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EXHIBIT 1
MODACAD, INC.
STOCK AND WARRANT PURCHASE AND INVESTOR RIGHTS AGREEMENT
This Stock and Warrant Purchase and Investor Rights Agreement (this
"Agreement") is made and entered into as of April 7, 1999, by and between
ModaCAD, Inc., a California corporation (the "Company"), and Intel Corporation,
a Delaware corporation (the "Investor").
RECITALS
WHEREAS, the Company and the Investor entered into that certain
Development Agreement, dated as of November 12, 1997 (the "Development
Agreement");
WHEREAS, pursuant to the terms hereof, the parties have agreed to
terminate the future royalty obligations under the Development Agreement, and,
in consideration thereof, the Company has agreed to grant to the Investor an
equity stake in the Company on the terms and conditions of this Agreement;
WHEREAS, the Company desires to sell to the Investor, and the Investor
desires to purchase from the Company, shares of Common Stock, no par value, of
the Company (the "Common Stock"), on the terms and conditions set forth in this
Agreement; and
WHEREAS, the Company has agreed to issue to the Investor three separate
warrants, in the forms attached hereto as Exhibits ▇-▇, ▇-▇ and A-3
(respectively, the "First Warrants," the "Second Warrants" and the "Third
Warrants" and, collectively, the "Warrants"), to purchase an aggregate of
538,673 shares of Common Stock (the "Warrant Shares"), subject to the terms
thereof and to the terms of this Agreement.
NOW, THEREFORE, in consideration of the foregoing recitals, the mutual
promises hereinafter set forth, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. AGREEMENT TO PURCHASE AND SELL STOCK AND WARRANTS
(a) Authorization. The Company's Board of Directors will, prior
to the Closing, authorize the issuance, pursuant to the terms and conditions of
this Agreement, of shares of Common Stock in an amount equal to the number of
Purchased Shares (as defined in Section 1(b)), and shall further reserve for
issuance the number of shares of Common Stock issuable upon exercise of the
Warrants.
(b) Agreement to Purchase and Sell Securities. The Company hereby
agrees to issue and sell to the Investor at the Closing (as defined below), and
the Investor hereby agrees to acquire from the Company at the Closing, 455,218
shares of Common Stock (collectively, the "Purchased Shares") at a price per
share of $10.9838 (the "Purchase Price"). The aggregate
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Purchase Price for the Purchased Shares shall be $5,000,000, which amount shall
be deemed paid by the Investor upon execution of the Amendment.
(c) Issuance of Warrants. At the Closing, the Company shall
execute and deliver to the Investor the Warrants.
2. CLOSING. The purchase and sale of the Purchased Shares and the
issuance of the Warrants shall take place at the offices of Coudert Brothers,
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ - ▇▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇, on April 7, 1999
or at such other time and place as the Purchaser and the Company may mutually
agree upon (which time and place are referred to in this Agreement as the
"Closing"). At the Closing, the Company will deliver to the Investor this
Agreement, the Warrants and certificates representing the Purchased Shares, in
each case duly executed by the Company, in addition to the documents required
pursuant to Section 6 below. Closing documents may be delivered by facsimile
with original signature pages sent by overnight courier. The date of the Closing
is referred to herein as the Closing Date.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants to the Investor that the statements in this Section 3
are true and correct, except as set forth in the Disclosure Letter (as defined
in Section 7(a)):
(a) Organization Good Standing and Qualification. The Company is
a corporation duly organized, validly existing and in good standing under the
laws of the State of California and has all corporate power and authority
required to (a) carry on its business as presently conducted, and (b) enter into
this Agreement, the Warrants and the other agreements, instruments and documents
contemplated hereby, and to consummate the transactions contemplated hereby and
thereby. The Company is qualified to do business and is in good standing in each
jurisdiction in which the failure to so qualify would have a Material Adverse
Effect. As used in this Agreement, "Material Adverse Effect" means a material
adverse effect on, or a material adverse change in, or a group of such effects
on or changes in, the business, operations, financial condition, results of
operations, prospects, assets or liabilities of the applicable party and its
subsidiaries, taken as a whole.
(b) Capitalization. The capitalization of the Company, without
giving effect to the transactions contemplated by this Agreement, is as follows.
The authorized stock of the Company consists only of 15,000,000 shares of Common
Stock, of which 6,164,874 shares were issued and outstanding as of April 6,
1999. All such shares of Common Stock have been duly authorized, and all such
issued and outstanding shares of Common Stock have been validly issued, are
fully paid and nonassessable and are free and clear of all liens, claims and
encumbrances, other than any liens, claims or encumbrances created by or imposed
upon the holders thereof. As of the date hereof, the Company has also reserved
1,650,000 shares of Common Stock for issuance upon exercise of options or other
stock awards granted to officers, directors, employees or independent
contractors or affiliates of the Company under the Company's stock incentive
plans. All shares of Common Stock subject to issuance as aforesaid, upon
issuance on the terms and conditions specified in the instruments pursuant to
which they are issuable, will be duly authorized, validly issued, fully paid and
nonassessable. There are no
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other equity securities, options, warrants, calls, rights, commitments or
agreements of any character to which the Company is a party or by which it is
bound obligating the Company to issue, deliver, sell, repurchase or redeem, or
cause to be issued, delivered, sold, repurchased or redeemed, any shares of the
capital stock of the Company or obligating the Company to grant, extend or enter
into any such equity security, option, warrant, call, right, commitment or
agreement. The Company does not have any subsidiaries, nor does the Company own
any capital stock, assets comprising the business of, obligations of, or any
other interest (including any equity or partnership interest) in, or any
outstanding loan or advance to or from, any person or entity.
(c) Due Authorization. All corporate actions on the part of the
Company, its officers, directors and stockholders (other than the Nasdaq
Authorizations (as herein defined)) necessary for the authorization, execution,
delivery of, and the performance of all obligations of the Company under this
Agreement, the Amendment and the Warrants, and the authorization, issuance,
reservation for issuance and delivery of all of the Purchased Shares being sold
under this Agreement and all Common Stock issuable upon exercise of the
Warrants, have been or will be taken, and this Agreement and the Warrants
constitute the legal, valid and binding obligations of the Company, enforceable
against the Company in accordance with their terms, except (a) as may be limited
by (i) applicable bankruptcy, insolvency, reorganization or others laws of
general application relating to or affecting the enforcement of creditors'
rights generally and (ii) the effect of rules of law governing the availability
of equitable remedies and (b) as rights to indemnity or contribution may be
limited under federal or state securities laws or by principles of public policy
thereunder.
(d) Valid Issuance of Stock.
(i) Valid Issuance. The shares of Common Stock to be
issued pursuant to this Agreement and upon the exercise of the Warrants will be,
upon payment therefor by the Investor in accordance with this Agreement, or
exercise in accordance with the Warrants, duly authorized, validly issued, fully
paid and non-assessable. The Board of Directors of the Company has unanimously
approved the issuance of the Purchased Shares pursuant to the terms hereof and
of shares of Common Stock issuable upon full exercise of the First Warrants, the
Second Warrants and the Third Warrants pursuant to the terms thereof (without
giving effect to any limitations on exercise contained therein, including for
purposes of Nasdaq Rule 4460(i) and Nasdaq Rule 4310(c)(25)(H)(1)(b)) (the
"Nasdaq Authorizations"), has unanimously recommended to the stockholders of the
Company the approval of the Nasdaq Authorizations and will seek Shareholder
Approval (as defined below) at the Company's next annual meeting, which is
currently scheduled for June 29, 1999. No further corporate authorization or
approval (other than the Shareholder Approval) is required under the rules of
the Nasdaq with respect to the transaction contemplated by this Agreement,
including, without limitation, the issuance of the Shares and Warrant Shares and
the inclusion thereof for trading on the Nasdaq.
(ii) Compliance with Securities Laws. Assuming the
correctness of the representations made by the Investor in Section 4 hereof, the
Purchased Shares, the Warrants, and all shares of Common Stock issuable upon
exercise of the Warrants, will be issued to the
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Investor in compliance with applicable exemptions from (i) the registration and
prospectus delivery requirements of the Securities Act of 1933, as amended (the
"Securities Act") and (ii) the registration and qualification requirements of
all applicable securities laws of the states of California and Delaware.
(e) Governmental Consents. No consent, approval, order or
authorization of, or registration qualification, designation, declaration or
filing with, or notice to, any federal, state or local governmental authority on
the part of the Company is required in connection with the issuance of the
Purchased Shares and the Warrants to the Investor, or the consummation of the
other transactions contemplated by this Agreement and the Warrants. As used
herein, the term "HSR Requirements" means compliance with the filing and other
requirements of the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements Act of 1976, as
amended (the "HSR Act").
(f) Non-Contravention. The execution, delivery and performance of
this Agreement, the Amendment and the Warrants by the Company, and the
consummation by the Company of the transactions contemplated hereby and by the
Amendment and the Warrants (including issuance of the Purchased Shares and the
Warrants, and issuance of shares of Common Stock upon exercise of the Warrants),
do not and will not (i) contravene or conflict with the Articles of
Incorporation or Bylaws of the Company; (ii) constitute a violation of any
provision of any federal, state, local or foreign law binding upon or applicable
to the Company; or (iii) constitute a default or require any consent under, give
rise to any right of termination, cancellation or acceleration of, or to a loss
of any benefit to which the Company is entitled under, or result in the creation
or imposition of any lien, claim or encumbrance on any assets of the Company
under, any contract to which the Company is a party or any permit, license or
similar right relating to the Company or by which the Company may be bound or
affected.
(g) Litigation. There is no action, suit, proceeding, claim,
arbitration or investigation ("Action") pending or, to the best of the Company's
knowledge, threatened: (a) against the Company, its activities, properties or
assets, or any officer, director or employee of the Company in connection with
such officer's, director's or employee's relationship with, or actions taken on
behalf of, the Company, or (b) that seeks to prevent, enjoin, alter or delay the
transactions contemplated by this Agreement, the Amendment or the Warrants
(including issuance of the Purchased Shares or the Warrants). The Company is not
a party to or subject to the provisions of any order, writ, injunction, judgment
or decree of any court or government agency or instrumentality. No Action by the
Company is currently pending nor does the Company intend to initiate any Action
that is reasonably likely to be material to the Company.
(h) Compliance with Law and Charter Documents. The Company is not
in violation or default of any provisions of its Articles of Incorporation or
Bylaws, both as amended. The Company has complied in all material respects and
is in material compliance with all applicable statutes, laws, rules, regulations
and orders of the United States of America and all states thereof, foreign
countries and other governmental bodies and agencies having jurisdiction over
the Company's business or properties.
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(i) SEC Documents.
(1) Reports. The Company has furnished to the Investor
prior to the date hereof a complete and correct list of all registration
statements, reports and proxy statements filed by the Company with the SEC on or
after December 31, 1997 (the Company's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1997, its Quarterly Reports on Form 10-QSB for
the fiscal quarters ended March 31, June 30 and September 30, 1998, and all such
other registration statements, reports and proxy statements are collectively
referred to herein as the "SEC Documents"). Each of the SEC Documents, as of the
respective date thereof (or if amended or superseded by a filing prior to the
Closing Date, then on the date of such filing), did not, and each of the
registration statements, reports and proxy statements filed by the Company with
the SEC after the date hereof and prior to the Closing will not, as of the date
thereof (or if amended or superseded by a filing after the date of this
Agreement, then on the date of such filing), contain any untrue statement of a
material fact or omit to state a material fact necessary in order to make the
statements made therein, in light of the circumstances under which they were
made, not misleading. The Company is not a party to any material contract,
agreement or other arrangement that was required to have been filed as an
exhibit to the SEC Documents that was not so filed.
(2) Financial Statements. The Company has provided the
Investor with copies of its audited financial statements (the "Audited Financial
Statements") for the fiscal year ended December 31, 1998, and its unaudited
financial statements for the two-month period ended February 28, 1999 (the
"Balance Sheet Date"). Since the Balance Sheet Date, the Company has duly filed
with the SEC all registration statements, reports and proxy statements required
to be filed by it under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the Securities Act. The audited and unaudited consolidated
financial statements of the Company included in the SEC Documents filed prior to
the date hereof fairly present, in conformity with generally accepted accounting
principles ("GAAP") (except, in the case of the Form 10-QSB's, as may otherwise
be permitted by Form 10-QSB) applied on a consistent basis (except as otherwise
may be stated in the notes thereto), the consolidated financial position of the
Company and its consolidated subsidiaries as at the dates thereof and the
consolidated results of their operations and cash flows for the periods then
ended (subject to normal year-end audit adjustments in the case of unaudited
interim financial statements).
(j) Absence of Certain Changes Since Balance Sheet Date. Since
the Balance Sheet Date, the business and operations of the Company have been
conducted in the ordinary course consistent with past practice, and there has
not been:
(i) any declaration, setting aside or payment of any
dividend or other distribution of the assets of the Company with respect to any
shares of capital stock of the Company or any repurchase, redemption or other
acquisition by the Company or any subsidiary of the Company of any outstanding
shares of the Company's capital stock;
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(ii) any damage, destruction or loss, whether or not
covered by insurance, except for such occurrences, individually and
collectively, that are not material to the Company;
(iii) any waiver by the Company of a valuable right or
of a material debt owed to it, except for such waivers, individually and
collectively, that are not material;
(iv) any material change or amendment to, or any waiver
of any material right under a material contract or arrangement by which the
Company or any of its assets or properties is bound or subject, except for
changes, amendments or waivers that are expressly provided for or disclosed in
this Agreement;
(v) any change by the Company in its accounting
principles, methods or practices or in the manner it keeps its accounting books
and records, except any such change required by a change in GAAP; or
(vi) any other event or condition of any character,
except for such events and conditions that have not resulted, and could not
reasonably be expected to result, either individually or collectively, in a
Material Adverse Effect.
(k) Invention Assignment and Confidentiality Agreement. Each
employee and consultant or independent contractor of the Company whose duties
include the development of products or Intellectual Property (as defined below),
and each former employee and consultant or independent contractor whose duties
included the development of products or Intellectual Property, has entered into
and executed an invention assignment and confidentiality agreement in customary
form or an employment or consulting agreement containing substantially similar
terms.
(l) Intellectual Property.
(i) Ownership or Right to Use. The Company has sole
title to and owns, or is licensed or otherwise possesses legally enforceable
rights to use, all patents or patent applications, software, know-how,
registered or unregistered trademarks and service marks and any applications
therefor, registered or unregistered copyrights, trade names, and any
applications therefor, trade secrets or other confidential or proprietary
information ("Intellectual Property") necessary to enable the Company to carry
on its business as currently conducted, except where any deficiency, or group of
deficiencies, would not have a Material Adverse Effect.
(ii) Licenses; Other Agreements. The Company is not
currently the licensee of any material portion of the Intellectual Property of
the Company. There are not outstanding any licenses or agreements of any kind
relating to any Intellectual Property owned by the Company, except for
agreements with customers of the Company entered into in the ordinary course of
the Company's business and other licenses and agreements that, collectively, are
not material. The Company is not obligated to pay any royalties or other
payments to third parties with respect to the marketing, sale, distribution,
manufacture, license or use of any Intellectual Property, except as the Company
may be so obligated in the ordinary course of its
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business, as disclosed in the Company's SEC Documents or where the aggregate
amount of such payments could not reasonably be expected to be material.
(iii) No Infringement. The Company has not violated or
infringed in any material respect, and is not currently violating or infringing
in any material respect, and the Company has not received any communications
alleging that the Company (or any of its employees or consultants) has violated
or infringed, any Intellectual Property of any other person or entity.
(iv) Employees and Consultants. To the best of the
Company's knowledge, no employee of or consultant to the Company is in material
default under any term of any material employment contract, agreement or
arrangement relating to Intellectual Property of the Company or any material
non-competition arrangement, other contract or restrictive covenant relating to
the Intellectual Property of the Company. The Intellectual Property of the
Company (other than any Intellectual Property duly acquired or licensed from
third parties) was developed entirely by the employees of or consultants to the
Company during the time they were employed or retained by the Company, and to
the best knowledge of the Company, at no time during conception or reduction to
practice of such Intellectual Property of the Company were any such employees or
consultants operating under any grant from a government entity or agency or
subject to any employment agreement or invention assignment or non-disclosure
agreement or any other obligation with a third party that would materially and
adversely affect the Company's rights in the Intellectual Property of the
Company. Such Intellectual Property of the Company does not, to the best
knowledge of the Company, include any invention or other intellectual property
of such employees or consultants made prior to the time such employees or
consultants were employed or retained by the Company nor any intellectual
property of any previous employer of such employees or consultants nor the
intellectual property of any other person or entity.
(v) Year 2000 Compliance.
(a) All of the Company's and its subsidiaries'
material products (including products currently under development) will record,
store, process and calculate and present calendar dates falling on and after
December 31, 1999, and will calculate any information dependent on or relating
to such dates in the same manner and with the same functionality, data integrity
and performance as the products record, store, process, calculate and present
calendar dates on or before December 31, 1999, or calculate any information
dependent on or relating to such dates (collectively, "Year 2000 Compliant").
Each of the Company's Internet web sites and all of the Company's and its
subsidiaries' material products will lose no significant functionality with
respect to the introduction of records containing dates falling on or after
December 31, 1999. All of the Company's and its subsidiaries' internal computer
systems comprised of software, hardware, databases or embedded control systems
related to the Company's and its subsidiaries' businesses (collectively, a
"Business System"), that constitutes any material part of, or is used in
connection with the use, operation or enjoyment of, any material tangible or
intangible asset or real property of the Company and its subsidiaries, including
its accounting systems, are Year 2000 Compliant. The current versions of the
Company's and its subsidiaries'
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software and all other Intellectual Property may be used prior to, during and
after December 31, 1998, such that such software and Intellectual Property will
operate prior to, during and after such time period without error caused by date
data that represents or references different centuries or more than one century.
(b) To the knowledge of the Company, all of the Company's
products and the conduct of the Company's business with customers and suppliers
will not be materially adversely affected by the advent of the year 2000, the
advent of the twenty-first century or the transition from the twentieth century
through the year 2000 and into the twenty-first century. To the knowledge of the
Company, neither the Company nor any of its subsidiaries is reasonably likely to
incur material expenses arising from or relating to the failure of any of its
Business Systems or any products (including all products sold on or prior to the
date hereof) as a result of the advent of the year 2000, the advent of the
twenty-first century or the transition from the twentieth century through the
year 2000.
(m) Registration Rights. The Company is not currently subject to
any agreement providing any person or entity any rights (including piggyback
registration rights) to have any securities of the Company registered with the
SEC or registered or qualified with any other governmental authority.
(n) Title to Property and Assets. The properties and assets of
the Company are owned by the Company free and clear of all mortgages, deeds of
trust, liens, charges, encumbrances and security interests except for statutory
liens for the payment of current taxes that are not yet delinquent and liens,
encumbrances and security interests that arise in the ordinary course of
business and do not in any material respect affect the properties and assets of
the Company. With respect to the property and assets it leases, the Company is
in compliance with such leases in all material respects.
(o) Tax Matters. The Company has filed all material tax returns
required to be filed, which returns are true and correct in all material
respects, and the Company has paid in full all taxes that have become due on or
prior to the date hereof (and will have paid when due all taxes that become due
after the date hereof and prior to the Closing), including penalties and
interest, assessments, fees and other charges, other than those being contested
in good faith and/or those for which adequate reserves have been provided for.
(p) Full Disclosure. The information contained in this Agreement,
the Disclosure Letter (as defined in Section 7(a)) and the SEC Documents with
respect to the business, operations, assets, results of operations and financial
condition of the Company, are true and complete in all material respects and do
not omit to state any material fact or facts necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
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(q) Finder's Fee. The Company neither is nor will be obligated
for any finder's or broker's fee or commission in connection with this
transaction.
4. REPRESENTATIONS, WARRANTIES AND CERTAIN AGREEMENTS OF THE
INVESTOR. The Investor hereby represents and warrants to the Company, and agrees
that:
(a) Organization Good Standing and Qualification. The Investor is
a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware and has all corporate power and authority required
to carry on its business as presently conducted.
(b) Authorization. The execution of this Agreement has been duly
authorized by all necessary corporate action on the part of the Investor. This
Agreement constitutes the Investor's legal, valid and binding obligation,
enforceable in accordance with its terms, except as may be limited by (a) (i)
applicable bankruptcy, insolvency, reorganization or other laws of general
application relating to or affecting the enforcement of creditors' rights
generally and (ii) the effect of rules of law governing the availability of
equitable remedies. The Investor has full corporate power and authority to enter
into this Agreement, except as rights to indemnity or contribution may be
limited under federal or state securities laws or by principles of public policy
thereunder.
(c) Governmental Consents. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state or local governmental authority on the part of
the Investor is required in connection with the acquisition of the Purchased
Shares and the Warrants by the Investor.
(d) Non-Contravention. The execution, delivery and performance of
this Agreement by the Investor, and the consummation by the Investor of the
transactions contemplated hereby, do not and will not (i) contravene or conflict
with the Certificate of Incorporation or Bylaws of the Investor; (ii) constitute
a violation of any provision of any federal, state, local or foreign law binding
upon or applicable to the Investor; or (iii) constitute a default or require any
consent under, give rise to any right of termination, cancellation or
acceleration of, or to a loss of any benefit to which the Investor is entitled
under, or result in the creation or imposition of any lien, claim or encumbrance
on any assets of the Investor under, any contract to which the Investor is a
party or any permit, license or similar right relating to the Investor or by
which the Investor may be bound or affected.
(e) Litigation. There is no Action pending against the Investor
that seeks to prevent, enjoin, alter or delay the transactions contemplated by
this Agreement.
(f) Purchase for Own Account. The Purchased Shares and the
Warrant are being acquired for investment for the Investor's own account, not as
a nominee or agent, and not with a view to the public resale or distribution
thereof within the meaning of the Securities Act, and the Investor has no
present intention of selling, granting any participation in, or otherwise
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distributing the same. The Investor also represents that it has not been formed
for the specific purpose of acquiring the Purchased Shares or the Warrants.
(g) Investment Experience. The Investor understands that the
purchase of the Purchased Shares and the Warrants involves substantial risk. The
Investor has experience as an investor in securities of companies and
acknowledges that it is able to fend for itself, can bear the economic risk of
its investment in the Purchased Shares and has such knowledge and experience in
financial or business matters that it is capable of evaluating the merits and
risks of this investment in the Purchased Shares and protecting its own
interests in connection with this investment.
(h) Accredited Investor Status. The Investor is an "accredited
investor" within the meaning of Regulation D promulgated under the Securities
Act.
(i) Restricted Securities. The Investor understands that the
Purchased Shares, the Warrants, and the shares of Common Stock issuable upon
exercise of the Warrants are characterized as "restricted securities" under the
Securities Act, inasmuch as they are being acquired from the Company in a
transaction not involving a public offering and that under the Securities Act
and applicable regulations thereunder such securities may be resold without
registration under the Securities Act only in certain limited circumstances. The
Investor is familiar with Rule 144 of the SEC, as presently in effect, and
understands the resale limitations imposed thereby and by the Securities Act.
(j) Legends. The Investor agrees that the certificates for the
Purchased Shares and the shares of Common Stock issuable upon exercise of the
Warrants shall bear the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF
ANY STATE OF THE UNITED STATES. THE SECURITIES REPRESENTED HEREBY MAY
NOT BE OFFERED OR SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER APPLICABLE
SECURITIES LAWS, OR UNLESS OFFERED, SOLD OR TRANSFERRED PURSUANT TO AN
AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THOSE LAWS."
In addition, the Investor agrees that the Company may place stop transfer orders
with its transfer agents with respect to such certificates. The appropriate
portion of the legend and the stop transfer orders will be removed promptly upon
delivery to the Company of such satisfactory evidence as reasonably may be
required by the Company that such legend or stop orders are not required to
ensure compliance with the Securities Act.
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(k) Finder's Fee. Investor neither is nor will be obligated for
any finder's or broker's fee or commission in connection with this transaction.
5. CONDITIONS TO THE INVESTOR'S OBLIGATIONS AT CLOSING.
The obligations of the Investor under Sections l and 2 of this Agreement are
subject to the fulfillment or waiver, on or before the Closing, of each of the
following conditions:
(a) Representations and Warranties True. Each of the
representations and warranties of the Company contained in Section 3 shall be
true and correct in all material respects on and as of the date of the
Disclosure Letter (as defined in Section 7(a) below) and on and as of the date
of the Closing, except as set forth in the Disclosure Letter, with the same
effect as though such representations and warranties had been made as of the
Closing.
(b) Performance. The Company shall have performed and complied
with all agreements, obligations and conditions contained in this Agreement that
are required to be performed or complied with by it on or before the Closing and
shall have obtained all approvals, consents and qualifications necessary to
complete the purchase and sale described herein.
(c) Securities Exemptions. The offer and sale of the Purchased
Shares and the Warrants to the Investor pursuant to this Agreement and the
Warrants shall be exempt from the registration requirements of the Securities
Act and the registration and/or qualification requirements of all applicable
state securities laws.
(d) Proceedings and Documents. All corporate and other
proceedings in connection with the transactions contemplated at the Closing and
all documents incident thereto shall be reasonably satisfactory in form and
substance to the Investor, and the Investor shall have received all such
counterpart originals and certified or other copies of such documents as it may
reasonably request. Such documents shall include but not be limited to the
following:
(i) Certified Charter Documents. A copy of (i) the
Articles of Incorporation certified as of a recent date by the Secretary of
State of California as a complete and correct copy thereof, and (ii) the Bylaws
of the Company (as amended through the date of the Closing) certified by the
Secretary of the Company as a true and correct copy thereof as of the Closing.
(ii) Board Resolutions. A copy, certified by the
Secretary of the Company, of the resolutions of the Board of Directors of the
Company providing for the approval of this Agreement and the Warrants and the
issuance of the Purchased Shares and the shares of Common Stock issuable upon
exercise of the Warrants, and the other matters contemplated hereby and thereby.
(iii) Registrar and Transfer Agent Certificate. A
certificate, executed by the Company's registrar and transfer agent certifying
the number of outstanding shares of Common Stock of the Company as of a recent
date reasonably acceptable to the Investor.
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(e) Opinion of Company Counsel. The Investor will have received
an opinion on behalf of the Company, dated as of the date of the Closing, from
Coudert Brothers, counsel to the Company, in a form reasonably acceptable to the
Investor.
(f) No Material Adverse Effect. Between the date hereof and the
Closing, there shall not have occurred any Material Adverse Effect to the
Company.
(g) Nasdaq Requirements. All requirements of the Nasdaq National
Market in connection with the transactions contemplated by this Agreement and
the Warrants shall have been complied with by the Company. The Purchased Shares
and the shares of Common Stock issuable upon conversion of the Warrants shall
have been approved for quotation on the Nasdaq National Market.
(h) Other Actions. The Company shall have executed such
certificates, agreements, instruments and other documents, and taken such other
actions as shall be customary or reasonably requested by the Investor in
connection with the transactions contemplated hereby.
6. CONDITIONS TO THE COMPANY'S OBLIGATIONS AT CLOSING. The
obligations of the Company to the Investor under this Agreement are subject to
the fulfillment or waiver, on or before the Closing, of each of the following
conditions:
(a) Representations and Warranties True. The representations and
warranties of the Investor contained in Section 4 shall be true and correct in
all material respects on and as of the date hereof and on and as of the date of
the Closing with the same effect as though such representations and warranties
had been made as of the Closing.
(b) Performance. The Investor shall have performed and complied
with all agreements, obligations and conditions contained in this Agreement that
are required to be performed or complied with by it on or before the Closing and
shall have obtained all approvals, consents and qualifications necessary to
complete the purchase and sale described herein.
(c) Securities Exemptions. The offer and sale of the Purchased
Shares and the Warrants to the Investor pursuant to this Agreement shall be
exempt from the registration requirements of the Securities Act and the
registration and/or qualification requirements of all applicable state
securities laws.
(d) Proceedings and Documents. All corporate and other
proceedings in connection with the transactions contemplated at the Closing and
all documents incident thereto will be reasonably satisfactory in form and
substance to the Company and to the Company's legal counsel, and the Company
will have received all such counterpart originals and certified or other copies
of such documents as it may reasonably request.
(e) Other Actions. The Investor shall have executed such
certificates, agreements, instruments and other documents, and taken such other
actions as shall be customary or reasonably requested by the Company in
connection with the transactions contemplated hereby.
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7. COVENANTS OF THE PARTIES.
(a) Disclosure Letter. At the Closing, the Company shall deliver
to the Investor a disclosure letter in a form agreed upon by each of the Company
and the Investor (the "Disclosure Letter"), which shall set forth exceptions, if
any, to the representations and warranties made by the Company in Article 3
hereof. Such Disclosure Letter shall be organized such that any exceptions
specifically identify the representation and warranty, by section, to which they
relate, and shall clearly identify the nature of the exception, to the
Investor's reasonable satisfaction. In any determination of whether the Investor
is entitled to indemnification for the breach of any representations or
warranties set forth in this Agreement, only the final form of the Disclosure
Letter (i.e., the final disclosure letter agreed upon by the Company and the
Investor) shall be relevant, and the identification of any matters on any drafts
of the Disclosure Letter shall not be introduced as evidence or otherwise used
in any manner in connection therewith.
(b) Election of Board of Directors. The Company hereby agrees to
use its best efforts to change the composition of Company's Board of Directors
(the "Board"), within three (3) months from the date hereof, so that the Board
shall consist of exactly seven (7) directors, with four (4) of such directors
being outside directors. The Company agrees that at its next meeting of
shareholders following the Closing, the Company shall make such proposals and
take all actions within its control and shall use its best efforts to cause its
shareholders to vote, to change the Company's Articles of Incorporation and
Bylaws, as appropriate, to (i) require that the composition of the Board include
at least a majority of outside directors, and (ii) provide that the number of
directors may not be changed to a number greater than nine (9) except by
amendment to the Company's Articles of Incorporation and Bylaws.
(c) Registration Rights.
(i) Definitions. For purposes of this Section 7(c):
(A) Registration. The terms "register,"
"registered," and "registration" refer to a registration effected by preparing
and filing a registration statement in compliance with the Securities Act of
1933, as amended, (the "Securities Act"), and the declaration or ordering of
effectiveness of such registration statement
(B) Registrable Securities. The term
"Registrable Securities" means: (y) the Purchased Shares and any shares of
Common Stock of the Company issued or issuable upon exercise of the Warrants;
and (z) any shares of Common Stock of the Company or other securities of the
Company issued as (or issuable upon the conversion or exercise of any warrant,
right or other security that is issued as) a dividend or other distribution with
respect to, or in exchange for or in replacement of, any of the securities
described in the immediately preceding clause (y). Notwithstanding the
foregoing, "Registrable Securities" shall exclude (i) any Registrable Securities
sold by a person in a transaction in which rights under this Section 7(c) are
not assigned in accordance with this Agreement or (ii) any Registrable
Securities sold in a public offering, whether sold pursuant to Rule 144
promulgated under the Securities Act, or in a registered offering, or otherwise.
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(C) Registrable Securities Then Outstanding.
The number of shares of "Registrable Securities then outstanding" shall mean the
number of shares of Purchased Shares, shares of Common Stock and other
securities that are Registrable Securities and are then issued and outstanding.
(D) Holder. For purposes of this Section 7(c),
the term "Holder" means any person owning of record Registrable Securities that
have not been sold to the public or pursuant to Rule 144 promulgated under the
Securities Act or any permitted assignee of record of such Registrable
Securities to whom rights under this Section 7(c) have been duly assigned in
accordance with this Agreement.
(E) Form S-3. The term "Form S-3" means such form
under the Securities Act as is in effect on the date hereof or any successor
registration form under the Securities Act subsequently adopted by the SEC that
permits inclusion or incorporation of substantial information by reference to
other documents filed by the Company with the SEC.
(ii) Form S-3 Registration. Within the fifteen day period
following the Closing Date, the Company shall use best efforts to cause to be
filed and become effective with the SEC a Registration Statement on Form S-3
relating to all of the Registrable Securities (in the event such registration
statement is not effective on such date, the Company shall continue to use all
reasonable commercial efforts to cause it to become effective until it becomes
effective), such Registration Statement to be effected only for sales or other
transfers by the Investor in connection with offerings, sales and transfers not
constituting an underwritten public offering; provided, however, that in the
event Form S-3 is not available to the Company, the Company shall file such
other form as may be available if Holders who hold Registrable Securities with a
market value of at least One Million Dollars ($1,000,000) deliver a written
request to the Company that the Company do so, where such market value is
determined as of the date of such written request. The Company shall also use
its best efforts to obtain any related qualifications, registrations or other
compliances that may be necessary under any applicable "blue sky" laws in each
jurisdiction reasonably requested by the Holders. In connection with such
registration, the Company will:
(A) Notice. Promptly give written notice to the
Holders of the proposed registration and any related qualification or
compliance; and
(B) Registration. Effect such registration and
all such qualifications and compliances and as would permit or facilitate the
sale and distribution of all or such portion of such Holders or Holders'
Registrable Securities within the timeframes set forth in this Section 7(c)(ii);
provided, however, that the Company shall not be obligated to effect any such
registration, qualification or compliance pursuant to this Section 7(c)(ii) in
any particular jurisdiction in which the Company would be required to qualify to
do business or to execute a general consent to service of process in effecting
such registration, qualification or compliance and shall be obligated to effect
only one such registration in any six (6) month period.
(C) Expenses. The Company shall pay all expenses
incurred in connection with the registration pursuant to this Section 7(c)(ii),
excluding underwriters' or
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brokers' discounts and commissions relating to shares sold by the Holders,
including federal and "blue sky" registration, filing and qualification fees,
printers' and accounting fees, and fees and disbursements of counsel.
(D) Maintenance. The Company shall use best
efforts to maintain the effectiveness of the Form S-3 registration statement
filed under this Section 7(c)(ii) until the earlier of: (a) the date on which
all of the Registrable Securities have been sold; and (b) the first anniversary
of the effective date of such registration statement; provided, however, that
unless all of the Registrable Securities held by the Investor as of such first
anniversary could then be sold in a single transaction in accordance with Rule
144 under the Securities Act without exceeding the volume limitations thereof,
if the Company receives written notice from the Investor that the Investor may
be deemed to be an "affiliate" of the Company for purposes of the Securities
Act, the date in this Clause (b) shall be extended until the Investor advises
the Company that it no longer believes it may be deemed such an "affiliate."
(E) Effectiveness Failure Sale. If the Company
fails to cause any Registration Statement required to become effective pursuant
to this Section 7(c)(ii) to be filed before one hundred eighty (180) days after
the Closing, as to the shares of Common Stock to be covered by that Registration
Statement, each Holder shall be entitled to sell (an "Effectiveness Failure
Sale") at any time and from time to time to the Company, and the Company shall
be required to purchase, all or any of its shares of Common Stock at a price per
share equal to the greater of (i) one hundred fifty percent (150%) of the
Purchase Price and (ii) fair market value for the Common Stock.
(F) Right to Sell. After any Registration
Statement required to be filed pursuant to this Section 7(c) has been declared
effective by the SEC, if during any twelve (12) month period sales of all the
Registrable Securities cannot be made pursuant to such Registration Statement
for more than thirty (30) days in aggregate, then each Holder shall be entitled
to sell to the Company, and the Company shall be required to purchase, all or
any of its shares of Common Stock at a price per share equal to the greater of
(i) one hundred fifty percent (150%) of the Purchase Price and (ii) fair market
value for the Common Stock.
(G) Effecting a Sale. In order to effect an
Effectiveness Failure Sale, a Holder (a "Selling Holder") shall fax (or
otherwise deliver) a notice (the "Notice of Sale") to the Company indicating the
number of shares of Common Stock to be sold pursuant to such Effectiveness
Failure Sale. Upon receipt by the Company of a facsimile copy of a Notice of
Sale from a Selling Holder, the Company shall immediately send, via facsimile, a
confirmation to the Selling Holder stating that the Notice of Sale has been
received and the name and telephone number of a contact person at the Company
regarding the Effectiveness Failure Sale. Within five (5) business days after
the Notice of Sale, the Holder shall surrender or cause to be surrendered to the
Company, the certificates representing the shares of Common Stock to be sold
hereunder, along with a copy of the Notice of Sale.
(H) Payments by the Company. The Company shall
cause each Registration Statement filed pursuant to Section 7(c)(ii) to become
effective as soon as
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practicable, but in no event later than the sixtieth (60th) day (or the one
hundred twentieth (120th) day if the SEC reviews such Registration Statement)
following the applicable filing date (the "Registration Deadline"). If any
Registration Statement required to be filed by the Company pursuant to Section
7(c)(ii) hereof is not declared effective by the SEC on or before the applicable
Registration Deadline (a "Registration Failure"), or (ii) after such
Registration Statement has been declared effective by the SEC, sales of all the
Registrable Securities cannot be made pursuant to the registration statement (by
reason of a stop order or the Company's failure to update the registration
statement or any other reason outside the control of the Holders) (a
"Registration Suspension"), then the Company will make payments to the Holders
in such amounts and at such times as shall be determined pursuant to this
subsection (H) as partial relief for the damages to the Holders by reason of any
such delay in or reduction of their ability to sell the Registrable Securities
(which remedy shall not be exclusive of any other remedies available at law or
in equity). In the event of a Registration Failure, the Company shall pay to the
Holders an amount equal to (1) .02 times (2) the aggregate Funded Amount times
(3) the number of months (prorated per day for partial months) following the
Registration Deadline prior to the date the Registration Statement filed
pursuant to Section 7(c)(ii) is declared effective by the SEC. In addition, in
the event of a Registration Suspension, the Company shall pay to the Holders an
amount equal to (4) .02 times (5) the Applicable Funded Amount times (6) the
number of months (prorated per day for partial months) from (x) the date on
which sales of all the Registrable Securities first cannot be made to (y) the
date on which sales of all the Registrable Securities can again be made. For the
purposes of this Section, "Applicable Funded Amount" shall mean (7) Funded
Amount times (8) the number of Purchased Shares and Warrant Shares then owned by
the Holders (or issuable at that time as Warrant Shares upon full exercise of
the Warrants, without regard to any limitations on conversion thereof) divided
by (9) the number of Purchased Shares (and Warrant Shares issuable upon full
exercise of the Warrants without regard to any limitations on conversion
thereof) originally purchased. Amounts to be paid pursuant to this Section shall
be paid pro rata to the Investor based upon the number of Purchased Shares and
Warrant Shares owned and Warrant Shares issuable upon full conversion of the
Warrants by each Holder, and shall be paid in cash. Such payments shall be made
within five (5) days after the end of each period that gives rise to such
obligation, provided that, if any such period extends for more than thirty (30)
days, payments shall be made for each such thirty (30) day period within five
(5) days after the end of such thirty (30) day period.
(iii) Obligations of the Company. In connection with the
Registration Statement filed pursuant to Section 7(c)(ii) above and the
registration of any other Registrable Securities under this Agreement, the
Company shall, as expeditiously as reasonably possible:
(A) Amendments and Supplements. Prepare and file
with the SEC such amendments and supplements to such registration statement and
the prospectus used in connection with such registration statement as may be
necessary to comply with the provisions of the Securities Act with respect to
the disposition of all securities covered by such registration statement.
(B) Prospectuses. Furnish to the Holders such
number of copies of a prospectus, including a preliminary prospectus, in
conformity with the requirements
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of the Securities Act, and such other documents as they may reasonably request
in order to facilitate the disposition of the Registrable Securities owned by
them that are included in such registration.
(C) Blue Sky. Use commercially reasonable efforts
to register and qualify the securities covered by such registration statement
under such other securities or Blue Sky laws of such jurisdictions as shall be
reasonably requested by the Holders, provided that the Company shall not be
required in connection therewith or as a condition thereto to qualify to do
business or to file a general consent to service of process in any such states
or jurisdictions.
(D) Underwriting. In the event of any
underwritten public offering, enter into and perform its obligations under an
underwriting agreement in usual and customary form (including customary
indemnification of the underwriters by the Company), with the managing
underwriter(s) of such offering. Each Holder participating in such underwriting
shall also enter into and perform its obligations under such an agreement;
provided, however, that it shall not be considered customary to require any of
the Holders to provide representations and warranties regarding the Company or
indemnification of the underwriters for material misstatements or omissions in
the registration statement or prospectus for such offering.
(E) Notification. Notify each Holder of
Registrable Securities covered by such registration statement at any time when a
prospectus relating thereto is required to be delivered under the Securities Act
of the happening of any event as a result of which the prospectus included in
such registration statement, as then in effect, includes an untrue statement of
a material fact or omits to state a material fact required to be stated therein
or necessary to make the statements therein not misleading in the light of the
circumstances then existing.
(F) Opinion and Comfort Letter. Furnish, at the
request of any Holder requesting registration of Registrable Securities, on the
date that such Registrable Securities are delivered to the underwriters for
sale, if such securities are being sold through underwriters, or, if such
securities are not being sold through underwriters, on the date that the
registration statement with respect to such securities becomes effective, (i) an
opinion, dated as of such date, of the counsel representing the Company for the
purposes of such registration, in form and substance as is customarily given to
underwriters in an underwritten public offering and reasonably satisfactory to a
majority in interest of the Holders requesting registration, addressed to the
underwriters, if any, and to the Holders requesting registration of Registrable
Securities and (ii) in the event that such securities are being sold through
underwriters, a "comfort" letter dated as of such date, from the independent
certified public accountants of the Company, in form and substance as is
customarily given by independent certified public accountants to underwriters in
an underwritten public offering and reasonably satisfactory to a majority in
interest of the Holders requesting registration, addressed to the underwriters
and to the Holders requesting registration of Registrable Securities.
(iv) Furnish Information. It shall be a condition
precedent to the obligations of the Company to take any action pursuant to
Sections 7(c)(ii) that the selling
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Holders shall furnish to the Company such information regarding themselves, the
Registrable Securities held by them, and the intended method of disposition of
such securities as shall be reasonably requested by the Company to timely effect
the registration of their Registrable Securities.
(v) Indemnification.
(A) By the Company. To the extent permitted by
law, the Company will indemnify and hold harmless each Holder, the partners,
officers, shareholders, employees, representatives and directors of each Holder,
any underwriter (as determined in the Securities Act) for such Holder and each
person, if any, who controls such Holder or underwriter within the meaning of
the Securities Act or the Securities Exchange Act of 1934, as amended, against
any losses, claims, damages, or Liabilities (joint or several) to which they may
become subject under the Securities Act, the Exchange Act or other federal or
state law, insofar as such losses, claims, damages, or liabilities (or actions
in respect thereof) arise out of or are based upon any of the following
statements, omissions or violations (collectively a "Violation"):
(x) any untrue statement or alleged untrue
statement of a material fact contained in such registration statement, including
any preliminary prospectus or final prospectus contained therein or any
amendments or supplements thereto;
(y) the omission or alleged omission to
state therein a material fact required to be stated therein, or necessary to
make the statements therein not misleading, or
(z) any violation or alleged violation by
the Company of the Securities Act, the Exchange Act, any federal or state
securities law or any rule or regulation promulgated under the Securities Act,
the Exchange Act or any federal or state securities law in connection with the
offering covered by such registration statement;
and the Company will reimburse each such Holder, partner, officer, shareholder,
employee, representative, director, underwriter or controlling person for any
legal or other expenses reasonably incurred by them, as incurred, in connection
with investigating or defending any such loss, claim, damage, liability or
action; provided, however, that the indemnity agreement contained in this
subsection shall not apply to amounts paid in settlement of any such loss,
claim, damage, liability or action if such settlement is effected without the
consent of the Company (which consent shall not be unreasonably withheld), nor
shall the Company be liable in any such case for any such loss, claim, damage,
liability or action to the extent that it arises out of or is based upon a
Violation that occurs in reliance upon and in conformity with written
information furnished expressly for use in connection with such registration by
such Holder, partner, officer, shareholder, employee, representative, director,
underwriter or controlling person of such Holder.
(B) By Selling Holders. To the extent permitted
by law, each selling Holder will indemnify and hold harmless the Company, each
of its directors, each of its officers who have signed the registration
statement, each person, if any, who controls the Company within the meaning of
the Securities Act, any underwriter and any other Holder selling
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securities under such registration statement or any of such other Holder's
partners, officers, shareholders, employees, representatives and directors and
any person who controls such Holder within the meaning of the Securities Act or
the Exchange Act, against any losses, claims, damages or liabilities (joint or
several) to which the Company or any such officer or director, controlling
person, underwriter or other such Holder, partner, officer, shareholder,
employee, representative, director or controlling person of such other Holder
may become subject under the Securities Act, the Exchange Act or other federal
or state law, insofar as such losses, claims, damages or liabilities (or actions
in respect thereto) arise out of or are based upon any Violation, in each case
to the extent (and only to the extent) that such Violation occurs in reliance
upon and in conformity with written information furnished by such Holder
expressly for use in connection with such registration; and each such Holder
will reimburse any legal or other expenses reasonably incurred by the Company or
any such officer or director, controlling person, underwriter or other Holder,
partner, officer, shareholder, employee, representative, director or controlling
person of such other Holder in connection with investigating or defending any
such loss, claim, damage, liability or action: provided, however, that the
indemnity agreement contained in this subsection shall not apply to amounts paid
in settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Holder, which consent shall
not be unreasonably withheld; and provided further, that the total amounts
payable in indemnity by a Holder under this subsection or otherwise in respect
of any and all Violations shall not exceed in the aggregate the net proceeds
received by such Holder in the registered offering out of which such Violations
arise.
(C) Notice. Promptly after receipt by an
indemnified party under of notice of the commencement of any action (including
any governmental action), such indemnified party will, if a claim in respect
thereof is to be made against any indemnifying party under this section, deliver
to the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party shall
have the right to retain its own counsel, with the fees and expenses to be paid
by the indemnifying party, to the extent that representation of such indemnified
party by the counsel retained by the indemnifying party would be inappropriate
due to actual or potential conflict of interests between such indemnified party
and any other party represented by such counsel in such proceeding. The failure
to deliver written notice to the indemnifying party within a reasonable time of
the commencement of any such action shall not relieve such indemnifying party of
liability except to the extent the indemnifying party is prejudiced as a result
thereof.
(D) Defect Eliminated in Final Prospectus. The
foregoing indemnity agreements of the Company and Holders are subject to the
condition that, insofar as they relate to any Violation made in a preliminary
prospectus but eliminated or remedied in the amended prospectus on file with the
SEC at the time the registration statement in question becomes effective or the
amended prospectus filed with the SEC pursuant to SEC Rule 424(b) (the "Final
Prospectus"), such indemnity agreement shall not inure to the benefit of any
person if a copy of the Final Prospectus was timely furnished to the indemnified
party and was not
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furnished to the person asserting the loss, liability, claim or damage at or
prior to the time such action is required by the Securities Act.
(E) Contribution. In order to provide for just and
equitable contribution to joint liability under the Securities Act in any case
in which either (i) any Holder exercising rights under this Agreement, or any
controlling person of any such Holder, makes a claim for indemnification
pursuant to this section, but it is judicially determined (by the entry of a
final judgment or decree by a court of competent jurisdiction and the expiration
of time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding the fact that
this section provides for indemnification in such case, or (ii) contribution
under the Securities Act may be required on the part of any such selling Holder
or any such controlling person in circumstances for which indemnification is
provided under this section; then, and in each such case, the Company and such
Holder will contribute to the aggregate losses, claims, damages or liabilities
to which they may be subject (after contribution from others) in such proportion
so that such Holder is responsible for the portion represented by the percentage
that the public offering price of its Registrable Securities offered by and sold
under the registration statement bears to the public offering price of all
securities offered by and sold under such registration statement, and the
Company and other selling Holders are responsible for the remaining portion;
provided, however, that, in any such case: (A) no such Holder will be required
to contribute any amount in excess of the public offering price of all such
Registrable Securities offered and sold by such Holder pursuant to such
registration statement; and (B) no person or entity guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
will be entitled to contribution from any person or entity who was not guilty of
such fraudulent misrepresentation.
(F) Survival. The obligations of the Company and
Holders under this Section 7(c)(v) shall survive until the fifth anniversary of
the completion of any offering of Registrable Securities in a registration
statement, regardless of the expiration of any statutes of limitation or
extensions of such statutes.
(vi) No Registration Rights to Third Parties.
Without the prior written consent of the Investor, the Company covenants and
agrees that it shall not grant, or cause or permit to be created, for the
benefit of any person or entity any registration rights of any kind (whether
similar to the demand, "piggyback" or Form S-3 registration rights) relating to
shares of the Company's Common Stock or any other securities of the Company that
are superior to the rights granted under this Section 7(c).
(vii) Suspension Provisions. Notwithstanding the foregoing
subsections of this Section 7(c), the Company shall not be required to take any
action with respect to the registration or the declaration of effectiveness of
the registration statement following written notice to the Holders from the
Company (a "Suspension Notice") of the existence of any state of facts or the
happening of any event (including pending negotiations relating to, or the
consummation of, a transaction, or the occurrence of any event that the Company
believes, in good faith, requires additional disclosure of material, non-public
information by the Company in the registration statement that the Company
believes it has a bona fide business purpose for
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preserving confidentiality or that renders the Company unable to comply with the
published rules and regulations of the SEC promulgated under the Securities Act
or the Securities Exchange Act, as in effect at any relevant time (the "Rules
and Regulations")) that would result in (1) the registration statement, any
amendment or post-effective amendment thereto, or any document incorporated
therein by reference containing an untrue statement of a material fact or
omitting to state a material fact required to be stated therein or necessary to
make the statements therein not misleading, or (2) the prospectus issued under
the registration statement, any prospectus supplement, or any document
incorporated therein by reference including an untrue statement of material fact
or omitting to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, provided that the Company (1) shall not issue a Suspension Notice
more than once in any 12 month period, (2) shall use its best efforts to remedy,
as promptly as practicable, but in any event within ninety (90) days of the date
on which the Suspension Notice was delivered, the circumstances that gave rise
to the Suspension Notice and deliver to the Holders notification that the
Suspension Notice is no longer in effect and (3) shall not issue a Suspension
Notice for any period during which the Company's executive officers are not
similarly restrained from disposing of shares of the Company's Common Stock.
Upon receipt of a Suspension Notice from the Company, all time limits applicable
to the Holders under this Section 7(c) shall automatically be extended by an
amount of time equal to the amount of time the Suspension Notice is in effect,
the Holders will forthwith discontinue disposition of all such shares pursuant
to the registration statement until receipt from the Company of copies of
prospectus supplements or amendments prepared by or on behalf of the Company
(which the Company shall prepare promptly), together with a notification that
the Suspension Notice is no longer in effect, and if so directed by the Company,
the Holders will deliver to the Company all copies in their possession of the
prospectus covering such shares current at the time of receipt of any Suspension
Notice.
(d) Obligations Regarding Confidential Information. Confidential
Information (as defined below) shall not be disclosed by any party hereto to any
third party except in accordance with the provisions set forth below. For
purposes of this Agreement, the term "Confidential Information" refers to the
following items: (i) the existence of this Agreement and the Warrants, and (ii)
the terms and provisions of this Agreement and the Warrants, provided, however,
that Confidential Information shall not include any information that was (i)
publicly known and generally available in the public domain prior to its
disclosure by the Company, (ii) becomes publicly known and generally available
in the public domain through no action or inaction on the part of the Company or
(iii) becomes publicly known by written consent or other action of the Investor.
(i) Press Releases, Etc. No announcement regarding the
Confidential Information in a press release, conference, advertisement,
announcement, professional or trade publication, mass marketing materials or
otherwise may be made without the prior written consent of each of the parties
hereto.
(ii) Permitted Disclosures. Notwithstanding the
foregoing, (i) any party may disclose any of the Confidential Information to its
current or bona fide prospective investors, employees, investment bankers,
lenders, accountants and attorneys, in each case only
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where such persons or entities are under appropriate nondisclosure obligations
(the Company shall be responsible for any failure of any such person to comply
with the provisions of this Section 7(d)); and (ii) the Investor may disclose
its investment in the Company and other Confidential Information to third
parties or to the public at its sole discretion and, if it does so, the Company
shall have the right to disclose to third parties any such information disclosed
in a press release or other public announcement by the Investor.
(iii) Legally Compelled Disclosure. In the event that
any party is requested or becomes legally compelled (including without
limitation, pursuant to securities laws and regulations) to disclose the
existence of this Agreement or any of the Financing Terms hereof in
contravention of the provisions of this Section 7(d), such party (the
"Disclosing Party") shall provide the other parties (the "Non-Disclosing
Parties") with prompt written notice of that fact so that the appropriate party
may seek (with the cooperation and reasonable efforts of the other parties) a
protective order, confidential treatment or other appropriate remedy. In such
event, the Disclosing Party shall furnish only that portion of the information
which is legally required and shall exercise reasonable efforts to obtain
reliable assurance that confidential treatment will be accorded such information
to the extent reasonably requested by any Non-Disclosing Party.
(iv) Other Information. The provisions of this Section
7(d) shall be in addition to, and not in substitution for, the provisions of any
separate nondisclosure agreement executed by any of the parties hereto with
respect to the transactions contemplated hereby. Additional disclosures and
exchange of confidential information between the Company and Investor (including
without limitation, any exchanges of information with any Investor board
observer) shall be governed by the terms of the Corporate Non-Disclosure
Agreement No. 96432, dated 9/25/97, executed by the Company and Investor, and
any Confidential Information Transmittal Records (CITR) provided in connection
therewith. The CITR that shall govern the exchanges of confidential information
with any Investor board observer shall be in the form attached hereto as Exhibit
B.
(v) All notices under this Section 7(d) shall be made
pursuant to Section 10(e) of this Agreement.
(e) Board and Committee Observer.
(1) So long as the Investor, together with its
subsidiaries of which the Investor beneficially owns, either directly or
indirectly, at least fifty percent (50%) of the voting securities (each a
"Majority Owned Subsidiary" and collectively, the "Majority Owned
Subsidiaries"), hold the equivalent of at least twenty-five percent (25%) of the
Purchased Shares and/or Warrant Stock (as defined in the Warrant), such number
to be proportionately adjusted for stock splits, stock dividends and similar
events, the Company will permit a representative of the Investor (the
"Observer"), to attend all meetings of the Company's Board of Directors (the
"Board") and all committees of the Board (whether in person, telephonic or
other) in a non-voting, observer capacity and shall provide to the Investor,
concurrently with the members of the Board or such Board committee, and in the
same manner, notice of such meeting and a copy of
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all materials provided to such members. Upon a good faith determination by the
Board and upon the advice of counsel, the Observer may be excluded from any
meeting if (A) deemed necessary to protect the attorney-client privilege of the
Company or (B) a conflict of interest exists between the Observer or Intel and
the Company with respect to matters to be discussed by the Board or committee
thereof.
(2) Exchanges of confidential and proprietary information
between the Company and the Investor Observer shall be governed by the terms of
the Corporate Non-Disclosure Agreement No. 96432, dated September 25, 1997,
executed by the Company and the Investor, and any Confidential Information
Transmittal Records provided in connection therewith. The Company acknowledges
that the Observer may, from time to time, have information that may be of
interest to the Company ("Information") regarding a wide variety of matters
including, by way of example only, (a) the Investor's technologies, plans and
services, and plans and strategies relating thereto, (b) current and future
investments the Investor has made, may make, may consider or may become aware of
with respect to other companies and other technologies, products and services,
including, without limitation, companies, technologies, products and services
that may be competitive with the Company's, and (c) developments with respect to
the technologies, products and services, and plans and strategies relating
thereto, of other companies, including companies that may be competitive with
the Company. The Company recognizes that a portion of such Information may be of
interest to the Company. Such Information may or may not be known by the
Observer. The Company, as a material part of the consideration for this
Agreement, agrees that the Investor and its Observer shall have no duty to
disclose any Information to the Company or permit the Company to participate in
any projects or investments based on any Information, or to otherwise take
advantage of any opportunity that may be of interest to the Company if it were
aware of such Information, and hereby waives, to the extent permitted by law,
any claim based on the corporate opportunity doctrine or otherwise that could
limit the Investor's ability to pursue opportunities based on such Information
or that would require the Investor, Observer to disclose any such Information to
the Company or offer any opportunity relating thereto to the Company.
(f) Rights of Participation.
(i) General. As used in this Agreement, the "Initial
Rights Period" means the period from the date hereof until the earlier of: (1)
such time as the Investor, together with its Majority Owned Subsidiaries, no
longer hold the equivalent of at least twenty percent (20%) of the Purchased
Shares, such number to be proportionately adjusted for stock splits, stock
dividends and similar events, or (2) the third anniversary date of the Closing
Date. During the Initial Rights Period, the Investor and each other person or
entity to whom rights under this Section 7(f) have been duly assigned (each of
the Investor and each such assignee, a "Participation Rights Holder") shall have
a right of first refusal to purchase such Participation Rights Holder's Pro Rata
Share (as defined below) of all New Securities (as defined below) that the
Company may from time to time issue during such period (such New Securities
would be allocated among the Participation Rights Holders who elect to exercise
their right to purchase such New Securities on a pro rata basis according to the
number of Purchased Shares held by each such Participation Rights Holder (where
any shares of Common Stock held as a result of the
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exercise of the Warrants shall be deemed for these purposes to still be
Purchased Shares)). The rights described in the preceding sentence, as further
described in this Section 7(f), are referred to as the "Right of Participation".
(ii) Pro Rata Share. "Pro Rata Share" means, with
respect to each Participation Rights Holder, the ratio of the following numbers
calculated immediately prior to the issuance of the New Securities giving rise
to the Right of Participation: (A) the Participant Share Number (as defined
below) for such Participation Rights Holder, to (B) the difference between (1)
the sum of (a) the total number of shares of Common Stock and other voting
capital stock of the Company then outstanding, plus (b) the number of shares of
voting capital stock issuable upon the exercise, conversion or exchange of any
other security of the Company then outstanding and (2) the number of Dilutive
Securities issued since the last Notice Date excluding any Maintenance
Securities issued pursuant to the last Maintenance Notice.
(iii) New Securities. "New Securities" means any Common
Stock, Preferred Stock or other voting capital stock or security of the Company,
whether now authorized or not, and rights, options or warrants to purchase such
Common Stock or Preferred Stock or other voting capital stock or security, and
securities of any type whatsoever that are, or may become, convertible into or
exchangeable or exercisable for Common Stock, Preferred Stock or other voting
capital stock or security; provided, however, that the term "New Securities"
shall not include:
(A) up to 2,500,000 shares of Common Stock (or
options or warrants therefor) issued to employees, officers, directors or
consultants of the Company pursuant to any stock purchase, stock option, stock
incentive and other employee benefit plans, and agreements having similar
purpose and effect, approved by the Board, and any increase in such number that
is unanimously approved by the Board and approved by the shareholders of the
Company;
(B) the Purchased Shares issued under this
Agreement;
(C) shares of Common Stock issued upon exercise
of the Warrants or any other convertible securities of the Company outstanding
on the date hereof;
(D) any securities issued in connection with any
stock split stock, dividend or other similar event in which all Participation
Rights Holders are entitled to participate on a pro rata basis;
(E) any securities issued upon the exercise,
conversion or exchange of any outstanding security if such outstanding security
constituted a New Security;
(F) any securities issued pursuant to the
acquisition of another Person, or subsidiary or division thereof, by the Company
by consolidation, merger, purchase of assets, or other reorganization;
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(G) up to 750,000 shares of Common Stock issued
to strategic investors in transactions that are unanimously approved by the
Board; or
(H) any shares of Common Stock or warrants, and
any shares of Common Stock issued upon exercise of such warrants, issued or to
be issued to certain institutional investors in a private placement of
securities by the Company which is being closed on or about the date of the
Closing hereunder.
(iv) Participant Share Number. "Participant Share
Number", with respect to a Participant Rights Holder, means the sum of (1) the
number of Purchased Shares held by such Participant, (2) the number of shares of
Common Stock issued upon exercise of the Warrants, (3) the number of shares of
other voting capital stock or security of the Company held by such Participant,
and (4) the number of shares of Common Stock or other voting capital stock or
security issuable upon the exercise, conversion or exchange of any other
security of the Company held by such Participant (including the Warrants).
(v) Purchase Price. The purchase price paid by the
Participant Rights Holder for the New Securities shall equal the sales price of
the New Securities.
(vi) Procedures. If the Company proposes to undertake
an issuance of New Securities (in a single transaction or a series of related
transactions) in circumstances that entitled a Participation Rights Holder to
participate therein in accordance this Section 7(f), the Company shall give to
each Participation Rights Holder written notice of its intention to issue New
Securities (the "Participation Notice"), describing the amount and the type of
New Securities and the price and the general terms upon which the Company
proposes to issue such New Securities. Each Participation Rights Holder shall
have fifteen (15) business days from the date of receipt of any such
Participation Notice to agree in writing to purchase up to the maximum number of
such New Securities that such Participation Rights Holder is entitled to
purchase for the purchase price specified in Section 7(f)(v) above and upon the
terms and conditions specified in the Participation Notice by giving written
notice to the Company and stating therein the quantity of New Securities to be
purchased (not to exceed such maximum). If any Participation Rights Holder fails
to so agree in writing within such 15 business day period, then such
Participation Rights Holder shall forfeit the right hereunder to participate in
such sale of New Securities; provided, however, that until the expiration of the
Initial Rights Period, any Participation Rights Holders that have elected to
exercise their Right of Participation shall be entitled to exercise such right
with respect to any New Securities where such right has been forfeited by such
other Participation Rights Holder(s), and the Company shall follow repeat the
procedures set forth in this Section 7(f) to ascertain whether the electing
Participation Rights Holders desire to purchase such other New Securities. All
sales hereunder shall be consummated concurrently with the closing of the
transaction triggering the Right of Participation.
(ix) Failure to Exercise. Upon the expiration of such
fifteen (15) business day period, the Company shall have one hundred twenty
(120) days thereafter, subject to extensions for regulatory compliance, to sell
the New Securities described in the Participation Notice (with respect to which
the Participation Rights Holders' rights of first refusal hereunder
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were not exercised), or enter into an agreement to do so within sixty (60) days
thereafter (which agreement must be consummated within one hundred twenty (120)
days after its execution, subject to extensions for regulatory compliance), at
the price (or a higher price) and upon non-price terms not materially more
favorable to the purchasers thereof than specified in the Participation Notice.
If the Company has not issued and sold such New Securities within such 120-day
period, or entered into an agreement to do so within sixty (60) days thereafter
(and consummated such agreement within such 120-day period), then the Company
shall not thereafter issue or sell any New Securities without again first
offering such New Securities to the Participation Rights Holders pursuant to
this Section 7(f).
(g) Nasdaq National Market. The Company shall use its best
efforts to cause the Purchased Shares and shares of Common Stock issuable upon
exercise of the Warrants to be approved for quotation on the Nasdaq National
Market as promptly as practicable after the date hereof. In addition, the
Company agrees to maintain the listing of its Common Stock on the Nasdaq
National Market, Nasdaq Small Cap, New York Stock Exchange or American Stock
Exchange for at least three years after the Closing Date.
(h) Accounting. The Company hereby agrees to hire a Big 5
Accounting firm no later than June 30, 1999 for the purpose of performing the
Company's regular audit and financial reporting requirements for all activities
beginning January 1, 1999. In addition, Company agrees that the Company's
accountants will engage Ernst & Young LLP for the purpose of rendering an
opinion on the appropriate accounting treatment of: (i) the conversion of the
Investor's future payment obligations under the Development Agreement into an
equity stake in the Company pursuant to the Amendment and this Agreement; and
(ii) the Company's next round of private equity financing which is anticipated
to be closed concurrently herewith or within five (5) days hereof. Such opinions
of Ernst & Young LLP will be based on the terms of this Agreement. Furthermore,
the Company hereby agrees to provide a copy of the opinions of Ernst & Young LLP
to the Investor, and the Company agrees to abide by such opinions.
(i) Covenant Not to ▇▇▇. The Company hereby agrees that it shall
not assert in any way any patent or related rights against the Investor, its
subsidiaries or affiliates, or their customers, direct or indirect, agents or
contractors, for the manufacture, use, import, offer for sale, or sale of
Investor's products, to the extent that the claims of such rights to
Intellectual Property are asserted against any of Investor's general purpose
microprocessors and/or chipset products, either alone or in combination with
another product or products, for so long as Investor does not assert a patent
claim against the Company, its subsidiaries or affiliates, or their customers,
direct or indirect, agents and contractors for the manufacture, use, import,
offer for sale or sale of the Company's products. If the Company assigns or
attempts to assign ownership of any of its patents to a third party not bound by
this covenant not to ▇▇▇ (whether directly or by operation of law), then
effective upon such assignment or attempted assignment, the Company agrees that
Investor shall have a nonexclusive, nontransferable license, without right of
sublicense, under such assigned patents to make, use and sell Investor's general
purpose microprocessor and chipset products.
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(j) Certain Prohibited Issuances. Except pursuant to the
Company's stock option plans, management and/or director stock plans and
"strategic" investments from industry participants, the Company agrees not to
issue any discounted or variable priced equity or equity like securities issued
in a private placement for one year from the Closing Date of the Company's next
round of private equity financing.
(k) Certain Expenses. At the Closing, the Company shall pay to
the Investor a flat fee of $10,000 to cover the Investor's expenses (whether
external or internal) arising in connection with the transactions contemplated
by this Agreement.
(l) Termination of Royalty Obligations. Section 7 of the
Development Agreement is hereby terminated and of no further force or effect,
and the parties acknowledge that all future royalty obligations of the Company
are hereby released; provided, however, that the provisions of Section 7.5 of
the Development Agreement (regarding audit rights) shall remain in effect with
respect to royalty payments made prior to the date hereof.
(m) ▇▇▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇▇ Transactions. If ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
disposes of any Common Stock beneficially owned by him while the Common Stock is
trading at or below twenty five dollars ($25) per share during the period
beginning on the date of the Closing and ending on the earlier of (i) the first
(1st) anniversary of the date of the Closing, or (ii) the date on which ▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇ ceases to be President or CEO of the Company, the Company shall pay to
the Investor an amount equal to (x) the number of Purchased Shares and Warrant
Shares then held by the Investor times (y) the difference between (m) the
closing bid price of the Common Stock on the trading day immediately preceding
the day on which such disposal was publicly announced (the "▇▇▇▇▇▇▇▇▇
Announcement Date") and (n) the lowest closing bid price of the Common Stock
during the thirty (30) trading day period beginning on the ▇▇▇▇▇▇▇▇▇
Announcement Date; provided, however, that the Company shall not be required to
make such payment with respect to any sales until ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ sells or
otherwise transfers in excess of fifty thousand (50,000) shares of Common Stock
in aggregate during such period at a price less than twenty five dollars ($25)
pursuant to Rule 144. If ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ or ▇▇▇ ▇▇▇▇▇▇▇▇ or any other member of
their family (each a "▇▇▇▇▇▇▇▇") dispose of any stock beneficially owned by such
▇▇▇▇▇▇▇▇ at any time during the period beginning on the date of the Closing and
ending on the date which is six (6) months following the Closing, the Company
shall pay to the Investor an amount equal to (x) the number of Purchased Shares
and Warrant Shares then held by the Investor times (y) the difference between
(m) the closing bid price of the Common Stock on the trading day immediately
preceding the day on which such disposal was publicly announced (the "▇▇▇▇▇▇▇▇
Announcement Date") and (n) the lowest closing bid price of the Common Stock
during the thirty (30) trading day period beginning on the ▇▇▇▇▇▇▇▇ Announcement
Date.
(n) Share Authorization. The Company shall use its best efforts
to have Nasdaq confirm in writing that the Purchased Shares and the Warrant
Shares issuable upon full exercise of the First Warrants, the Second Warrants
and the Third Warrants are not subject to Nasdaq Rule 4460(i) (the "Nasdaq
Approval"). The Company shall also use its best efforts to have Nasdaq confirm
in writing that the Shares and the Warrant Shares issuable upon full exercise of
the Warrants are not subject to Nasdaq Rule 4310(c)(25)(H)(i)(b) (the "Second
▇▇
▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇"). The Company shall also use its best efforts to obtain the
Shareholder Approval no later than the Approval Date (as defined below), except
to the extent such Shareholder Approval is not required by virtue of receipt by
the Company of either the Nasdaq Approval or the Second Nasdaq Approval, as
applicable. For purposes hereof, the "Approval Date" means the Company's next
annual meeting of stockholders, which meeting shall be held no later than July
30, 1999. For purposes hereof, "Shareholder Approval" means (i) authorization by
the stockholders of the Company of the issuance of Shares pursuant to the terms
hereof and shares of Common Stock issuable upon the exercise of the First
Warrants, the Second Warrants and the Third Warrants (in each case without
giving effect to any limitations on the exercise thereof) pursuant to the terms
thereof and, if necessary, the elimination of any prohibitions under the rules
or regulations of any stock exchange, interdealer quotation system or other
self-regulatory organization with jurisdiction over the Company or any of its
securities on the Company's ability to issue Purchased Shares and shares of
Common Stock upon exercise of the First Warrants, the Second Warrants and the
Third Warrants (in each case without giving effect to any limitations on the
exercise thereof), including all necessary approvals under each of (i) Nasdaq
Rule 4460(i) (the "4460 Shareholder Approval") and (ii) Nasdaq Rule
4310(c)(25)(H)(1)(I)(b) (the "4310 Shareholder Approval"). In addition, the
Company shall have a definitive proxy statement seeking to obtain Shareholder
Approval mailed to each stockholder of the Company at least twenty (20) business
days prior to the Approval Date. The Company shall deliver any SEC comments it
receives with respect to its proxy statement to the Investor and will not file
such proxy statement (or any revisions thereto), whether such proxy statement is
in preliminary or definitive form, without the approval of the Investor, which
approval shall not be unreasonably withheld or delayed. If the Company fails to
obtain Shareholder Approval by the Approval Date, and has not then obtained each
of the Nasdaq Approval and the Second Nasdaq Approval, the Investor may, at its
option, (the "Repurchase Option") require the Company to purchase all or any
portion of the First Warrant, the Second Warrant and/or the Third Warrant held
by the Investor for the Repurchase Price (as herein defined), subject to the
limitation on shares set forth below. The "Repurchase Price" means a price equal
to the number of shares of Common Stock the Investor has exercised the option to
require the Company to purchase times the greater of (x) one hundred fifty
percent (150%) of the Black-Scholes Amount (as herein defined) of such Warrant
and (y) the amount equal to the excess of the closing bid price of the Common
Stock on the date of the Closing over the closing bid price of the Common Stock
on the date on which the Repurchase Option is elected. Such number of shares may
include all shares of Common Stock the Investor could receive upon exercise of
such Warrant without giving effect to any limitations on the exercise thereof,
but only to the extent such Warrant is not exercisable due to failure to obtain
Shareholder Approval, the Nasdaq Approval and/or the Second Nasdaq Approval. The
Company may elect to pay the Investor the Repurchase Price either (m) in cash or
(n) if, in the good faith business judgment of the Company's board of directors,
the Company does not have sufficient liquidity to pay some or all of the
Repurchase Price, in cash (the "Cash Portion") to the extent that the Company
has sufficient liquidity and in a promissory note (the "Repurchase Note") to the
Investor with a one-year term, interest equal to the then-current prime rate and
in principal amount equal to the difference between the Repurchase Price and the
Cash Portion. If the Company elects to deliver a Repurchase Note, then the
Company shall repay the outstanding principal and interest on the Repurchase
Note at the end of the one-year term and, during the one-year term, shall take
all
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reasonable necessary actions to ensure that such outstanding principal and
interest will be timely paid (and shall not take any actions inconsistent with
such objective). From time to time during the one-year term, the Company shall
pre-pay such outstanding principal and interest to the extent that it has
sufficient liquidity, it being understood and agreed that no such repayment
shall be required if, in the good faith business judgment of the Company's board
of directors, the Company does not have any such liquidity with which to make
any such repayment. If the Company delivers a Repurchase Note and during the
one-year term of such note, obtains Shareholder Approval as required by this
Section 7(n), the Company may, at its election, require the holder of a
Repurchase Note to exchange such Repurchase Note for a Warrant with identical
terms to the Warrant (or part thereof) which was repurchased by the Company (the
"Original Warrant"), entitling such holder to purchase a number of shares of
Common Stock equal to (I) the number of shares which could have been purchased
by exercise of the Original Warrant times (II) the then-current outstanding
principal and interest on the Repurchase Note divided by (III) the original
principal amount of the Repurchase Note, at an exercise price equal to the
exercise price of the Original Warrant at the time of the repurchase (with such
number of shares and such exercise price being appropriately adjusted to give
effect to any adjustments which would have been made to the exercise price and
number of shares had such Warrant remained outstanding from the time of the
repurchase until the date of exchange).
The "Black-Scholes Amount" shall be an amount determined by
calculating the "Black-Scholes" value of an option to purchase one share of
Common Stock on the applicable page on the Bloomberg online page, using the
following variable values at the time of applicable to the purchase: (i) the
current market price of the Common Stock equal to the closing trade price on the
date of the Closing; (ii) volatility of the Common Stock equal to volatility of
the Common Stock on the date of the Closing; (iii) a risk free rate equal to the
interest rate on the United States treasury ▇▇▇▇ or treasury note with a
maturity corresponding to the remaining term of the Warrant on the date of the
Closing; and (iv) an exercise price equal to the Exercise Price on the date of
the Closing. In the event such calculation function is no longer available
utilizing the Bloomberg online page, the Holder shall calculate such amount in
its reasonable discretion using the closest available alternative mechanism and
variable values to those available utilizing the Bloomberg online page for such
calculation function.
8. INDEMNIFICATION.
(a) Agreement to Indemnify.
(i) Company Indemnity. The Investor, its Affiliates
and Associates, and each officer, director, shareholder, employer,
representative and agent of any of the foregoing (collectively, the "Investor
Indemnitees") shall each be indemnified and held harmless to the extent set
forth in this Section 8 by the Company with respect to any and all Damages (as
defined below) incurred by any Investor Indemnitee as a proximate result of any
inaccuracy or misrepresentation in, or breach of, any representation, warranty,
covenant or agreement made by the Company in this Agreement (including any
exhibits and schedules hereto). Indemnification claims arising from the
registration of Purchased Shares under Federal and state securities laws are
covered by Section 7(b) and not this Section 8.
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(ii) Investor Indemnity. The Company, its respective
Affiliates and Associates, and each officer, director, shareholder, employer,
representative and agent of any of the foregoing (collectively, the "Company
Indemnitees") shall each be indemnified and held harmless to the extent set
forth in this Section 8, by the Investor, in respect of any and all Damages
incurred by any Company Indemnitee as a proximate result of any inaccuracy or
misrepresentation in, or breach of, any representation, warranty, covenant or
agreement made by the Investor in this Agreement. Indemnification claims arising
from the registration of Purchased Shares under Federal and state securities
laws are covered by Section 7(c) and not this Section 8.
(iii) Equitable Relief. Nothing set forth in this
Section 8 shall be deemed to prohibit or limit any Investor Indemnitee's or
Company Indemnitee's right at any time before, on or after the Closing, to seek
injunctive or other equitable relief for the failure of any Indemnifying Party
to perform or comply with any covenant or agreement contained herein.
(b) Survival. All representations and warranties of the
Investor and the Company contained herein and all claims of any Investor
Indemnitee or Company Indemnitee in respect of any inaccuracy or
misrepresentation in or breach hereof, shall survive the Closing until the third
anniversary of the date of this Agreement, regardless of whether the applicable
statute of limitations, including extensions thereof, may expire. All covenants
and agreements of the Investor and the Company contained in this Agreement shall
survive the Closing in perpetuity (except to the extent any such covenant or
agreement shall expire by its terms). All claims of any Investor Indemnitee or
Company Indemnitee in respect of any breach of such covenants or agreements
shall survive the Closing until the expiration of three years following the
non-breaching party's obtaining actual knowledge of such breach.
(c) Claims for Indemnification. If any Investor Indemnitee or
Company Indemnitee (an "Indemnitee") shall believe that such Indemnitee is
entitled to indemnification pursuant to this Section 8 in respect of any
Damages, such Indemnitee shall give the appropriate Indemnifying Party (which
for purposes hereof, in the case of an Investor Indemnitee, means the Company,
and in the case of a Company Indemnitee, means the Investor) prompt written
notice thereof. Any such notice shall set forth in reasonable detail and to the
extent then known the basis for such claim for indemnification. The failure of
such Indemnitee to give notice of any claim for indemnification promptly shall
not adversely affect such Indemnitee's right to indemnity hereunder except to
the extent that such failure adversely affects the right of the Indemnifying
Party to assert any reasonable defense to such claim. Each such claim for
indemnity shall expressly state that the Indemnifying Party shall have only the
twenty (20) business day period referred to in the next sentence to dispute or
deny such claim. The Indemnifying Party shall have twenty (20) business days
following its receipt of such notice either (a) to acquiesce in such claim by
giving such Indemnitee written notice of such acquiescence or (b) to object to
the claim by giving such Indemnitee written notice of the objection. If the
Indemnifying Party does not object thereto within such twenty (20) business day
period, such Indemnitee shall be entitled to be indemnified for all Damages
reasonably and proximately incurred by such Indemnitee in respect of such claim.
If the Indemnifying Party objects to such claim in a timely manner, the senior
management of the Company and the Investor shall meet to attempt to resolve such
dispute. If the dispute cannot be resolved by the
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senior management, either party may make a written demand for formal dispute
resolution and specify therein the scope of the dispute. Within thirty (30) days
after such written notification, the parties agree to meet for one (1) day with
an impartial mediator and consider dispute resolution alternatives other than
litigation. If an alternative method of dispute resolution is not agreed upon
within thirty days after the one day mediation, either party may begin
litigation proceedings. Nothing in this section shall be deemed to require
arbitration.
(d) Defense of Claims. In connection with any claim that may
give rise to indemnity under this Section 8 resulting from or arising out of any
claim or Proceeding against an Indemnitee by a person or entity that is not a
party hereto, the Indemnifying Party may (unless such Indemnitee elects not to
seek indemnity hereunder for such claim) but shall not be obligated to, upon
written notice to the relevant Indemnitee, assume the defense of any such claim
or Proceeding if the Indemnifying Party with respect to such claim or Proceeding
acknowledges to the Indemnitee the Indemnitee's right to indemnity pursuant
hereto to the extent provided herein (as such claim may have been modified
through written agreement of the parties) and provides assurances, reasonably
satisfactory to such Indemnitee, that the Indemnifying Party will be financially
able to satisfy such claim to the extent provided herein if such claim or
Proceeding is decided adversely; provided, however, that nothing set forth
herein shall be deemed to require the Indemnifying Party to waive any
crossclaims or counterclaims the Indemnifying Party may have against the
Indemnified Party for damages. The Indemnified Party shall be entitled to retain
separate counsel, reasonably acceptable to the Indemnifying Party, if the
Indemnified Party shall determine, upon the written advice of counsel, that an
actual or potential conflict of interest exists between the Indemnifying Party
and the Indemnified Party in connection with such Proceeding. The Indemnifying
Party shall be obligated to pay the reasonable fees and expenses of such
separate counsel to the extent the Indemnified Party is entitled to
indemnification by the Indemnifying Party with respect to such claim or
Proceeding under this Section 8(d). If the Indemnifying Party assumes the
defense of any such claim or Proceeding, the Indemnifying Party shall select
counsel reasonably acceptable to such Indemnitee to conduct the defense of such
claim or Proceeding, shall take all steps necessary in the defense or settlement
thereof and shall at all times diligently and promptly pursue the resolution
thereof. If the Indemnifying Party shall have assumed the defense of any claim
or Proceeding in accordance with this Section 8(d), the Indemnifying Party shall
be authorized to consent to a settlement of, or the entry of any judgment
arising from, any such claim or Proceeding, with the prior written consent of
such Indemnitee, not to be unreasonably withheld; provided, however, that the
Indemnifying Party shall pay or cause to be paid all amounts arising out of such
settlement or judgment concurrently with the effectiveness thereof; provided
further, that the Indemnifying party shall not be authorized to encumber any of
the assets of any Indemnitee or to agree to any restriction that would apply to
any Indemnitee or to its conduct of business; and provided further, that a
condition to any such settlement shall be a complete release of such Indemnitee
and its Affiliates, directors, officers, employees and agents with respect to
such claim, including any reasonably foreseeable collateral consequences
thereof. Such Indemnitee shall be entitled to participate in (but not control)
the defense of any such action, with its own counsel and at its own expense.
Each Indemnitee shall, and shall cause each of its Affiliates, directors,
officers, employees and agents to, cooperate fully with the Indemnifying Party
in the defense of any claim or Proceeding being defended by the Indemnifying
Party pursuant to this Section 8(d). If the Indemnifying
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Party does not assume the defense of any claim or Proceeding resulting therefrom
in accordance with the terms of this Section 8(d), such Indemnitee may defend
against such claim or Proceeding in such manner as it may deem appropriate,
including settling such claim or Proceeding after giving notice of the same to
the Indemnifying Party, on such terms as such Indemnitee may deem appropriate.
If any Indemnifying Party seeks to question the manner in which such Indemnitee
defended such claim or Proceeding or the amount of or nature of any such
settlement, such Indemnifying Party shall have the burden to prove by a
preponderance of the evidence that such Indemnitee did not defend such claim or
Proceeding in a reasonably prudent manner.
(e) Certain Definitions. As used in this Section 8, (a)
"Affiliate" means, with respect to any person or entity, any person or entity
directly or indirectly controlling, controlled by or under direct or indirect
common control with such other person or entity; (b) "Associate" means, when
used to indicate a relationship with any person or entity, (1) any other person
or entity of which such first person or entity is an officer, director or
partner or is, directly or indirectly, the beneficial owner of ten percent (10%)
or more of any class of equity securities, membership interests or other
comparable ownership interests issued by such other person or entity, (2) any
trust or other estate in which such first person or entity has a ten percent
(10%) or more beneficial interest or as to which such first person or entity
serves as trustee or in a similar fiduciary capacity, and (3) any relative or
spouse of such first person or entity who has the same home as such first person
or entity or who is a director or officer of such first person or entity; (c)
"Damages" means all demands, claims, actions or causes of action, assessments,
losses, damages, costs, expenses, liabilities, judgments, awards, fines,
response costs, sanctions, taxes, penalties, charges and amounts paid in
settlement, including (1) interest on cash disbursements in respect of any of
the foregoing at the prime rate of Chase Manhattan Bank, as in effect from time
to time, compounded quarterly, from the date each such cash disbursement is made
until the date the party incurring such cash disbursement shall have been
indemnified in respect thereof, and (2) reasonable out-of-pocket costs, fees and
expenses (including reasonable costs, fees and expenses of attorneys,
accountants and other agents of, or other parties retained by, such party), and
(d) "Proceeding" means any action, suit, hearing, arbitration, audit, proceeding
(public or private) or investigation that is brought or initiated by or against
any federal, state, local or foreign governmental authority or any other person
or entity.
9. ASSIGNMENT. The rights of the Investor under Section 7(c)
and Section 7(f) shall be freely transferable. No assignment permitted by this
Section 9 shall be effective until the Company is given written notice by the
assigning party stating the name and address of the assignee and identifying the
securities of the Company as to which the rights in question are being assigned.
In all cases, any such assignee shall receive such assigned rights subject to
all the terms and conditions of this Agreement.
10. MISCELLANEOUS.
(a) Successors and Assigns. The terms and conditions of this
Agreement will inure to the benefit of and be binding upon the respective
successors and assigns of the parties.
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(b) Governing Law. This Agreement will be governed by and
construed under the internal laws of the State of Delaware, without reference to
principles of conflict of laws or choice of laws.
(c) Counterparts. This Agreement may be executed in two or more
counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.
(d) Headings. The headings and captions used in this Agreement
are used for convenience only and are not to be considered in construing or
interpreting this Agreement. All references in this Agreement to sections,
paragraphs, exhibits and schedules will, unless otherwise provided, refer to
sections and paragraphs hereof and exhibits and schedules attached hereto, all
of which exhibits and schedules are incorporated herein by this reference.
(e) Notices. Any notice required or permitted under this
Agreement shall be given in writing, shall be effective when received, and shall
in any event be deemed received and effectively given upon personal delivery to
the party to be notified or three (3) business days after deposit with the
United States Post Office, by registered or certified mail, postage prepaid, or
one (1) business day after deposit with a nationally recognized courier service
such as Fedex for next business day delivery under circumstances in which such
service guarantees next business day delivery, or one (1) business day after
facsimile with copy delivered by registered or certified mail, in any case,
postage prepaid and addressed to the party to be notified at the address
indicated for such party on the signature page hereof or at such other address
as the Investor or the Company may designate by giving at least ten (10) days
advance written notice pursuant to this Section 10(e).
(f) No Finder's Fees. The Investor will indemnify and hold
harmless the Company from any liability for any commission or compensation in
the nature of a finders' or broker's fee for which the Investor or any of its
officers, partners, employees or consultants, or representatives is responsible.
The Company will indemnify and hold harmless the Investor from any liability for
any commission or compensation in the nature of a finder's or broker's fee for
which the Company or any of its officers, employees or consultants or
representatives is responsible.
(g) Amendments and Waivers. The provisions of Section 7(c), (f)
and (j) of this Agreement may be amended and the observance of any term of this
Agreement may be waived (either generally or in a particular instance and either
retroactively or prospectively), only with the written consent of the Company,
the Investor (so long as the Investor shall hold any of the Purchased Shares or
the shares of Common Stock into which the Purchased Shares are convertible) and
the holders of Purchased Shares representing at least a majority of the total
aggregate number of Purchased Shares then outstanding. The remaining provisions
of this Agreement (including the provisions of Clauses (b), (d), (e), (g), (h),
(i), (j) and (k) of Section 7, and all of Section 8, may not be amended without
the written consent of the Company and the Investor, which may be withheld in
either of their sole and absolute discretions. Any amendment
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or waiver effected in accordance with this Section 10(g) will be binding upon
the Investor, the Company and their respective successors and assigns.
(h) Severability. If any provision of this Agreement is held to
be unenforceable under applicable law, such provision will be excluded from this
Agreement and the balance of the Agreement will be interpreted as if such
provision were so excluded and will be enforceable in accordance with its terms.
(i) Entire Agreement. This Agreement, together with all exhibits
and schedules hereto, constitutes the entire agreement and understanding of the
parties with respect to the subject matter hereof and supersedes any and all
prior negotiations, correspondence, agreements, understandings duties or
obligations between the parties with respect to the subject matter hereof.
(j) Further Assurances. From and after the date of this
Agreement upon the request of the Company or the Investor, the Company and the
Investor will execute and deliver such instruments, documents or other writings,
and take such other actions, as may be reasonably necessary or desirable to
confirm and carry out and to effectuate fully the intent and purposes of this
Agreement.
(k) Meaning of Include and Including. Whenever in this Agreement
the word "include" or "including" is used, it shall be deemed to mean "include,
without limitation" or "including, without limitation," as the case may be, and
the language following "include" or "including" shall not be deemed to set forth
an exhaustive list.
(l) Fees, Costs and Expenses. Except as set forth in Section
7(k), all fees, costs and expenses (including attorney's' fees and expenses)
incurred by either part hereto in connection with the preparation, negotiation
and execution of this Agreement and the Warrants and the consummation of the
transactions contemplated hereby and thereby (including the costs associated
with any filings with, or compliance with any of the requirements of, any
governmental authorities), shall be the sole and exclusive responsibility of
such party.
(m) Competition. Nothing set forth herein shall be deemed to
preclude, limit or restrict the Company's or the Investor's ability to compete
with the other.
(n) Cooperation in HSR Act Filings.
(i) In the event an exercise of any of the Warrants (or any
other action by the Investor with respect to any securities of the Company held
by the Investor) that would require a filing by the Investor under the
▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements Act of ▇▇▇▇ (▇▇▇ "▇▇▇ ▇▇▇"), the
Investor and its respective affiliates (including any "ultimate parent entity",
as defined in the HSR Act), and the Company and its respective affiliates
(including any "ultimate parent entity", as defined in the HSR Act), shall
promptly prepare and make their respective filings and thereafter shall make all
required or requested submissions under the HSR Act or any analogous applicable
law, if required. In taking such actions or making any such filings, the parties
hereto shall furnish information required in connection therewith and seek
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timely to obtain any applicable actions, consents, approvals or waivers of
governmental authorities; provided, however, that the parties hereto shall
cooperate with each other in connection with the making of all such filings to
the extent permitted by applicable law. Without limiting the generality of the
foregoing, to the extent permitted by applicable law and so long as the
following will not involve the disclosure of confidential or proprietary
information of one party hereto to another, each party shall cooperate with the
other by (a) providing copies of all documents to be filed to the non-filing
party and its advisors prior to filing and, if requested, accepting reasonable
additions, deletions or changes suggested in connection therewith and (b)
providing to each other party copies of all correspondence from and to any
governmental authority in connection with any such filing.
(ii) Notwithstanding the foregoing, neither the Investor nor
any of its affiliates shall be under any obligation to comply with any request
or requirement imposed by the Federal Trade Commission (the "FTC"), the
Department of Justice (the "DofJ") or any other governmental authority in
connection with the compliance with the requirements of the HSR Act, or any
other applicable law, if the Investor, in the exercise of its reasonable
discretion, deems such request or requirement unduly burdensome. Without
limiting the generality of the foregoing, the Investor shall not be obligated to
comply with any request by, or any requirement of, the FTC, the DofJ or any
other governmental authority: (i) to disclose information the Investor deems it
in its best interests to keep confidential; (ii) to dispose of any assets or
operations; or (iii) to comply with any proposed restriction on the manner in
which it conducts its operations. In the event the Investor shall receive a
second request in respect of its HSR Filing determined by it to be unduly
burdensome and it shall prove unable to negotiate a means satisfactory to the
Investor for complying with such burdensome second request, or the Federal Trade
Commission or Department of Justice shall impose any condition on the Investor
or its affiliates in respect thereof deemed unacceptable by the Investor, the
Company and the Investor shall cooperate in good faith to negotiate an
alternative transaction that provides the Investor with the economic benefits it
would receive if it converted the Purchased Shares (or took any such other
action referenced in the first parenthetical in the first sentence of Clause
(i)).
(o) Stock Splits, Dividends and other Similar Events. The
provisions of this Agreement (including the number of shares of Common Stock and
other securities described herein) shall be appropriately adjusted to reflect
any stock split, stock dividend, reorganization or other similar event that may
occur with respect to the Company after the date hereof.
[THE BALANCE OF THIS PAGE IS INTENTIONALLY LEFT BLANK.]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date and year first above written.
MODACAD, INC. INTEL CORPORATION
By: By:
---------------------------------- ---------------------------------
Name: Name:
---------------------------------- ---------------------------------
Title: Title:
---------------------------------- ---------------------------------
Address: ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇. Address: ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Facsimile No: (▇▇▇) ▇▇▇-▇▇▇▇ Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: President Attn: Treasurer
with copies to: with copies to:
Coudert Brothers Intel Corporation
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ - 20th Floor Attention: General Counsel
▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇. St. Clair
and
▇▇▇▇▇▇, ▇▇▇▇ & ▇▇▇▇▇▇▇▇ LLP
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
{Signature page to Stock and Warrant Purchase and Investor Rights Agreement
between INTEL CORPORATION and MODACAD, INC.}
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THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE OF
THE UNITED STATES. THE SECURITIES REPRESENTED HEREBY MAY NOT BE OFFERED OR SOLD
OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
FOR THE SECURITIES UNDER APPLICABLE SECURITIES LAWS, OR UNLESS OFFERED, SOLD OR
TRANSFERRED PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THOSE LAWS.
Right to Purchase 159,326 Shares of
Common Stock
Date: April 7, 1999
MODACAD, INC.
STOCK PURCHASE WARRANT
THIS CERTIFIES THAT, for value received, Intel Corporation or its
registered assigns, is entitled to purchase from ModaCAD, Inc., a California
corporation (the "Company"), at any time or from time to time during the period
specified in Section 2 hereof, One Hundred Fifty-Nine Thousand Three Hundred
Twenty-Six (159,326) fully paid and nonassessable shares of the Company's common
stock (the "Common Stock"), at an initial exercise price of $10.98 per share
(the "Exercise Price"), subject to adjustment as contained in Section 1(f)
hereof. This Warrant is being issued pursuant to that certain Stock and Warrant
Purchase and Investor Rights Agreement dated April 7, 1999 between the Company
and Holder (the "Securities Purchase Agreement"). The number of shares of Common
Stock purchasable hereunder (the "Warrant Shares") and the Exercise Price are
subject to adjustment as provided in Section 4 hereof. The term "Warrants" means
this Warrant and the other warrants of the Company issued pursuant to the terms
of the Securities Purchase Agreement.
The term "Closing Bid Price" means, for any security as of any date, the
closing bid price of such security on the principal securities exchange or
trading market where such security is listed or traded as reported by Bloomberg
Financial Markets or a comparable reporting service of national reputation
selected by the Company and reasonably acceptable to the holder hereof (the
"Holder") if Bloomberg Financial Markets is not then reporting closing bid
prices of such security (collectively, "Bloomberg"), or if the foregoing does
not apply, the last reported sale price of such security in the over-the-counter
market on the electronic bulletin board of such security as reported by
Bloomberg, or, if no sale price is reported for such security by Bloomberg, the
average of the bid prices of any market makers for such security as reported in
the "pink sheets" by the National Quotation Bureau, Inc. If the Closing Bid
Price cannot be calculated for such security on such date on any of the
foregoing bases, the Closing Bid Price of
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such security on such date shall the value thereof, as agreed upon by the
Company and the Holder; provided, however, that if the Company and the Holder
cannot agree on such value, such value shall be the fair market value as
reasonably determined by an investment banking firm selected by the Company and
reasonably acceptable to the Holder with the costs of such appraisal to be borne
by the Company.
This Warrant is subject to the following terms, provisions, and
conditions:
1. Mechanics of Exercise. Subject to the provisions hereof,
including, without limitation, the limitations contained in Section 8(f) hereof,
this Warrant may be exercised as follows:
(a) Manner of Exercise. This Warrant may be exercised by the Holder,
in whole or in part, by the surrender of this Warrant (or evidence of loss,
theft, destruction or mutilation thereof in accordance with Section 8(c)
hereof), together with a completed exercise agreement in the Form of Exercise
Agreement attached hereto as Exhibit 1 (the "Exercise Agreement"), to the
Company at the Company's principal executive offices (or such other office or
agency of the Company as it may designate by notice to the Holder), and upon (i)
payment to the Company in cash, by certified or official bank check or by wire
transfer for the account of the Company, of the Exercise Price for the Warrant
Shares specified in the Exercise Agreement (ii) cancellation by the Holder of
indebtedness of the Company to the Holder, (iii) a combination of (i) and (ii),
or (iv) if the Holder elects to effect a Cashless Exercise (as defined in
Section 12(c) below), delivery to the Company of a written notice of an election
to effect a Cashless Exercise for the Warrant Shares specified in the Exercise
Agreement. The Warrant Shares so purchased shall be deemed to be issued to the
Holder or Holder's designees, as the record owner of such shares, as of the date
on which this Warrant shall have been surrendered, the completed Exercise
Agreement shall have been delivered, and payment (or notice of an election to
effect a Cashless Exercise) shall have been made for such shares as set forth
above. In lieu of the payment methods set forth above, when permitted by law and
applicable regulations (including Nasdaq and NASD rules), the Holder may pay the
Exercise Price through a "same day sale" commitment from the Holder (and if
applicable a broker-dealer that is a member of the National Association of
Securities Dealers (a "NASD Dealer")), whereby the Holder irrevocably elects to
exercise this Warrant and to sell a portion of the Shares so purchased to pay
for the Exercise Price and the Holder (or, if applicable, the NASD Dealer)
commits upon sale (or, in the case of the NASD Dealer, upon receipt) of such
Warrant Shares to forward the Exercise Price directly to the Company.
(b) Issuance of Certificates. Subject to Section 1(c), certificates
for the Warrant Shares so purchased, representing the aggregate number of shares
specified in the Exercise Agreement, shall be delivered to the Holder within a
reasonable time, not exceeding three (3) business days, after this Warrant shall
have been so exercised (the "Delivery Period"). The certificates so delivered
shall be in such denominations as may be reasonably requested by the Holder and
shall be registered in the name of Holder or such other name as shall be
designated
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by such Holder. If this Warrant shall have been exercised only in part, then,
unless this Warrant has expired, the Company shall, at its expense, at the time
of delivery of such certificates, deliver to the Holder a new Warrant
representing the number of shares with respect to which this Warrant shall not
then have been exercised.
(c) Exercise Disputes. In the case of any dispute with respect to an
exercise, the Company shall promptly issue such number of shares of Common Stock
as are not disputed in accordance with this Section. If such dispute involves
the calculation of the Exercise Price, the Company shall submit the disputed
calculations to a nationally recognized independent accounting firm (selected by
the Company) via facsimile within three (3) business days of receipt of the
Exercise Agreement. The accounting firm shall audit the calculations and notify
the Company and the converting Holder of the results no later than two (2)
business days from the date it receives the disputed calculations. The
accounting firm's calculation shall be deemed conclusive, absent manifest error.
The Company shall then issue the appropriate number of shares of Common Stock in
accordance with this Section.
(d) Fractional Shares. No fractional shares of Common Stock are to be
issued upon the exercise of this Warrant, but the Company shall pay a cash
adjustment in respect of any fractional share which would otherwise be issuable
in an amount equal to the same fraction of the Exercise Price of a share of
Common Stock (as determined for exercise of this Warrant into whole shares of
Common Stock); provided that in the event that sufficient funds are not legally
available for the payment of such cash adjustment any fractional shares of
Common Stock shall be rounded up to the next whole number.
(e) Buy-In. If (i) the Company fails for any reason (other than
Holder's failure to pay to the Company the Exercise Price or to deliver to the
Company a duly executed Exercise Agreement) to deliver during the Delivery
Period shares of Common Stock to Holder upon an exercise of this Warrant and
(ii) after the applicable Delivery Period with respect to such an exercise,
Holder purchases (in an open market transaction or otherwise) shares of Common
Stock to make delivery upon a sale by Holder of the shares of Common Stock (the
"Sold Shares") which Holder was entitled to receive upon such exercise (a
"Buy-in"), the Company shall pay Holder (in addition to any other remedies
available to Holder) the amount by which (x) Holder's total purchase price
(including brokerage commission, if any) for the shares of Common Stock so
purchased exceeds (y) the lesser of (A) the Exercise Price or (B) the net
proceeds received by Holder from the sale of the Sold Shares. Holder shall
provide the Company written notification indicating any amounts payable to
Holder pursuant to this subsection.
2. Period of Exercise. This Warrant is exercisable at any time or
from time to time on or after the date hereof and before 5:00 P.M., Pacific Time
on the fifth (5th) anniversary of the date hereof (the "Exercise Period"). The
Company hereby acknowledges that exercise of this Warrant by Holder may subject
the Company and/or the Holder to the filing requirements of the
▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements Act of 1976, as amended, (the "HSR
Act") and that Holder may be prevented from exercising this Warrant until the
expiration or early termination of
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all waiting periods imposed by the HSR Act ("HSR Act Restrictions"). If on or
before the end of the Exercise Period Holder has sent the Notice of Exercise to
Company and Holder has not been able to complete the exercise of this Warrant
prior to the end of the Exercise Period because of HSR Act Restrictions, the
Holder shall be entitled to complete the process of exercising this Warrant, for
a period of ten (10) business days following termination of the HSR Act
Restrictions, in accordance with the procedures contained herein notwithstanding
the fact that completion of the exercise of this Warrant would take place after
the end of the Exercise Period.
3. Certain Agreements of the Company. The Company hereby covenants
and agrees as follows:
(a) Shares to be Fully Paid. All Warrant Shares will, upon
issuance in accordance with the terms of this Warrant, be validly issued, fully
paid, and non-assessable and free from all taxes, liens, claims and
encumbrances.
(b) Reservation of Shares. During the Exercise Period, the
Company shall at all times have authorized, and reserved for the purpose of
issuance upon exercise of this Warrant, a sufficient number of shares of Common
Stock to provide for the exercise of this Warrant.
(c) Listing. From and after the date of issuance of this
Warrant, the Company shall have secured and shall thereafter, for at least three
(3) years after the date of issuance of this Warrant, maintain the listing of
the shares of Common Stock issuable upon exercise of this Warrant upon The
Nasdaq National Market, the Nasdaq SmallCap Market, the New York Stock Exchange
or the American Stock Exchange, as required by the provisions of the Securities
Purchase Agreement and upon each national securities exchange or automated
quotation system, if any, upon which shares of Common Stock are then listed or
become listed and shall maintain, so long as any other shares of Common Stock
shall be so listed, such listing of all shares of Common Stock from time to time
issuable upon the exercise of this Warrant; and the Company shall so list on
each national securities exchange or automated quotation system, as the case may
be, and shall maintain such listing of any other shares of capital stock of the
Company issuable upon the exercise of this Warrant so long as any shares of the
same class shall be listed on such national securities exchange or automated
quotation system.
(d) Certain Actions Prohibited. The Company will not, by
amendment of its charter 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 to be observed or performed by it hereunder, but will at all times in
good faith assist in the carrying out of all the provisions of this Warrant and
in the taking of all such actions as may reasonably be requested by the Holder
of this Warrant in order to protect the exercise privilege of the Holder of this
Warrant, consistent with the tenor and purpose of this Warrant. Without limiting
the generality of the foregoing, the Company will take all such actions as may
be necessary or appropriate in order that the Company may validly and legally
issue fully paid and nonassessable shares of Common Stock upon the exercise of
this Warrant.
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4. Antidilution Provisions. During the Exercise Period or until
fully exercised, the Exercise Price and the number of Warrant Shares shall be
subject to adjustment from time to time as provided in this Section 4. In the
event that any adjustment of the Exercise Price as required herein results in a
fraction of a cent, such Exercise Price shall be rounded up or down to the
nearest cent.
(a) Adjustment of Exercise Price and Number of Shares upon
Issuance of Common Stock. Except as otherwise provided in Section 4(c) and 4(e)
hereof, if and whenever after the initial issuance of this Warrant, the Company
issues or sells, or in accordance with Section 4(b) hereof is deemed to have
issued or sold, any shares of Common Stock for no consideration or for a
consideration per share less than the Market Price (as herein defined) on the
date of issuance (a "Dilutive Issuance"), then effective immediately upon the
Dilutive Issuance, the Exercise Price will be adjusted in accordance with the
following formula:
E' = (E) (O + P/M) / (CSDO)
where:
E' = the adjusted Exercise Price
E = the then current Exercise Price;
M = the then current Market Price;
O = the number of shares of Common Stock outstanding
immediately prior to the Dilutive Issuance;
P = the aggregate consideration, calculated as set
forth in Section 4(b) hereof, received by the
Company upon such Dilutive Issuance; and
CSDO = the total number of shares of Common Stock Deemed
Outstanding (as herein defined) immediately after
the Dilutive Issuance.
(b) Effect on Exercise Price of Certain Events. For purposes of
determining the adjusted Exercise Price under Section 4(a) hereof, the following
will be applicable:
(i) Issuance of Rights or Options. If the Company in any
manner issues or grants any warrants, rights or options, whether or not
immediately exercisable, to subscribe for or to purchase Common Stock or other
securities exercisable, convertible into or exchangeable for Common Stock
("Convertible Securities"), but not to include the grant or exercise of any
stock or options which may hereafter be granted or exercised under any employee
or Director benefit plan of the Company now existing or to be implemented in the
future, so long as the issuance of such stock or options is approved by a
majority of the non-employee members of the Board of Directors of the Company or
a majority of the members of a committee of non-employee directors established
for such purpose (such warrants, rights and options to purchase Common Stock or
Convertible Securities are hereinafter referred to as "Options"), and the price
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42
per share for which Common Stock is issuable upon the exercise of such Options
is less than the Market Price on the date of issuance ("Below Market Options"),
then the maximum total number of shares of Common Stock issuable upon the
exercise of all such Below Market Options (assuming full exercise, conversion or
exchange of Convertible Securities, if applicable) will, as of the date of the
issuance or grant of such Below Market Options, be deemed to be outstanding and
to have been issued and sold by the Company for such price per share. For
purposes of the preceding sentence, the price per share for which Common Stock
is issuable upon the exercise of such Below Market Options is determined by
dividing (i) the total amount, if any, received or receivable by the Company as
consideration for the issuance or granting of such Below Market Options, plus
the minimum aggregate amount of additional consideration, if any, payable to the
Company upon the exercise of all such Below Market Options, plus, in the case of
Convertible Securities issuable upon the exercise of such Below Market Options,
the minimum aggregate amount of additional consideration payable upon the
exercise, conversion or exchange thereof at the time such Convertible Securities
first become exercisable, convertible or exchangeable, by (ii) the maximum total
number of shares of Common Stock issuable upon the exercise of all such Below
Market Options (assuming full conversion of Convertible Securities, if
applicable). No further adjustment to the Exercise Price will be made upon the
actual issuance of such Common Stock upon the exercise of such Below Market
Options or upon the exercise, conversion or exchange of Convertible Securities
issuable upon exercise of such Below Market Options.
(ii) Issuance of Convertible Securities.
(A) If the Company in any manner issues or sells
any Convertible Securities, whether or not immediately convertible (other than
where the same are issuable upon the exercise of Options) and the price per
share for which Common Stock is issuable upon such exercise, conversion or
exchange (as determined pursuant to Section 4(b)(ii)(B) if applicable) is less
than the Market Price on the date of issuance, then the maximum total number of
shares of Common Stock issuable upon the exercise, conversion or exchange of all
such Convertible Securities will, as of the date of the issuance of such
Convertible Securities, be deemed to be outstanding and to have been issued and
sold by the Company for such price per share. For the purposes of the preceding
sentence, the price per share for which Common Stock is issuable upon such
exercise, conversion or exchange is determined by dividing (i) the total amount,
if any, received or receivable by the Company as consideration for the issuance
or sale of all such Convertible Securities, plus the minimum aggregate amount of
additional consideration, if any, payable to the Company upon the exercise,
conversion or exchange thereof at the time such Convertible Securities first
become exercisable, convertible or exchangeable, by (ii) the maximum total
number of shares of Common Stock issuable upon the exercise, conversion or
exchange of all such Convertible Securities. No further adjustment to the
Exercise Price will be made upon the actual issuances of such Common Stock upon
exercise, conversion or exchange of such Convertible Securities.
(B) If the Company in any manner issues or sells
any Convertible Securities with a fluctuating conversion or exercise price or
exchange ratio (a
6
43
"Variable Rate Convertible Security"), then the price per share for which Common
Stock is issuable upon such exercise, conversion or exchange for purposes of the
calculation contemplated by Section 4(b)(ii)(A) shall be deemed to be the lowest
price per share which would be applicable assuming that (1) all holding period
and other conditions to any discounts contained in such Convertible Security
have been satisfied, and (2) the Market Price on the date of issuance of such
Convertible Security was 80% of the Market Price on such date (the "Assumed
Variable Market Price").
(iii) Change in Option Price or Conversion Rate. Except
for the grant or exercise of any stock or options which may hereafter be granted
or exercised under any employee or Director benefit plan of the Company now
existing or to be implemented in the future, so long as the issuance of such
stock or options is approved by a majority of the non-employee members of the
Board of Directors of the Company or a majority of the members of a committee of
non-employee directors established for such purpose, if there is a change at any
time in (i) the amount of additional consideration payable to the Company upon
the exercise of any Options; (ii) the amount of additional consideration, if
any, payable to the Company upon the exercise, conversion or exchange or any
Convertible Securities; or (iii) the rate at which any Convertible Securities
are convertible into or exchangeable for Common Stock (other than under or by
reason of provisions designed to protect against dilution), the Exercise Price
in effect at the time of such change will be readjusted to the Exercise Price
which would have been in effect at such time had such Options or Convertible
Securities still outstanding provided for such changed additional consideration
or changed conversion rate, as the case may be, at the time initially granted,
issued or sold.
(iv) Treatment of Expired Options and Unexercised
Convertible Securities. If, in any case, the total number of shares of Common
Stock issuable upon exercise of any Options or upon exercise, conversion or
exchange of any Convertible Securities is not, in fact, issued and the rights to
exercise such option or to exercise, convert or exchange such Convertible
Securities shall have expired or terminated, the Exercise Price then in effect
will be readjusted to the Exercise Price which would have been in effect at the
time of such expiration or termination had such Options or Convertible
Securities, to the extent outstanding immediately prior to such expiration or
termination (other than in respect of the actual number of shares of Common
Stock issued upon exercise or conversion thereof), never been issued.
(v) Calculation of Consideration Received. If any
Common Stock, Options or Convertible Securities are issued, granted or sold for
cash, the consideration received therefor for purposes of this Warrant will be
the amount received by the Company therefor, before deduction of reasonable
commissions, underwriting discounts or allowances or other reasonable expenses
paid or incurred by the Company in connection with such issuance, grant or sale.
In case any Common Stock, Options or Convertible Securities are issued or sold
for a consideration part or all of which shall be other than cash, the amount of
the consideration other than cash received by the Company will be the fair
market value of such consideration except where such consideration consists of
freely-tradeable securities, in which case the amount of
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44
consideration received by the Company will be the Market Price thereof as of the
date of receipt. In case any Common Stock, Options or Convertible Securities are
issued in connection with any merger or consolidation in which the Company is
the surviving corporation, the amount of consideration therefor will be deemed
to be the fair market value of such portion of the net assets and business of
the non-surviving corporation as is attributable to such Common Stock, Options
or Convertible Securities, as the case may be. The fair market value of any
consideration other than cash or securities will be determined in the good faith
reasonable business judgment of the Board of Directors.
(vi) Exceptions to Adjustment of Exercise Price. No
adjustment to the Exercise Price will be made (i) upon the exercise of any
warrants, options or convertible securities issued and outstanding on the date
hereof in accordance with the terms of such securities as of such date; (ii)
upon the grant or exercise of any stock or options which may hereafter be
granted or exercised under any employee or Director benefit plan of the Company
now existing or to be implemented in the future, so long as the issuance of such
stock or options is approved by a majority of the non-employee members of the
Board of Directors of the Company or a majority of the members of a committee of
non-employee directors established for such purpose; (iii) upon the issuance of
the Common Shares (as defined in the Securities Purchase Agreement) or Warrants
in accordance with terms of the Securities Purchase Agreement; or (iv) upon the
exercise of the Warrants.
(c) Subdivision or Combination of Common Stock. If the Company,
at any time after the initial issuance of this Warrant, subdivides (by any stock
split, stock dividend, recapitalization, reorganization, reclassification or
otherwise) its shares of Common Stock into a greater number of shares, then,
after the date of record for effecting such subdivision, the Exercise Price in
effect immediately prior to such subdivision will be proportionately reduced. If
the Company, at any time after the initial issuance of this Warrant, combines
(by reverse stock split, recapitalization, reorganization, reclassification or
otherwise) its shares of Common Stock into a smaller number of shares, then,
after the date of record for effecting such combination, the Exercise Price in
effect immediately prior to such combination will be proportionately increased.
(d) Adjustment in Number of Shares. Upon each adjustment of the
Exercise Price pursuant to the provisions of this Section 4, the number of
shares of Common Stock issuable upon exercise of this Warrant shall be adjusted
by multiplying a number equal to the Exercise Price in effect immediately prior
to such adjustment by the number of shares of Common Stock issuable upon
exercise of this Warrant immediately prior to such adjustment and dividing the
product so obtained by the adjusted Exercise Price.
(e) Major Transactions. If the Company shall consolidate or
merge with any other corporation or entity (other than a merger in which the
Company is the surviving or continuing entity and its capital stock is unchanged
and unissued in such transaction (except for Common Stock constituting less than
twenty percent (20%) of the Company's Common Stock then outstanding)) or any
subsidiary of the Company shall be a party to a merger or consolidation
8
45
or other extraordinary transaction and the Company issues twenty percent (20%)
or more of its Common Stock in any such merger, consolidation or other
transaction or there shall occur any share exchange pursuant to which all of the
outstanding shares of Common Stock are converted into other securities or
property or any reclassification or change of the outstanding shares of Common
Stock (each of the foregoing being a "Major Transaction"), then each holder of a
Warrant may thereafter, at its option, be entitled to (a) in the event that the
Common Stock remains outstanding or holders of Common Stock receive any common
stock or substantially similar equity interest, in each of the foregoing cases
which is publicly traded, retain its Warrant and such Warrant shall continue to
apply to such Common Stock or shall apply, as nearly as practicable, to such
other common stock or equity interest, as the case may be, or (b) regardless or
whether (a) applies, receive consideration, in exchange for such Warrant, equal
to the greater of, as determined in the sole discretion of such holder, (i) the
number of shares of stock or securities or property of the Company, or of the
entity resulting from such Major Transaction (the "Major Transaction
Consideration"), to which a holder of the number of shares of Common Stock
delivered upon the exercise of such Warrant would have been entitled upon such
Major Transaction had such holder exercised the Warrant (without regard to any
limitations on conversion or elsewhere contained) on the trading date
immediately preceding the public announcement of the transaction resulting in
such Major Transaction and had such Common Stock been issued and outstanding and
had such Holder been the holder of record of such Common Stock at the time of
the consummation of such Major Transaction, and (ii) cash paid by the Company in
immediately available funds, in an amount equal to one hundred and twenty five
percent (125%) of the Black-Scholes Amount (as defined herein) times the number
of shares of Common Stock for which this Warrant was exercisable (without regard
to any limitations on exercise herein contained); and the Company shall make
lawful provision for the foregoing as a part of such Major Transaction and shall
cause the issuer of any security in such transaction which constitutes
Registrable Securities under the registration rights provisions of Section 7(c)
of the Securities Purchase Agreement to assume all of the Company's obligations
thereunder. No sooner than ten (10) business days nor later than five (5)
business days prior to the consummation of the Major Transaction, but not prior
to the public announcement of such Major Transaction, the Company shall deliver
written notice ("Notice of Major Transaction") to each holder of a Warrant,
which Notice of Major Transaction shall be deemed to have been delivered one (1)
business day after the Company's sending such notice by telecopy (provided that
the Company sends a confirming copy of such notice on the same day by overnight
courier) of such Notice of Major Transaction. Such Notice of Major Transaction
shall indicate the amount and type of the Major Transaction consideration which
such holder of a Warrant would receive under this Section. If the Major
Transaction Consideration does not consist entirely of United States currency,
such holder may elect to receive United States currency in an amount equal to
the value of the Major Transaction Consideration in lieu of the Major
Transaction Consideration by delivering notice of such election to the Company
within five (5) business days of such holder's receipt of the Notice of Major
Transaction.
The "Black-Scholes Amount" shall be an amount determined by calculating
the "Black-Scholes" value of an option to purchase one share of Common Stock on
the applicable page on
9
46
the Bloomberg online page, using the following variable values: (i) the current
market price of the Common Stock equal to the closing trade price on the last
trading day before the date of the Notice of the Major Transaction; (ii)
volatility of the Common Stock equal to the volatility of the common Stock
during the 100 trading day period preceding the date of the Notice of the Major
Transaction; (iii) a risk free rate equal to the interest rate on the United
States treasury ▇▇▇▇ or treasury note with a maturity corresponding to the
remaining term of this Warrant on the date of the Notice of the Major
Transaction; and (iv) an exercise price equal to the Exercise Price on the date
of the Notice of the Major Transaction. In the event such calculation function
is no longer available utilizing the Bloomberg online page, the Holder shall
calculate such amount in its sole discretion using the closest available
alternative mechanism and variable values to those available utilizing the
Bloomberg online page for such calculation function.
(f) Distribution of Assets. In case the Company shall declare or
make any distribution of its assets (or rights to acquire its assets) to holders
of Common Stock as a partial liquidating dividend, by way of return of capital
or otherwise (including any dividend or distribution to the Company's
shareholders of cash or shares (or rights to acquire shares) of capital stock of
a subsidiary) (a "Distribution"), at any time after the initial issuance of this
Warrant, then the Holder shall be entitled upon exercise of this Warrant for the
purchase of any or all of the shares of Common Stock subject hereto, to receive
the amount of such assets (or rights) which would have been payable to the
Holder had such Holder been the holder of such shares of Common Stock on the
record date for the determination of shareholders entitled to such Distribution.
(g) Notices of Adjustment. Upon the occurrence of any event
which requires any adjustment of the Exercise Price, then, and in each such
case, the Company shall give notice thereof to the Holder, which notice shall
state the Exercise Price resulting from such adjustment and the increase or
decrease in the number of Warrant Shares purchasable at such price upon
exercise, setting forth in reasonable detail the method of calculation and the
facts upon which such calculation is based. Such calculation shall be certified
by the chief financial officer of the Company.
(h) Minimum Adjustment of Exercise Price. No adjustment of the
Exercise Price shall be made in an amount of less than 1% of the Exercise Price
in effect at the time such adjustment is otherwise required to be made, but any
such lesser adjustment shall be carried forward and shall be made at the time
and together with the next subsequent adjustment which, together with any
adjustments so carried forward, shall amount to not less than 1% of such
Exercise Price.
(i) No Fractional Shares. No fractional shares of Common Stock
are to be issued upon the exercise of this Warrant, but the Company shall pay a
cash adjustment in respect of any fractional share which would otherwise be
issuable in an amount equal to the same fraction of the Market Price of a share
of Common Stock; provided that in the event that
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47
sufficient funds are not legally available for the payment of such cash
adjustment any fractional shares of Common Stock shall be rounded up to the next
whole number.
(j) Other Notices. In case at any time:
(i) the Company shall declare any dividend upon the
Common Stock payable in shares of stock of any class or make any other
distribution to the holders of the Common Stock;
(ii) the Company shall offer for subscription pro rata
to the holders of the Common Stock any additional shares of stock of any class
or other rights;
(iii) there shall be any capital reorganization of the
Company, or reclassification of the Common Stock, or consolidation or merger of
the Company with or into, or sale of all or substantially all of its assets to,
another corporation or entity; or
(iv) there shall be a voluntary or involuntary
dissolution, liquidation or winding-up of the Company;
then, in each such case, the Company shall give to the Holder (a) notice of the
date on which the books of the Company shall close or a record shall be taken
for determining the holders of Common Stock entitled to receive any such
dividend, distribution, or subscription rights or for determining the holders of
Common Stock entitled to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding-up and (b) in the case of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding-up, notice of
the date (or, if not then known, a reasonable approximation thereof by the
Company) when the same shall take place. Such notice shall also specify the date
on which the holders of Common Stock shall be entitled to receive such dividend,
distribution, or subscription rights or to exchange their Common Stock for stock
or other securities or property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation, or
winding-up, as the case may be. Such notice shall be given at least 30 days
prior to the record date or the date on which the Company's books are closed in
respect thereto, but in no event earlier than public announcement of such
proposed transaction or event. Failure to give any such notice or any defect
therein shall not affect the validity of the proceedings referred to in clauses
(i), (ii), (iii) and (iv) above.
(k) Certain Definitions.
(i) "Common Stock Deemed Outstanding" shall mean the
number of shares of Common Stock actually outstanding (not including shares of
Common Stock held in the treasury of the Company), plus (x) in case of any
adjustment required by Section 4(a) resulting from the issuance of any Options,
the maximum total number of shares of Common Stock issuable upon the exercise of
the Options for which the adjustment is required (including
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48
any Common Stock issuable upon the conversion of Convertible Securities issuable
upon the exercise of such Options), and (y) in the case of any adjustment
required by Section 4(a) resulting from the issuance of any Convertible
Securities, the maximum total number of shares of Common Stock issuable upon the
exercise, conversion or exchange of the Convertible Securities for which the
adjustment is required, as of the date of issuance of such Convertible
Securities, if any.
(ii) "Market Price," as of any date, (i) means the
average of the Closing Bid Prices for the shares of Common Stock as reported to
Nasdaq National Market System for the trading day immediately preceding such
date, or (ii) if The Nasdaq National Market is not the principal trading market
for the Common Stock, the average of the last reported bid prices on the
principal trading market for the Common Stock during the same period, or, if
there is no bid price for such period, the last reported sales price for such
period, or (iii) if market value cannot be calculated as of such date on any of
the foregoing bases, the Market Price shall be the value thereof, as agreed upon
by the Company and the Holder; provided, however, that if the Company and the
Holder cannot agree on such value, such value shall be the average fair market
value as reasonably determined by an investment banking firm selected by the
Company and reasonably acceptable to the Holders of a majority in interest of
the Warrants, with the costs of the appraisal to be borne by the Company. The
manner of determining the Market Price of the Common Stock set forth in the
foregoing definition shall apply with respect to any other security in respect
of which a determination as to market value must be made hereunder.
(iii) "Common Stock," for purposes of this Section 4,
includes the Common Stock and any additional class of stock of the Company
having no preference as to dividends or distributions on liquidation, provided
that the shares purchasable pursuant to this Warrant shall include only Common
Stock in respect of which this Warrant is exercisable, or shares resulting from
any subdivision or combination of such Common Stock, or in the case of any
reorganization, reclassification, consolidation, merger, or sale of the
character referred to in Section 4(e) hereof, the stock or other securities or
property provided for in such Section.
(l) Other Adjustments. If:
(1) ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ disposes of any shares of Common
Stock beneficially owned by him while the Common Stock is trading at or below
twenty-five dollars ($25) per share during the period beginning on the date of
the Closing and ending on the earlier of (i) the first (1st) anniversary of the
date of the Closing, or (ii) the date on which ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ceases to be
President or CEO of the Company; or
(2) ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ or ▇▇▇ ▇▇▇▇▇▇▇▇ (each a "▇▇▇▇▇▇▇▇")
dispose of any shares of Common Stock beneficially owned by such ▇▇▇▇▇▇▇▇ at any
time during the period beginning on the date of the Closing and ending on the
date which is six (6) months following the Closing, then the Exercise Price
shall be adjusted to the Adjusted Exercise Price (as defined herein) if such
adjustment would result in a decrease in the Exercise Price; provided,
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however, that the Exercise Price shall not be adjusted upon the occurrence of a
disposal described in clause (1) until ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ sells or otherwise
transfers in excess of fifty thousand (50,000) shares of Common Stock in
aggregate during such period at a price less than twenty-five dollars ($25)
pursuant to Rule 144. For any disposal of Common Stock described hereunder, the
"Adjusted Exercise Price" shall mean the lesser of (a) the lowest closing bid
price of the Common Stock during the thirty (30) trading day period beginning on
the trading day (the "Announcement Date") immediately preceding the day on which
such disposal was publicly announced and (b) the price per share which ▇▇▇▇▇▇▇▇▇
or such ▇▇▇▇▇▇▇▇, as applicable, received in connection with such disposal;
provided, however, that if the Adjusted Exercise Price described above is
greater than the Exercise Price, then the Adjusted Exercise Price shall be equal
to (c) the lowest closing bid price of the Common Stock during the thirty (30)
trading day period beginning on the Announcement Date divided by (d) the closing
bid price of the Common Stock on the Announcement Date times (e) the Exercise
Price.
5. Cap Amount. Prior to Nasdaq Approval (as defined in the
Securities Purchase Agreement) or 4460 Shareholder Approval (as defined in the
Securities Purchase Agreement), unless otherwise permitted by The Nasdaq
National Market or unless the rules thereof no longer are applicable to the
Company, in no event shall the total number of shares of Common Stock issued at
the Closing under the Securities Purchase Agreement and upon exercise of the
Warrants exceed the maximum number of shares of Common Stock that the Company
can without stockholder approval so issue pursuant to Nasdaq Rule 4460(i) (or
any successor rule) (the "Cap Amount") upon Closing under the Securities
Purchase Agreement and the exercise of the Warrants, which, as of the date of
initial issuance of Common Stock and Warrants to the Holders, which amount is
one million, two hundred thirty two thousand and forty five (1,232,045) shares.
The Cap Amount shall be allocated pro rata among the Holders based on the number
of shares of Common Stock and Warrants issued to each Holder. In the event a
Holder shall sell or otherwise transfer any of such Holder Sections Warrants,
each transferee shall be allocated a pro rata portion of such transferor
Sections Cap Amount. A Holder Sections allocable portion of the Cap Amount shall
be allocated first to the Common Stock issued to the Holder at the Closing under
the Securities Purchase Agreement, then to the First Warrants (as defined in the
Securities Purchase Agreement) and only the Warrants shall be subject to the
limitation imposed by this Section 5.
6. Issue Tax. The issuance of certificates for Warrant Shares upon
the exercise of this Warrant shall be made without charge to the Holder or such
shares for any issuance tax or other costs in respect thereof, provided that the
Company shall not be required to pay any tax which may be payable in respect of
any transfer involved in the issuance and delivery of any certificate in a name
other than the Holder.
7. No Rights or Liabilities as a Shareholder. This Warrant shall not
entitle the Holder to any voting rights or other rights as a shareholder of the
Company. No provision of this Warrant, in the absence of affirmative action by
the Holder to purchase Warrant Shares, and no mere enumeration herein of the
rights or privileges of the Holder, shall give rise to any liability
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50
of the Holder for the Exercise Price or as a shareholder of the Company, whether
such liability is asserted by the Company or by creditors of the Company.
8. Transfer, Exchange and Replacement of Warrant.
a. Restriction on Transfer. This Warrant and the rights granted
to the Holder are transferable, in whole or in part, upon surrender of this
Warrant, together with a properly executed assignment in the Form of Assignment
attached hereto as Exhibit 2, at the office or agency of the Company referred to
in Section 8(e) below, provided, however, that any transfer or assignment shall
be subject to the provisions of the Securities Purchase Agreement. Until due
presentment for registration of transfer on the books of the Company, the
Company may treat the registered holder hereof as the owner and holder hereof
for all purposes, and the Company shall not be affected by any notice to the
contrary. Notwithstanding anything to the contrary contained herein, the
registration rights described in Section 9 hereof are assignable only in
accordance with the provisions of the Securities Purchase Agreement.
b. Warrant Exchangeable for Different Denominations. This
Warrant is exchangeable, upon the surrender hereof by the Holder at the office
or agency of the Company referred to in Section 8(e) below, for new Warrants, in
the form hereof, of different denominations representing in the aggregate the
right to purchase the number of shares of Common Stock which may be purchased
hereunder, each of such new Warrants to represent the right to purchase such
number of shares as shall be designated by the Holder of at the time of such
surrender.
c. Replacement of Warrant. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction, or mutilation of
this Warrant or, in the case of any such loss, theft, or destruction, upon
delivery, of an indemnity agreement reasonably satisfactory in form and amount
to the Company, or, in the case of any such mutilation, upon surrender and
cancellation of this Warrant, the Company, at its expense, will execute and
deliver, in lieu thereof, a new Warrants, in the form hereof, in such
denominations as Holder may request.
d. Cancellation; Payment of Expenses. Upon the surrender of
this Warrant in connection with any transfer, exchange, or replacement as
provided in this Section 8, this Warrant shall be promptly canceled by the
Company. The Company shall pay all issuance taxes (other than securities
transfer taxes) and charges payable in connection with the preparation,
execution, and delivery of Warrants pursuant to this Section 8.
e. Warrant Register. The Company shall maintain, at its
principal executive offices (or such other office or agency of the Company as it
may designate by notice to the Holder), a register for this Warrant, in which
the Company shall record the name and address of the person in whose name this
Warrant has been issued, as well as the name and address of each transferee and
each prior owner of this Warrant.
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9. Registration Rights. The initial holder of this Warrant (and
certain assignees thereof) is entitled to the benefit of such registration
rights in respect of the Warrant Shares as are set forth in Section 7(c) of the
Securities Purchase Agreement.
10. Notices. Any notice herein required or permitted to be given
shall be in writing and may be personally served or delivered by courier or by
confirmed telecopy, and shall be deemed delivered at the time and date of
receipt (which shall include telephone line facsimile transmission). The
addresses for such communications shall be:
If to the Company:
ModaCAD, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇.
▇▇▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: President
with a copy to:
Coudert Brothers
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ - ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇ ▇. St. Clair
and if to the Holder, at such address as Holder shall have provided in writing
to the Company, or at such other address as each such party furnishes by notice
given in accordance with this Section 10.
11. Governing Law; Jurisdiction. This Warrant shall be governed by
and construed in accordance with the laws of the State of California applicable
to contracts made and to be performed in the State of California. The Company
irrevocably consents to the jurisdiction of the United States federal courts
located in the State of California and the state courts located in the County of
Santa ▇▇▇▇▇ in the State of California in any suit or proceeding based on or
arising under this Warrant and irrevocably agrees that all claims in respect of
such suit or proceeding may be determined in such courts. The Company
irrevocably waives the defense of an inconvenient forum to the maintenance of
such suit or proceeding. The Company agrees that a final nonappealable judgment
in any such suit or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on such judgment or in any other lawful manner.
12. Miscellaneous.
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a. Amendments. This Warrant and any provision hereof may only
be amended by an instrument in writing signed by the Company and the Holder.
b. Descriptive Headings. The descriptive headings of the
several Sections of this Warrant are inserted for purposes of reference only,
and shall not affect the meaning or construction of any of the provisions
hereof.
c. Cashless Exercise. Notwithstanding anything to the contrary
contained in this Warrant, this Warrant may be exercised by presentation and
surrender of this Warrant to the Company at its principal executive offices with
a written notice of the Holder's intention to effect a Cashless Exercise,
including a calculation of the number of shares of Common Stock to be issued
upon such exercise in accordance with the terms hereof (a "Cashless Exercise").
In the event of a Cashless Exercise, in lieu of paying the Exercise Price in
cash, the Holder shall surrender this Warrant for the number of shares of Common
Stock determined by multiplying the number of Warrant Shares to which it would
otherwise be entitled by a fraction, the numerator of which shall be the
difference between the then current Market Price per share of the Common Stock
and the Exercise Price, and the denominator of which shall be such then current
Market Price per share of Common Stock.
d. Assignability. This Warrant shall be binding upon the
Company and its successors and assigns and shall inure to the benefit of Holder
and its successors and assigns. The Holder shall notify the Company upon the
assignment of this Warrant.
e. Weekends, Etc. If the end of the Exercise Period falls on a
Saturday, Sunday or legal holiday, the end of the Exercise Period shall be
extended automatically until 5:00 p.m. the next business day.
* * *
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IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its duly authorized officer.
ModaCAD, Inc.
By:
-----------------------------------
Name: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Title: Chief Executive Officer
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FORM OF EXERCISE AGREEMENT
(To be Executed by the Holder in order to Exercise the Warrant)
The undersigned hereby irrevocably exercises the right to purchase
____________ of the shares of common stock of ModaCAD, Inc., a [California]
corporation (the "Company"), evidenced by the attached Warrant, and [herewith
makes payment of the Exercise Price with respect to such shares in full/ elects
to effect a Cashless Exercise pursuant to the terms of the Warrant], all in
accordance with the conditions and provisions of said Warrant.
(i) The undersigned agrees not to offer, sell, transfer or otherwise
dispose of any Common Stock obtained on exercise of the Warrant, except under
circumstances that will not result in a violation of the Securities Act of 1933,
as amended, or any state securities laws.
(ii) The undersigned requests that stock certificates for such shares be
issued, and a Warrant representing any unexercised portion hereof be issued,
pursuant to the Warrant in the name of the Holder (or such other person or
persons indicated below) and delivered to the undersigned (or designee(s) at the
address (or addresses) set forth below:
Date:
---------------------------- ----------------------------------------
Signature of Holder
----------------------------------------
Name of Holder (Print)
Address:
----------------------------------------
----------------------------------------
55
FORM OF ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and transfers
all rights of the undersigned under the within Warrant, with respect to the
number of shares of Common Stock covered thereby set forth hereinbelow, to:
Name of Assignee Address No. of Shares
, and hereby irrevocably constitutes and appoints ______________________________
as agent and attorney-in-fact to transfer said Warrant on the books of the
within-named corporation, with full power of substitution in the premises.
Date:____________, _____,
In the presence of
Name:
-----------------------------------------
Signature:
------------------------------------
Title of Signing Officer or Agent (if any):
------------------------------------
Address:
-----------------------------------
-----------------------------------
Note: The above signature should
correspond exactly with the
name on the face of the
within Warrant.
56
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE OF
THE UNITED STATES. THE SECURITIES REPRESENTED HEREBY MAY NOT BE OFFERED OR SOLD
OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
FOR THE SECURITIES UNDER APPLICABLE SECURITIES LAWS, OR UNLESS OFFERED, SOLD OR
TRANSFERRED PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THOSE LAWS.
Right to Purchase 189,674 Shares of
Common Stock
Date: April 7, 1999
MODACAD, INC.
STOCK PURCHASE WARRANT
THIS CERTIFIES THAT, for value received, Intel Corporation or its
registered assigns, is entitled to purchase from ModaCAD, Inc., a California
corporation (the "Company"), at any time or from time to time during the period
specified in Section 2 hereof, One Hundred Eighty-Nine Thousand Six Hundred
Seventy-Four (189,674) fully paid and nonassessable shares of the Company's
common stock (the "Common Stock"), at an initial exercise price of $13.18 per
share (the "Exercise Price". This Warrant is being issued pursuant to that
certain Stock and Warrant Purchase and Investor Rights Agreement dated April 7,
1999 between the Company and the Holder (the "Securities Purchase Agreement").
The number of shares of Common Stock purchasable hereunder (the "Warrant
Shares") and the Exercise Price are subject to adjustment as provided in Section
4 hereof. The term "Warrants" means this Warrant and the other warrants of the
Company issued pursuant to the terms of the Securities Purchase Agreement.
The term "Closing Bid Price" means, for any security as of any date, the
closing bid price of such security on the principal securities exchange or
trading market where such security is listed or traded as reported by Bloomberg
Financial Markets or a comparable reporting service of national reputation
selected by the Company and reasonably acceptable to the holder hereof (the
"Holder") if Bloomberg Financial Markets is not then reporting closing bid
prices of such security (collectively, "Bloomberg"), or if the foregoing does
not apply, the last reported sale price of such security in the over-the-counter
market on the electronic bulletin board of such security as reported by
Bloomberg, or, if no sale price is reported for such security by Bloomberg, the
average of the bid prices of any market makers for such security as reported in
the "pink sheets" by the National Quotation Bureau, Inc. If the Closing Bid
Price cannot be calculated for such security on such date on any of the
foregoing bases, the Closing Bid Price of such security on such date shall be
the value thereof, as agreed upon by the Company and the
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Holder; provided, however, that if the Company and the Holder cannot agree on
such value, such value shall be the fair market value as reasonably determined
by an investment banking firm selected by the Company and reasonably acceptable
to the Holder with the costs of such appraisal to be borne by the Company.
This Warrant is subject to the following terms, provisions, and
conditions:
1. Mechanics of Exercise. Subject to the provisions hereof,
including, without limitation, the limitations contained in Section 8(f) hereof,
this Warrant may be exercised as follows:
(a) Manner of Exercise. This Warrant may be exercised by the Holder,
in whole or in part, by the surrender of this Warrant (or evidence of loss,
theft, destruction or mutilation thereof in accordance with Section 8(c)
hereof), together with a completed exercise agreement in the Form of Exercise
Agreement attached hereto as Exhibit 1 (the "Exercise Agreement"), to the
Company at the Company's principal executive offices (or such other office or
agency of the Company as it may designate by notice to the Holder), and upon
payment to the Company in cash, by certified or official bank check or by wire
transfer for the account of the Company, of the Exercise Price for the Warrant
Shares specified in the Exercise Agreement. The Warrant Shares so purchased
shall be deemed to be issued to the Holder or Holder's designees, as the record
owner of such shares, as of the date on which this Warrant shall have been
surrendered, the completed Exercise Agreement shall have been delivered, and
payment shall have been made for such shares as set forth above. In lieu of the
payment methods set forth above, when permitted by law and applicable
regulations (including Nasdaq and NASD rules), the Holder may pay the Exercise
Price through a "same day sale" commitment from the Holder (and if applicable a
broker-dealer that is a member of the National Association of Securities Dealers
(a "NASD Dealer")), whereby the Holder irrevocably elects to exercise this
Warrant and to sell a portion of the Shares so purchased to pay for the Exercise
Price and the Holder (or, if applicable, the NASD Dealer) commits upon sale (or,
in the case of the NASD Dealer, upon receipt) of such Warrant Shares to forward
the Exercise Price directly to the Company.
(b) Issuance of Certificates. Subject to Section 1(c), certificates
for the Warrant Shares so purchased, representing the aggregate number of shares
specified in the Exercise Agreement, shall be delivered to the Holder within a
reasonable time, not exceeding three (3) business days, after this Warrant shall
have been so exercised (the "Delivery Period"). The certificates so delivered
shall be in such denominations as may be reasonably requested by the Holder and
shall be registered in the name of Holder or such other name as shall be
designated by such Holder. If this Warrant shall have been exercised only in
part, then, unless this Warrant has expired, the Company shall, at its expense,
at the time of delivery of such certificates, deliver to the Holder a new
Warrant representing the number of shares with respect to which this Warrant
shall not then have been exercised.
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58
(c) Exercise Disputes. In the case of any dispute with respect to an
exercise, the Company shall promptly issue such number of shares of Common Stock
as are not disputed in accordance with this Section. If such dispute involves
the calculation of the Exercise Price, the Company shall submit the disputed
calculations to a nationally recognized independent accounting firm (selected by
the Company) via facsimile within three (3) business days of receipt of the
Exercise Agreement. The accounting firm shall audit the calculations and notify
the Company and the converting Holder of the results no later than two (2)
business days from the date it receives the disputed calculations. The
accounting firm's calculation shall be deemed conclusive, absent manifest error.
The Company shall then issue the appropriate number of shares of Common Stock in
accordance with this Section.
(d) Fractional Shares. No fractional shares of Common Stock are to be
issued upon the exercise of this Warrant, but the Company shall pay a cash
adjustment in respect of any fractional share which would otherwise be issuable
in an amount equal to the same fraction of the Exercise Price of a share of
Common Stock (as determined for exercise of this Warrant into whole shares of
Common Stock); provided that in the event that sufficient funds are not legally
available for the payment of such cash adjustment any fractional shares of
Common Stock shall be rounded up to the next whole number.
(e) Buy-In. If (i) the Company fails for any reason (other than
Holder's failure to pay timely to the Company the Exercise Price) to deliver
during the Delivery Period shares of Common Stock to Holder upon an exercise of
this Warrant and (ii) after the applicable Delivery Period with respect to such
an exercise, Holder purchases (in an open market transaction or otherwise)
shares of Common Stock to make delivery upon a sale by Holder of the shares of
Common Stock (the "Sold Shares") which Holder was entitled to receive upon such
exercise (a "Buy-in"), the Company shall pay Holder (in addition to any other
remedies available to Holder) the amount by which (x) Holder's total purchase
price (including brokerage commission, if any) for the shares of Common Stock so
purchased exceeds (y) the lesser of (A) the Exercise Price or (B) the net
proceeds received by Holder from the sale of the Sold Shares. Holder shall
provide the Company written notification indicating any amounts payable to
Holder pursuant to this subsection.
2. Period of Exercise. This Warrant is exercisable at any time or
from time to time on or after the date hereof and before 5:00 P.M., Pacific Time
on the first (1st) anniversary of the date hereof (the "Exercise Period"). The
Company hereby acknowledges that exercise of this Warrant by Holder may subject
the Company and/or the Holder to the filing requirements of the
▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements Act of 1976, as amended, (the "HSR
Act") and that Holder may be prevented from exercising this Warrant until the
expiration or early termination of all waiting periods imposed by the HSR Act
("HSR Act Restrictions"). If on or before the end of the Exercise Period Holder
has sent the Notice of Exercise to Company and Holder has not been able to
complete the exercise of this Warrant prior to the end of the Exercise Period
because of HSR Act Restrictions, the Holder shall be entitled to complete the
process of exercising this Warrant, for a period of ten (10) business days
following termination of the HSR Act
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59
Restrictions, in accordance with the procedures contained herein notwithstanding
the fact that completion of the exercise of this Warrant would take place after
the end of the Exercise Period.
3. Certain Agreements of the Company. The Company hereby covenants
and agrees as follows:
(a) Shares to be Fully Paid. All Warrant Shares will, upon
issuance in accordance with the terms of this Warrant, be validly issued, fully
paid, and non-assessable and free from all taxes, liens, claims and
encumbrances.
(b) Reservation of Shares. During the Exercise Period, the
Company shall at all times have authorized, and reserved for the purpose of
issuance upon exercise of this Warrant, a sufficient number of shares of Common
Stock to provide for the exercise of this Warrant.
(c) Listing. From and after the date of issuance of this
Warrant, the Company shall have secured and shall thereafter, for at least three
(3) years after the date of issuance of this Warrant, maintain the listing of
the shares of Common Stock issuable upon exercise of this Warrant upon The
Nasdaq National Market, the Nasdaq SmallCap Market, the New York Stock Exchange
or the American Stock Exchange, as required by the Securities Purchase Agreement
and upon each national securities exchange or automated quotation system, if
any, upon which shares of Common Stock are then listed or become listed and
shall maintain, so long as any other shares of Common Stock shall be so listed,
such listing of all shares of Common Stock from time to time issuable upon the
exercise of this Warrant; and the Company shall so list on each national
securities exchange or automated quotation system, as the case may be, and shall
maintain such listing of any other shares of capital stock of the Company
issuable upon the exercise of this Warrant so long as any shares of the same
class shall be listed on such national securities exchange or automated
quotation system.
(d) Certain Actions Prohibited. The Company will not, by
amendment of its charter 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 to be observed or performed by it hereunder, but will at all times in
good faith assist in the carrying out of all the provisions of this Warrant and
in the taking of all such actions as may reasonably be requested by the Holder
of this Warrant in order to protect the exercise privilege of the Holder of this
Warrant, consistent with the tenor and purpose of this Warrant. Without limiting
the generality of the foregoing, the Company will take all such actions as may
be necessary or appropriate in order that the Company may validly and legally
issue fully paid and nonassessable shares of Common Stock upon the exercise of
this Warrant.
4. Antidilution Provisions. During the Exercise Period or until
fully exercised, the Exercise Price and the number of Warrant Shares shall be
subject to adjustment from time to time as provided in this Section 4. In the
event that any adjustment of the Exercise Price as
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60
required herein results in a fraction of a cent, such Exercise Price shall be
rounded up or down to the nearest cent.
(a) Adjustment of Exercise Price and Number of Shares upon
Issuance of Common Stock. Except as otherwise provided in Section 4(c) and 4(e)
hereof, if and whenever after the initial issuance of this Warrant, the Company
issues or sells, or in accordance with Section 4(b) hereof is deemed to have
issued or sold, any shares of Common Stock for no consideration or for a
consideration per share less than the Market Price (as herein defined) on the
date of issuance (a "Dilutive Issuance"), then effective immediately upon the
Dilutive Issuance, the Exercise Price will be adjusted in accordance with the
following formula:
E' = (E) (O + P/M) / (CSDO)
where:
E' = the adjusted Exercise Price
E = the then current Exercise Price;
M = the then current Market Price;
O = the number of shares of Common Stock outstanding
immediately prior to the Dilutive Issuance;
P = the aggregate consideration, calculated as set
forth in Section 4(b) hereof, received by the
Company upon such Dilutive Issuance; and
CSDO = the total number of shares of Common Stock Deemed
Outstanding (as herein defined) immediately after
the Dilutive Issuance.
(b) Effect on Exercise Price of Certain Events. For purposes of
determining the adjusted Exercise Price under Section 4(a) hereof, the following
will be applicable:
(i) Issuance of Rights or Options. If the Company in any
manner issues or grants any warrants, rights or options, whether or not
immediately exercisable, to subscribe for or to purchase Common Stock or other
securities exercisable, convertible into or exchangeable for Common Stock
("Convertible Securities"), but not to include the grant or exercise of any
stock or options which may hereafter be granted or exercised under any employee
or Director benefit plan of the Company now existing or to be implemented in the
future, so long as the issuance of such stock or options is approved by a
majority of the non-employee members of the Board of Directors of the Company or
a majority of the members of a committee of non-employee directors established
for such purpose (such warrants, rights and options to purchase Common Stock or
Convertible Securities are hereinafter referred to as "Options"), and the price
per share for which Common Stock is issuable upon the exercise of such Options
is less than the Market Price on the date of issuance ("Below Market Options"),
then the maximum total number of shares of Common Stock issuable upon the
exercise of all such Below Market Options (assuming full exercise, conversion or
exchange of Convertible Securities, if applicable) will, as
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61
of the date of the issuance or grant of such Below Market Options, be deemed to
be outstanding and to have been issued and sold by the Company for such price
per share. For purposes of the preceding sentence, the price per share for which
Common Stock is issuable upon the exercise of such Below Market Options is
determined by dividing (i) the total amount, if any, received or receivable by
the Company as consideration for the issuance or granting of such Below Market
Options, plus the minimum aggregate amount of additional consideration, if any,
payable to the Company upon the exercise of all such Below Market Options, plus,
in the case of Convertible Securities issuable upon the exercise of such Below
Market Options, the minimum aggregate amount of additional consideration payable
upon the exercise, conversion or exchange thereof at the time such Convertible
Securities first become exercisable, convertible or exchangeable, by (ii) the
maximum total number of shares of Common Stock issuable upon the exercise of all
such Below Market Options (assuming full conversion of Convertible Securities,
if applicable). No further adjustment to the Exercise Price will be made upon
the actual issuance of such Common Stock upon the exercise of such Below Market
Options or upon the exercise, conversion or exchange of Convertible Securities
issuable upon exercise of such Below Market Options.
(ii) Issuance of Convertible Securities.
(A) If the Company in any manner issues or sells
any Convertible Securities, whether or not immediately convertible (other than
where the same are issuable upon the exercise of Options) and the price per
share for which Common Stock is issuable upon such exercise, conversion or
exchange (as determined pursuant to Section 4(b)(ii)(B) if applicable) is less
than the Market Price on the date of issuance, then the maximum total number of
shares of Common Stock issuable upon the exercise, conversion or exchange of all
such Convertible Securities will, as of the date of the issuance of such
Convertible Securities, be deemed to be outstanding and to have been issued and
sold by the Company for such price per share. For the purposes of the preceding
sentence, the price per share for which Common Stock is issuable upon such
exercise, conversion or exchange is determined by dividing (i) the total amount,
if any, received or receivable by the Company as consideration for the issuance
or sale of all such Convertible Securities, plus the minimum aggregate amount of
additional consideration, if any, payable to the Company upon the exercise,
conversion or exchange thereof at the time such Convertible Securities first
become exercisable, convertible or exchangeable, by (ii) the maximum total
number of shares of Common Stock issuable upon the exercise, conversion or
exchange of all such Convertible Securities. No further adjustment to the
Exercise Price will be made upon the actual issuances of such Common Stock upon
exercise, conversion or exchange of such Convertible Securities.
(B) If the Company in any manner issues or sells
any Convertible Securities with a fluctuating conversion or exercise price or
exchange ratio (a "Variable Rate Convertible Security"), then the price per
share for which Common Stock is issuable upon such exercise, conversion or
exchange for purposes of the calculation contemplated by Section 4(b)(ii)(A)
shall be deemed to be the lowest price per share which would be applicable
assuming that (1) all holding period and other conditions to any discounts
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62
contained in such Convertible Security have been satisfied, and (2) the Market
Price on the date of issuance of such Convertible Security was 80% of the Market
Price on such date (the "Assumed Variable Market Price").
(iii) Change in Option Price or Conversion Rate. Except
for the grant or exercise of any stock or options which may hereafter be granted
or exercised under any employee or Director benefit plan of the Company now
existing or to be implemented in the future, so long as the issuance of such
stock or options is approved by a majority of the non-employee members of the
Board of Directors of the Company or a majority of the members of a committee of
non-employee directors established for such purpose, if there is a change at any
time in (i) the amount of additional consideration payable to the Company upon
the exercise of any Options; (ii) the amount of additional consideration, if
any, payable to the Company upon the exercise, conversion or exchange or any
Convertible Securities; or (iii) the rate at which any Convertible Securities
are convertible into or exchangeable for Common Stock (other than under or by
reason of provisions designed to protect against dilution), the Exercise Price
in effect at the time of such change will be readjusted to the Exercise Price
which would have been in effect at such time had such Options or Convertible
Securities still outstanding provided for such changed additional consideration
or changed conversion rate, as the case may be, at the time initially granted,
issued or sold.
(iv) Treatment of Expired Options and Unexercised
Convertible Securities. If, in any case, the total number of shares of Common
Stock issuable upon exercise of any Options or upon exercise, conversion or
exchange of any Convertible Securities is not, in fact, issued and the rights to
exercise such option or to exercise, convert or exchange such Convertible
Securities shall have expired or terminated, the Exercise Price then in effect
will be readjusted to the Exercise Price which would have been in effect at the
time of such expiration or termination had such Options or Convertible
Securities, to the extent outstanding immediately prior to such expiration or
termination (other than in respect of the actual number of shares of Common
Stock issued upon exercise or conversion thereof), never been issued.
(v) Calculation of Consideration Received. If any
Common Stock, Options or Convertible Securities are issued, granted or sold for
cash, the consideration received therefor for purposes of this Warrant will be
the amount received by the Company therefor, before deduction of reasonable
commissions, underwriting discounts or allowances or other reasonable expenses
paid or incurred by the Company in connection with such issuance, grant or sale.
In case any Common Stock, Options or Convertible Securities are issued or sold
for a consideration part or all of which shall be other than cash, the amount of
the consideration other than cash received by the Company will be the fair
market value of such consideration except where such consideration consists of
freely-tradeable securities, in which case the amount of consideration received
by the Company will be the Market Price thereof as of the date of receipt. In
case any Common Stock, Options or Convertible Securities are issued in
connection with any merger or consolidation in which the Company is the
surviving corporation, the amount of consideration therefor will be deemed to be
the fair market value of such portion of the net assets and business of the
non-surviving corporation as is attributable to such Common Stock, Options
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63
or Convertible Securities, as the case may be. The fair market value of any
consideration other than cash or securities will be determined in the good faith
reasonable business judgment of the Board of Directors.
(vi) Exceptions to Adjustment of Exercise Price. No
adjustment to the Exercise Price will be made (i) upon the exercise of any
warrants, options or convertible securities issued and outstanding on the date
hereof in accordance with the terms of such securities as of such date; (ii)
upon the grant or exercise of any stock or options which may hereafter be
granted or exercised under any employee or Director benefit plan of the Company
now existing or to be implemented in the future, so long as the issuance of such
stock or options is approved by a majority of the non-employee members of the
Board of Directors of the Company or a majority of the members of a committee of
non-employee directors established for such purpose; (iii) upon the issuance of
the Common Shares (as defined in the Securities Purchase Agreement) or Warrants
in accordance with terms of the Securities Purchase Agreement; or (iv) upon the
exercise of the Warrants.
(c) Subdivision or Combination of Common Stock. If the Company,
at any time after the initial issuance of this Warrant, subdivides (by any stock
split, stock dividend, recapitalization, reorganization, reclassification or
otherwise) its shares of Common Stock into a greater number of shares, then,
after the date of record for effecting such subdivision, the Exercise Price in
effect immediately prior to such subdivision will be proportionately reduced. If
the Company, at any time after the initial issuance of this Warrant, combines
(by reverse stock split, recapitalization, reorganization, reclassification or
otherwise) its shares of Common Stock into a smaller number of shares, then,
after the date of record for effecting such combination, the Exercise Price in
effect immediately prior to such combination will be proportionately increased.
(d) Adjustment in Number of Shares. Upon each adjustment of the
Exercise Price pursuant to the provisions of this Section 4, the number of
shares of Common Stock issuable upon exercise of this Warrant shall be adjusted
by multiplying a number equal to the Exercise Price in effect immediately prior
to such adjustment by the number of shares of Common Stock issuable upon
exercise of this Warrant immediately prior to such adjustment and dividing the
product so obtained by the adjusted Exercise Price.
(e) Major Transactions. If the Company shall consolidate or
merge with any other corporation or entity (other than a merger in which the
Company is the surviving or continuing entity and its capital stock is unchanged
and unissued in such transaction (except for Common Stock constituting less than
twenty percent (20%) of the Company's Common Stock then outstanding)) or any
subsidiary of the Company shall be a party to a merger or consolidation or other
extraordinary transaction and the Company issues twenty percent (20%) or more of
its Common Stock in any such merger, consolidation or other transaction or there
shall occur any share exchange pursuant to which all of the outstanding shares
of Common Stock are converted into other securities or property or any
reclassification or change of the outstanding shares of Common Stock (each of
the foregoing being a "Major Transaction"), then each holder of a
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64
Warrant may thereafter, at its option, be entitled to (a) in the event that the
Common Stock remains outstanding or holders of Common Stock receive any common
stock or substantially similar equity interest, in each of the foregoing cases
which is publicly traded, retain its Warrant and such Warrant shall continue to
apply to such Common Stock or shall apply, as nearly as practicable, to such
other common stock or equity interest, as the case may be, or (b) regardless or
whether (a) applies, receive consideration, in exchange for such Warrant, equal
to the greater of, as determined in the sole discretion of such holder, (i) the
number of shares of stock or securities or property of the Company, or of the
entity resulting from such Major Transaction (the "Major Transaction
Consideration"), to which a holder of the number of shares of Common Stock
delivered upon the exercise of such Warrant would have been entitled upon such
Major Transaction had such holder exercised the Warrant (without regard to any
limitations on conversion or elsewhere contained) on the trading date
immediately preceding the public announcement of the transaction resulting in
such Major Transaction and had such Common Stock been issued and outstanding and
had such Holder been the holder of record of such Common Stock at the time of
the consummation of such Major Transaction, and (ii) cash paid by the Company in
immediately available funds, in an amount equal to one hundred and twenty five
percent (125%) of the Black-Scholes Amount (as defined herein) times the number
of shares of Common Stock for which this Warrant was exercisable (without regard
to any limitations on exercise herein contained); and the Company shall make
lawful provision for the foregoing as a part of such Major Transaction and shall
cause the issuer of any security in such transaction which constitutes
Registrable Securities under the registration rights provisions of Section 7(c)
of the Securities Purchase Agreement to assume all of the Company's obligations
thereunder. No sooner than ten (10) business days nor later than five (5)
business days prior to the consummation of the Major Transaction, but not prior
to the public announcement of such Major Transaction, the Company shall deliver
written notice ("Notice of Major Transaction") to each holder of a Warrant,
which Notice of Major Transaction shall be deemed to have been delivered one (1)
business day after the Company's sending such notice by telecopy (provided that
the Company sends a confirming copy of such notice on the same day by overnight
courier) of such Notice of Major Transaction. Such Notice of Major Transaction
shall indicate the amount and type of the Major Transaction consideration which
such holder of a Warrant would receive under this Section. If the Major
Transaction Consideration does not consist entirely of United States currency,
such holder may elect to receive United States currency in an amount equal to
the value of the Major Transaction Consideration in lieu of the Major
Transaction Consideration by delivering notice of such election to the Company
within five (5) business days of such holder's receipt of the Notice of Major
Transaction.
The "Black-Scholes Amount" shall be an amount determined by calculating
the "Black-Scholes" value of an option to purchase one share of Common Stock on
the applicable page on the Bloomberg online page, using the following variable
values: (i) the current market price of the Common Stock equal to the closing
trade price on the last trading day before the date of the Notice of the Major
Transaction; (ii) volatility of the Common Stock equal to the volatility of the
common Stock during the 100 trading day period preceding the date of the Notice
of the Major Transaction; (iii) a risk free rate equal to the interest rate on
the United States treasury ▇▇▇▇ or
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65
treasury note with a maturity corresponding to the remaining term of this
Warrant on the date of the Notice of the Major Transaction; and (iv) an exercise
price equal to the Exercise Price on the date of the Notice of the Major
Transaction. In the event such calculation function is no longer available
utilizing the Bloomberg online page, the Holder shall calculate such amount in
its sole discretion using the closest available alternative mechanism and
variable values to those available utilizing the Bloomberg online page for such
calculation function.
(f) Distribution of Assets. In case the Company shall declare or
make any distribution of its assets (or rights to acquire its assets) to holders
of Common Stock as a partial liquidating dividend, by way of return of capital
or otherwise (including any dividend or distribution to the Company's
shareholders of cash or shares (or rights to acquire shares) of capital stock of
a subsidiary) (a "Distribution"), at any time after the initial issuance of this
Warrant, then the Holder shall be entitled upon exercise of this Warrant for the
purchase of any or all of the shares of Common Stock subject hereto, to receive
the amount of such assets (or rights) which would have been payable to the
Holder had such Holder been the holder of such shares of Common Stock on the
record date for the determination of shareholders entitled to such Distribution.
(g) Notices of Adjustment. Upon the occurrence of any event
which requires any adjustment of the Exercise Price, then, and in each such
case, the Company shall give notice thereof to the Holder, which notice shall
state the Exercise Price resulting from such adjustment and the increase or
decrease in the number of Warrant Shares purchasable at such price upon
exercise, setting forth in reasonable detail the method of calculation and the
facts upon which such calculation is based. Such calculation shall be certified
by the chief financial officer of the Company.
(h) Minimum Adjustment of Exercise Price. No adjustment of the
Exercise Price shall be made in an amount of less than 1% of the Exercise Price
in effect at the time such adjustment is otherwise required to be made, but any
such lesser adjustment shall be carried forward and shall be made at the time
and together with the next subsequent adjustment which, together with any
adjustments so carried forward, shall amount to not less than 1% of such
Exercise Price.
(i) No Fractional Shares. No fractional shares of Common Stock
are to be issued upon the exercise of this Warrant, but the Company shall pay a
cash adjustment in respect of any fractional share which would otherwise be
issuable in an amount equal to the same fraction of the Market Price of a share
of Common Stock; provided that in the event that sufficient funds are not
legally available for the payment of such cash adjustment any fractional shares
of Common Stock shall be rounded up to the next whole number.
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(j) Other Notices. In case at any time:
(i) the Company shall declare any dividend upon the
Common Stock payable in shares of stock of any class or make any other
distribution to the holders of the Common Stock;
(ii) the Company shall offer for subscription pro rata
to the holders of the Common Stock any additional shares of stock of any class
or other rights;
(iii) there shall be any capital reorganization of the
Company, or reclassification of the Common Stock, or consolidation or merger of
the Company with or into, or sale of all or substantially all of its assets to,
another corporation or entity; or
(iv) there shall be a voluntary or involuntary
dissolution, liquidation or winding-up of the Company;
then, in each such case, the Company shall give to the Holder (a) notice of the
date on which the books of the Company shall close or a record shall be taken
for determining the holders of Common Stock entitled to receive any such
dividend, distribution, or subscription rights or for determining the holders of
Common Stock entitled to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding-up and (b) in the case of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding-up, notice of
the date (or, if not then known, a reasonable approximation thereof by the
Company) when the same shall take place. Such notice shall also specify the date
on which the holders of Common Stock shall be entitled to receive such dividend,
distribution, or subscription rights or to exchange their Common Stock for stock
or other securities or property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation, or
winding-up, as the case may be. Such notice shall be given at least 30 days
prior to the record date or the date on which the Company's books are closed in
respect thereto, but in no event earlier than public announcement of such
proposed transaction or event. Failure to give any such notice or any defect
therein shall not affect the validity of the proceedings referred to in clauses
(i), (ii), (iii) and (iv) above.
(k) Certain Definitions.
(i) "Common Stock Deemed Outstanding" shall mean the
number of shares of Common Stock actually outstanding (not including shares of
Common Stock held in the treasury of the Company), plus (x) in case of any
adjustment required by Section 4(a) resulting from the issuance of any Options,
the maximum total number of shares of Common Stock issuable upon the exercise of
the Options for which the adjustment is required (including any Common Stock
issuable upon the conversion of Convertible Securities issuable upon the
exercise of such Options), and (y) in the case of any adjustment required by
Section 4(a) resulting from the issuance of any Convertible Securities, the
maximum total number of shares of
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Common Stock issuable upon the exercise, conversion or exchange of the
Convertible Securities for which the adjustment is required, as of the date of
issuance of such Convertible Securities, if any.
(ii) "Market Price," as of any date, (i) means the
average of the Closing Bid Prices for the shares of Common Stock as reported to
Nasdaq National Market System for the trading day immediately preceding such
date, or (ii) if The Nasdaq National Market is not the principal trading market
for the Common Stock, the average of the last reported bid prices on the
principal trading market for the Common Stock during the same period, or, if
there is no bid price for such period, the last reported sales price for such
period, or (iii) if market value cannot be calculated as of such date on any of
the foregoing bases, the Market Price shall be the value thereof, as agreed upon
by the Company and the Holder; provided, however, that if the Company and the
Holder cannot agree on such value, such value shall be the average fair market
value as reasonably determined by an investment banking firm selected by the
Company and reasonably acceptable to the Holders of a majority in interest of
the Warrants, with the costs of the appraisal to be borne by the Company. The
manner of determining the Market Price of the Common Stock set forth in the
foregoing definition shall apply with respect to any other security in respect
of which a determination as to market value must be made hereunder.
(iii) "Common Stock," for purposes of this Section 4,
includes the Common Stock and any additional class of stock of the Company
having no preference as to dividends or distributions on liquidation, provided
that the shares purchasable pursuant to this Warrant shall include only Common
Stock in respect of which this Warrant is exercisable, or shares resulting from
any subdivision or combination of such Common Stock, or in the case of any
reorganization, reclassification, consolidation, merger, or sale of the
character referred to in Section 4(e) hereof, the stock or other securities or
property provided for in such Section.
(l) Other Adjustments. If:
(1) ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ disposes of any shares of
Common Stock beneficially owned by him while the Common Stock is trading at or
below twenty-five dollars ($25) per share during the period beginning on the
date of the Closing and ending on the earlier of (i) the first (1st) anniversary
of the date of the Closing, or (ii) the date on which ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ceases
to be President or CEO of the Company; or
(2) ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ or ▇▇▇ ▇▇▇▇▇▇▇▇ (each a "▇▇▇▇▇▇▇▇")
dispose of any shares of Common Stock beneficially owned by such ▇▇▇▇▇▇▇▇ at any
time during the period beginning on the date of the Closing and ending on the
date which is six (6) months following the Closing, then the Exercise Price
shall be adjusted to the Adjusted Exercise Price (as defined herein) if such
adjustment would result in a decrease in the Exercise Price; provided, however,
that the Exercise Price shall not be adjusted upon the occurrence of a disposal
described in clause (1) until ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ sells or otherwise transfers in
excess of fifty thousand (50,000) shares of Common Stock in aggregate during
such period at a price less than twenty-five dollars ($25) pursuant to Rule 144.
For any disposal of Common Stock described
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hereunder, the "Adjusted Exercise Price" shall mean the lesser of (a) the lowest
closing bid price of the Common Stock during the thirty (30) trading day period
beginning on the trading day (the "Announcement Date") immediately preceding the
day on which such disposal was publicly announced and (b) the price per share
which ▇▇▇▇▇▇▇▇▇ or such ▇▇▇▇▇▇▇▇, as applicable, received in connection with
such disposal; provided, however, that if the Adjusted Exercise Price described
above is greater than the Exercise Price, then the Adjusted Exercise Price shall
be equal to (c) the lowest closing bid price of the Common Stock during the
thirty (30) trading day period beginning on the Announcement Date divided by (d)
the closing bid price of the Common Stock on the Announcement Date times (e) the
Exercise Price.
5. Cap Amount.
(a) Prior to the earlier of Nasdaq Approval (as defined in the
Securities Purchase Agreement) or the 4460 Shareholder Approval (as defined in
the Securities Purchase Agreement), unless otherwise permitted by The Nasdaq
National Market or unless the rules thereof no longer are applicable to the
Company, in no event shall the total number of shares of Common Stock issued at
the Closing under the Securities Purchase Agreement and upon exercise of the
Warrants exceed the maximum number of shares of Common Stock that the Company
can without stockholder approval so issue pursuant to Nasdaq Rule 4460(i) (or
any successor rule) (the "Cap Amount") upon Closing under the Securities
Purchase Agreement and the exercise of the Warrants, which, as of the date of
initial issuance of Common Stock and Warrants to the Holders, which amount is
one million, two hundred thirty two thousand and forty five (1,232,045) shares.
The Cap Amount shall be allocated pro rata among the Holders based on the number
of shares of Common Stock and Warrants issued to each Holder. In the event a
Holder shall sell or otherwise transfer any of such Holder's Warrants, each
transferee shall be allocated a pro rata portion of such transferorSections Cap
Amount. A HolderSections allocable portion of the Cap Amount shall be allocated
first to the Common Stock issued to the Holder at the Closing under the
Securities Purchase Agreement, then to the First Warrants (as defined in the
Securities Purchase Agreement) and only the Warrants shall be subject to the
limitation imposed by this Section 5(a).
(b) Prior to the earlier of Second Nasdaq Approval (as defined
in the Securities Purchase Agreement) or the 4310 Shareholder Approval (as
defined in the Securities Purchase Agreement), unless otherwise permitted by The
Nasdaq National Market or unless the rules thereof no longer are applicable to
the Company, in no event shall this Warrant be exercisable.
6. Issue Tax. The issuance of certificates for Warrant Shares upon
the exercise of this Warrant shall be made without charge to the Holder or such
shares for any issuance tax or other costs in respect thereof, provided that the
Company shall not be required to pay any tax which may be payable in respect of
any transfer involved in the issuance and delivery of any certificate in a name
other than the Holder.
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7. No Rights or Liabilities as a Shareholder. This Warrant shall not
entitle the Holder to any voting rights or other rights as a shareholder of the
Company. No provision of this Warrant, in the absence of affirmative action by
the Holder to purchase Warrant Shares, and no mere enumeration herein of the
rights or privileges of the Holder, shall give rise to any liability of the
Holder for the Exercise Price or as a shareholder of the Company, whether such
liability is asserted by the Company or by creditors of the Company.
8. Transfer, Exchange and Replacement of Warrant.
a. Restriction on Transfer. This Warrant and the rights granted
to the Holder are transferable, in whole or in part, upon surrender of this
Warrant, together with a properly executed assignment in the Form of Assignment
attached hereto as Exhibit 2, at the office or agency of the Company referred to
in Section 8(e) below, provided, however, that any transfer or assignment shall
be subject to the provisions of Section 5.1 and 5.2 of the Securities Purchase
Agreement. Until due presentment for registration of transfer on the books of
the Company, the Company may treat the registered holder hereof as the owner and
holder hereof for all purposes, and the Company shall not be affected by any
notice to the contrary. Notwithstanding anything to the contrary contained
herein, the registration rights described in Section 9 hereof are assignable
only in accordance with the provisions of the Securities Purchase Agreement.
b. Warrant Exchangeable for Different Denominations. This
Warrant is exchangeable, upon the surrender hereof by the Holder at the office
or agency of the Company referred to in Section 8(e) below, for new Warrants, in
the form hereof, of different denominations representing in the aggregate the
right to purchase the number of shares of Common Stock which may be purchased
hereunder, each of such new Warrants to represent the right to purchase such
number of shares as shall be designated by the Holder of at the time of such
surrender.
c. Replacement of Warrant. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction, or mutilation of
this Warrant or, in the case of any such loss, theft, or destruction, upon
delivery, of an indemnity agreement reasonably satisfactory in form and amount
to the Company, or, in the case of any such mutilation, upon surrender and
cancellation of this Warrant, the Company, at its expense, will execute and
deliver, in lieu thereof, a new Warrants, in the form hereof, in such
denominations as Holder may request.
d. Cancellation; Payment of Expenses. Upon the surrender of
this Warrant in connection with any transfer, exchange, or replacement as
provided in this Section 8, this Warrant shall be promptly canceled by the
Company. The Company shall pay all issuance taxes (other than securities
transfer taxes) and charges payable in connection with the preparation,
execution, and delivery of Warrants pursuant to this Section 8.
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70
e. Warrant Register. The Company shall maintain, at its
principal executive offices (or such other office or agency of the Company as it
may designate by notice to the Holder), a register for this Warrant, in which
the Company shall record the name and address of the person in whose name this
Warrant has been issued, as well as the name and address of each transferee and
each prior owner of this Warrant.
9. Registration Rights. The initial holder of this Warrant (and
certain assignees thereof) is entitled to the benefit of such registration
rights in respect of the Warrant Shares as are set forth in Section 7(c) of the
Securities Purchase Agreement.
10. Notices. Any notice herein required or permitted to be given
shall be in writing and may be personally served or delivered by courier or by
confirmed telecopy, and shall be deemed delivered at the time and date of
receipt (which shall include telephone line facsimile transmission). The
addresses for such communications shall be:
If to the Company:
ModaCAD, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇.
▇▇▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: President
with a copy to:
Coudert Brothers
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ - ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇ ▇. St. Clair
and if to the Holder, at such address as Holder shall have provided in writing
to the Company, or at such other address as each such party furnishes by notice
given in accordance with this Section 10.
11. Governing Law; Jurisdiction. This Warrant shall be governed by
and construed in accordance with the laws of the State of California applicable
to contracts made and to be performed in the State of California. The Company
irrevocably consents to the jurisdiction of the United States federal courts
located in the State of California and the state courts located in the County of
Santa ▇▇▇▇▇ in the State of California in any suit or proceeding based on or
arising under this Warrant and irrevocably agrees that all claims in respect of
such suit or proceeding may be determined in such courts. The Company
irrevocably waives the defense of an
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71
inconvenient forum to the maintenance of such suit or proceeding. The Company
agrees that a final nonappealable judgment in any such suit or proceeding shall
be conclusive and may be enforced in other jurisdictions by suit on such
judgment or in any other lawful manner.
12. Miscellaneous.
a. Amendments. This Warrant and any provision hereof may only
be amended by an instrument in writing signed by the Company and the Holder.
b. Descriptive Headings. The descriptive headings of the
several Sections of this Warrant are inserted for purposes of reference only,
and shall not affect the meaning or construction of any of the provisions
hereof.
c. [Intentionally deleted].
d. Assignability. This Warrant shall be binding upon the
Company and its successors and assigns and shall inure to the benefit of Holder
and its successors and assigns. The Holder shall notify the Company upon the
assignment of this Warrant.
e. Weekends, Etc. If the end of the Exercise Period falls on a
Saturday, Sunday or legal holiday, the end of the Exercise Period shall be
extended automatically until 5:00 p.m. the next business day.
* * *
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IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its duly authorized officer.
ModaCAD, Inc.
By:
------------------------------------
Name: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Title: Chief Executive Officer
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73
FORM OF EXERCISE AGREEMENT
(To be Executed by the Holder in order to Exercise the Warrant)
The undersigned hereby irrevocably exercises the right to purchase
____________ of the shares of common stock of ModaCAD, Inc., a California
corporation (the "Company"), evidenced by the attached Warrant, and herewith
makes payment of the Exercise Price with respect to such shares in full, all in
accordance with the conditions and provisions of said Warrant.
(i) The undersigned agrees not to offer, sell, transfer or otherwise
dispose of any Common Stock obtained on exercise of the Warrant, except under
circumstances that will not result in a violation of the Securities Act of 1933,
as amended, or any state securities laws.
(ii) The undersigned requests that stock certificates for such shares be
issued, and a Warrant representing any unexercised portion hereof be issued,
pursuant to the Warrant in the name of the Holder (or such other person or
persons indicated below) and delivered to the undersigned (or designee(s) at the
address (or addresses) set forth below:
Date:
----------------------------- -------------------------------------
Signature of Holder
-------------------------------------
Name of Holder (Print)
Address:
-------------------------------------
-------------------------------------
74
FORM OF ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and transfers
all rights of the undersigned under the within Warrant, with respect to the
number of shares of Common Stock covered thereby set forth hereinbelow, to:
Name of Assignee Address No. of Shares
, and hereby irrevocably constitutes and appoints ______________________________
as agent and attorney-in-fact to transfer said Warrant on the books of the
within-named corporation, with full power of substitution in the premises.
Date:____________, _____,
In the presence of
Name:
--------------------------------------
Signature:
---------------------------------
Title of Signing Officer or Agent (if any):
------------------------------
Address:
---------------------------
---------------------------
Note: The above signature should
correspond exactly with the
name on the face of the
within Warrant.
75
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE OF
THE UNITED STATES. THE SECURITIES REPRESENTED HEREBY MAY NOT BE OFFERED OR SOLD
OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
FOR THE SECURITIES UNDER APPLICABLE SECURITIES LAWS, OR UNLESS OFFERED, SOLD OR
TRANSFERRED PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THOSE LAWS.
Right to Purchase 189,674 Shares of
Common Stock
Date: April 7, 1999
MODACAD, INC.
STOCK PURCHASE WARRANT
THIS CERTIFIES THAT, for value received, Intel Corporation or its
registered assigns, is entitled to purchase from ModaCAD, Inc., a California
corporation (the "Company"), at any time or from time to time during the period
specified in Section 2 hereof, One Hundred Eighty-Nine Thousand Six Hundred
Seventy-Four (189,674) fully paid and nonassessable shares of the Company's
common stock (the "Common Stock"), at an initial exercise price of $13.18 per
share (the "Exercise Price"). This Warrant is being issued pursuant to that
certain Stock and Warrant Purchase and Investor Rights Agreement dated April 7,
1999 between the Company and the Holder (the "Securities Purchase Agreement").
The number of shares of Common Stock purchasable hereunder (the "Warrant
Shares") and the Exercise Price are subject to adjustment as provided in Section
4 hereof. The term "Warrants" means this Warrant and the other warrants of the
Company issued pursuant to the terms of the Securities Purchase Agreement.
The term "Closing Bid Price" means, for any security as of any date,
the closing bid price of such security on the principal securities exchange or
trading market where such security is listed or traded as reported by Bloomberg
Financial Markets or a comparable reporting service of national reputation
selected by the Company and reasonably acceptable to the holder hereof (the
"Holder") if Bloomberg Financial Markets is not then reporting closing bid
prices of such security (collectively, "Bloomberg"), or if the foregoing does
not apply, the last reported sale price of such security in the over-the-counter
market on the electronic bulletin board of such security as reported by
Bloomberg, or, if no sale price is reported for such security by Bloomberg, the
average of the bid prices of any market makers for such security as reported in
the "pink sheets" by the National Quotation Bureau, Inc. If the Closing Bid
Price cannot be calculated for such security on such date on any of the
foregoing bases, the Closing Bid Price of such security on such date shall be
the value thereof, as agreed upon by the Company and the
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Holder; provided, however, that if the Company and the Holder cannot
agree on such value, such value shall be the fair market value as reasonably
determined by an investment banking firm selected by the Company and reasonably
acceptable to the Holder with the costs of such appraisal to be borne by the
Company.
This Warrant is subject to the following terms, provisions, and
conditions:
1. Mechanics of Exercise. Subject to the provisions hereof,
including, without limitation, the limitations contained in Section 8(f) hereof,
this Warrant may be exercised as follows:
(a) Manner of Exercise. This Warrant may be exercised by
the Holder, in whole or in part, by the surrender of this Warrant (or evidence
of loss, theft, destruction or mutilation thereof in accordance with Section
8(c) hereof), together with a completed exercise agreement in the Form of
Exercise Agreement attached hereto as Exhibit 1 (the "Exercise Agreement"), to
the Company at the Company's principal executive offices (or such other office
or agency of the Company as it may designate by notice to the Holder), and upon
payment to the Company in cash, by certified or official bank check or by wire
transfer for the account of the Company, of the Exercise Price for the Warrant
Shares specified in the Exercise Agreement. The Warrant Shares so purchased
shall be deemed to be issued to the Holder or Holder's designees, as the record
owner of such shares, as of the date on which this Warrant shall have been
surrendered, the completed Exercise Agreement shall have been delivered, and
payment shall have been made for such shares as set forth above. In lieu of the
payment methods set forth above, when permitted by law and applicable
regulations (including Nasdaq and NASD rules), the Holder may pay the Exercise
Price through a "same day sale" commitment from the Holder (and if applicable a
broker-dealer that is a member of the National Association of Securities Dealers
(a "NASD Dealer")), whereby the Holder irrevocably elects to exercise this
Warrant and to sell a portion of the Shares so purchased to pay for the Exercise
Price and the Holder (or, if applicable, the NASD Dealer) commits upon sale (or,
in the case of the NASD Dealer, upon receipt) of such Warrant Shares to forward
the Exercise Price directly to the Company.
(b) Issuance of Certificates. Subject to Section 1(c),
certificates for the Warrant Shares so purchased, representing the aggregate
number of shares specified in the Exercise Agreement, shall be delivered to the
Holder within a reasonable time, not exceeding three (3) business days, after
this Warrant shall have been so exercised (the "Delivery Period"). The
certificates so delivered shall be in such denominations as may be reasonably
requested by the Holder and shall be registered in the name of Holder or such
other name as shall be designated by such Holder. If this Warrant shall have
been exercised only in part, then, unless this Warrant has expired, the Company
shall, at its expense, at the time of delivery of such certificates, deliver to
the Holder a new Warrant representing the number of shares with respect to which
this Warrant shall not then have been exercised.
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77
(c) Exercise Disputes. In the case of any dispute with
respect to an exercise, the Company shall promptly issue such number of shares
of Common Stock as are not disputed in accordance with this Section. If such
dispute involves the calculation of the Exercise Price, the Company shall submit
the disputed calculations to a nationally recognized independent accounting firm
(selected by the Company) via facsimile within three (3) business days of
receipt of the Exercise Agreement. The accounting firm shall audit the
calculations and notify the Company and the converting Holder of the results no
later than two (2) business days from the date it receives the disputed
calculations. The accounting firm's calculation shall be deemed conclusive,
absent manifest error. The Company shall then issue the appropriate number of
shares of Common Stock in accordance with this Section.
(d) Fractional Shares. No fractional shares of Common
Stock are to be issued upon the exercise of this Warrant, but the Company shall
pay a cash adjustment in respect of any fractional share which would otherwise
be issuable in an amount equal to the same fraction of the Exercise Price of a
share of Common Stock (as determined for exercise of this Warrant into whole
shares of Common Stock); provided that in the event that sufficient funds are
not legally available for the payment of such cash adjustment any fractional
shares of Common Stock shall be rounded up to the next whole number.
(e) Buy-In. If (i) the Company fails for any reason
(other than Holder's failure to pay timely to the Company the Exercise Price) to
deliver during the Delivery Period shares of Common Stock to Holder upon an
exercise of this Warrant and (ii) after the applicable Delivery Period with
respect to such an exercise, Holder purchases (in an open market transaction or
otherwise) shares of Common Stock to make delivery upon a sale by Holder of the
shares of Common Stock (the "Sold Shares") which Holder was entitled to receive
upon such exercise (a "Buy-in"), the Company shall pay Holder (in addition to
any other remedies available to Holder) the amount by which (x) Holder's total
purchase price (including brokerage commission, if any) for the shares of Common
Stock so purchased exceeds (y) the lesser of (A) the Exercise Price or (B) the
net proceeds received by Holder from the sale of the Sold Shares. Holder shall
provide the Company written notification indicating any amounts payable to
Holder pursuant to this subsection.
2. Period of Exercise. This Warrant is exercisable at any time or
from time to time on or after the date hereof and before 5:00 P.M., Eastern Time
on the date which is fifteen (15) months after the date hereof (the "Exercise
Period"). The Company hereby acknowledges that exercise of this Warrant by
Holder may subject the Company and/or the Holder to the filing requirements of
the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements Act of 1976, as amended, (the "HSR
Act") and that Holder may be prevented from exercising this Warrant until the
expiration or early termination of all waiting periods imposed by the HSR Act
("HSR Act Restrictions"). If on or before the end of the Exercise Period Holder
has sent the Notice of Exercise to Company and Holder has not been able to
complete the exercise of this Warrant prior to the end of the Exercise Period
because of HSR Act Restrictions, the Holder shall be entitled to complete the
process of exercising this Warrant, for a period of ten (10) business days
following termination
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78
of the HSR Act Restrictions, in accordance with the procedures contained herein
notwithstanding the fact that completion of the exercise of this Warrant would
take place after the end of the Exercise Period.
3. Certain Agreements of the Company. The Company hereby
covenants and agrees as follows:
(a) Shares to be Fully Paid. All Warrant Shares will,
upon issuance in accordance with the terms of this Warrant, be validly issued,
fully paid, and non-assessable and free from all taxes, liens, claims and
encumbrances.
(b) Reservation of Shares. During the Exercise Period,
the Company shall at all times have authorized, and reserved for the purpose of
issuance upon exercise of this Warrant, a sufficient number of shares of Common
Stock to provide for the exercise of this Warrant.
(c) Listing. From and after the date of issuance of this
Warrant, the Company shall have secured and shall thereafter, for at least three
(3) years after the date of issuance of this Warrant, maintain the listing of
the shares of Common Stock issuable upon exercise of this Warrant upon The
Nasdaq National Market, the Nasdaq SmallCap Market, the New York Stock Exchange
or the American Stock Exchange, as required by the Securities Purchase Agreement
and upon each national securities exchange or automated quotation system, if
any, upon which shares of Common Stock are then listed or become listed and
shall maintain, so long as any other shares of Common Stock shall be so listed,
such listing of all shares of Common Stock from time to time issuable upon the
exercise of this Warrant; and the Company shall so list on each national
securities exchange or automated quotation system, as the case may be, and shall
maintain such listing of any other shares of capital stock of the Company
issuable upon the exercise of this Warrant so long as any shares of the same
class shall be listed on such national securities exchange or automated
quotation system.
(d) Certain Actions Prohibited. The Company will not, by
amendment of its charter 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 to be observed or performed by it hereunder, but will at all times in
good faith assist in the carrying out of all the provisions of this Warrant and
in the taking of all such actions as may reasonably be requested by the Holder
of this Warrant in order to protect the exercise privilege of the Holder of this
Warrant, consistent with the tenor and purpose of this Warrant. Without limiting
the generality of the foregoing, the Company will take all such actions as may
be necessary or appropriate in order that the Company may validly and legally
issue fully paid and nonassessable shares of Common Stock upon the exercise of
this Warrant.
4. Antidilution Provisions. During the Exercise Period or until
fully exercised, the Exercise Price and the number of Warrant Shares shall be
subject to adjustment from time to time as provided in this Section 4. In the
event that any adjustment of the Exercise Price as
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required herein results in a fraction of a cent, such Exercise Price shall be
rounded up or down to the nearest cent.
(a) Adjustment of Exercise Price and Number of Shares
upon Issuance of Common Stock. Except as otherwise provided in Section 4(c) and
4(e) hereof, if and whenever after the initial issuance of this Warrant, the
Company issues or sells, or in accordance with Section 4(b) hereof is deemed to
have issued or sold, any shares of Common Stock for no consideration or for a
consideration per share less than the Market Price (as herein defined) on the
date of issuance (a "Dilutive Issuance"), then effective immediately upon the
Dilutive Issuance, the Exercise Price will be adjusted in accordance with the
following formula:
E' = (E) (O + P/M) / (CSDO)
where:
E' = the adjusted Exercise Price
E = the then current Exercise Price;
M = the then current Market Price;
O = the number of shares of Common Stock outstanding
immediately prior to the Dilutive Issuance;
P = the aggregate consideration, calculated as
set forth in Section 4(b) hereof, received by the
Company upon such Dilutive Issuance; and
CSDO = the total number of shares of Common Stock Deemed
Outstanding (as herein defined) immediately after the
Dilutive Issuance.
(b) Effect on Exercise Price of Certain Events. For
purposes of determining the adjusted Exercise Price under Section 4(a) hereof,
the following will be applicable:
(i) Issuance of Rights or Options. If the
Company in any manner issues or grants any warrants, rights or options, whether
or not immediately exercisable, to subscribe for or to purchase Common Stock or
other securities exercisable, convertible into or exchangeable for Common Stock
("Convertible Securities"), but not to include the grant or exercise of any
stock or options which may hereafter be granted or exercised under any employee
or Director benefit plan of the Company now existing or to be implemented in the
future, so long as the issuance of such stock or options is approved by a
majority of the non-employee members of the Board of Directors of the Company or
a majority of the members of a committee of non-employee directors established
for such purpose (such warrants, rights and options to purchase Common Stock or
Convertible Securities are hereinafter referred to as "Options"), and the price
per share for which Common Stock is issuable upon the exercise of such Options
is less than the Market Price on the date of issuance ("Below Market Options"),
then the maximum total number of shares of Common Stock issuable upon the
exercise of all such Below Market Options (assuming full exercise, conversion or
exchange of Convertible Securities, if applicable) will, as
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of the date of the issuance or grant of such Below Market Options, be deemed to
be outstanding and to have been issued and sold by the Company for such price
per share. For purposes of the preceding sentence, the price per share for which
Common Stock is issuable upon the exercise of such Below Market Options is
determined by dividing (i) the total amount, if any, received or receivable by
the Company as consideration for the issuance or granting of such Below Market
Options, plus the minimum aggregate amount of additional consideration, if any,
payable to the Company upon the exercise of all such Below Market Options, plus,
in the case of Convertible Securities issuable upon the exercise of such Below
Market Options, the minimum aggregate amount of additional consideration payable
upon the exercise, conversion or exchange thereof at the time such Convertible
Securities first become exercisable, convertible or exchangeable, by (ii) the
maximum total number of shares of Common Stock issuable upon the exercise of all
such Below Market Options (assuming full conversion of Convertible Securities,
if applicable). No further adjustment to the Exercise Price will be made upon
the actual issuance of such Common Stock upon the exercise of such Below Market
Options or upon the exercise, conversion or exchange of Convertible Securities
issuable upon exercise of such Below Market Options.
(ii) Issuance of Convertible Securities.
(A) If the Company in any manner issues
or sells any Convertible Securities, whether or not immediately convertible
(other than where the same are issuable upon the exercise of Options) and the
price per share for which Common Stock is issuable upon such exercise,
conversion or exchange (as determined pursuant to Section 4(b)(ii)(B) if
applicable) is less than the Market Price on the date of issuance, then the
maximum total number of shares of Common Stock issuable upon the exercise,
conversion or exchange of all such Convertible Securities will, as of the date
of the issuance of such Convertible Securities, be deemed to be outstanding and
to have been issued and sold by the Company for such price per share. For the
purposes of the preceding sentence, the price per share for which Common Stock
is issuable upon such exercise, conversion or exchange is determined by dividing
(i) the total amount, if any, received or receivable by the Company as
consideration for the issuance or sale of all such Convertible Securities, plus
the minimum aggregate amount of additional consideration, if any, payable to the
Company upon the exercise, conversion or exchange thereof at the time such
Convertible Securities first become exercisable, convertible or exchangeable, by
(ii) the maximum total number of shares of Common Stock issuable upon the
exercise, conversion or exchange of all such Convertible Securities. No further
adjustment to the Exercise Price will be made upon the actual issuances of such
Common Stock upon exercise, conversion or exchange of such Convertible
Securities.
(B) If the Company in any manner issues
or sells any Convertible Securities with a fluctuating conversion or exercise
price or exchange ratio (a "Variable Rate Convertible Security"), then the price
per share for which Common Stock is issuable upon such exercise, conversion or
exchange for purposes of the calculation contemplated by Section 4(b)(ii)(A)
shall be deemed to be the lowest price per share which would be applicable
assuming that (1) all holding period and other conditions to any discounts
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contained in such Convertible Security have been satisfied, and (2) the Market
Price on the date of issuance of such Convertible Security was 80% of the Market
Price on such date (the "Assumed Variable Market Price").
(iii) Change in Option Price or Conversion Rate.
Except for the grant or exercise of any stock or options which may hereafter be
granted or exercised under any employee or Director benefit plan of the Company
now existing or to be implemented in the future, so long as the issuance of such
stock or options is approved by a majority of the non-employee members of the
Board of Directors of the Company or a majority of the members of a committee of
non-employee directors established for such purpose, if there is a change at any
time in (i) the amount of additional consideration payable to the Company upon
the exercise of any Options; (ii) the amount of additional consideration, if
any, payable to the Company upon the exercise, conversion or exchange or any
Convertible Securities; or (iii) the rate at which any Convertible Securities
are convertible into or exchangeable for Common Stock (other than under or by
reason of provisions designed to protect against dilution), the Exercise Price
in effect at the time of such change will be readjusted to the Exercise Price
which would have been in effect at such time had such Options or Convertible
Securities still outstanding provided for such changed additional consideration
or changed conversion rate, as the case may be, at the time initially granted,
issued or sold.
(iv) Treatment of Expired Options and Unexercised
Convertible Securities. If, in any case, the total number of shares of Common
Stock issuable upon exercise of any Options or upon exercise, conversion or
exchange of any Convertible Securities is not, in fact, issued and the rights to
exercise such option or to exercise, convert or exchange such Convertible
Securities shall have expired or terminated, the Exercise Price then in effect
will be readjusted to the Exercise Price which would have been in effect at the
time of such expiration or termination had such Options or Convertible
Securities, to the extent outstanding immediately prior to such expiration or
termination (other than in respect of the actual number of shares of Common
Stock issued upon exercise or conversion thereof), never been issued.
(v) Calculation of Consideration Received. If
any Common Stock, Options or Convertible Securities are issued, granted or sold
for cash, the consideration received therefor for purposes of this Warrant will
be the amount received by the Company therefor, before deduction of reasonable
commissions, underwriting discounts or allowances or other reasonable expenses
paid or incurred by the Company in connection with such issuance, grant or sale.
In case any Common Stock, Options or Convertible Securities are issued or sold
for a consideration part or all of which shall be other than cash, the amount of
the consideration other than cash received by the Company will be the fair
market value of such consideration except where such consideration consists of
freely-tradeable securities, in which case the amount of consideration received
by the Company will be the Market Price thereof as of the date of receipt. In
case any Common Stock, Options or Convertible Securities are issued in
connection with any merger or consolidation in which the Company is the
surviving corporation, the amount of consideration therefor will be deemed to be
the fair market value of such portion of the net assets
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and business of the non-surviving corporation as is attributable to such Common
Stock, Options or Convertible Securities, as the case may be. The fair market
value of any consideration other than cash or securities will be determined in
the good faith reasonable business judgment of the Board of Directors.
(vi) Exceptions to Adjustment of Exercise Price.
No adjustment to the Exercise Price will be made (i) upon the exercise of any
warrants, options or convertible securities issued and outstanding on the date
hereof in accordance with the terms of such securities as of such date; (ii)
upon the grant or exercise of any stock or options which may hereafter be
granted or exercised under any employee or Director benefit plan of the Company
now existing or to be implemented in the future, so long as the issuance of such
stock or options is approved by a majority of the non-employee members of the
Board of Directors of the Company or a majority of the members of a committee of
non-employee directors established for such purpose; (iii) upon the issuance of
the Common Shares (as defined in the Securities Purchase Agreement) or Warrants
in accordance with terms of the Securities Purchase Agreement; or (iv) upon the
exercise of the Warrants.
(c) Subdivision or Combination of Common Stock. If the
Company, at any time after the initial issuance of this Warrant, subdivides (by
any stock split, stock dividend, recapitalization, reorganization,
reclassification or otherwise) its shares of Common Stock into a greater number
of shares, then, after the date of record for effecting such subdivision, the
Exercise Price in effect immediately prior to such subdivision will be
proportionately reduced. If the Company, at any time after the initial issuance
of this Warrant, combines (by reverse stock split, recapitalization,
reorganization, reclassification or otherwise) its shares of Common Stock into a
smaller number of shares, then, after the date of record for effecting such
combination, the Exercise Price in effect immediately prior to such combination
will be proportionately increased.
(d) Adjustment in Number of Shares. Upon each adjustment
of the Exercise Price pursuant to the provisions of this Section 4, the number
of shares of Common Stock issuable upon exercise of this Warrant shall be
adjusted by multiplying a number equal to the Exercise Price in effect
immediately prior to such adjustment by the number of shares of Common Stock
issuable upon exercise of this Warrant immediately prior to such adjustment and
dividing the product so obtained by the adjusted Exercise Price.
(e) Major Transactions. If the Company shall consolidate
or merge with any other corporation or entity (other than a merger in which the
Company is the surviving or continuing entity and its capital stock is unchanged
and unissued in such transaction (except for Common Stock constituting less than
twenty percent (20%) of the Company's Common Stock then outstanding)) or any
subsidiary of the Company shall be a party to a merger or consolidation or other
extraordinary transaction and the Company issues twenty percent (20%) or more of
its Common Stock in any such merger, consolidation or other transaction or there
shall occur any share exchange pursuant to which all of the outstanding shares
of Common Stock are converted into other securities or property or any
reclassification or change of the outstanding shares of
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Common Stock (each of the foregoing being a "Major Transaction"), then each
holder of a Warrant may thereafter, at its option, be entitled to (a) in the
event that the Common Stock remains outstanding or holders of Common Stock
receive any common stock or substantially similar equity interest, in each of
the foregoing cases which is publicly traded, retain its Warrant and such
Warrant shall continue to apply to such Common Stock or shall apply, as nearly
as practicable, to such other common stock or equity interest, as the case may
be, or (b) regardless or whether (a) applies, receive consideration, in exchange
for such Warrant, equal to the greater of, as determined in the sole discretion
of such holder, (i) the number of shares of stock or securities or property of
the Company, or of the entity resulting from such Major Transaction (the "Major
Transaction Consideration"), to which a holder of the number of shares of Common
Stock delivered upon the exercise of such Warrant would have been entitled upon
such Major Transaction had such holder exercised the Warrant (without regard to
any limitations on conversion or elsewhere contained) on the trading date
immediately preceding the public announcement of the transaction resulting in
such Major Transaction and had such Common Stock been issued and outstanding and
had such Holder been the holder of record of such Common Stock at the time of
the consummation of such Major Transaction, and (ii) cash paid by the Company in
immediately available funds, in an amount equal to one hundred and twenty five
percent (125%) of the Black-Scholes Amount (as defined herein) times the number
of shares of Common Stock for which this Warrant was exercisable (without regard
to any limitations on exercise herein contained); and the Company shall make
lawful provision for the foregoing as a part of such Major Transaction and shall
cause the issuer of any security in such transaction which constitutes
Registrable Securities under the registration rights provisions of Section 7(c)
of the Securities Purchase Agreement to assume all of the Company's obligations
thereunder. No sooner than ten (10) business days nor later than five (5)
business days prior to the consummation of the Major Transaction, but not prior
to the public announcement of such Major Transaction, the Company shall deliver
written notice ("Notice of Major Transaction") to each holder of a Warrant,
which Notice of Major Transaction shall be deemed to have been delivered one (1)
business day after the Company's sending such notice by telecopy (provided that
the Company sends a confirming copy of such notice on the same day by overnight
courier) of such Notice of Major Transaction. Such Notice of Major Transaction
shall indicate the amount and type of the Major Transaction consideration which
such holder of a Warrant would receive under this Section. If the Major
Transaction Consideration does not consist entirely of United States currency,
such holder may elect to receive United States currency in an amount equal to
the value of the Major Transaction Consideration in lieu of the Major
Transaction Consideration by delivering notice of such election to the Company
within five (5) business days of such holder's receipt of the Notice of Major
Transaction.
The "Black-Scholes Amount" shall be an amount determined by calculating the
"Black-Scholes" value of an option to purchase one share of Common Stock on the
applicable page on the Bloomberg online page, using the following variable
values: (i) the current market price of the Common Stock equal to the closing
trade price on the last trading day before the date of the Notice of the Major
Transaction; (ii) volatility of the Common Stock equal to the volatility of the
common Stock during the 100 trading day period preceding the date of the Notice
of the Major
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Transaction; (iii) a risk free rate equal to the interest rate on the United
States treasury ▇▇▇▇ or treasury note with a maturity corresponding to the
remaining term of this Warrant on the date of the Notice of the Major
Transaction; and (iv) an exercise price equal to the Exercise Price on the date
of the Notice of the Major Transaction. In the event such calculation function
is no longer available utilizing the Bloomberg online page, the Holder shall
calculate such amount in its sole discretion using the closest available
alternative mechanism and variable values to those available utilizing the
Bloomberg online page for such calculation function.
(f) Distribution of Assets. In case the Company shall
declare or make any distribution of its assets (or rights to acquire its assets)
to holders of Common Stock as a partial liquidating dividend, by way of return
of capital or otherwise (including any dividend or distribution to the Company's
shareholders of cash or shares (or rights to acquire shares) of capital stock of
a subsidiary) (a "Distribution"), at any time after the initial issuance of this
Warrant, then the Holder shall be entitled upon exercise of this Warrant for the
purchase of any or all of the shares of Common Stock subject hereto, to receive
the amount of such assets (or rights) which would have been payable to the
Holder had such Holder been the holder of such shares of Common Stock on the
record date for the determination of shareholders entitled to such Distribution.
(g) Notices of Adjustment. Upon the occurrence of any
event which requires any adjustment of the Exercise Price, then, and in each
such case, the Company shall give notice thereof to the Holder, which notice
shall state the Exercise Price resulting from such adjustment and the increase
or decrease in the number of Warrant Shares purchasable at such price upon
exercise, setting forth in reasonable detail the method of calculation and the
facts upon which such calculation is based. Such calculation shall be certified
by the chief financial officer of the Company.
(h) Minimum Adjustment of Exercise Price. No adjustment
of the Exercise Price shall be made in an amount of less than 1% of the Exercise
Price in effect at the time such adjustment is otherwise required to be made,
but any such lesser adjustment shall be carried forward and shall be made at the
time and together with the next subsequent adjustment which, together with any
adjustments so carried forward, shall amount to not less than 1% of such
Exercise Price.
(i) No Fractional Shares. No fractional shares of Common
Stock are to be issued upon the exercise of this Warrant, but the Company shall
pay a cash adjustment in respect of any fractional share which would otherwise
be issuable in an amount equal to the same fraction of the Market Price of a
share of Common Stock; provided that in the event that sufficient funds are not
legally available for the payment of such cash adjustment any fractional shares
of Common Stock shall be rounded up to the next whole number.
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(j) Other Notices. In case at any time:
(i) the Company shall declare any dividend upon
the Common Stock payable in shares of stock of any class or make any other
distribution to the holders of the Common Stock;
(ii) the Company shall offer for subscription pro
rata to the holders of the Common Stock any additional shares of stock of any
class or other rights;
(iii) there shall be any capital reorganization of
the Company, or reclassification of the Common Stock, or consolidation or merger
of the Company with or into, or sale of all or substantially all of its assets
to, another corporation or entity; or
(iv) there shall be a voluntary or involuntary
dissolution, liquidation or winding-up of the Company;
then, in each such case, the Company shall give to the Holder (a) notice of the
date on which the books of the Company shall close or a record shall be taken
for determining the holders of Common Stock entitled to receive any such
dividend, distribution, or subscription rights or for determining the holders of
Common Stock entitled to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding-up and (b) in the case of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding-up, notice of
the date (or, if not then known, a reasonable approximation thereof by the
Company) when the same shall take place. Such notice shall also specify the date
on which the holders of Common Stock shall be entitled to receive such dividend,
distribution, or subscription rights or to exchange their Common Stock for stock
or other securities or property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation, or
winding-up, as the case may be. Such notice shall be given at least 30 days
prior to the record date or the date on which the Company's books are closed in
respect thereto, but in no event earlier than public announcement of such
proposed transaction or event. Failure to give any such notice or any defect
therein shall not affect the validity of the proceedings referred to in clauses
(i), (ii), (iii) and (iv) above.
(k) Certain Definitions.
(i) "Common Stock Deemed Outstanding" shall mean
the number of shares of Common Stock actually outstanding (not including shares
of Common Stock held in the treasury of the Company), plus (x) in case of any
adjustment required by Section 4(a) resulting from the issuance of any Options,
the maximum total number of shares of Common Stock issuable upon the exercise of
the Options for which the adjustment is required (including any Common Stock
issuable upon the conversion of Convertible Securities issuable upon the
exercise of such Options), and (y) in the case of any adjustment required by
Section 4(a) resulting from the issuance of any Convertible Securities, the
maximum total number of shares of
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Common Stock issuable upon the exercise, conversion or exchange of the
Convertible Securities for which the adjustment is required, as of the date of
issuance of such Convertible Securities, if any.
(ii) "Market Price," as of any date, (i) means
the average of the Closing Bid Prices for the shares of Common Stock as reported
to Nasdaq National Market System for the trading day immediately preceding such
date, or (ii) if The Nasdaq National Market is not the principal trading market
for the Common Stock, the average of the last reported bid prices on the
principal trading market for the Common Stock during the same period, or, if
there is no bid price for such period, the last reported sales price for such
period, or (iii) if market value cannot be calculated as of such date on any of
the foregoing bases, the Market Price shall be the value thereof, as agreed upon
by the Company and the Holder; provided, however, that if the Company and the
Holder cannot agree on such value, such value shall be the average fair market
value as reasonably determined by an investment banking firm selected by the
Company and reasonably acceptable to the Holders of a majority in interest of
the Warrants, with the costs of the appraisal to be borne by the Company. The
manner of determining the Market Price of the Common Stock set forth in the
foregoing definition shall apply with respect to any other security in respect
of which a determination as to market value must be made hereunder.
(iii) "Common Stock," for purposes of this Section
4, includes the Common Stock and any additional class of stock of the Company
having no preference as to dividends or distributions on liquidation, provided
that the shares purchasable pursuant to this Warrant shall include only Common
Stock in respect of which this Warrant is exercisable, or shares resulting from
any subdivision or combination of such Common Stock, or in the case of any
reorganization, reclassification, consolidation, merger, or sale of the
character referred to in Section 4(e) hereof, the stock or other securities or
property provided for in such Section.
(l) Other Adjustments. If:
(1) ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ disposes of any shares of
Common Stock beneficially owned by him while the Common Stock is trading at or
below twenty-five dollars ($25) per share during the period beginning on the
date of the Closing and ending on the earlier of (i) the first (1st) anniversary
of the date of the Closing, or (ii) the date on which ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ceases
to be President or CEO of the Company; or
(2) ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ or ▇▇▇ ▇▇▇▇▇▇▇▇ (each a
"▇▇▇▇▇▇▇▇") dispose of any shares of Common Stock beneficially owned by such
▇▇▇▇▇▇▇▇ at any time during the period begining on the date of the Closing and
ending on the date which is six (6) months following the Closing, then the
Exercise Price shall be adjusted to the Adjusted Exercise Price (as defined
herein) if such adjustment would result in a decrease in the Exercise Price;
provided, however, that the Exercise Price shall not be adjusted upon the
occurrence of a disposal described in clause (1) until ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ sells
or otherwise transfers in excess of fifty thousand (50,000) shares of Common
Stock in aggregate during such period at a price less than
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twenty-five dollars ($25) pursuant to Rule 144. For any disposal of Common Stock
described hereunder, the "Adjusted Exercise Price" shall mean the lesser of (a)
the lowest closing bid price of the Common Stock during the thirty (30) trading
day period beginning on the trading day (the "Announcement Date") immediately
preceding the day on which such disposal was publicly announced and (b) the
price per share which ▇▇▇▇▇▇▇▇▇ or such ▇▇▇▇▇▇▇▇, as applicable, received in
connection with such disposal; provided, however, that if the Adjusted Exercise
Price described above is greater than the Exercise Price, then the Adjusted
Exercise Price shall be equal to (c) the lowest closing bid price of the Common
Stock during the thirty (30) trading day period beginning on the Announcement
Date divided by (d) the closing bid price of the Common Stock on the
Announcement Date times (e) the Exercise Price.
5. Cap Amount.
(a) Prior to Nasdaq Approval (as defined in the
Securities Purchase Agreement) or the 4460 Shareholder Approval (as defined in
the Securities Purchase Agreement), unless otherwise permitted by The Nasdaq
National Market or unless the rules thereof no longer are applicable to the
Company, in no event shall the total number of shares of Common Stock issued at
the Closing under the Securities Purchase Agreement and upon exercise of the
Warrants exceed the maximum number of shares of Common Stock that the Company
can without stockholder approval so issue pursuant to Nasdaq Rule 4460(i) (or
any successor rule) (the "Cap Amount") upon Closing under the Securities
Purchase Agreement and the exercise of the Warrants, which, as of the date of
initial issuance of Common Stock and Warrants to the Holders, which amount is
one million, two hundred thirty two thousand and forty five (1,232,045) shares.
The Cap Amount shall be allocated pro rata among the Holders based on the number
of shares of Common Stock and Warrants issued to each Holder. In the event a
Holder shall sell or otherwise transfer any of such Holder's Warrants, each
transferee shall be allocated a pro rata portion of such transferor's Cap
Amount. A Holder's allocable portion of the Cap Amount shall be allocated first
to the Common Stock issued to the Holder at the Closing under the Securities
Purchase Agreement, then to the First Warrants (as defined in the Securities
Purchase Agreement) and only the Warrants shall be subject to the limitation
imposed by this Section 5(a).
(b) Prior to the earlier of Second Nasdaq Approval (as
defined in the Securities Purchase Agreement) or the 4310 Shareholder Approval
(as defined in the Securities Purchase Agreement), unless otherwise permitted by
The Nasdaq National Market or unless the rules thereof no longer are applicable
to the Company, in no event shall this Warrant be exercisable.
6. Issue Tax. The issuance of certificates for Warrant Shares
upon the exercise of this Warrant shall be made without charge to the Holder or
such shares for any issuance tax or other costs in respect thereof, provided
that the Company shall not be required to pay any tax which may be payable in
respect of any transfer involved in the issuance and delivery of any certificate
in a name other than the Holder.
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7. No Rights or Liabilities as a Shareholder. This Warrant shall
not entitle the Holder to any voting rights or other rights as a shareholder of
the Company. No provision of this Warrant, in the absence of affirmative action
by the Holder to purchase Warrant Shares, and no mere enumeration herein of the
rights or privileges of the Holder, shall give rise to any liability of the
Holder for the Exercise Price or as a shareholder of the Company, whether such
liability is asserted by the Company or by creditors of the Company.
8. Transfer, Exchange, Redemption and Replacement of Warrant.
a. Restriction on Transfer. This Warrant and the rights
granted to the Holder are transferable, in whole or in part, upon surrender of
this Warrant, together with a properly executed assignment in the Form of
Assignment attached hereto as Exhibit 2, at the office or agency of the Company
referred to in Section 8(e) below, provided, however, that any transfer or
assignment shall be subject to the provisions of the Securities Purchase
Agreement. Until due presentment for registration of transfer on the books of
the Company, the Company may treat the registered holder hereof as the owner and
holder hereof for all purposes, and the Company shall not be affected by any
notice to the contrary. Notwithstanding anything to the contrary contained
herein, the registration rights described in Section 9 hereof are assignable
only in accordance with the provisions of the Securities Purchase Agreement.
b. Warrant Exchangeable for Different Denominations.
This Warrant is exchangeable, upon the surrender hereof by the Holder at the
office or agency of the Company referred to in Section 8(e) below, for new
Warrants, in the form hereof, of different denominations representing in the
aggregate the right to purchase the number of shares of Common Stock which may
be purchased hereunder, each of such new Warrants to represent the right to
purchase such number of shares as shall be designated by the Holder of at the
time of such surrender.
c. Replacement of Warrant. Upon receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction, or
mutilation of this Warrant or, in the case of any such loss, theft, or
destruction, upon delivery, of an indemnity agreement reasonably satisfactory in
form and amount to the Company, or, in the case of any such mutilation, upon
surrender and cancellation of this Warrant, the Company, at its expense, will
execute and deliver, in lieu thereof, a new Warrants, in the form hereof, in
such denominations as Holder may request.
d. Cancellation; Payment of Expenses. Upon the surrender
of this Warrant in connection with any transfer, exchange, or replacement as
provided in this Section 8, this Warrant shall be promptly canceled by the
Company. The Company shall pay all issuance taxes (other than securities
transfer taxes) and charges payable in connection with the preparation,
execution, and delivery of Warrants pursuant to this Section 8.
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e. Warrant Register. The Company shall maintain, at its
principal executive offices (or such other office or agency of the Company as it
may designate by notice to the Holder), a register for this Warrant, in which
the Company shall record the name and address of the person in whose name this
Warrant has been issued, as well as the name and address of each transferee and
each prior owner of this Warrant.
f. Redemption at Company's Option.
1. On the first (1st) anniversary of the date
hereof and for five (5) days thereafter, the Company shall have the right to
elect the redemption for cash ("Redemption at Company's Option") of all or any
part of the then unexercised portion of this Warrant for the Optional Redemption
Amount (as herein defined), which right shall be exercisable by delivery of an
Optional Redemption Notice (as defined herein) in accordance with the procedures
set forth below. Notwithstanding the delivery of an Optional Redemption Notice,
the Holder shall have the right to exercise all or any part of this Warrant up
to and including the date of redemption; provided, however that the Company may
effect a Redemption at Company's Option only if: (a) there has not occurred any
material breach of any of the Company's representationss, warranties or
covenants under the Securities Purchase Agreement and the Company is not in
default of any of its obligations under the Securities Purchase Agreement and
the Warrants; (b) the registration statement required to be filed by the Company
pursuant to the Securities Purchase Agreement covering the Purchased Shares (as
defined in the Securities Purchase Agreement) and the Warrant Shares issuable
upon conversion of the Warrants, is effective and available for trading; (c) the
Common Stock, including all Purchased Shares and Warrant Shares, is listed on
the Nasdaq National Market and trading in the Common Stock is not suspended by
Nasdaq, the Securities and Exchange Commission or other regulatory authority and
no de-listing or suspension shall be reasonably likely for the foreseeable
future; (d) since December 31, 1998, the Company has not suffered any Material
Adverse Effect (as defined in the Securities Purchase Agreement) and nothing has
occurred which would be likely to cause a Material Adverse Effect, and (e) the
closing sale price of the Common Stock on each of the fifteen (15) trading days
immediately preceding the first (1st) anniversary is greater than the Exercise
Price. For purposes of this Section 8(f), the Optional Redemption Amount is
equal to (x) one cent ($0.01) times (y) the number of shares underlying the
portion of the Warrant to be redeemed, as specified in the Optional Redemption
Notice. Upon timely delivery of the Optional Redemption Notice, the Optional
Redemption Amount shall be paid to Holder on the date of redemption.
2. The Company shall effect the Redemption at
Company's Option under this Section 8(f) by delivering written notice thereof
(the "Optional Redemption Notice") on the first (1st) anniversary of the date
hereof or within five (5) days thereafter to Holder at the facsimile number set
forth below Holder's name on the signature pages of the Securities Purchase
Agreement or at such other facsimile number as Holder shall have provided in
writing to the Company. Once the Company has delivered such Optional Redemption
Notice, it is irrevocable and binding. The Optional Redemption Notice shall be
deemed to have been delivered to Holder: (i) if such fax is received by Holder
on or prior to 3:00 p.m. New York time, on the date of
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transmission of the Company's fax; and (ii) if such fax is received by Holder
after 3:00 p.m. New York time, on the next business day following the date of
transmission provided that, for any notice required under this subsection to be
valid, a copy of such notice must be sent to Holder on the same day by overnight
courier. The Optional Redemption Notice shall specify the portion of the Warrant
which the Company elects to redeem by specifying the number of shares of Common
Stock as to which the Warrant is being redeemed. The Redemption at Company's
Option shall occur on the thirtieth (30th) day following delivery of the
Optional Redemption Notice (or if such day is not a business day, on the next
business day thereafter).
9. Registration Rights. The initial holder of this Warrant (and
certain assignees thereof) is entitled to the benefit of such registration
rights in respect of the Warrant Shares as are set forth in Section 7(c) of the
Securities Purchase Agreement.
10. Notices. Any notice herein required or permitted to be given
shall be in writing and may be personally served or delivered by courier or by
confirmed telecopy, and shall be deemed delivered at the time and date of
receipt (which shall include telephone line facsimile transmission). The
addresses for such communications shall be:
If to the Company:
ModaCAD, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇.
▇▇▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: President
with a copy to:
Coudert Brothers
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ - ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇ ▇. St. Clair
and if to the Holder, at such address as Holder shall have provided in writing
to the Company, or at such other address as each such party furnishes by notice
given in accordance with this Section 10.
11. Governing Law; Jurisdiction. This Warrant shall be governed by
and construed in accordance with the laws of the State of California applicable
to contracts made and to be performed in the State of California. The Company
irrevocably consents to the jurisdiction of the United States federal courts
located in the State of California and the state courts located in the County of
Santa ▇▇▇▇▇ in the State of California in any suit or proceeding based on or
arising
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under this Warrant and irrevocably agrees that all claims in respect of such
suit or proceeding may be determined in such courts. The Company irrevocably
waives the defense of an inconvenient forum to the maintenance of such suit or
proceeding. The Company agrees that a final nonappealable judgment in any such
suit or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on such judgment or in any other lawful manner.
12. Miscellaneous.
a. Amendments. This Warrant and any provision hereof may
only be amended by an instrument in writing signed by the Company and the
Holder.
b. Descriptive Headings. The descriptive headings of the
several Sections of this Warrant are inserted for purposes of reference only,
and shall not affect the meaning or construction of any of the provisions
hereof.
c. [Intentionally deleted].
d. Assignability. This Warrant shall be binding upon the
Company and its successors and assigns and shall inure to the benefit of Holder
and its successors and assigns. The Holder shall notify the Company upon the
assignment of this Warrant.
e. Weekends, Etc. If the end of the Exercise Period
falls on a Saturday, Sunday or legal holiday, the end of the Exercise Period
shall be extended automatically until 5:00 p.m. the next business day.
* * *
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IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its duly authorized officer.
ModaCAD, Inc.
By:______________________________________
Name: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Title: Chief Executive Officer
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FORM OF EXERCISE AGREEMENT
(To be Executed by the Holder in order to Exercise the Warrant)
The undersigned hereby irrevocably exercises the right to purchase
____________ of the shares of common stock of ModaCAD, Inc., a California
corporation (the "Company"), evidenced by the attached Warrant, and herewith
makes payment of the Exercise Price with respect to such shares in full, all in
accordance with the conditions and provisions of said Warrant.
(i) The undersigned agrees not to offer, sell, transfer or
otherwise dispose of any Common Stock obtained on exercise of the Warrant,
except under circumstances that will not result in a violation of the Securities
Act of 1933, as amended, or any state securities laws.
(ii) The undersigned requests that stock certificates for such
shares be issued, and a Warrant representing any unexercised portion hereof be
issued, pursuant to the Warrant in the name of the Holder (or such other person
or persons indicated below) and delivered to the undersigned (or designee(s) at
the address (or addresses) set forth below:
Date: _________________________________________
Signature of Holder
_________________________________________
Name of Holder (Print)
Address:
_________________________________________
_________________________________________
94
FORM OF ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and
transfers all rights of the undersigned under the within Warrant, with respect
to the number of shares of Common Stock covered thereby set forth hereinbelow,
to:
Name of Assignee Address No. of Shares
---------------- ------- -------------
, and hereby irrevocably constitutes and appoints ______________________________
as agent and attorney-in-fact to transfer said Warrant on the books of the
within-named corporation, with full power of substitution in the premises.
Date:____________, _____,
In the presence of
Name:___________________________________________
Signature:______________________________________
Title of Signing Officer or Agent (if any):
Address: __________________________________
__________________________________
Note: The above signature should
correspond exactly with the name on
the face of the within Warrant.