EXHIBIT 10.3
FORM OF OPTION AGREEMENT
THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE UNITED STATES SECURITIES AND
EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE PURSUANT TO AN
EXEMPTION FROM REGISTRATION UNDER REGULATION D PROMULGATED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"). THIS OPTION SHALL NOT CONSTITUTE AN OFFER
TO SELL NOR A SOLICITATION OF AN OFFER TO BUY THE SECURITIES IN ANY JURISDICTION
IN WHICH SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL. THE SECURITIES ARE
"RESTRICTED" AND MAY NOT BE RESOLD OR TRANSFERRED EXCEPT AS PERMITTED UNDER THE
ACT PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM.
OPTION TO PURCHASE COMMON STOCK
OF
MICROWARE SYSTEMS CORPORATION
THIS CERTIFIES that, for value received, * (the "INVESTOR") is entitled,
upon the terms and subject to the conditions hereinafter set forth, at any time
and from time to time on or after the date hereof and on or prior to 8:00 p.m.
New York City Time on the Expiration Date (as defined below) (such period
hereinafter referred to as the "EXERCISE PERIOD"), to purchase from MICROWARE
SYSTEMS CORPORATION, an Iowa corporation (the "COMPANY") shares (the "OPTION
SHARES") of the Company's Common Stock, no par value ("COMMON STOCK"), for a
purchase price per share (as adjusted from time to time pursuant to the terms
hereof, the "EXERCISE PRICE") equal to 105% of the Closing Price (as defined in
Section 12(a) below) for an aggregate purchase price of up to One Million Five
Hundred Thousand U.S. Dollars ($1,500,000). The Exercise Price and the number of
shares for which the Option is exercisable shall be subject to adjustment as
provided herein. This Option is being issued in connection with the Securities
Purchase Agreement dated April 19, 2000 (the "PURCHASE AGREEMENT") entered into
between the Company, the Investor and Westgate International, L.P. Capitalized
terms used herein and not otherwise defined shall have the meaning ascribed
thereto in the Purchase Agreement. The "EXPIRATION DATE" shall mean the date
which is one year following the date on which the Registration Statement (as
defined in the Registration Rights Agreement) is declared effective by the SEC;
PROVIDED, HOWEVER, that such Expiration Date shall be deferred, at the sole
option of a holder hereof, for such number of days as is equal to 1.5 times the
number of days (A) there is a lack of Effective Registration (as defined below),
but not including the first 90 days
------------
* One option agreement was issued to ▇▇▇▇▇▇▇ Associates, L.P. and a second
identical agreement was issued to Westgate International, L.P.
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after the Closing; (B) there is not a sufficient amount of Common Stock
available for conversion of all outstanding Preferred Shares and exercise of all
the Options and Warrants; (C) for any other reason the Corporation refuses or
announces its refusal to honor conversion of Preferred Shares or exercise of the
Options or Warrants; or (D) for any other reason there is a suspension,
restriction or limitation in the ability of holders of Preferred Shares, Options
or Warrants to sell Common Shares received upon conversion of Preferred Shares
or exercise of the Options or Warrants pursuant to the prospectus included in
the Registration Statement; PROVIDED, FURTHER, that such Expiration Date shall
be subject to the provisions of Section 3(c) below.
1. TITLE OF OPTION. Prior to the expiration hereof and subject to compliance
with applicable laws, this Option and all rights hereunder are
transferable, in whole or in part, at the office or agency of the Company
by the Holder hereof in person or by duly authorized attorney, upon
surrender of this Option together with (a) the Assignment Form annexed
hereto properly endorsed, and (b) any other documentation reasonably
necessary to satisfy the Company that such transfer is in compliance with
all applicable securities laws. The term "HOLDER" shall refer to the
Investor or any subsequent transferee of this Option.
2. AUTHORIZATION OF SHARES. The Company covenants that all shares of Common
Stock which may be issued upon the exercise of rights represented by this
Option will, upon exercise of the rights represented by this Option and
payment of the Exercise Price as set forth herein will be duly authorized,
validly issued, fully paid and nonassessable and free from all taxes, liens
and charges in respect of the issue thereof (other than taxes in respect of
any transfer occurring contemporaneously with such issue or otherwise
specified herein).
3. EXERCISE OF OPTION.
(a) MECHANICS OF EXERCISE. The Holder may exercise this Option, in whole or in
part, at any time and from time to time, by delivering to the offices of
the Company or any transfer agent for the Common Stock this Option,
together with a Notice of Exercise in the form annexed hereto specifying
the dollar amount and number of Option Shares with respect to which this
Option is being exercised, together with payment to the Company of the
Exercise Price therefor.
In the event that this Option is not exercised in full, the aggregate
purchase price hereunder shall be reduced by the dollar amount for which
this Option is exercised and/or surrendered, and the Company, at its
expense, shall within three (3) Trading Days (as defined below) issue and
deliver to the Holder a new Option of like tenor in the name of the Holder
or as the Holder (upon payment by Holder of any applicable transfer taxes)
may request, reflecting such adjusted Option.
Certificates for shares of Common Stock purchased hereunder shall be
delivered to the Holder hereof within two (2) Trading Days after the date
on which this Option shall have been exercised as aforesaid. The Holder may
withdraw its Notice of Exercise at any time
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if the Company fails to timely deliver the relevant certificates to the
Holder as provided in this Agreement.
In lieu of delivering physical certificates representing the Option Shares
issuable upon conversion of this Option, provided the Company's transfer
agent is participating in the Depository Trust Company ("DTC") Fast
Automated Securities Transfer ("FAST") program, upon request of the Holder,
the Company shall use its best efforts to cause its transfer agent to
electronically transmit the Option Shares issuable upon exercise to the
Holder, by crediting the account of the Holder's prime broker with DTC
through its Deposit Withdrawal Agent Commission ("DWAC") system. The time
periods for delivery described above shall apply to the electronic
transmittals through the DWAC system. The Company agrees to coordinate with
DTC to accomplish this objective.
(b) CASHLESS EXERCISE. Notwithstanding the foregoing provision regarding
payment of the Exercise Price in cash, during any time that any of the
Option Shares are not subject to an effective Registration Statement in
accordance with the terms of the Registration Rights Agreement (as defined
in the Purchase Agreement) after 180 days following the Closing Date, the
Holder may elect to receive a reduced number of Option Shares in lieu of
tendering the Exercise Price in cash. In such case, the number of Option
Shares to be issued to the Holder shall be computed using the following
formula:
X = Y x (A-B)
---------
A
where: X = the number of Option Shares to be issued to the Holder;
Y = the number of Option Shares to be exercised under this Option;
A = the Market Value (defined below) of one share of Common Stock;
and
B = the Exercise Price.
As used herein, "MARKET VALUE" refers to the closing bid price of the
Common Stock (as reported by Bloomberg, L.P.) on the day before the Notice
of Exercise and this Option are duly surrendered to the Company for a full
or partial exercise hereof. Notwithstanding the foregoing definition, if
the Common Stock is not listed on a national securities exchange or quoted
in the Nasdaq System at the time said Notice of Exercise is submitted to
the Company in the foregoing manner, the Market Value of the Common Stock
shall be as reasonably determined in good faith by the Board of Directors
of the Company and such Holder, unless the Company shall become subject to
a merger, acquisition, or other consolidation pursuant to which the Company
is not the surviving entity, in which case the Market Value of the Common
Stock shall be deemed to be the value received by the Company's common
shareholders pursuant to the Company's acquisition (subject to Section 12
below).
The term "TRADING DAY" means (x) if the Common Stock is not listed on the
New York or American Stock Exchange but sale prices of the Common Stock are
reported on
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Nasdaq National Market or another automated quotation system, a day on
which trading is reported on the principal automated quotation system on
which sales of the Common Stock are reported, (y) if the Common Stock is
listed on the New York Stock Exchange or the American Stock Exchange, a day
on which there is trading on such stock exchange, or (z) if the foregoing
provisions are inapplicable, a day on which quotations are reported by
National Quotation Bureau Incorporated.
(c) FORCED EXERCISE. During the Exercise Period, if the Option Shares have been
and continue to be registered with the SEC pursuant to the Registration
Rights Agreement and the requirements of subsection (d) below have been
met, the Company shall have the right, upon 10 Trading Days' prior written
notice (the "Termination Notice") and subject to the terms of this
subsection (c) and subsection (d) below, to notify the Investor that it
must exercise this Option within 10 Trading Days or this Option will
terminate at the end of such 10 Trading Day period ("Termination Date").
The right to issue a Termination Notice and to terminate this Option as
provided in the foregoing sentence will only be available if the closing
bid price (as reported by the Bloomberg financial network) of the Common
Stock recorded on the Principal Market exceeds 175% of the Exercise Price
for the 30 consecutive Trading Days (as defined in the Certificate)
immediately preceding delivery of the Termination Notice and at all times
thereafter through the Termination Date. In the event that the closing bid
price of the Common Stock recorded on the Principal Market falls below 175%
of the Exercise Price at any time before the Termination Date, any
Termination Notice in effect shall become null and void, and this Option
shall remain in full force and effect until the Expiration Date; PROVIDED,
HOWEVER, that the Company shall again have the right to deliver a
Termination Notice if the closing bid price of the Common Stock recorded on
the Principal Market thereafter exceeds 175% of the Exercise Price for 30
consecutive Trading Days pursuant to the terms of this Section 3(c) and
subject to Section 3(d) below.
(d) Notwithstanding anything contained in Section 3(c) above, the right of the
Company to terminate this Option pursuant to Section 3(c) above shall
terminate if any of the following shall occur or have occurred or be
continuing:
(A) there is a lack of Effective Registration (as defined below) during the
Exercise Period; (B) there is not a sufficient amount of Common Stock
available for conversion of all outstanding Preferred Shares, exercise of
all Warrants and issuance of all Option Shares; (C) for any other reason
the Corporation refuses or announces its refusal to honor conversion of
Preferred Shares, exercise of all Warrants and issuance of all Option
Shares; or (D) for any other reason there is a suspension or restriction in
the ability of holders of Preferred Shares, Warrants or Options to sell
Common Shares or Option Shares received upon conversion or exercise,
respectively, pursuant to the prospectus included in the Registration
Statement.
A lack of "Effective Registration" shall be deemed to have occurred at any
time the Common Shares or Option Shares issuable upon conversion of the
Preferred Shares,
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exercise of the Warrants or exercise of this Option are not legally capable
of being sold on an Approved Market (as defined below) pursuant to an
effective registration statement and deliverable prospectus.
Notwithstanding the preceding provisions of this Section 3(d) or Section
3(c) above, the Company shall have no right to terminate this Option unless
each of the following conditions has been satisfied or exists at all times
during the 30 consecutive Trading Days immediately preceding delivery of
the Termination Notice and at all times thereafter through the Termination
Date, each of which shall be a condition precedent to any such termination:
(i) no material default or breach exists which has not been cured, and
no event shall have occurred which constitutes (or would constitute
with notice or the passage of time or both) a material default or
breach of this Option, the Purchase Agreement, the Registration Rights
Agreement, the Warrants or the Certificate, which has not been cured;
(ii) none of the events described in clauses (i) through (iv) of
Section 2(b) of the Registration Rights Agreement shall have occurred
and be continuing;
(iii) the Registration Statement is effective and holders have
received unlegended certificates representing Option Shares (to the
extent this Option has been exercised) and Common Shares with respect
to all conversions for which Conversion Notices have been given and
with respect to all exercises of the Warrants for which Notices of
Exercise have been given; and
(iv) the Company and its subsidiaries on a consolidated basis has
assets with a net realizable fair market value exceeding its
liabilities and is able to pay all its debts as they become due in the
ordinary course of business, and the Company is not subject to any
liquidation, dissolution or winding up of its affairs, or any
bankruptcy, insolvency or similar proceeding.
4. NO FRACTIONAL SHARES OR SCRIP. No fractional shares or scrip representing
fractional shares shall be issued upon the exercise of this Option. In lieu
of issuance of a fractional share upon any exercise hereunder, the Company
will either round up to nearest whole number of shares or pay the cash
value of that fractional share calculated on the basis of the Fair Market
Value (as defined below).
5. CHARGES, TAXES AND EXPENSES. Issuance of certificates for shares of Common
Stock upon the exercise of this Option shall be made without charge to the
Holder hereof for any issue or transfer tax or other incidental expense in
respect of the issuance of such certificate, all of which taxes and
expenses shall be paid by the Company, and such certificates shall be
issued in the name of the Holder of this Option or in such name or names as
may be directed by the Holder of this Option; PROVIDED, HOWEVER, that in
the event certificates for shares of Common Stock are to be issued in a
name other than the name of the Holder of this Option, this Option when
surrendered for exercise shall be
Page 6
accompanied by the Assignment Form attached hereto duly executed by the
Holder hereof; and PROVIDED FURTHER, that the Company shall not be required
to pay any tax or taxes which may be payable in respect of any transfer
involved in the issuance of any Option certificates or any certificates for
the Option Shares other than the issuance of a Option Certificate to the
Holder in connection with the Holder's surrender of a Option Certificate
upon the exercise of all or less than all of the Options evidenced thereby.
6. CLOSING OF BOOKS. The Company will at no time close its shareholder books
or records in any manner which interferes with the timely exercise of this
Option.
7. NO RIGHTS AS SHAREHOLDER UNTIL EXERCISE. Subject to Section 12 of this
Option and the provisions of any other written agreement between the
Company and the Investor, the Investor shall not be entitled to vote or
receive dividends or be deemed the holder of Option Shares or any other
securities of the Company that may at any time be issuable on the exercise
hereof for any purpose, nor shall anything contained herein be construed to
confer upon the Investor, as such, any of the rights of a stockholder of
the Company or any right to vote for the election of directors or upon any
matter submitted to stockholders at any meeting thereof, or to give or
withhold consent to any corporate action (whether upon any
recapitalization, issuance of stock, reclassification of stock, change of
par value, or change of stock to no par value, consolidation, merger,
conveyance or otherwise) or to receive notice of meetings, or to receive
dividends or subscription rights or otherwise until the Option shall have
been exercised as provided herein. However, at the time of the exercise of
this Option pursuant to Section 3 hereof, the Option Shares so purchased
hereunder shall be deemed to be issued to such Holder as the record owner
of such shares as of the close of business on the date on which this Option
shall have been exercised.
8. ASSIGNMENT AND TRANSFER OF OPTION. This Option may be assigned by the
surrender of this Option and the Assignment Form annexed hereto duly
executed at the office of the Company (or such other office or agency of
the Company or its transfer agent as the Company may designate by notice in
writing to the registered Holder hereof at the address of such Holder
appearing on the books of the Company); PROVIDED, HOWEVER, that this Option
may not be resold or otherwise transferred except (i) in a transaction
registered under the Securities Act of 1933, as amended (the "ACT"), or
(ii) in a transaction pursuant to an exemption, if available, from
registration under the Act and whereby, if reasonably requested by the
Company, an opinion of counsel reasonably satisfactory to the Company is
obtained by the Holder of this Option to the effect that the transaction is
so exempt. If this Option is duly assigned in accordance with the terms
hereof, then the Company agrees, upon the request of the assignee, to amend
or supplement promptly any effective registration statement covering the
Option Shares so that the direct assignee of the original holder is added
as a selling stockholder thereunder.
9. LOSS, THEFT, DESTRUCTION OR MUTILATION OF OPTION; EXCHANGE. The Company
represents, warrants and covenants that (a) upon receipt by the Company of
evidence reasonably satisfactory to it of the loss, theft, destruction or
mutilation of any Option or stock
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certificate representing the Option Shares, and in case of loss, theft or
destruction, of indemnity reasonably satisfactory to it, and (b) upon
surrender and cancellation of such Option or stock certificate, if
mutilated, the Company will make and deliver a new Option or stock
certificate of like tenor and dated as of such cancellation, in lieu of
this Option or stock certificate, without any charge therefor. This Option
is exchangeable at any time for an equal aggregate number of Options of
different denominations, as requested by the holder surrendering the same,
or in such denominations as may be requested by the Holder following
determination of the Exercise Price. No service charge will be made for
such registration or transfer, exchange or reissuance.
10. SATURDAYS, SUNDAYS, HOLIDAYS, ETC. If the last or appointed day for the
taking of any action or the expiration of any right required or granted
herein shall be a Saturday, Sunday or a legal holiday, then such action may
be taken or such right may be exercised on the next succeeding day not a
legal holiday.
11. EFFECT OF CERTAIN EVENTS. If at any time while this Option or any portion
thereof is outstanding and unexpired there shall be a transaction (by
merger or otherwise) in which more than 50% of the voting power of the
Company is disposed of (collectively, a "SALE OR MERGER TRANSACTION"), the
Holder of this Option shall have the right thereafter to purchase, by
exercise of this Option and payment of the aggregate Exercise Price in
effect immediately prior to such action, the kind and amount of shares and
other securities and property which it would have owned or have been
entitled to receive after the happening of such transaction had this Option
been exercised immediately prior thereto, subject to further adjustment as
provided in Section 12.
12. ADJUSTMENTS OF EXERCISE PRICE AND NUMBER OF OPTION SHARES. The number of
and kind of securities purchasable upon exercise of this Option and the
Exercise Price shall be subject to adjustment from time to time as set
forth in this Section 12.
(a) SUBDIVISIONS, COMBINATIONS, STOCK DIVIDENDS AND OTHER ISSUANCES. If the
Company shall, at any time while this Option is outstanding, (A) pay a
stock dividend or otherwise make a distribution or distributions on any
equity securities (including instruments or securities convertible into or
exchangeable for such equity securities) in shares of Common Stock, (B)
subdivide outstanding shares of Common Stock into a larger number of
shares, or (C) combine outstanding Common Stock into a smaller number of
shares, then each Affected Exercise Price (as defined below) shall be
multiplied by a fraction, the numerator of which shall be the number of
shares of Common Stock outstanding before such event and the denominator of
which shall be the number of shares of Common Stock outstanding after such
event. Any adjustment made pursuant to this Section 12(a) shall become
effective immediately after the record date for the determination of
stockholders entitled to receive such dividend or distribution and shall
become effective immediately after the effective date in the case of a
subdivision or combination. As used herein, the Affected Exercise Prices
(each an "AFFECTED EXERCISE PRICE") shall refer to: (i) the
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Exercise Price and (ii) each reported price for the Common Stock on the
Principal Market (as defined in the Purchase Agreement) occurring on any
Trading Day included in the period used for determining the Closing Price,
which Trading Day occurred before the record date in the case of events
referred to in clause (A) of this subparagraph 12(a) and the effective date
in the case of the events referred to in clauses (B) and (C) of this
subparagraph 12(a). "CLOSING PRICE" shall mean the average of the closing
bid prices of the Common Stock recorded on the Principal Market (as
reported by the Bloomberg Financial Network or any successor reporting
source) for the five (5) Trading Days immediately following the Closing
Date (as defined in the Purchase Agreement).
(b) OTHER DISTRIBUTIONS. If at any time after the date hereof the Company
distributes to holders of its Common Stock, other than as part of its
dissolution, liquidation or the winding up of its affairs, any shares of
its capital stock, any evidence of indebtedness or any of its assets (other
than Common Stock), then the Exercise Price shall be reduced to equal: (i)
the Exercise Price in effect immediately prior to such event, (ii)
multiplied by a fraction, (A) the numerator of which shall be the Fair
Market Value (as defined below) per share of Common Stock on the record
date for the dividend or distribution minus the amount allocable to one
share of Common Stock of the value (as jointly determined in good faith by
the Board of Directors of the Company and the Holder) of any and all such
evidences of indebtedness, shares of capital stock, other securities or
property, so distributed, and (B) the denominator of which shall be the
Fair Market Value per share of Common Stock on the record date for the
dividend or distribution. For purposes of this Option, "FAIR MARKET VALUE"
shall equal the average closing sale price of the Common Stock on the
Principal Market for the 5 Trading Days preceding the date of determination
or, if the Common Stock is not listed or admitted to trading on any
Principal Market, and the average price cannot be determined as
contemplated above, the Fair Market Value of the Common Stock shall be as
reasonably determined in good faith by the Company's Board of Directors and
the Holder.
(c) MERGER, ETC. If at any time after the date hereof there shall be a merger
or consolidation of the Company with or into or a transfer of all or
substantially all of the assets of the Company to another entity, then the
Holder shall be entitled to receive upon or after such transfer, merger or
consolidation becoming effective, and upon payment of the Exercise Price
then in effect, the number of shares or other securities or property of the
Company or of the successor corporation resulting from such merger or
consolidation, which would have been received by the Holder for the shares
of stock subject to this Option had this Option been exercised just prior
to such transfer, merger or consolidation becoming effective or to the
applicable record date thereof, as the case may be. The Company will not
merge or consolidate with or into any other corporation, or sell or
otherwise transfer its property, assets and business substantially as an
entirety to another corporation, unless the corporation resulting from such
merger or consolidation (if not the Company), or such transferee
corporation, as the case may be, shall expressly assume in writing the due
and punctual performance and observance of each and every covenant and
condition of this Option to be performed and observed by the Company.
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(d) RECLASSIFICATION, ETC. If at any time after the date hereof there shall be
a reorganization or reclassification of the securities as to which purchase
rights under this Option exist into the same or a different number of
securities of any other class or classes, then the Holder shall thereafter
be entitled to receive upon exercise of this Option, during the period
specified herein and upon payment of the Exercise Price then in effect, the
number of shares or other securities or property resulting from such
reorganization or reclassification, which would have been received by the
Holder for the shares of stock subject to this Option had this Option at
such time been exercised.
(e) EXERCISE PRICE ADJUSTMENT. In the event that the Company issues or sells
any Common Stock or securities which are convertible into or exchangeable
for its Common Stock or any convertible securities, or any warrants or
other rights to subscribe for or to purchase or any options for the
purchase of its Common Stock or any such convertible securities (other than
shares or options issued or which may be issued pursuant to (i) the
Company's current employee option plans or shares issued upon exercise of
options, warrants or rights outstanding on the date of the Agreement and
listed in the Company's most recent periodic report filed under the
Exchange Act, or (ii) arrangements with the Investor) at an effective price
per share which is less than the greater of the Exercise Price then in
effect or the Fair Market Value (as described in Section 12(b) above) of
the Common Stock on the Trading Day next preceding such issue or sale, then
in each such case, the Exercise Price in effect immediately prior to such
issue or sale shall be reduced effective concurrently with such issue or
sale to an amount determined by multiplying the Exercise Price then in
effect by a fraction, (x) the numerator of which shall be the sum of (1)
the number of shares of Common Stock outstanding immediately prior to such
issue or sale, plus (2) the number of shares of Common Stock which the
aggregate consideration received by the Company for such additional shares
would purchase at such Fair Market Value or Exercise Price, whichever is
greater, then in effect; and (y) the denominator of which shall be the
number of shares of Common Stock of the Company outstanding immediately
after such issue or sale.
For the purposes of the foregoing adjustment, in the case of the issuance
of any convertible securities, warrants, options or other rights to
subscribe for or to purchase or exchange for, shares of Common Stock
("CONVERTIBLE SECURITIES"), the maximum number of shares of Common Stock
issuable upon exercise, exchange or conversion of such Convertible
Securities shall be deemed to be outstanding, provided that no further
adjustment shall be made upon the actual issuance of Common Stock upon
exercise, exchange or conversion of such Convertible Securities.
In the event of any such issuance for a consideration which is less than
such Fair Market Value and also less than the Exercise Price then in
effect, than there shall be only one such adjustment by reason of such
issuance, such adjustment to be that which results in the greatest
reduction of the Exercise Price computed as aforesaid.
(f) The terms of any reorganization, consolidation, merger, sale, transfer or
share exchange shall include such terms so as to continue to give to the
holder hereof the right to receive
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the securities or property set forth in this Section 12 upon any exercise
following any such reclassification, consolidation, merger, sale, transfer
or share exchange.
13. VOLUNTARY ADJUSTMENT BY THE COMPANY. The Company may at its option, at any
time during the term of this Option, reduce but not increase the then
current Exercise Price to any amount and for any period of time deemed
appropriate by the Board of Directors of the Company.
14. NOTICE OF ADJUSTMENT; NOTICE OF EVENTS. (i) Whenever the number of Option
Shares or number or kind of securities or other property purchasable upon
the exercise of this Option or the Exercise Price is adjusted, the Company
shall promptly mail to the Holder of this Option a notice setting forth the
number of Option Shares (and other securities or property) purchasable upon
the exercise of this Option and the Exercise Price of such Option Shares
after such adjustment and setting forth the computation of such adjustment
and a brief statement of the facts requiring such adjustment. (ii) If: (A)
the Company shall declare a dividend (or any other distribution) on its
Common Stock; or (B) the Company shall declare a special nonrecurring cash
dividend on or a redemption of its Common Stock; or (C) the Company shall
authorize the granting to all holders of the Common Stock rights or
warrants to subscribe for or purchase any shares of capital stock of any
class or of any rights; or (D) the approval of any stockholders of the
Company shall be required in connection with any reclassification of the
Common Stock of the Company, any consolidation or merger to which the
Company is a party, any sale or transfer of all or substantially all of the
assets of the Company, or any compulsory share exchange whereby the Common
Stock is converted into other securities, cash or property; or (E) the
Company shall authorize the voluntary dissolution, liquidation or winding
up of the affairs of the Company, then the Company shall cause to be mailed
to each Option holder at their last addresses as they shall appear upon the
Option register of the Company, at least 30 calendar days prior to the
applicable record or effective date hereinafter specified, a notice stating
(x) the date on which a record is to be taken for the purpose of such
dividend, distribution, redemption, rights or warrants, or if a record is
not to be taken, the date as of which the holders of Common Stock of record
to be entitled to such dividend, distributions, redemption, rights or
warrants are to be determined or (y) the date on which such
reclassification, consolidation, merger, sale, transfer or share exchange
is expected to become effective or close, and the date as of which it is
expected that holders of Common Stock of record shall be entitled to
exchange their shares of Common Stock for securities, cash or other
property deliverable upon such reclassification, consolidation, merger,
sale, transfer, share exchange, dissolution, liquidation or winding up.
15. AUTHORIZED SHARES. The Company covenants that during the Exercise Period it
will reserve from its authorized and unissued Common Stock a sufficient
number of shares to provide for the issuance of the Option Shares upon the
exercise of any and all purchase rights under this Option. The Company
further covenants that its issuance of this Option shall constitute full
authority to its officers who are charged with the duty of executing stock
certificates to execute and issue the necessary certificates for the Option
Shares
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upon the exercise of the purchase rights under this Option. The Company
will take all such reasonable action as may be necessary to assure that
such Option Shares may be issued as provided herein without violation of
any applicable law, regulation, or rule of any applicable market or
exchange.
16. 9.99% LIMITATION.
(i) Notwithstanding anything to the contrary contained herein, the
number of shares of Common Stock that may be acquired by the holder upon
exercise pursuant to the terms hereof shall not exceed a number that, when
added to the total number of shares of Common Stock deemed beneficially
owned by such holder (other than by virtue of the ownership of securities
or rights to acquire securities that have limitations on the holder's right
to convert, exercise or purchase similar to the limitation set forth
herein), together with all shares of Common Stock deemed beneficially owned
by the holder's "affiliates" (as defined in Rule 144 of the Act)
("Aggregation Parties") that would be aggregated for purposes of
determining whether a group under Section 13(d) of the Securities Exchange
Act of 1934 as amended, exists, would exceed 9.99% of the total issued and
outstanding shares of the Common Stock (the "Restricted Ownership
Percentage"); PROVIDED that (w) each holder shall have the right at any
time and from time to time to reduce its Restricted Ownership Percentage
immediately upon notice to the Company and (x) each holder shall have the
right (subject to waiver) at any time and from time to time, to increase
its Restricted Ownership Percentage immediately in the event of the
announcement as pending or planned, of a transaction or event referred to
in Section 5(m) of the Certificate.
(ii) Each time (a "COVENANT TIME") the holder or an Aggregation Party
makes a Triggering Acquisition (as defined below) of shares of Common Stock
(the "TRIGGERING SHARES"), the holder will be deemed to covenant that it
will not, during the balance of the day on which such Triggering
Acquisition occurs, and during the 61-day period beginning immediately
after that day, acquire additional shares of Common Stock pursuant to
rights-to-acquire existing at that Covenant Time, if the aggregate amount
of such additional shares so acquired (without reducing that amount by any
dispositions) would exceed (x) 9.99% of the number of shares of Common
Stock outstanding at that Covenant Time (including the Triggering Shares)
minus (y) the number of shares of Common Stock actually owned by the holder
at that Covenant Time (regardless of how or when acquired, and including
the Triggering Shares). A "TRIGGERING ACQUISITION" means the giving of a
Notice of Exercise or any other acquisition of Common Stock by the holder
or an Aggregation Party; PROVIDED, however, that with respect to the giving
of such Notice of Exercise, if the associated issuance of shares of Common
Stock does not occur, such event shall cease to be a Triggering Acquisition
and the related covenant under this paragraph shall terminate. At each
Covenant Time, the holder shall be deemed to waive any right it would
otherwise have to acquire shares of Common Stock to the extent that such
acquisition would violate any covenant given by the holder under this
paragraph. Notwithstanding anything to the contrary in the Transaction
Documents, in the event of a conflict between any covenant given under this
paragraph and any obligation of the holder to exercise this Option pursuant
to the Transaction Documents,
Page 12
the former shall supersede the latter, and the latter shall be reduced
accordingly. For the avoidance of doubt:
(A) The covenant to be given pursuant to this paragraph will be given
at every Covenant Time and shall be calculated based on the
circumstances then in effect. The making of a covenant at one
Covenant Time shall not terminate or modify any prior covenants.
(B) The holder may therefore from time to time be subject to multiple
such covenants, each one having been made at a different Covenant
Time, and some possibly being more restrictive than others. The
holder must comply with all such covenants then in effect.
17. COMPLIANCE WITH SECURITIES LAWS. (a) The Holder hereof acknowledges that
the Option Shares acquired upon the exercise of this Option, if not
registered (or if no exemption from registration exists), will have
restrictions upon resale imposed by state and federal securities laws. Each
certificate representing the Option Shares issued to the Holder upon
exercise (if not registered, for resale or otherwise, or if no exemption
from registration exists) will bear substantially the following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED WITH
THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES
COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND,
ACCORDINGLY, MAY NOT BE OFFERED, TRANSFERRED, SOLD OR OTHERWISE DISPOSED OF
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT
SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN
ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS.
(b) Without limiting the Investor's right to transfer, assign or otherwise
convey the Option or Option Shares in compliance with all applicable
securities laws, the Investor of this Option, by acceptance hereof,
acknowledges that this Option and the Option Shares to be issued upon
exercise hereof are being acquired solely for the Investor's own account
and not as a nominee for any other party, and that the Investor will not
offer, sell or otherwise dispose of this Option or any Option Shares to be
issued upon exercise hereof except under circumstances that will not result
in a violation of applicable federal and state securities laws.
18. MISCELLANEOUS.
(a) ISSUE DATE; CHOICE OF LAW; VENUE; JURISDICTION. THE PROVISIONS OF THIS
OPTION SHALL BE CONSTRUED AND SHALL BE GIVEN EFFECT IN ALL
Page 13
RESPECTS AS IF IT HAD BEEN ISSUED AND DELIVERED BY THE COMPANY ON THE DATE
HEREOF. THIS OPTION SHALL BE BINDING UPON ANY SUCCESSORS OR ASSIGNS OF THE
COMPANY. THIS OPTION WILL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH AND
GOVERNED BY THE LAWS OF THE STATE OF NEW YORK, EXCEPT FOR MATTERS ARISING
UNDER THE ACT, WITHOUT REFERENCE TO PRINCIPLES OF CONFLICTS OF LAW. EACH OF
THE PARTIES CONSENTS TO THE EXCLUSIVE JURISDICTION OF THE FEDERAL AND STATE
COURTS SITTING IN THE COUNTY OF NEW YORK IN THE STATE OF NEW YORK IN
CONNECTION WITH ANY DISPUTE ARISING UNDER THIS OPTION AND HEREBY WAIVES, TO
THE MAXIMUM EXTENT PERMITTED BY LAW, ANY OBJECTION, INCLUDING ANY OBJECTION
BASED ON FORUM NON CONVENIENS OR VENUE, TO THE BRINGING OF ANY SUCH
PROCEEDING IN SUCH JURISDICTION. EACH PARTY HEREBY AGREES THAT IF THE OTHER
PARTY TO THIS OPTION OBTAINS A JUDGMENT AGAINST IT IN SUCH A PROCEEDING,
THE PARTY WHICH OBTAINED SUCH JUDGMENT MAY ENFORCE SAME BY SUMMARY JUDGMENT
IN THE COURTS OF ANY COUNTRY HAVING JURISDICTION OVER THE PARTY AGAINST
WHOM SUCH JUDGMENT WAS OBTAINED, AND EACH PARTY HEREBY WAIVES ANY DEFENSES
AVAILABLE TO IT UNDER LOCAL LAW AND AGREES TO THE ENFORCEMENT OF SUCH A
JUDGMENT. EACH PARTY TO THIS OPTION IRREVOCABLY CONSENTS TO THE SERVICE OF
PROCESS IN ANY SUCH PROCEEDING BY THE MAILING OF COPIES THEREOF BY
REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO SUCH PARTY AT ITS ADDRESS
IN ACCORDANCE WITH SECTION 18(C). NOTHING HEREIN SHALL AFFECT THE RIGHT OF
ANY PARTY TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW.
(b) MODIFICATION AND WAIVER. This Option and any provisions hereof may be
changed, waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of the same is sought. Any
amendment effected in accordance with this paragraph shall be binding upon
the Investor, each future holder of this Option and the Company. No waivers
of, or exceptions to, any term, condition or provision of this Option, in
any one or more instances, shall be deemed to be, or construed as, a
further or continuing waiver of any such term, condition or provision.
(c) NOTICES. Any notice, request or other document required or permitted to be
given or delivered to the Investor or future holders hereof or the Company
shall be personally delivered or shall be sent by certified or registered
mail, postage prepaid, to the Investor or each such holder at its address
as shown on the books of the Company or to the Company at the address set
forth in the Purchase Agreement. All notices under this Option shall be
deemed to have been given when received.
A party may from time to time change the address to which notices to it are
to be delivered or mailed hereunder by notice in accordance with the
provisions of this Section 18(c).
Page 14
(d) SEVERABILITY. Whenever possible, each provision of this Option shall be
interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Option is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not
affect the validity, legality or enforceability of any other provision of
this Option in such jurisdiction or affect the validity, legality or
enforceability of any provision in any other jurisdiction, but this Option
shall be reformed, construed and enforced in such jurisdiction as if such
invalid, illegal or unenforceable provision had never been contained
herein.
(e) NO IMPAIRMENT. The Company will not, by amendment of its Restated and
Amended Articles of Incorporation or through any reorganization, transfer
of assets, consolidation, merger, 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 Option, 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 against impairment. Without limiting the
generality of the foregoing, the Company (a) will not increase the par
value of any Option Shares above the amount payable therefor on such
exercise, and (b) will take all such action as may be reasonably necessary
or appropriate in order that the Company may validly and legally issue
fully paid and nonassessable Option Shares on the exercise of this Option.
(f) SPECIFIC ENFORCEMENT. The Company and the Holder acknowledge and agree
that irreparable damage would occur in the event that any of the
provisions of this Option were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that
the parties shall he entitled to an injunction or injunctions to prevent
or cure breaches of the provisions of this Option and to enforce
specifically the terms and provisions hereof, this being in addition to
any other remedy to which either of them may be entitled by law or
equity.
[SIGNATURE PAGE FOLLOWS]
Page 15
IN WITNESS WHEREOF, the Company has caused this Option to be executed by its
officers thereunto duly authorized.
Dated: April 19, 2000
MICROWARE SYSTEMS CORPORATION
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: President and Chief Executive Officer
ATTEST:
------------------------------
Name:
NOTICE OF EXERCISE
Microware Systems Corporation
▇▇▇▇ ▇.▇. ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
This undersigned hereby elects to exercise the right of purchase represented by
the within Option ("Option") for _______________ shares of Common Stock*
("Option Shares") provided for therein at an aggregate purchase of
$_______________, and to purchase such Option Shares by (CHECK AS APPLICABLE):
/ / payment by cash, wire transfer or certified check,
/ / exercise of the within Option by cashless exercise pursuant to
Section 3(b) thereof, resulting in ______ shares of Common Stock
issuable upon surrender of the Option,
and requests that certificates for the Option Shares be issued as follows:
-------------------------------
Name
--------------------------------
Address
--------------------------------
--------------------------------
and, if the number of Option Shares shall not be all the Option Shares
purchasable upon exercise of the Option, that a new Option for the balance of
the Option Shares be issued.
In lieu of delivering physical certificates representing the Option Shares
purchasable upon exercise of this Option, provided the Company's transfer agent
is participating in the Depository Trust Company ("DTC") Fast Automated
Securities Transfer ("FAST") program, upon request of the Holder, the Company
shall use its best efforts to cause its transfer agent to electronically
transmit the Option Shares issuable upon conversion or exercise to the
undersigned, by crediting the account of the undersigned's prime broker with DTC
through its Deposit Withdrawal Agent Commission ("DWAC") system.
Dated: Signature:
--------------- --------------------------------
--------------------------------
Name (please print)
--------------------------------
Address (please print)
--------------------------------
----------------
* NOTE: If conversion of the Option is made by surrender of the Option and
the number of shares indicated exceeds the maximum number of shares to
which a holder is entitled, the Company will issue such maximum number of
shares purchasable upon exercise of the Option registered in the name of
the undersigned Optionholder or the undersigned's Assignee as below
indicated and deliver same to the address stated below.
ASSIGNMENT FORM
(To assign the foregoing Option, execute
this form and supply required information.
Do not use this form to exercise the Option.)
FOR VALUE RECEIVED, the foregoing Option and all rights evidenced thereby
are hereby assigned to
_______________________________________________ whose address is
___________________________________________________________________.
___________________________________________________________________
Dated: ______________,
Holder's Signature: _________________________________
Holder's Address:____________________________________
____________________________________
Signature Guaranteed: ___________________________________________
NOTE: The signature to this Assignment Form must correspond with the name as it
appears on the face of the Option, without alteration or enlargement or any
change whatsoever, and must be guaranteed by a bank or trust company. Officers
of corporations and those acting in an fiduciary or other representative
capacity should file proper evidence of authority to assign the foregoing
Option.