EXHIBIT 4.1
FORM OF SUBSCRIPTION AGREEMENT
Sigma Designs, Inc.
00000 Xxxxxxx Xxxxxxx
Xxxxxxx, Xxxxxxxxxx 00000
Ladies and Gentlemen:
1. Subscription. The undersigned, intending to be legally bound,
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irrevocably agrees to lend to Sigma Designs, Inc., a California corporation (the
"Company") the aggregate amount of $___________. At the Closing (as defined
below), the Company agrees to issue and sell to the undersigned, and, subject to
all of the terms and conditions hereof, the undersigned agrees to purchase a
subordinated convertible promissory note, substantially in the form attached as
Exhibit A hereto (the "Subordinated Convertible Promissory Note"), in the
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principal amount set forth above. Upon conversion of the note into the Company's
common shares, the undersigned will also receive a warrant to purchase Common
Stock of the Company for such number of shares as will be determined by
multiplying such number of shares of Common Stock into which the Subordinated
Convertible Promissory Note is converted by one-third, with an exercise price of
130% of the conversion price of the Subordinated Convertible Promissory Note.
The warrant will expire twenty-four (24) months from the conversion date.
2. Payment. Simultaneously with the execution and delivery of this
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Subscription Agreement and Schedule 1 hereto, the undersigned is delivering to
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the Company an amount equal to $___________ (the "Purchase Price"). Payment of
the Purchase Price is being made by delivery to the Company of a certified or
bank cashier's check drawn payable to the order of the Company, or by wire
transfer of the Purchase Price to the Company or by other means satisfactory to
the Company.
3. Acceptance. The undersigned understands and agrees that the Company,
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in its sole discretion, reserves the right to accept or reject any subscription,
in whole or in part, and to withdraw its offer to borrow at any time prior to
the issuance of the Subordinated Convertible Promissory Note. A subscription
shall be deemed accepted by the Company when the Company either deposits a
notice of conversion, a form of which is attached to the Subordinated
Convertible Promissory Note, in the United States mail, or delivers such notice
by overnight courier or by hand or transmits such notice by facsimile to the
undersigned.
4. Closing.
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(a) The closing of the purchase and sale of the Subordinated
Convertible Promissory Note is scheduled to take place at the offices of Sigma
Designs, Inc., 00000 Xxxxxxx Xxxxxxx, Xxxxxxx, Xxxxxxxxxx 00000 on December 15,
1995 (the "Closing Date") or at such other time, date and place as the parties
hereto may otherwise agree in writing (the "Closing"). At the
Closing, the Company will deliver to the undersigned the Subordinated
Convertible Promissory Note to be purchased, against receipt by the Company of
the Purchase Price.
(b) Prior to the Closing, all funds received in connection with
subscriptions will be held by the Company in a separate account. In the event
the Closing does not occur on or prior to January 15, 1996 or in the event this
subscription is rejected or this offer is withdrawn, then the Company shall
return to the undersigned all funds received from the undersigned in respect of
the Purchase Price.
5. Company Representations. The Company represents, warrants and, with
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respect to the last clause of Section 5.4 below, covenants to the undersigned
that:
5.1 Organization and Standing. The Company is a corporation duly
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organized and validly existing under, and by virtue of, the laws of the State of
California and is in good standing under such laws. The Company has requisite
corporate power to own and operate its properties and assets, and to carry on
its business as presently conducted. The Company is duly qualified to transact
business and is in good standing as a foreign corporation in each jurisdiction
in which failure to so qualify could have a material adverse effect on its
business, properties or financial condition.
5.2 Corporate Power. Prior to and as of the Closing, the Company
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will have all requisite legal and corporate power to execute and deliver this
Agreement, to sell and issue the Subordinated Convertible Promissory Note
hereunder, and to carry out and perform its obligations under this Agreement and
the Subordinated Convertible Promissory Note.
5.3 Authorization. All corporate action on the part of the Company,
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its directors and its shareholders necessary for the authorization, execution,
delivery and performance of this Subscription Agreement by the Company, and the
authorization, sale, issuance and delivery of the Subordinated Convertible
Promissory Note has been taken or will be taken prior to the Closing. This
Subscription Agreement and the Subordinated Convertible Promissory Note, when
executed and delivered by the Company, shall constitute the valid and binding
obligations of the Company, enforce able in accordance with their respective
terms, subject to laws of general application relating to bankruptcy, insolvency
and the relief of debtors and rules of law governing specific performance,
injunctive relief or other equitable remedies. The Subordinated Convertible
Promissory Note, when issued, will be free of any liens or encumbrances, created
by any action or omission of the Company; provided, however, that the
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Subordinated Convertible Promissory Note and the underlying Common Stock will be
subject to restrictions on transfer under state and federal securities laws as
set forth herein or therein.
5.4 Governmental Consents. No consent, approval, order, or
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authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state, local, or provincial governmental authority on
the part of the Company is required in connection with the consummation of the
transactions contemplated by this Agreement except for filings required pursuant
to applicable federal and state securities laws and blue sky laws, which filings
the Company covenants shall be made within the required statutory periods.
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5.5 Exempt Offering. Subject to the accuracy of the undersigned's
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representations and warranties set forth in Section 6 hereof, the offer, sale
and issuance of the Subordinated Convertible Promissory Note, in conformity with
the terms of this Agreement, constitute transactions exempt from the
registration requirements of Section 5 of the Securities Act of 1933, as amended
(the "Act") and applicable state securities laws.
5.6 Disclosure Documents. The Company has provided or will provide to
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the undersigned copies of (i) the Company's Annual Report Form 10-K for the year
ended January 31, 1995, (ii) the Company's Quarterly Reports on Form 10-Q for
the quarters ended April 30, 1995 and July 31, 1995, (iii) the Company's Current
Report on Form 8-K dated July 21, 1995, and (iv) the Company's Proxy Statement
dated April 25, 1995 related to the Company's 1995 Annual Meeting of
Shareholders (the "Disclosure Documents").
5.7 No Material Adverse Change. Subsequent to the respective dates
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as of which information is given in the Disclosure Documents, there has not been
any material adverse change in the condition (financial or otherwise), earnings,
business, properties or prospects of the Company. Neither this Subscription
Agreement nor the Disclosure Documents, taken as a whole, contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made therein, in light of the circumstances in which they were
made, not misleading.
5.8 Compliance with Regulation D. The Company agrees to file five
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copies of a Form D with the Securities and Exchange Commission within fifteen
days of the date of the Closing and to file, on a timely basis, any amendments
or supplements to such Form D as may be required under Regulation D promulgated
under the Act. The Company also agrees to comply with the filing requirements
of state securities laws applicable to the offering of securities to the
undersigned.
6. Investment Representations. In order to induce the Company to accept
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this Subscription the undersigned represents, warrants and covenants to the
Company as follows:
6.1 Authorization. It has full legal right, power and authority
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(including the due authorization by all necessary corporate or partnership
action) to enter into this Agreement and to perform its obligations hereunder
without the need for the consent of any other person or entity; and this
Agreement has been duly executed and delivered and constitutes (or will
constitute, as the case may be) the legal, valid and binding obligation of the
undersigned, enforceable against the undersigned in accordance with its terms.
6.2 Investment. The undersigned is acquiring the Subordinated
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Convertible Promissory Note solely for the account of the undersigned, for
investment purposes only and not with a view to, or for, subdivision, resale,
distribution, or fractionalization thereof, or for the account, in whole or in
part, of others. No other person has or will have a direct or indirect
beneficial interest in the Subordinated Convertible Promissory Note. The
undersigned recognizes the restrictions on the transferability of the
Subordinated Convertible Promissory Note, Warrant and the underlying shares of
Common Stock, and is able to bear the substantial economic risk of an investment
in the Subordinated Convertible Promissory Note or the underlying shares of
Common Stock, including a
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complete loss thereof, for an indefinite period of time. The undersigned has
no need for liquidity in this investment and has no reason to anticipate any
change in circumstances, financial or otherwise, or other particular occasion or
event which might cause or require the undersigned to attempt to sell or
transfer the Subordinated Convertible Promissory Note, Warrant or the underlying
shares of Common Stock .
6.3 Federal Securities Law Exemption. The undersigned understands
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that the sale of the Subordinated Convertible Promissory Note, Warrant and the
underlying shares of Common Stock to the undersigned is intended to be exempt
from registration under the Act, by virtue of Section 4(2) of the Act and
applicable state securities laws. The undersigned will not sell, hypothecate or
otherwise transfer any or all of the Subordinated Convertible Promissory Note,
Warrant and the underlying shares of Common Stock other than in accordance with
the following provisions:
(a) pursuant to a registration statement under the Act which has
become effective, and a prospectus related thereto that is current, with respect
to the securities to be disposed of, and if required, a registration statement
under applicable state securities laws; or
(b) pursuant to a specific exemption from registration under the Act
and applicable state securities laws, but only upon the undersigned first having
delivered to the Company a favorable reasoned written opinion of counsel for the
undersigned, reasonably satisfactory in form and substance to the Company, to
the effect that the proposed sale or transfer is exempt from registration under
the Act and any applicable state securities laws.
6.4 Restricted Securities. The undersigned understands that the
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Subordinated Convertible Promissory Note, Warrant and the underlying shares of
Common Stock are not registered under the Act or applicable state securities
laws and such securities must be held indefinitely, unless the subsequent
disposition thereof is registered under the Act and applicable state securities
laws or an exemption from such registration is available. The Company has not
undertaken to register the Subordinated Convertible Promissory Note, Warrant or
the underlying shares of Common Stock pursuant to the Act and, except as
provided therein, will have no obligation to effect on behalf of the undersigned
any registration under the Act or to assist the undersigned in complying with
any exemption from registration under the Act or any state securities laws. The
undersigned understands that the exemption from registration afforded by certain
rules and regulations under the Act depends upon the satisfaction of various
conditions and that, if applicable, such rules and regulations may afford the
basis for sales of the Shares only in limited amounts.
6.5 Informed Investment Decision. The undersigned further represents
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and warrants that in order to make an informed decision in connection with the
purchase of the Subordinated Convertible Promissory Note, Warrant and the
underlying shares of Common Stock:
(a) the undersigned has reviewed the merits and risks of an investment
in the Subordinated Convertible Promissory Note, Warrant and the underlying
shares of Common Stock
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with tax and legal counsel and with an investment advisor to the extent deemed
advisable by the undersigned;
(b) the undersigned recognizes that an investment in the Subordinated
Convertible Promissory Note, Warrant and the underlying shares of Common Stock
involves a number of significant risks, including, without limitation, those set
forth in the Disclosure Documents; the undersigned, or the undersigned's agent
or attorney, has such knowledge and experience in financial and business matters
as to be capable of evaluating the merits and risks of an investment in the
Subordinated Convertible Promissory Note, Warrant and the underlying shares of
Common Stock; and
(c) the undersigned, or the undersigned's agent or attorney, (i) has
been provided with sufficient information with respect to the business of the
Company and has carefully reviewed the Disclosure Documents, (ii) has been
provided with such additional information with respect to the Company as the
undersigned or the undersigned's agent or attorney has requested, and (iii) has
had the opportunity to discuss such information with members of the management
of the Company and any questions that the undersigned had with respect thereto
have been answered to the full satisfaction of the undersigned.
6.6 Independent Advisors. The undersigned is not relying on the
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Company with respect to the economic, tax and other considerations to the
undersigned relating to this investment. With respect to such considerations,
the undersigned has relied on the advice of its own qualified advisors to the
extent the undersigned has deemed appropriate.
6.7 Accredited Investor. The undersigned represents and warrants
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that the undersigned is an "accredited investor" as that term is defined in Rule
501 promulgated under the Act by virtue of one or more of the following:
(a) The undersigned is either: a bank as defined in Section 3(a)(2) of
the Act, or a savings and loan association or other institution as defined in
Section 3(a)(5)(A) of the Act, whether acting in its individual or fiduciary
capacity; a broker or dealer registered pursuant to Section 15 of the Securities
Exchange Act of 1934, as amended; an insurance company as defined in Section
2(13) of the Act; an Investment Company registered under the Investment Company
Act of 1940 or a Business Development Company as defined in Section 2(a)(48) of
the Investment Company Act; a Small Business Investment Company licensed by the
U.S. Small Business Administration under Section 301(c) or (d) of the Small
Business Investment Act of 1958; a plan established and maintained by a state,
its political subdivisions, or any agency or instrumentality of a state or its
political subdivisions, for the benefits of its employees if such plan has total
assets in excess of $5,000,000; or an employee benefit plan within the meaning
of the Employee Retirement Income Security Act of 1974, if the investment
decision is made by a plan fiduciary, as defined in Section 3(21) of such Act,
which is either a bank, savings and loan association, insurance company, or
registered investment adviser, or if the employee benefit plan has total assets
in excess of $5,000,000 or, if a self-directed plan, with investment decisions
made solely by persons that are accredited investors; or
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(b) The undersigned is a private business development company as
defined in Section 202(a) (22) of the Investment Advisers Act of 1940; or
(c) The undersigned is an organization described in Section 501(c) (3)
of the Internal Revenue Code of 1986, as amended (the "Code"), or a corporation,
Massachusetts or similar business trust or partnership, not formed for the
specific purpose of acquiring the securities offered hereby, with total assets
in excess of $5,000,000; or
(d) The undersigned is a director or executive officer of the Company;
or
(e) The undersigned is a natural person whose individual net worth, or
joint net worth with that person's spouse, at the time of the purchase, exceeds
$1,000,000; or
(f) The undersigned is a natural person who had individual income in
excess of $200,000 in each of the two most recent years or joint income with
that person's spouse in excess of $300,000 in each of those years and has a
reasonable expectation of reaching the same income level in the current year; or
(g) The undersigned is a trust, with total assets in excess of
$5,000,000, not formed for the specific purpose of acquiring the securities
offered hereby, whose purchase is directed by a sophisticated person as
described in Rule 506(b)(2)(ii) of Regulation D promulgated under the Act; or
(h) The undersigned is a corporation or other entity all of whose
shareholders or other equity owners are themselves accredited investors by
virtue of this subparagraph or by subparagraphs (i), (ii), (iii), (iv), (v),
(vi) or (vii) above.
For purposes hereof, "individual income" means adjusted gross income
as reported for federal income tax purposes, less any income attributable to a
spouse or to property owned by a spouse, increased by the following amounts (but
not including any amounts attributable to a spouse or to property owned by a
spouse): (i) the amount of any interest income received which is tax-exempt
under Section 103 of the Code, (ii) the amount of losses claimed as a limited
partner in a limited partnership (as reported on Schedule E of Form 1040), (iii)
any deduction claimed for depletion under Section 611 et seq. of the Code, and
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(iv) any amount by which income from long-term capital gains has been reduced in
arriving at adjusted gross income pursuant to the provisions of Section 1202 of
the Code. For purposes hereof, "net worth" means the excess of total asset at
fair market value, including home and personal property, over total liabilities,
including mortgage.
6.8 Representations to the Undersigned. No oral or written
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representations have been made or oral or written information furnished to the
undersigned or the undersigned's advisors in connection with the offering that
were in any way inconsistent with the information provided to the undersigned.
The undersigned acknowledges that the Disclosure Documents replace and supersede
any and all information delivered prior to delivery of the Disclosure Documents.
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6.9 No Solicitation. The undersigned is not subscribing to purchase
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the Subordinated Convertible Promissory Note, Warrant and the underlying shares
of Common Stock as a result of or subsequent to any advertisement, article,
notice or other communication published in any newspaper, magazine or similar
media or broadcast over television or radio, or presented at any seminar or
meeting, or any solicitation of a subscription by a person not previously known
to the undersigned in connection with investments in securities generally.
6.10 Fiduciary Representations. If the undersigned is acting in a
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fiduciary capacity in purchasing the Subordinated Convertible Promissory Note,
Warrant and the underlying shares of Common Stock, the fiduciary represents and
warrants that he or she has authority to execute this Subscription Agreement on
behalf of the person or persons for whom the Subordinated Convertible Promissory
Note, Warrant and the underlying shares of Common Stock are being purchased,
that such persons have been given the Disclosure Documents and this Subscription
Agreement and have confirmed to the fiduciary that they have reviewed the same,
and that the representations and warranties contained in this Subscription
Agreement (and in any other written statement or document delivered to the
Company) shall be deemed to have been made on behalf of such person or persons.
6.11 Representations True and Complete. All information which the
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undersigned has furnished and is furnishing to the Company, including, without
limitation, the representation as to the undersigned's status as an "Accredited
Investor" within the meaning of Rule 501 promulgated under the Act and all other
representations contained in this Subscription Agreement, are correct and
complete as of the date of this Subscription Agreement, and if there should be
any material change in such information prior to the undersigned's receipt of
the Subordinated Convertible Promissory Note, Warrant and the underlying shares
of Common Stock, the undersigned will immediately furnish such revised or
corrected information to the Company. The undersigned is executing and
delivering this Subscription Agreement with full awareness of its implications
and in recognition of the fact that the Company is relying on the undersigned's
representations and warranties in selling the Subordinated Convertible
Promissory Note, Warrant and the underlying shares of Common Stock to the
undersigned, and that the Company and other investors may be damaged if such
representations or warranties are incorrect.
6.12 Compliance with Laws. The undersigned agrees, within five days
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after receipt of a request from the Company, to provide such information and to
execute and deliver such documents as may reasonably be necessary to comply with
any and all laws and ordinances to which the Company is subject.
7. Conditions to Closing of the Company. The Company's obligation to
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sell and issue the Subordinated Convertible Promissory Notes and Warrants at the
Closing is subject to the fulfillment as of the Closing Date of the following
conditions, any one or more of which may be waived by the Company:
7.1 Representations and Warranties. The representations and
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warranties made by the undersigned in Section 6 hereof shall be true and correct
when made, and shall be true and correct on the Closing Date.
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7.2 Payment of Purchase Price. The undersigned and all other
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purchasers of the Subordinated Convertible Promissory Notes and the Warrants
shall have delivered to the Company the Purchase Price in respect of the
Subordinated Convertible Promissory Note being purchased by each such purchaser.
7.3 Securities Law Matters. All federal and blue sky securities
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filings and consents required to be made by the Company in order to legally sell
and issue the Subordinated Convertible Promissory Note to the undersigned and
all other purchasers of the Subordinated Convertible Promissory Notes and the
Warrants shall have been made or obtained.
8. Conditions to Closing of the Undersigned. The obligation of the
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undersigned to purchase the Subordinated Convertible Promissory Note in the
principal amount set forth above is subject to the fulfillment on or before the
Closing Date of each of the following conditions:
8.1 Representations and Warranties. The representations and
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warranties made by the Company in Section 5 hereof shall be true on and as of
the Closing Date with the same effect as though such representations and
warranties had been made on and as of the Closing Date.
8.2 Performance. The Company shall have performed and complied with
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all agreements, obligations and conditions contained in this Subscription
Agreement that are required to be performed or complied with by it on or before
the Closing.
8.3 Officer's Compliance Certificate. The Company shall have
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delivered to the undersigned a certificate executed by the President of the
Company, dated the Closing Date, and certifying to the fulfillment of the
conditions set forth in Sections 8.1 and 8.2 of this Subscription Agreement.
8.4 Payment of Purchase Price. The undersigned shall have delivered
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to the Company the Purchase Price in respect of the Subordinated Convertible
Promissory Note being purchased by the undersigned referenced in Section 2
hereof.
8.5 Securities Law Matters. All federal and blue sky securities
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filings and consents required to be made by the Company in order to legally sell
and issue the Subordinated Convertible Promissory Note to the undersigned and
all other purchasers of the Subordinated Convertible Promissory Notes and the
Warrants shall have been made or obtained.
9. Covenants of the Company. The Company hereby covenants and agrees as
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follows:
9.1 Payment of Principal and Interest. The Company will duly and
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punctually pay the principal of and interest on the Subordinated Convertible
Promissory Notes in accordance with the terms thereof.
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9.2 Corporate Existence. The Company will do or cause to be done all
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the things necessary to preserve and keep in full force and effect its corporate
existence, rights (charter and statutory) and franchises; provided, however,
that the Company shall not be required to preserve any such right or franchise
if the Board of Directors of the Company shall unanimously determine that the
preservation thereof is no longer desirable in the conduct of the business of
the Company.
9.3 Information Rights. The Company will furnish to the undersigned
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for so long as the undersigned is a holder of the Subordinated Convertible
Promissory Note:
(a) as soon as practicable after the end of each fiscal year of the
Company, and in any event within ninety (90) days thereafter, consolidated
statements of income and cash flows and a consolidated balance sheet as of the
end of such fiscal year, of the Company and its subsidiaries, prepared in
accordance with generally accepted accounting principles consistently applied
and setting forth in comparative form the figures for the previous fiscal year,
all in reasonable detail and certified by independent auditors selected by the
Company;
(b) as soon as practicable after the end of the first, second and
third quarterly accounting periods in each fiscal year of the Company, and in
any event within forty-five (45) days thereafter, consolidated statements of
income and cash flows for such period and for the current fiscal year to date
and a consolidated balance sheet as of the end of such quarterly period, of the
Company and its subsidiaries, prepared in accordance with generally accepted
accounting principles consistently applied and setting forth in comparative form
the figures for the previous fiscal year, all in reasonable detail and certified
by the principal financial or accounting officer of the Company, except that
such financial statements need not contain the notes required by generally
accepted accounting principles;
(c) with reasonable promptness, copies of all filings the Company
makes with the Securities and Exchange Commission pursuant to its reporting
requirements under the Securities Exchange Act of 1934, as amended, and all
materials furnished to the Company's shareholders; and
(d) with reasonable promptness, such other non-confidential
information and data with respect to the Company and its subsidiaries as may be
requested from time to time.
10. Note Conversion; Price Adjustment.
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10.1 Conversion Option. Undersigned shall have the option to
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convert, at any time, any then outstanding principal of or interest under the
Subordinated Convertible Promissory Note into fully paid and nonassessable
shares of the Company's Common Stock at the Conversion Price (defined below).
10.2 Conversion Price. The conversion price of the outstanding
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principal of or interest under the Subordinated Convertible Promissory Note (the
"Conversion Price") shall be equal to the greater of:
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(a) the average closing price of the Company's Common Stock on the
Nasdaq National Market during the ten (10) trading days prior to the Closing; or
(b) the average closing price of the Company's Common Stock on the
Nasdaq National Market during the ten (10) trading days prior to the conversion
of the Subordinated Convertible Promissory Note (the "Conversion Date");
provided, however, that under no circumstances shall the Conversion Price exceed
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150% of the average closing price of the Company's Common Stock on the Nasdaq
National Market during the ten (10) trading days prior to the Closing.
10.3 Reclassification. In case of any reclassification, change or
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conversion of securities of the class issuable upon conversion of the
Subordinated Convertible Promissory Note (other than a change in par value, or
from par value to no par value, or from no par value to par value, or as a
result of a subdivision or combination), as the case may be, the Company shall
execute a new Subordinated Convertible Promissory Note (in form and substance
satisfactory to the holder of the Subordinated Convertible Promissory Note)
providing that the holder of the Subordinated Convertible Promissory Note shall
have the right to conversion such new Subordinated Convertible Promissory Note
and upon such conversion to receive, in lieu of each share of Common Stock
theretofore issuable upon conversion of the Subordinated Convertible Promissory
Note, the kind and amount of shares of stock, other securities, money and
property receivable upon such reclassification, change or conversion by a holder
of one share of Common Stock. Such new Note shall provide for adjustments that
shall be as nearly equivalent as may be practicable to the adjustments provided
for in this Section 10. The provisions of this Section 10.3 shall similarly
apply to successive reclassifications, changes and conversions.
10.4 Subdivision or Combination of Shares. If the Company at any
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time while the Subordinated Convertible Promissory Note remains outstanding and
unexpired shall subdivide or combine its Common Stock, the Conversion Price and
the number of shares issuable upon conversion of the Subordinated Convertible
Promissory Note shall be proportionately adjusted.
10.5 Stock Dividends. If the Company at any time while the
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Subordinated Convertible Promissory Note is outstanding and unexpired shall pay
a dividend payable in shares of Common Stock (except any distribution
specifically provided for in the foregoing Sections 10.3 and 10.4) then the
Conversion Price shall be adjusted, from and after the date of determination of
shareholders entitled to receive such dividend or distribution, to that price
determined by multiplying the Conversion Price in effect immediately prior to
such date of determination by a fraction (a) the numerator of which shall be the
total number of shares of Common Stock outstanding immediately prior to such
dividend or distribution, and (b) the denominator of which shall be the total
number of shares of Common Stock outstanding immediately after such dividend or
distribution and the number of shares of Common Stock subject to the
Subordinated Convertible Promissory Note shall be proportionately adjusted.
10.6 Other Distributions. In the event the Company shall declare a
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dividend or distribution payable in cash, securities of other persons, evidences
of indebtedness issued by the Company or other persons, assets or options or
rights not referred to in Sections 10.3, 10.4 or 10.5,
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then, in each such case, provision shall be made by the Company such that the
holder of the Subordinated Convertible Promissory Note shall receive upon
conversion of the Subordinated Convertible Promissory Note a proportionate share
of any such dividend or distribution as though it were the holder of the number
of shares of Common Stock of the Company as of the record date fixed for the
determination of the holders of record of the Company entitled to receive such
dividend or distribution.
10.7 No Impairment. The Company will not, by amendment of its
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Articles of Incorporation or through any reorganization, recapitalization,
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 hereunder by the
Company, but will at all times in good faith assist in the carrying out of all
the provisions of Section 10 and in the taking of all such action as may be
necessary or appropriate in order to protect the rights of the holder of the
Subordinated Convertible Promissory Note against impairment.
10.8 Notice of Adjustments. Whenever the Conversion Price shall be
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adjusted pursuant to the provisions hereof, the Company shall within thirty (30)
days of such adjustment deliver a certificate signed by its chief financial
officer to the registered holder(s) hereof setting forth, in reasonable detail,
the event requiring the adjustment, the amount of the adjustment, the method by
which such adjustment was calculated, and the Conversion Price after giving
effect to such adjustment.
10.9 Notices of Record Date. In the event of any taking by the
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Company of a record of its shareholders for the purpose of determining
shareholders who are entitled to receive payment of any dividend (other than a
cash dividend) or other distribution, any right to subscribe for, purchase or
otherwise acquire any share of any class or any other securities or property, or
to receive any other right, or for the purpose of determining shareholders who
are entitled to vote in connection with any proposed merger or consolidation of
the Company with or into any other corporation, or any proposed sale, lease or
conveyance of all or substantially all of the assets of the Company, or any
proposed liquidation, dissolution or winding up of the Company, the Company
shall mail to the holder of the Subordinated Convertible Promissory Note, at
least twenty (20) days prior to the date specified therein, a notice specifying
the date on which any such record is to be taken for the purpose of such
dividend, distribution or right, and the amount and character of such dividend,
distribution or right.
10.10 Fractional Shares. No fractional shares of Common Stock will
-----------------
be issued in connection with any conversion of the Subordinated Convertible
Promissory Note, but in lieu of such fractional shares the Company shall make a
cash payment therefor upon the basis of the Conversion Price then in effect.
11. Registration Rights.
-------------------
11.1 Certain Definitions. As used in this Section 11, the following
-------------------
terms shall have the following respective meanings:
-11-
"Holder" shall mean any holder of outstanding Registrable Securities;
provided, however, that for all purposes under this Section 11, the holder of a
-------- -------
Subordinated Convertible Promissory Note or Warrant shall be deemed to be the
Holder of the Registrable Securities into which such Subordinated Convertible
Promissory Note or Warrant are then convertible.
"Initiating Holders" shall mean any Holders of not less than one-
hundred (100%) of the Registrable Securities.
The terms "register," "registered" and "registration" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Act (and any post-effective amendments filed or required to
be filed), and the declaration or ordering of the effectiveness of such
registration statement.
"Registrable Securities" means (i) shares of the Company's Common
Stock issued or issuable upon conversion of the Subordinated Convertible
Promissory Note or exercise of the Warrant, and (ii) any of the Company's Common
Stock or other securities issued or issuable pursuant to the conversion of the
Subordinated Convertible Promissory Note or exercise of the Warrant upon any
stock split, stock dividend, recapitalization, or similar event, or any Common
Stock otherwise issued or issuable with respect to the Subordinated Convertible
Promissory Note or Warrant; provided, however, that Registrable Securities shall
-------- -------
not include any shares of Common Stock which have previously been sold or
hereafter registered and sold to the public or any shares sold to the public
pursuant to Rule 144.
"Registration Expenses" shall mean all expenses incurred by the
Company in complying with Sections 11.2 and 11.3 hereof.
11.2 Requested Registration.
----------------------
(a) Request for Registration. In case the Company shall receive from
------------------------
Initiating Holders a written request that the Company effect any underwritten
registration, qualification, or compliance with respect to Registrable
Securities, the Company shall:
(1) promptly give written notice of the proposed registration,
qualification, or compliance to all other Holders; and
(2) as soon as practicable, use its most diligent efforts to effect
all such registration, qualification, or compliance (including, without
limitation, the execution of an undertaking to file post-effective amendments,
appropriate qualification under applicable blue sky or other state securities
laws, and appropriate compliance with applicable regulations issued under the
Act and any other governmental requirements or regulations) as may be so
requested and as would permit or facilitate the sale and distribution of all or
such portion of such Registrable Securities as are specified in such request,
together with all or such portion of the Registrable Securities of any Holder
-12-
or Holders joining in such request as are specified in a written request
received by the Company within fifteen (15) days after receipt of such written
notice from the Company;
Provided, however, that the Company shall not be obligated to file any
such registration, qualification, or compliance pursuant to this Section 11.2:
(a) Prior to the conversion of all Subordinated Convertible Promissory
Notes purchased by the undersigned and all other purchasers at the Closing into
shares of the Company's Common Stock;
(b) In any jurisdiction in which the Company would be required to
execute a general consent to service of process in effecting such registration,
qualification, or compliance unless the Company is already subject to service in
such jurisdiction and except as may be required by the Act;
(c) Within one hundred eighty (180) days immediately following the
effective date of any registration statement pertaining to securities of the
Company (other than a registration of securities in a Rule 145 transaction or
with respect to an employee benefit plan);
(d) After the Company has effected such registrations pursuant to this
Section 11.2(a), such registrations have been declared or ordered effective, and
the securities offered pursuant to such registration have been sold; or
Subject to the foregoing clauses (A) through (D), the Company shall
file a registration statement covering the Registrable Securities so requested
to be registered as soon as practicable, and in any event within one hundred
twenty (120) days, after receipt of the request or requests of the Initiating
Holders; provided, however, that if the Company shall furnish to such Holders a
-------- -------
certificate signed by the President of the Company stating that in the good
faith judgment of the Board of Directors of the Company, it would be seriously
detrimental to the Company or its shareholders for such registration statement
to be filed on or before the date filing would be required and it is therefore
essential to defer the filing of such registration statement, the Company shall
have the right, exercisable one time only pursuant to each specific request made
under this Section 11.2, to defer such filing for a reasonable period not to
exceed an additional one hundred twenty (120) days.
(b) Underwriting. The right of any Holder to registration pursuant to
------------
Section 11.2 shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of such Holder's Registrable Securities in the
underwriting to the extent requested.
The Company shall (together with all Holders and holders of other
securities proposing to distribute their securities through such underwriting)
enter into an underwriting agreement in customary form with the managing
underwriter selected for such underwriting by a majority in interest of the
Initiating Holders. Notwithstanding any other provision of this Section 11.2,
if the managing underwriter advises the Initiating Holders in writing that
-13-
marketing factors require a limitation of the number of shares to be
underwritten, then the Company shall so advise all Holders and the other holders
distributing their securities through such underwriting. The Common Stock (other
than Registrable Securities) held by officers, directors, and all persons
without contractual rights to inclusion in such registration shall be excluded
from such registration to the extent required. If a limitation of the number of
shares to be included in such registration is still required, Common Stock
(other than Registrable Securities) shall be excluded from registration to the
extent required. After giving effect to the foregoing, in the event that a
limitation on the number of Registrable Securities to be included in such
underwriting is still required, the number of shares of Registrable Securities
that may be included in the registration and underwriting shall be allocated
among all Holders in that proportion, as nearly as practicable, that the number
of Registrable Securities held by each Holder bears to the total number of
Registrable Securities (determined without regard to any requirement of a
request to be included in such registration) held by all such Holders at the
time of filing the registration statement. No Registrable Securities or other
securities excluded from the underwriting by reason of the underwriter's
marketing limitation shall be included in such registration.
If any Holder of Registrable Securities disapproves of the terms of
the underwriting, such person may elect to withdraw therefrom by written notice
to the Company, the managing underwriter, and the Initiating Holders. The
Registrable Securities and/or other securities so withdrawn shall also be
withdrawn from registration; provided, however, that, if by the withdrawal of
such Registrable Securities a greater number of Registrable Securities held by
other Holders may be included in such registration (up to the maximum of any
limitation imposed by the underwriters), then the Company shall offer to all
Holders who have included Registrable Securities in the registration the
right to include additional Registrable Securities in the same proportion used
in determining the underwriter limitation in this Section 11.2(b).
If the managing underwriter has not limited the number of Registrable
Securities to be underwritten, the Company may include securities for its own
account or for the account of others in such registration if the underwriter so
agrees and if the number of Registrable Securities which would otherwise have
been included in such registration and underwriting will not thereby be limited
and the price at which such Registrable Securities would otherwise have been
sold will not thereby be reduced.
11.3 Incidental Registration.
-----------------------
(a) Notice of Registration. If at any time or from time to time, the
----------------------
Company shall determine to register any of its securities, either for its own
account or the account of a security holder or holders (other than "Holders")
exercising their respective demand registration rights ("Initiating Party")
other than (i) a registration relating solely to employee benefit plans, (ii) a
registration relating solely to a Rule 145 transaction, or (iii) a registration
effected pursuant to Section 11.4 of this Agreement, the Company will:
(1) promptly give to each Holder written notice thereof; and
-14-
(2) include in such registration (and any related qualification under
blue sky laws or other compliance), and in any underwriting involved therein,
all the Registrable Securities specified in a written request or requests, made
within fifteen (15) days after receipt of such written notice from the Company,
by any Holder.
(b) Underwriting. If the registration of which the Company gives
------------
notice is for a registered public offering involving an underwriting, the
Company shall so advise the Holders as a part of the written notice given
pursuant to Section 11.3(a)(i). In such event, the right of any Holder to
registration pursuant to Section 11.3 shall be conditioned upon the
participation by such Holder in such underwriting and the inclusion of the
Registrable Securities of such Holder in the underwriting to the extent provided
herein. All Holders proposing to distribute their securities through such
underwriting shall (together with the Company, the Initiating Party, and the
other holders having incidental or "piggyback" registration rights ("Other
Holders") distributing their securities through such underwriting) enter into an
underwriting agreement in customary form with the managing underwriter selected
for such underwriting by the Company. Notwithstanding any other provision of
this Section 11.3, if the managing underwriter determines that marketing factors
require a limitation of the number of shares to be underwritten, the managing
underwriter may limit part or all the Registrable Securities held by Holders to
be included in such registration. The Company shall so advise all Holders and
the Other Holders distributing their securities through such underwriting, and
the number of shares of Registrable Securities and other securities that may be
included in the registration and underwriting shall be allocated in the
following priority: The Common Stock (other than shares as to which any person
holds contractual rights to inclusion) held by officers, directors, employees,
and all other persons shall first be excluded from such registration and
underwriting to the extent required. If a limitation of the number of shares to
be included in such registration and underwriting is still required, such
limitation shall be allocated among Holders and Other Holders prior to any
limitation on the number of shares so included for the account of the Initiating
Party or the Company, as the case may be, in proportion, as nearly as
practicable, to the respective amounts of securities contractually entitled to
inclusion (determined without regard to any requirement of a request to be
included in such registration) in such registration held by all such Holders and
Other Holders at the time of filing the registration statement. If any Holder
or Other Holder disapproves of the terms of any such underwriting, he may elect
to withdraw therefrom by written notice to the Company and the managing
underwriter. Any securities excluded or withdrawn from such underwriting shall
be withdrawn from such registration.
11.4 Expenses of Registration. The Company shall bear the
------------------------
Registration Expenses of one (1) registration pursuant to Section 11.2.
However, the Company shall not be required to pay for expenses of any
registration proceeding begun pursuant to Section 11.2, the request of which has
been subsequently withdrawn by the Initiating Holders, in which case such
expenses shall be borne by the Initiating Holders of securities pro rata in
accordance with the number of shares initially sought to be registered
requesting or causing such withdrawal, unless the Holders of a majority of the
Registrable Securities agree to forfeit their right to one demand registration
pursuant to Section 11.2; provided further, however, that if at the time of such
withdrawal, the Initiating Holders have learned of a material adverse change in
the condition, business, or prospects of the Company from that known to the
Initiating Holders at the time of their request, then the Initiating Holders
shall not be required
-15-
to pay any of such expenses and shall retain their rights pursuant to Section
11.2. The Company shall bear the Registration Expenses of all registrations
pursuant to Section 11.3. All other Registration Expenses shall be paid by the
selling shareholders on a pro rata basis.
11.5 Letter or Opinion of Counsel in Lieu of Registration. If, in
----------------------------------------------------
the opinion of counsel for the Company, concurred in by counsel for Holders, no
registration under the Act is required in connection with the disposition of the
Registrable Securities covered by any request made under Sections 11.2 and 11.3
hereof in the manner in which they propose to dispose of the Registrable
Securities included in such request, the Company need not comply with such
request or requests; provided, however, that the Company shall not be so
relieved of its obligations under Sections 11.2 and 11.3 hereof unless the
aforementioned opinion of counsel for the Company shall have been mailed by the
Company to such Holders within fifteen (15) days after the Company's receipt of
their request or requests; and provided, further, that if counsel for the
-------- -------
Company has opined that no registration is required in connection with any such
disposition, such counsel shall further opine as to whether the removal of any
legend from certificates representing all shares to which such opinion refers is
permissible, and, if so, the Company shall remove from such certificates all
legends no longer required thereon and shall rescind any stop-transfer
instructions previously communicated to its transfer agent relating to such
shares.
11.6 Registration Procedures. If and whenever the Company is
-----------------------
required by the provisions of this Section 11 to use its most diligent efforts
to effect promptly the registration of Registrable Securities, the Company
shall:
(a) prepare and file with the Commission a registration statement with
respect to such Registrable Securities and use its most diligent efforts to
cause such registration statement to become and remain effective as provided
herein;
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective and
current and to comply with the provisions of the Act with respect to the sale or
other disposition of all Registrable Securities covered by such registration
statement, including such amendments and supplements as may be necessary to
reflect the intended method of disposition of the prospective seller or sellers
of such Registrable Securities, but for no longer than ninety (90) days
subsequent to the effective date of such registration;
(c) furnish to each prospective seller of Registrable Securities such
number of copies of a prospectus, including a preliminary prospectus, in
conformity with the requirements of the Act, and such other documents, as such
seller may reasonably request in order to facilitate the public sale or other
disposition of the Registrable Securities of such seller;
(d) in the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement, in usual and customary
form, with the managing underwriter of such offering; each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement;
-16-
(e) 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 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; and
(f) furnish, at the request of any Holder requesting registration of
Registrable Securities pursuant to this Section 11, on the date that such
Registrable Securities are delivered to the underwriters for sale in connection
with a registration pursuant to this Section 11, if such securities are being
sold through underwriters, or, on the date that the registration statement with
respect to such securities become effective, (i) an opinion, dated such date, of
counsel representing the Company for the purposes of such registration, in form
and substance as is then customarily given to underwriters in an underwritten
public offering, addressed to the underwriters, if any, and to the Holders
requesting registration of Registrable Securities and (ii) a letter dated such
date, from the independent certified public accountants of the Company, in form
and substance as is then customarily given by independent certified public
accountants of the Company, in form and substance as is then customarily given
by independent certified public accounts to underwriters in an underwritten
public offering, addressed to the underwriters, if any, and to the Holders
requesting registration of Registrable Securities.
11.7 Indemnification. In the event any of the Registrable Securities
---------------
are included in a registration statement under this Section 11:
(a) To the extent permitted by law, the Company will indemnify each
Holder, each of its officers and directors and partners, and such Holder's
separate legal counsel and independent accountants, and each person controlling
such Holder within the meaning of Section 15 of the Act or Section 20 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and each
underwriter, if any, and each person who controls any underwriter within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act, against all
expenses, claims, losses, damages or liabilities (or actions in respect
thereof), including any of the foregoing incurred in settlement of any
litigation, commenced or threatened, to which they may become subject under the
Act, the Exchange Act, or other federal or state law, in so far as such
expenses, claims, losses, damages, or liabilities (or actions in respect
thereof) arise out of or are based upon the following statements, omissions, or
violations: (i) any untrue statement (or alleged untrue statement) of a material
fact contained in any registration statement, prospectus, offering circular, or
other document, or any amendment or supplement thereto, incident to any such
registration, qualification, or com pliance, (ii) any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances in which
they were made, not misleading, or (iii) any violation or alleged violation by
the Company of the Act, the Exchange Act, any state securities law or any rule
or regulation promulgated under the Act, the Exchange Act, or any state
securities law, applicable to the Company in connection with any such
registration, qualification, or compliance, and the Company will reimburse each
such Holder, each of its officers and directors and partners, and such Holders'
separate legal counsel and independent
-17-
accountants, and each person controlling such Holder, each such underwriter and
each person who controls any such underwriter, for any legal and any other
expenses reasonably incurred in connection with investigating, preparing, or
defending any such claim, loss, damage, liability, or action; provided that the
Company will not be liable in any such case to the extent that any such claim,
loss, damage, liability, or expense arises out of or is based on any untrue
statement or omission or alleged untrue statement or omission, made in reliance
upon and in conformity with written information furnished to the Company by an
instrument duly executed by such Holder or underwriter and stated to be
specifically for use in connection with the offering of securities of the
Company.
(b) To the extent permitted by law, each Holder will, if Registrable
Securities held by such Holder are included in the securities as to which such
registration, qualification, or compliance is being effected, indemnify the
Company, each of its directors and officers and its legal counsel and
independent accountants, each underwriter, if any, of the Company's securities
covered by such a registration statement, each person who controls the Company
or such underwriter within the meaning of Section 15 of the Act or Section 20 of
the Exchange Act, and each other such Holder, each of its officers and directors
and each person controlling such Holder within the meaning of Section 15 of the
Act or Section 20 of the Exchange Act, against all expenses, claims, losses,
damages, and liabilities (or actions in respect thereof) to which any of the
foregoing persons may be subject, under the Act, or 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 the following
statements or omissions: (i) any untrue statement (or alleged untrue statement)
of a material fact contained in any such registration statement, prospectus,
offering circular or other document, or (ii) any omission (or alleged omission)
to state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, and will reimburse the Company, such
Holders, such directors, officers, persons, underwriters, or control persons for
any legal or any other expenses reasonably incurred in connection with
investigating or defending any such claim, loss, damage, liability, or action,
in each case to the extent, but only to the extent, that such untrue statement
(or alleged untrue statement) or omission (or alleged omission) is made in such
registration statement, prospectus, offering circular, or other document in
reliance upon and in conformity with written information furnished to the
Company by an instrument duly executed by such Holder and stated to be
specifically for use in connection with the offering of securities of the
Company; provided, however, that the obligations any such Holder hereunder shall
be limited to an amount equal to the proceeds to such Holder of Registrable
Securities sold as contemplated herein.
(c) Each party entitled to indemnification under this Section 11.7
(the "Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or litigation, shall be
approved by the Indemnified Party (whose approval shall not unreasonably be
withheld), and the Indemnified Party may participate in such defense at such
party's expense. No Indemnifying Party, in the defense of any such claim or
litigation, shall, except with the consent of each Indemnified Party, consent to
entry of any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the
-18-
claimant or plaintiff to such Indemnified Party of a release from all liability
in respect to such claim or litigation.
(d) If the indemnification provided for in this Section 11.7 is held
by a court of competent jurisdiction to be unavailable to an Indemnified Party
with respect to any loss, liability, claim, damage, or expense referred to
herein, then the Indemnifying Party, in lieu of indemni fying the Indemnified
Party, shall contribute to the amount paid or payable by such Indemnified Party
with respect to such loss, liability, claim, damage, or expense in the
proportion that is appropriate to reflect the relative fault of the Indemnifying
Party and the Indemnified Party in connection with the statements or omissions
that resulted in such loss, liability, claim, damage, or expense, as well as any
other relevant equitable considerations. The relative fault of the Indemnifying
Party and the Indem nified Party shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of material fact or
the omission to state a material fact relates to information supplied by the
Indemnifying Party or by the Indemnified Party, and the parties' relative
intent, knowledge, access to information, and opportunity to correct or prevent
such statement or omission.
11.8 Rule 144 Reporting. The Company agrees to:
------------------
(a) Make and keep public information available, as those terms are
understood and defined in Rule 144 under the Act; and
(b) File with the Commission in a timely manner all reports and other
documents required of the Company under the Act and the Exchange Act, (at any
time after it has become subject to such reporting requirements).
11.9 Amendment of Outstanding Registration Rights. Any amendments
--------------------------------------------
hereto shall be effected only by vote of the holders of a majority of the
Registrable Securities then outstanding.
11.10 Termination of Registration Rights. All rights under this
----------------------------------
Agreement shall terminate upon the Maturity Date of the Subordinated Convertible
Promissory Note (as defined therein).
12. Miscellaneous.
-------------
12.1 Legends. The Subordinated Convertible Promissory Note shall
-------
bear a legend stating, in substance, the following:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT"), OR UNDER ANY STATE SECURITIES LAWS.
THESE SECURITIES MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH
RESPECT TO THE SECURITIES UNDER SUCH ACT AND OTHER FILING UNDER
APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL SATISFACTORY
TO THE ISSUER THAT SUCH PROPOSED TRANSFER OR SALE IS IN
-19-
COMPLIANCE WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS.
The Warrant, issued upon conversion of the Note into common shares,
shall bear a legend stating, in substance, the following:
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR
UNDER THE SECURITIES LAWS OF ANY STATES. THESE SECURITIES ARE SUBJECT TO
RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD
EXCEPT AS PERMITTED UNDER THE ACT AND THE APPLICABLE STATE SECURITIES LAWS,
PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE THAT
THEY MAY BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN
INDEFINITE PERIOD OF TIME. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN
OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO THE
EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE ACT AND
ANY APPLICABLE STATE SECURITIES LAWS.
12.2 Entire Agreement. This Subscription Agreement together with the
----------------
Subordinated Convertible Promissory Note represent the entire agreement and
understanding between the Company and the undersigned concerning the matters
referred to herein and supersedes and replaces any and all prior agreements and
understandings concerning such matters.
12.3 Successors and Assigns. Except as otherwise provided
----------------------
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto, provided, however, that nothing in this Subscription Agreement,
express or implied, is intended to confer upon any party other than the parties
hereto or their respective successors and assigns any rights, remedies,
obligations, or liabilities under or by reason of this Subscription Agreement,
except as may be expressly provided in this Subscription Agreement.
12.4 Expenses. The Company and the undersigned shall bear its
--------
own expenses incurred on its behalf with respect to this Subscription Agreement
and the transactions contemplated herein.
12.5 Amendment. This Subscription Agreement or any term hereof may
---------
only be amended, modified or waived in writing signed by the Company and all
purchasers of the Subordinated Convertible Promissory Note who would hold, if
and when the Closing takes place, a majority of the outstanding aggregate
principal amount of the outstanding Subordinated Convertible Promissory Note.
12.6 Notices. Any notice, request or other communication required or
-------
permitted hereunder shall be in writing and shall be deemed to have been duly
given if personally delivered or if sent via facsimile, overnight courier
service or mailed by registered or certified mail, postage prepaid, addressed or
sent: (i) if to the undersigned, at the address of the undersigned as set forth
on the investor information scheduled attached hereto, and (ii) if to the
Company, at the principal corporate
-20-
offices of the Company. Any party hereto may by notice so given change its
address for future notice hereunder. Notice shall conclusively be deemed to
have been given when personally delivered or when deposited in the mail or with
an overnight courier service or sent via facsimile in the manner set forth above
and shall be deemed to have been received when delivered.
12.7 Severability. The invalidity or unenforceability of any term or
------------
provision of this Agreement will not affect the validity or enforceability of
any other term or provision hereof or of the Subordinated Convertible Promissory
Note and such other terms or provisions of this Agreement and the Subordinated
Convertible Promissory Note shall remain in full force and effect.
12.8 Governing Law. This Agreement shall for all purposes be governed
-------------
by and construed in accordance with the laws of the State of California, as
applied to agreements between residents thereof to be performed entirely within
such state, without regard to that body of law relating to conflicts of law or
choice of law.
12.9 Counterparts. This Agreement may be executed in counterparts and
------------
each counterpart shall have the same force and effect as an original and shall
constitute an effective, binding agreement on the part of each of the
undersigned.
[THIS SPACE INTENTIONALLY LEFT BLANK]
-21-
IN WITNESS WHEREOF, the undersigned acknowledges agreement to the foregoing
and subscribes to the purchase.
Date: December 15, 1995
By: ___________________________________________
Name: _________________________________________
Title: ________________________________________
Agreed to and accepted
this 15th day of December , 1995.
SIGMA DESIGNS, INC.
a California corporation
By: ________________________________________
Name: ______________________________________
Title: _____________________________________
-22-
SCHEDULE 1
INVESTOR INFORMATION
(a) NAME OF SUBSCRIBER: _____________________________________________________
(b) PURCHASE PRICE: _________________________________________________________
(c) ADDRESS: ________________________________________________________________
(d) TELEPHONE NUMBER: _______________________________________________________
(e) SOCIAL SECURITY OR
TAX IDENTIFICATION NO.: _________________________________________________
CO-SUBSCRIBER: __________________________________________________________
(f) DATE AND JURISDICTION OF ORGANIZATION IF
SUBSCRIBER IS A BUSINESS ENTITY: ________________________________________
(g) DATE AND GOVERNING JURISDICTION IF
SUBSCRIBER IS A TRUST: __________________________________________________
(h) TRUSTEES:
NAME ADDRESS TELEPHONE NO.
---- ------- -------------
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
EXHIBIT A
FORM OF SUBORDINATED CONVERTIBLE PROMISSORY NOTE
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), OR UNDER ANY STATE SECURITIES LAWS. THESE SECURITIES MAY
NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A
REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES UNDER SUCH ACT
AND OTHER FILING UNDER APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL
SATISFACTORY TO THE ISSUER THAT SUCH PROPOSED TRANSFER OR SALE IS IN COMPLIANCE
WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS.
SIGMA DESIGNS, INC.
SUBORDINATED CONVERTIBLE PROMISSORY NOTE
$_______________ Fremont, California
December 15, 1995
FOR VALUE RECEIVED, SIGMA DESIGNS, INC., a California corporation (the
"Company"), hereby promises to pay to _________________________ (the "Holder")
the sum of _________________________ Dollars ($_________), or such lesser amount
as shall then equal the outstanding principal amount hereof, on the terms and
conditions hereinafter set forth. This Note is one of a series of notes of like
tenor (collectively the "Promissory Notes") issued pursuant to that certain
Subscription Agreement between the Company and the Purchasers described therein,
dated as of even date herewith (the "Subscription Agreement"). Payment for all
amounts due hereunder shall be made by wire transfer to the account or by mail
to the address of the Holder shown in the records of the Company, which account
and address initially shall be as set forth below herein.
The following is a statement of the rights of the Holder of this Note and
the conditions to which this Note is subject, and to which the Holder hereof, by
the acceptance of this Note, agrees:
1. Maturity Date. The unpaid principal amount outstanding under this Note,
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together with all accrued but unpaid interest shall be due and payable in full
on the earliest to occur of (the
"Maturity"): (i) December 31, 2000 or (ii) the Company redeems the entire
unpaid principal amount of, and all accrued interest pursuant to the provisions
of Section 5 of this Note.
2. Interest. Commencing on the date of issuance of this Note first above
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written, interest will accrue on the unpaid principal amount of this Note at a
rate of seven percent (7%) per annum (computed on the basis of a 360-day year).
All unpaid interest accrued under this Note shall be due and payable on December
31 of each year prior to the Maturity hereof, and the first payment will be
payable on December 31, 1996.
3. Conversion Option. This Note is convertible at the option of Holder into
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shares of Common Stock of the Company in accordance with Section 10 of the
Subscription Agreement. The Subscription Agreement contains other rights and
conditions of Holder to which this Note is subject. At such time as the Holder
desires to convert all or part of this Note into shares of Common Stock of the
Company, the Holder shall provide to the Company written notice in the form
attached hereto as Exhibit A. At the time of conversion, the Holder will also
receive a warrant to purchase one (1) share of Common Stock for ever three (3)
shares of Common Stock converted. The warrant will have an exercise price of
130% of the conversion price and will expire twenty-four (24) months from the
conversion date.
4. Redemption. Commencing two (2) years after the date of issuance of this
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Note first above written, the Company shall have the option to redeem all or
part of the unpaid principal amount outstanding under this Note, at par value,
without penalty, together with all accrued but unpaid interest, upon thirty (30)
days prior written notice.
5. Change in Control. For a period of ninety (90) days following the date
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upon which the Company provides to the Holder written notice of the occurrence
of (i) the closing of a sale, transfer or other disposition of all or
substantially all of the assets of the Company or (ii) the effectiveness of a
merger or consolidation of the Company with or into another company (excluding a
reincorporation of the Company in another jurisdiction in which the equity
interests of the Company's shareholders are not changed) or other reorganization
of the Company following which the shareholders of the Company immediately prior
to such transaction do not own at least 51% of the company emerging as the
survivor or parent company in such transaction, the Holder shall have the right
to (x) convert all or part of this Note into shares of Common Stock of the
Company or (y) require the Company to repay the unpaid principal amount
outstanding under this Note, together with all accrued but unpaid interest.
6. Defaults and Remedies.
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6.1 Events of Default. The occurrence of any of the following events will
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constitute an "Event of Default" hereunder:
(a) The Company's failure to pay any principal of or any accrued
interest on this Note or any other Promissory Note when the same is due and
payable, which failure has not been cured within thirty (30) days after the same
is due and payable; or
(b) The Company's failure to perform, keep, comply with or observe any
other covenant set forth in this Note, any other provision of this Note or a
covenant set forth in Section 9 of the Subscription Agreement, which failure has
not been cured within twenty (20) days after the Holder gives the Company notice
thereof; or
(c) The Company's becoming insolvent, or admitting in writing its
inability to pay its debts as they mature, or making an assignment for the
benefit of creditors, or applying for or consenting to the appointment of a
receiver, liquidator, custodian or trustee for it or for a substantial part of
its property or business, or such a receiver, liquidator, custodian or trustee
otherwise being appointed and not discharged within thirty (30) calendar days
after such appointment; or
(d) Bankruptcy, insolvency, reorganization or liquidation proceedings
or other proceedings for relief under any bankruptcy law or any other law for
the relief of debtors being instituted by or against the Company, or any order,
judgment or decree being entered against the Company decreeing its dissolution
or division; provided, however, that with respect to an involuntary petition in
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bankruptcy, such petition has not been dismissed within thirty (30) calendar
days after the filing of such petition; or
(e) This Note for any reason (other than the payment in full of all
amounts owing hereunder) ceases to be, or is asserted by the Company not to be,
a legal, valid and binding obligation of the Company, enforceable in accordance
with its terms, and such occurrence has not been cured to the Holder's
satisfaction within twenty (20) calendar days after such Holder gives the
Company notice thereof.
6.2 Remedies. Upon the occurrence and during the continuance of any Event
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of Default, at the Holder's sole option by written notice to the Company, the
Holder may do any one or more of the following:
(a) declare the entire principal amount of, and all accrued interest
on, this Note to immediately be due and payable in full, whereupon such amounts
will accelerate and immediately become due and payable in full, provided that in
the case of an Event of Default listed in paragraph (iii) or (iv) of Section
7.1, all unpaid principal and interest will immediately become due and payable
in full without the requirement of any notice or other action by the Holder;
and/or
(b) exercise all rights and remedies otherwise available to the Holder
at law or in equity.
7. Subordination. The indebtedness evidenced by this Note is hereby expressly
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subordinated, to the extent and in the manner hereinafter set forth, in right of
payment to the prior payment in full of all the Company's Senior Indebtedness
(as hereinafter defined).
7.1 Senior Indebtedness. As used in this Note, the term "Senior
-------------------
Indebtedness" shall mean the principal of and unpaid accrued interest on: (i)
all indebtedness of the Company (or with respect to which the Company is a
guarantor), whether outstanding on the date hereof or hereafter created or
incurred, to equipment suppliers, banks, insurance companies, factors or other
lending or finance institutions regularly engaged in the business of lending
money, which is for money borrowed by the Company, whether or not such
indebtedness is secured; and (ii) any deferrals, renewals or extensions of any
such indebtedness referred to in clause (i) of this Section 8.1 or any
debentures, notes or other evidence of indebtedness issued in exchange for such
indebtedness.
7.2 Agreement to Subordinate. The Holder of this Note agrees that, if the
------------------------
Company should become the subject of any receivership, insolvency proceeding,
assignment for the benefit of creditors, bankruptcy, reorganization, or
arrangements with creditors (whether or not pursuant to bankruptcy or other
insolvency laws), or if any sale of all or substantially all of the assets of
the Company should occur, or if there should occur any dissolution, liquidation,
or any other marshaling of the assets and liabilities of the Company, or if
there should occur an event of default or acceleration with respect to any
Senior Indebtedness, then: (i) no amount need be paid by the Company in respect
of the principal or accrued interest on this Note at the time outstanding,
unless and until the principal amount of and all accrued interest on all the
Senior Indebtedness then due and outstanding (including any accelerated
payments) is first paid in full; and (ii) no claim or proof of claim will be
filed against the Company (or with any Bankruptcy Court in respect of the
Company) by or on behalf of the Holder of this Note which asserts any right to
receive any payments in respect of the principal or accrued interest on this
Note, except subject and subordinate to the prior payment in full of the entire
principal amount of, and all accrued interest on, all of the Senior Indebtedness
then outstanding.
7.3 Effect of Subordination. Subject to the prior rights of the holders
-----------------------
of Senior Indebtedness under this Section 8 to receive payments of cash,
securities and/or other properties otherwise payable or deliverable to the
Holder of this Note, nothing contained in this Section 8 will impair, as between
the Company and the Holder of this Note, the obligation of the Company, which is
absolute and unconditional, to pay to the Holder hereof the principal amount of
this Note and interest accrued hereon as and when the same become due and
payable, or will prevent the Holder of this Note, upon the occurrence of an
Event of Default hereunder, from exercising all rights, powers and remedies
otherwise provided herein or by applicable law, except as otherwise expressly
provided in this Section 8.
8. Successors and Assigns. The provisions of this Note will inure to the
----------------------
benefit of, and be binding on, each party's respective heirs, successors and
assigns. The Company may not assign or delegate any of its obligations under
this Note without the Holder's prior written consent.
9. Waiver and Amendment. Any provision of this Note may be amended, waived or
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modified upon the written consent of the Company and holders of at least two-
thirds of the outstanding aggregate principal amount of all then outstanding
Promissory Notes (exclusive of Notes held by the Company) issued pursuant to the
Subscription Agreement; provided, however, that holders of all of the
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outstanding aggregate principal amount of all then outstanding Promissory Notes
(exclusive of Notes held by the Company) issued pursuant to the Subscription
Agreement must consent in writing to any amendment or waiver that affects the
stated interest rate, maturity date, prepayment or redemption provisions, or the
percentage required to amend the Notes. No waiver or consent with
respect to this Note will be binding or effective unless it is set forth in
writing and signed by the party against whom such waiver is asserted. No course
of dealing between the Company and the Holder will operate as a waiver or
modification of any party's rights or obligations under this Note. No delay or
failure on the part of either party in exercising any right or remedy under this
Note will operate as a waiver of such right or any other right. A waiver given
on one occasion will not be construed as a bar to, or as a waiver of, any right
or remedy on any future occasion.
10. Waiver of Presentment. The Company hereby waives presentment, notice of
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dishonor, protest, demand and diligence.
11. Attorneys' Fees. The Company agrees to pay the Holder's reasonable
---------------
expenses and costs in enforcing and collecting on this Note, including without
limitation attorneys' fees and court costs.
12. Notices. Any notice, request or other communication required or permitted
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hereunder shall be in writing and shall be deemed to have been duly given if
personally delivered or if sent via facsimile, overnight courier service or
mailed by registered or certified mail, postage prepaid, addressed or sent: (i)
if to the Holder, at the address of the Holder as set forth herein below, and
(ii) if to the Company, at the principal corporate offices of the Company. Any
party hereto may by notice so given change its address for future notice
hereunder. Notice shall conclusively be deemed to have been given when
personally delivered or when deposited in the mail or with an overnight courier
service or sent via facsimile in the manner set forth above and shall be deemed
to have been received when delivered.
13. Governing Law. This Note shall be governed by and construed in accordance
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with the laws of the State of California, as applied to agreements between
residents thereof to be performed entirely within such state, without reference
to that body of law relating to conflicts of law or choice of law.
14. Severability. The invalidity or unenforceability of any term or provision
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of this Note will not affect the validity or enforceability of any other term or
provision hereof and such other terms or provisions shall remain in full force
and effect.
[THIS SPACE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, the Company has caused this Note to be issued this 15th
day of December, 1995.
SIGMA DESIGNS, INC.
a California corporation
By:________________________________________________________
Name:______________________________________________________
Title:_____________________________________________________
Name of Holder: _______________________
Address: _____________________________
_____________________________
_____________________________
EXHIBIT A TO SUBORDINATED CONVERTIBLE PROMISSORY NOTE
FORM OF NOTICE OF CONVERSION
To: SIGMA DESIGNS, INC.
00000 Xxxxxxx Xxxxxxx
Xxxxxxx, Xxxxxxxxxx 00000
The undersigned, the holder of the foregoing Note, hereby surrenders such
Note for conversion into shares of Common Stock of SIGMA DESIGNS, INC., to the
extent of $__________ unpaid principal amount of such Note, and requests that
the certificates for such shares of Common Stock be issued in the name of, and
delivered to, __________________________________, whose address is
________________________________________________________________________.
In addition, the undersigned will also receive a warrant to purchase one (1)
share of Common Stock for every three (3) shares of Common Stock converted. The
warrant will have an exercise price of 130% of the conversion price and will
expire twenty-four (24) months from the conversion date.
Dated: _________________
By*:________________________________________________________
Name:_______________________________________________________
Title:______________________________________________________
Address:____________________________________________________
* Please note that the signature must conform in all material respects to the
name of the holder as set forth on the face of the Note.
EXHIBIT B
FORM OF WARRANT
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR
UNDER THE SECURITIES LAWS OF ANY STATES. THESE SECURITIES ARE SUBJECT TO
RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD
EXCEPT AS PERMITTED UNDER THE ACT AND THE APPLICABLE STATE SECURITIES LAWS,
PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE THAT
THEY MAY BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN
INDEFINITE PERIOD OF TIME. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN
OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO THE
EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE ACT AND
ANY APPLICABLE STATE SECURITIES LAWS.
WARRANT TO PURCHASE COMMON STOCK
OF
SIGMA DESIGNS, INC.
THIS CERTIFIES THAT in consideration of the purchase of a Subordinated
Promissory Note (the "Promissory Note") under that certain Subscription
Agreement dated as of December 15, 1995, __________, or its permitted registered
assigns ("Registered Holder"), is entitled, subject to the terms and conditions
of this Warrant, to purchase from the Company at any time after the conversion
of the Promissory Note into shares of the Common Stock of the Company (the "Note
Conversion") and prior to 5:00 p.m. Pacific Time on the Expiration Date (as
defined below), _________ shares of Common Stock of the Company, such number
having been determined by multiplying the number of shares of Common Stock into
which the Promissory Note has been converted by one-third, at a purchase price
per share of $7.621, or 130% of the Promissory Note Conversion Price, subject to
adjustment as provided herein. The number of shares of Common Stock to be
received upon exercise of this Warrant (the "Warrant Shares") and the applicable
exercise price are subject to adjustment as provided herein.
1. Certain Definitions. The following definitions shall apply for
-------------------
purposes of this Warrant:
(a) "Commission" shall mean the Securities and Exchange Commission or
any other federal agency at the time administering the Securities Act (as
defined below).
(b) "Expiration Date" shall mean December 15, 1997.
(c) "Holder" shall mean the Purchaser and any person holding
Registrable Securities.
(d) "Initiating Holders" shall mean the Holders originally requesting
a registration of Registrable Securities pursuant to Section 11.1 hereof.
(e) "Registrable Securities" shall mean any shares of Common Stock of
the Company acquired pursuant to that certain Subscription Agreement dated
December 15, 1995 and any shares of Common Stock of the Company issued or
issuable with respect to such shares upon any stock split, dividend,
combination, recapitalization or similar event.
(f) The terms "register," "registered" and "registration" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement.
(g) "Registration Expenses" shall mean all expenses, except as
otherwise stated below, incurred by the Company in complying with Section 11.1
hereof, including, without limitation, all registration, qualification and
filing fees, printing expenses, escrow fees, fees and disbursements of counsel
for the Company, blue sky fees and expenses, and the expense of any special
audits incident to or required by any such registration but excluding all
Selling Expenses.
(h) "Securities Act" shall mean the Securities Act of 1933, as
amended, or any similar federal statute and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
(i) "Selling Expenses" shall mean all underwriting discounts, selling
commissions and stock transfer taxes applicable to the securities registered by
the Holders, and all fees and disbursements of counsel for any Holder.
(j) "Warrant" shall mean this Warrant and any warrant(s) delivered in
substitution or exchange therefor, as provided herein.
2. Exercise.
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2.1 Cash Exercise. Subject to compliance with all applicable
-------------
securities laws, this Warrant may be exercised in whole, at any time, on any
business day subsequent to the Note Conversion and prior to the Expiration Date
by the Registered Holder by surrender of this Warrant at
-2-
the principal office of the Company with (a) a subscription form duly executed
by the Registered Holder, and (b) payment, in cash and/or cancellation of bona
fide indebtedness of the Company for borrowed money to the Registered Holder, of
the purchase price of the Warrant Shares to be purchased hereunder.
2.2 Mechanics of Exercise. This Warrant shall be deemed to have been
---------------------
exercised immediately prior to the close of business on the date of its
surrender for exercise as provided above, and the person entitled to receive the
Warrant Shares issuable upon such exercise shall be treated for all purposes as
the holder of record of such shares as of the close of business on such date.
As soon as practicable on or after such date, the Company shall issue and
deliver to the person or persons entitled to receive the same a certificate or
certificates for the number of whole Warrant Shares issuable upon such exercise,
together with cash in lieu of any fraction of a share. No fractional shares may
be issued upon any exercise of this Warrant, and any fractions shall be rounded
down to the nearest whole number of shares.
3. Fully Paid Shares. All Warrant Shares issued upon the exercise of
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this Warrant shall be validly issued, fully paid and nonassessable.
4. Adjustment of Purchase Price and Number of Shares. The number of
-------------------------------------------------
Warrant Shares issuable upon exercise of this Warrant (or any shares of stock or
other securities or property at the time receivable or issuable upon exercise of
this Warrant) and the purchase price therefor, are subject to adjustment upon
the occurrence of the following events:
4.1 Adjustment for Stock Splits, Stock Dividends, Recapitalizations,
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etc. The purchase price of this Warrant and the number of Warrant Shares
----
issuable upon exercise of this Warrant shall each be proportionally adjusted to
reflect any stock dividend, stock split, reverse stock split, combination of
shares, reclassification, recapitalization or other similar event affecting the
number of outstanding Warrant Shares that occurs after the date of the Warrant.
4.2 Adjustment for Other Dividends and Distributions. In case the
------------------------------------------------
Company shall make or issue, or shall fix a record date for the determination of
eligible holders entitled to receive, a dividend or other distribution payable
respect to the Warrant Shares payable in securities of the Company (other than
issuances with respect to which adjustment is made under Section 4.1), then, and
in each such case, the Registered Holder of this Warrant, upon exercise of this
Warrant at any time after the consummation, effective date or record date of
such event, shall receive, in addition to the Warrant Shares issuable upon such
exercise prior to such date, the securities or such other assets of the Company
to which such Registered Holder would have been entitled upon such date if such
Registered Holder had exercised this Warrant immediately prior thereto (all
subject to further adjustment as provided in this Warrant).
5. No Impairment. The Company will not, by amendment of its Articles of
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Incorporation or Bylaws, or through reorganization, consolidation, merger,
dissolution, issue or sale of securities, sale or assets or any other voluntary
action, willfully avoid or seek to avoid the observance or performance of any of
the terms of this Warrant, but will at all times in good faith assist in the
-3-
carrying out of all such terms and in the taking of all such action as may be
necessary or appropriate in order to protect the rights of the Registered Holder
under this Warrant against impairment. Without limiting the generality of the
foregoing, the Company: (i) will not set nor increase the par value of any
shares of stock issuable upon the exercise of this Warrant above the amount
payable therefor upon such exercise, and (ii) will take all such action as may
be necessary or appropriate in order that the Company may validly and legally
issue fully paid and non-assessable shares of Common Stock upon the exercise of
this Warrant.
6. Certificate as to Adjustments. In each case of any adjustment in
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either the purchase price or in the number of Warrant Shares, or other stock,
securities or property receivable upon the exercise of this Warrant, the Chief
Financial Officer of the Company shall compute such adjustment in accordance
with the terms of this Warrant and prepare a certificate setting forth such
adjustment and showing in detail the facts upon which such adjustment is based,
including a statement of the adjusted purchase price. The Company will cause
copies of such certificate to be mailed (by first class mail, postage prepaid)
to the Registered Holder.
7. Loss or Mutilation. Upon receipt by the Company of evidence
------------------
reasonably satisfactory to it of the ownership, and the loss, theft, destruction
or mutilation, of this Warrant, and of indemnity reasonably satisfactory to it,
and (in the case of mutilation) upon surrender and cancellation of this Warrant,
the Company will execute and deliver in lieu thereof a new Warrant of like
tenor.
8. Reservation of Warrant Shares. If at any time the number of
-----------------------------
authorized but unissued shares of the Company's Common Stock, or other
securities of the Company shall not be sufficient to effect the exercise of this
Warrant, the Company will take such corporate action as may, in the opinion of
its counsel, be necessary to increase its authorized but unissued shares of
Common Stock, or other securities to such number of shares as shall be
sufficient for such purpose.
9. Restrictions on Transfer.
------------------------
9.1 The Registered Holder understands that neither this Warrant nor
the Warrant Shares have been registered under the Securities Act of 1933, as
amended (the "Act"), or any state securities laws. As a condition to the
issuance of this Warrant and to its exercise, the Registered Holder hereby
represents and warrants to the Company that:
(a) The Warrant and, if applicable, the Warrant Shares (collectively,
the "Securities") have been acquired by the Registered Holder for investment and
not with a view to the sale or other distribution thereof within the meaning of
the Act and the Registered Holder has no present intention of selling or
otherwise disposing of all or any portion of the Securities.
(b) The Registered Holder has acquired and will acquire the Securities
for the Registered Holder's own account only and no one else has any beneficial
ownership in the Securities.
-4-
(c) The Registered Holder is capable of evaluating the merits and
risks of any investment in the Securities, is financially capable of bearing a
total loss of this investment and has either: (i) a preexisting personal or
business relationship with the Company or its principals; (ii) by reason of the
Registered Holder's business or financial experience, has the capacity to
protect his or its own interests in connection with this investment; or (iii) is
an "accredited investor" within the meaning of Regulation D promulgated under
the Act, as amended.
(d) The Registered Holder has had access to all information regarding
the Company, its present and prospective business, assets, liabilities and
financial condition that the Registered Holder considers important to making the
decision to acquire the Securities and has had ample opportunity to ask
questions of and receive answers from the Company's representatives concerning
an investment in the Securities and to obtain any and all documents requested in
order to supplement or verify any of the information supplied.
(e) The Registered Holder understands that the securities shall be
deemed restricted securities under the Act and may not be resold unless they are
registered under the Act and any applicable state securities law, or in the
opinion of counsel in form and substance satisfactory to the Company, an
exemption from such registration is available.
(f) The Registered Holder is aware of Rule 144 promulgated under the
Act, which rules provides, in substance, that: (i) after two years from the
date restricted securities have been purchased and fully paid for, a holder may
transfer restricted securities provided certain conditions are met (e.g.,
certain public information is available about the Company), and specific
limitations on the amount of shares which can be sold within certain periods and
the manner in which such shares must be sold are complied with; and (ii) after
three years from the date the securities have been purchased and fully paid for,
holders who are not "affiliates" of the Company may sell restricted securities
without satisfying such conditions.
(g) The Registered Holder further understands that if the requirements
of Rule 144 are not met, registration under the Act, compliance with Regulation
A, or some other registration exemption will be required for any disposition of
the Securities; and that, although Rule 144 is not exclusive, the Securities and
Exchange Commission has expressed its opinion that persons proposing to sell
restricted securities other than in a registered offering or other than pursuant
to Rule 144 will have a substantial burden of proof in establishing that an
exemption from registration is available for such offers or sales and such
persons and the brokers who participate in the transactions do so at their own
risk.
9.2 The Registered Holder of this Warrant, by acceptance hereof,
agrees that, absent an effective registration statement filed with the
Securities and Exchange Commission under the Act, covering the disposition or
sale of this Warrant or the Warrant Shares issued or issuable upon exercise
hereof, such Registered Holder will not sell or transfer the Warrant or any or
all of such Warrant Shares as the case may be, without first providing the
Company with an opinion of counsel satisfactory to the Company to the effect
that such sale or transfer will be exempt from the registration and prospectus
delivery requirements of the Act, and such Registered Holder consents to
-5-
the Company making a notation on its records, or giving instructions to any
transfer agent of this Warrant, or such Warrant Shares, in order to implement
such restriction on transfer. The shares issued upon exercise of this Warrant
shall bear legends referring to the restrictions or transfer set forth in this
Section 9. As a condition to the transfer of this Warrant or transfer of the
shares issuable on exercise hereof, any permitted transferee must execute and
deliver to the Company representations and warranties similar to these set forth
in this Section 10 and agree in writing to accept and be bound by all the terms
and conditions of this Warrant.
10. Registration Rights.
-------------------
10.1 Company Registration.
--------------------
(a) Notice of Registration. If the Company shall determine to
----------------------
register any of its securities, either for its own account or the account of a
security holder or holders, other than a registration relating solely to
employee benefit plans or a registration relating solely to a Commission Rule
145 transaction, the Company will:
(i) promptly give to each Holder written notice thereof; and
(ii) include in such registration (and any related qualification under
blue sky laws or other compliance), and in any underwriting involved therein,
all the Registrable Securities specified by any Holder in a written request or
requests made within twenty (20) days after receipt of such written notice from
the Company.
(b) Underwriting. If the registration of which the Company gives
------------
notice is for a registered public offering involving an underwriting, the
Company shall so advise the Holders as a part of the written notice given
pursuant to Section 10.1(a)(i). In such event, the right of any Holder to
registration pursuant to this Section 10.1 shall be conditioned upon such
Holder's participation in such underwriting and the inclusion of Registrable
Securities in the underwriting to the extent provided herein. All Holders
proposing to distribute their securities through such underwriting shall
(together with the Company and the other holders distributing their securities
through such underwriting) enter into an underwriting agreement in customary
form with the managing underwriter selected for such underwriting by the
Company. Notwithstanding any other provision of this Section 10.1, if the
managing underwriter determines that marketing factors require a limitation of
the number of shares to be underwritten, the managing underwriter may limit or
exclude entirely the Registrable Securities to be included in such registration.
The Company shall so advise all Holders and other holders distributing their
securities through such underwriting, and the number of shares of Registrable
Securities and such other securities that may be included in the registration
and underwriting on behalf of persons other than the Company shall be allocated
among all Holders and such other holders in proportion, as nearly as
practicable, to the respective amounts of Registrable Securities and other
securities entitled to registration rights held by such Holders and other
holders at the time of filing the registration statement. To facilitate the
allocation of shares in accordance with the above provisions, the Company may
round the number of shares allocated to any Holder or other holder to the
nearest one hundred (100) shares.
-6-
If any Holder or Holders disapproves of the terms of any such
underwriting, he or she may elect to withdraw therefrom by written notice to the
Company and the managing underwriter. Any securities excluded or withdraw from
such underwriting shall be withdrawn from such registration, and shall not be
transferred in a public distribution prior to one hundred and twenty (120) days
after the effective date of the registration statement relating thereto, or such
other shorter period of time as the underwriters may require.
(c) Right to Terminate Registration. The Company or the holders of
-------------------------------
other registration rights demanding a registration shall have the right to
terminate or withdraw any registration initiated by it or them prior to the
effectiveness of such registration whether or not any Holder has elected under
this Section 10.1 to include securities in such registration.
(d) Limitation of Rights. The Company shall not be required to effect
--------------------
more than two (2) registrations pursuant to this Section 10.1, (i) one of which
shall be made on or before March 31, 1996 and (ii) the second of which shall
take place at any time thereafter prior to the Expiration Date if the market
price of the Company's Common Stock as reported on the Nasdaq National Market is
greater than $7.621 and requested by the Initiating Holders representing more
than fifty percent (50%) of all Holders.
10.2 Expenses of Registration. All Registration Expenses
------------------------
incurred in connection with the two registrations permitted pursuant to Section
10.1 shall be borne by the Company. Unless otherwise stated, all Selling
Expenses relating to securities registered on behalf of the Holders shall be
borne by the Holders of such securities pro rata on the basis of the number of
shares so registered.
10.3 Registration Procedures. In the case of each registration,
-----------------------
qualification or compliance effected by the Company pursuant to this Section 10,
the Company will keep each Holder advised in writing as to the initiation of
each registration, qualification and compliance and as to the completion
thereof. At its expense the Company will:
(a) Prepare and file with the Commission a registration statement with
respect to such securities and use its best efforts to cause such registration
statement to become and remain effective for at least one hundred eighty (180)
days or until the distribution described in the Registration Statement has been
completed;
(b) Furnish to the Holders participating in such registration and to
the underwriters of the securities being registered such reasonable number of
copies of the registration statement, preliminary prospectus, final prospectus
and such other documents as such underwriters may reasonably request in order to
facilitate the public offering of such securities.
10.4 Indemnification.
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(a) The Company will indemnify each Holder, each of its officers,
directors and partners, and each person controlling such Holder within the
meaning of Section 15 of the Securities Act, with respect to which registration,
qualification or compliance has been effected
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pursuant to this Section 10, and each underwriter, if any, and each person who
controls any underwriter within the meaning of Section 15 of the Securities Act,
against all expenses, claims, losses, damages or liabilities (or actions in
respect thereof), including any of the foregoing incurred in settlement of any
litigation, commenced or threatened, arising out of or based on any untrue
statement (or alleged untrue statement) of a material fact contained in any
registration statement, prospectus, offering circular or other documents, or any
amendment or supplement thereto, incident to any such registration,
qualification or compliance, or based on any omission (or alleged omission) to
state therein a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances in which they were made,
not misleading, or any violation by the Company of the Securities Act or any
rule or regulation promulgated under the Securities Act applicable to the
Company in connection with any such registration, qualification or compliance,
and the Company will reimburse each such Holder, each of its officers and
directors, and each person controlling such Holder, each such underwriter and
each person who controls any such underwriter, for any legal and any other
expenses reasonably incurred in connection with investigating, preparing or
defending any such claim, loss, damage, liability or action, provided that the
Company will not be liable in any such case to the extent that any such claim,
loss, damage, liability or expense arises out of or is based on any untrue
statement or omission or alleged untrue statement or omission, made in reliance
upon and in conformity with written information furnished to the Company by an
instrument duly executed by such Holder, controlling person or underwriter and
stated to be specifically for use therein.
(b) Each Holder will, if Registrable Securities held by such Holder
are included in the securities as to which such registration, qualification or
compliance is being effected, indemnify the Company, each of its directors and
officers, each underwriter, if any, of the Company's securities covered by such
a registration statement, each person who controls the Company or such
underwriter within the meaning of Section 15 of the Securities Act, each other
such Holder, each of its officers, directors and partners and each person
controlling such Holder within the meaning of Section 15 of the Securities Act,
against all claims, losses, damages and liabilities (or actions in respect
thereof) arising out of or based on any untrue statement (or alleged untrue
statement) of a material fact contained in any such registration statement,
prospectus, offering circular or other document, or any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and will reimburse the
Company, such Holders, such directors, officers, partners, persons, underwriters
or control persons for any legal or any other expenses reasonably incurred in
connection with investigating or defending any such claim, loss, damage,
liability or action, in each case to the extent, but only to the extent, that
such untrue statement (or alleged untrue statement) or omission (or alleged
omission) is made in such registration statement, prospectus, offering circular
or other document in reliance upon and in conformity with written information
furnished to the Company by an instrument duly executed by such Holder and
stated to be specifically for use therein.
(c) Each party entitled to indemnification under this Section 10.4
(the "Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense and
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settlement of any such claim or any litigation resulting therefrom, provided
that counsel for the Indemnifying Party, who shall conduct the defense of such
claim or litigation, shall be approved by the Indemnified Party (whose approval
shall not unreasonably be withheld), and the Indemnified Party may participate
in such defense at such party's expense, and provided further that the failure
of any Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Section 10 unless the failure
to give such notice is prejudicial to the Indemnifying Party's ability to defend
such action. No Indemnifying Party, in the defense of any such claim or
litigation, shall, except with the consent of each Indemnified Party, consent to
entry of any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability with respect to such claim or
litigation.
10.5 Information by Holder. The Holder or Holders included in
---------------------
any registration shall furnish to the Company such information regarding such
Holder or Holders, the Registrable Securities held by them and the distribution
proposed by such Holder or Holders as the Company may request in writing and as
shall be required in connection with any registration, qualification or
compliance referred to in this Section 10.
10.6 Rule 144 Reporting. With a view to making available the
------------------
benefits of certain rules and regulations of the Commission which may at any
time permit the sale of restricted securities, as such term is understood and
defined in Rule 144 under the Securities Act, to the public without
registration, after such time as a public market exists for the Common Stock of
the Company, the Company agrees to use its best efforts to:
(a) Make and keep public information available, as those terms are
understood and defined in Rule 144 under the Securities Act, at all times after
the effective date that the Company becomes subject to the reporting
requirements of the Securities Act or the Exchange Act.
(b) Use its best efforts to file with the Commission in a timely
manner all reports and other documents required of the Company under the
Securities Act and the Exchange Act (at any time after it has become subject to
such reporting requirements);
(c) So long as a Holder owns any restricted securities, furnish to
such Holder forthwith upon request a written statement by the Company as to its
compliance with the reporting requirements of said Rule 144 (at any time after
ninety (90) days after the effective date of the first registration statement
filed by the Company for a public offering of its securities), and of the
Securities Act and the Exchange Act (at any time after it has become subject to
such reporting requirements), a copy of the most recent annual or quarterly
report of the Company, and such other reports and documents of the Company and
other information in the possession of or reasonably obtainable by the Company
as any such Holder may reasonably request in availing itself of any rule or
regulation of the Commission allowing such Holder to sell any such securities
without registration.
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10.7 Termination of Registration Rights. The registration rights
----------------------------------
granted pursuant to Section 10.1 shall terminate on the Expiration Date.
11. No Rights or Liabilities as Shareholder. This Warrant does not by
---------------------------------------
itself entitle the Registered Holder to any voting rights or other rights as a
shareholder of the Company. In the absence of affirmative action by Registered
Holder to purchase Warrant Shares by exercise of this Warrant, no provisions of
this Warrant, and no enumeration herein of the rights or privileges of the
Registered Holder shall cause such Registered Holder to be a shareholder of the
Company for any purpose.
12. Amendment; Waiver. Any term of this Warrant may be amended, and the
-----------------
observance of any term of this Warrant may be waived (either generally or in a
particular instance and either retroactively or prospectively) by the written
consent of the Company and the Registered Holder.
13. Notices. Unless otherwise provided, any notice required or permitted
-------
under this Warrant shall be given in writing and shall be deemed effectively
given upon personal delivery or by delivery by confirmed telefax to the party to
be notified, or five (5) days after deposit with the United States Post Office,
by registered or certified mail, postage prepaid and addressed to the party to
be notified at such address as such party may designate.
14. Attorneys' Fees. In the event any party is required to engage the
---------------
services of any attorneys for the purpose of enforcing this Warrant, or any
provision thereof, the prevailing party shall be entitled to recover its
reasonable attorneys' fees and any other related cost or expenses.
15. Headings. The headings in this Warrant are for purposes of
--------
convenience in reference only, and shall not be deemed to constitute a part
hereof.
16. Governing Law. This Warrant shall be construed and enforced in
-------------
accordance with, and governed by, the internal laws of the State of California,
excluding that body of law applicable to conflicts of laws.
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17. Terms Binding. By acceptance of this Warrant, the Registered Holder
-------------
of this Warrant (and each subsequent assignee, transferee or Registered Holder
of this Warrant) accepts and agrees to be bound by all the terms and conditions
of this Warrant.
Dated: _______________________
SIGMA DESIGNS, INC. ACKNOWLEDGED AND ACCEPTED
BY REGISTERED HOLDER:
By: __________________________ By: _________________________________
Name: ________________________ Name: _______________________________
Title: _______________________ Title: ______________________________
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