are originated by a third party.
(h) The Company has issued options to purchase 24,000 shares of Common
Stock at $2.75 per share to eight current or former directors and/or officers of
the Company, which expire March, 2010 and are not subject to any plan. The
Company has a Long Term Incentive Plan (1989) (the "PLAN") which provides for
grants to officers and key employees of stock options, stock appreciation
rights, performance shares, restricted stock, restricted stock units and other
stock-based awards. The maximum number of shares of Common Stock which may be
granted pursuant to the plan is 50,000. No stock options or stock appreciation
rights have been granted to date under the Plan and the Plan should have
terminated by its terms.
(i) The Company has issued options to ▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇. to purchase
10,000 shares of Common Stock at $2.75 per share.
245