1
EXHIBIT 10.61
THIS WARRANT AND THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER THE SECURITIES OR BLUE
SKY LAWS OF ANY STATE AND MAY NOT BE SOLD, OR OTHERWISE TRANSFERRED, IN THE
ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SUCH ACT AND UNDER
ANY SUCH APPLICABLE STATE LAWS, OR IN VIOLATION OF THE PROVISIONS OF THIS
WARRANT.
THIS WARRANT AND THE SECURITIES REPRESENTED HEREBY ARE SUBJECT TO THE TERMS AND
CONDITIONS OF A REGISTRATION RIGHTS AGREEMENT DATED AS OF OCTOBER 27, 1997.
WARRANT
To Purchase Common Stock of
CODE ALARM INC.
Issuance Date: October 27, 1997
Issued To: [Pegasus Partners, L.P.] [Pegasus Related Partners, L.P.]
No. of Shares of Common Stock: _________
2
TABLE OF CONTENTS
Page
----
1. DEFINITIONS............................................................. 1
2. EXERCISE OF WARRANT..................................................... 6
2.1. Manner of Exercise................................................ 6
2.2. Payment of Taxes.................................................. 7
2.3. Fractional Shares................................................. 7
2.4. Continued Validity................................................ 8
3. TRANSFER, DIVISION AND COMBINATION...................................... 8
3.1. Transfer.......................................................... 8
3.2. Division and Combination.......................................... 8
3.3. Expenses.......................................................... 9
3.4. Maintenance of Books.............................................. 9
4. ADJUSTMENTS............................................................. 9
4.1. Stock Dividends, Subdivisions and Combinations.................... 9
4.2. Certain Other Distributions....................................... 9
4.3. Issuance of Additional Shares of Common Stock..................... 10
4.4. Issuance of Warrants or Other Rights.............................. 11
4.5. Issuance of Convertible Securities................................ 12
4.6. Superseding Adjustment............................................ 13
4.7. Other Provisions Applicable to Adjustments Under This Section..... 13
4.8. Reorganization, Reclassification, Liquidation, Dissolution,
Merger, Consolidation or Disposition of Assets.................... 16
4.9. Other Action Affecting Common Stock............................... 16
4.10. Certain Limitations............................................... 17
5. NOTICES TO WARRANTHOLDERS............................................... 17
5.1. Notice of Adjustments............................................. 17
5.2. Notice of Certain Corporate Action................................ 17
6. NO IMPAIRMENT........................................................... 17
7. RESERVATION AND AUTHORIZATION OF COMMON STOCK;
REGISTRATION WITH OR APPROVAL OF ANY
GOVERNMENTAL AUTHORITY.................................................. 18
8. TAKING OF A RECORD; STOCK AND WARRANT
TRANSFER BOOKS.......................................................... 19
9. RESTRICTIONS ON TRANSFERABILITY......................................... 19
3
Page
----
9.1. Restrictive Legends............................................... 19
9.2. Notice of Proposed Transfers; Requests for Registration........... 20
9.3. No Transfer to Directed Electronics, Inc.......................... 20
9.4. Termination of Restrictions....................................... 21
10. SUPPLYING INFORMATION................................................... 21
11. LOSS OR MUTILATION...................................................... 21
12. OFFICE OF THE COMPANY................................................... 22
13. REPURCHASE BY THE COMPANY OF WARRANT AND
WARRANT STOCK........................................................... 22
13.1. Obligation to Repurchase Warrant and Warrant Stock................ 22
13.2. Payment of Repurchase Price....................................... 23
13.3. Right to Repurchase Portion of Warrant and Warrant Stock.......... 23
14. REGISTRATION RIGHTS.................................................... 25
15. LIMITATION OF LIABILITY................................................ 25
16. DIVIDENDS ON UNDERLYING COMMON STOCK................................... 25
17. MISCELLANEOUS.......................................................... 26
17.1. Nonwaiver and Expenses........................................... 26
17.2. Notice Generally................................................. 26
17.3. Indemnification.................................................. 27
17.4. Successors and Assigns........................................... 27
17.5. Amendment........................................................ 27
17.6. Severability..................................................... 27
17.7. Headings......................................................... 27
17.8. Governing Law; Consent to Jury Trial............................. 27
17.9. Mutual Waiver of Jury Trial............................................ 28
4
THIS WARRANT AND THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER THE SECURITIES OR BLUE
SKY LAWS OF ANY STATE AND MAY NOT BE SOLD, OR OTHERWISE TRANSFERRED, IN THE
ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SUCH ACT AND UNDER
ANY SUCH APPLICABLE STATE LAWS, OR IN VIOLATION OF THE PROVISIONS OF THIS
WARRANT.
THIS WARRANT AND THE SECURITIES REPRESENTED HEREBY ARE SUBJECT TO THE TERMS AND
CONDITIONS OF A REGISTRATION RIGHTS AGREEMENT DATED AS OF OCTOBER 27, 1997.
Warrant Number: ___________ Date of Issuance: ________
No. of Shares of Common Stock: ________
WARRANT
To Purchase Common Stock of
CODE ALARM INC.
THIS IS TO CERTIFY THAT [Pegasus Partners, L.P.] [Pegasus Related
Partners, L.P.] or its registered assigns, is entitled, at any time during the
Exercise Period (as hereinafter defined), to purchase from Code Alarm Inc., a
Michigan corporation (the "Company"), _______________________ (______) shares
of Common Stock (as hereinafter defined and subject to adjustment as provided
herein), in whole or in part, including fractional parts, at a purchase price
of $1.8759559 per share (subject to adjustment as set forth herein), all on the
terms and conditions and pursuant to the provisions hereinafter set forth.
1. DEFINITIONS
As used in this Warrant, the following terms have the respective meanings
set forth below:
"Additional Shares of Common Stock" shall mean all shares of Common Stock
issued by the Company after the Closing Date, other than Warrant Stock, whether
now authorized or not.
"Affiliate" of any Person shall mean a Person that directly or indirectly,
through one or more intermediaries, controls or is controlled by or is under
common control with, such Person.
5
"Business Day" shall mean any day that is not a Saturday or Sunday or a
day on which banks are required or permitted to be closed in the State of New
York.
"Closing Date" shall mean October 27, 1997.
"Commission" shall mean the Securities and Exchange Commission or any
other federal agency then administering the Securities Act and other federal
securities laws.
"Common Stock" shall mean (except where the context otherwise indicates)
the Common Stock, no par value, of the Company as constituted on the Closing
Date, and any capital stock into which such Common Stock may thereafter be
changed, and shall also include (i) capital stock of the Company of any other
class (regardless of how denominated) issued to the holders of shares of Common
Stock upon any reclassification thereof which is also not preferred as to
dividends or assets over any other class of stock of the Company and which is
not subject to redemption and (ii) shares of common stock of any successor or
acquiring corporation (as defined in Section 4.8) received by or distributed to
the holders of Common Stock of the Company in the circumstances contemplated by
Section 4.8.
"Convertible Securities" shall mean evidences of indebtedness, shares of
stock or other securities which are convertible into or exchangeable, with or
without payment of additional consideration in cash or property, for Additional
Shares of Common Stock, either immediately or upon the occurrence of a
specified date or a specified event.
"Current Market Price" shall mean, in respect of any share of Common Stock
on any date herein specified, the average of the daily market prices for the 20
consecutive Trading Days immediately preceding such date. The daily market
price for each such Trading Day shall be (i) the last sale price on such day on
the principal stock exchange on which such Common Stock is then listed or
admitted to trading, (ii) if no sale takes place on such day on any such
exchange, the last reported sale price as officially quoted on any such
exchange, (iii) if the Common Stock is not then listed or admitted to trading
on any stock exchange but is traded on the Nasdaq Stock Market, the last
reported sale price as officially quoted on the Nasdaq Stock Market, (iv) if
the Common Stock is not then traded on the Nasdaq Stock Market, the last
reported sale price on the over-the-counter market, as reported by the National
Quotation Bureau Incorporated (or any similar organization or agency succeeding
to its functions of reporting prices), or if such sale price is not available
on such date, the average of the closing bid and asked prices on such date as
reported by the National Quotation Bureau Incorporated (or any similar
organization or agency succeeding to its functions of reporting prices), or (v)
if there is no such organization or agency, as furnished by any member of the
NASD selected mutually by the Majority Holders and the Company or, if they
cannot agree upon such selection, by a member selected by two such members of
the NASD, one of which shall be selected by the Majority Holders and one of
which shall be selected by the Company.
2
6
"Current Warrant Price" shall mean, in respect of a share of Common Stock
at any date herein specified, the price at which a share of Common Stock may be
purchased pursuant to this Warrant on such date. On the Closing Date, the
Current Warrant Price is $1.8759559 per share of Common Stock, and is subject
to adjustment pursuant to Section 4.
"DEI shall mean Directed Electronics, Inc., a California corporation.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended,
or any similar federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect from time to time.
"Exercise Period" shall mean the period beginning on the Closing Date and
ending at 5:00 P.M., Michigan time, on the seventh anniversary of the Closing
Date.
"Fully Diluted Outstanding" shall mean, when used with reference to Common
Stock, at any date as of which the number of shares thereof is to be
determined, all shares of Common Stock Outstanding at such date and all shares
of Common Stock issuable in respect of this Warrant outstanding on such date
and other options or warrants to purchase, or securities convertible into,
shares of Common Stock outstanding on such date, whether or not such options,
warrants or other securities are presently convertible or exercisable.
"GECC" shall mean General Electric Capital Corporation, a New York
corporation.
"Holder" shall mean, as the context requires, the Person in whose name
this Warrant or one of the other Warrants is registered on the books of the
Company maintained for such purpose and/or the Person holding any Warrant
Stock.
"Independent Counsel" shall mean counsel to the Holder reasonably
acceptable to the Company.
"Litigation Guarantee" shall mean the guarantee dated as of October 24,
1997 Date given by Pegasus to GECC, pursuant to which Pegasus has agreed to
provide the Company with financing for a judgment, appeal bond or settlement in
connection with the litigation pending with the United States District Court for
the Eastern District of Michigan known as Code Alarm, Inc. v. Electromotive
Technology Corporation, case number 87-CV-74022-DT.
"Litigation Warrants" shall mean warrants to purchase Common Stock issued
to Pegasus pursuant to Section 5.04 of the Unit Purchase Agreement, and all
warrants issued upon transfer, division or combination of, or in substitution
or exchange for, any thereof.
"Majority Holders" shall mean, at any given time, holders of Warrants and
Other Warrants then outstanding who would hold a majority of the Common Stock
purchasable upon
3
7
exercise of all Warrants and Other Warrants in the event all Warrants and Other
Warrants were so exercised at such time.
"NASD" shall mean the National Association of Securities Dealers, Inc., or
any successor corporation thereto.
"New Securities" shall mean any Additional Shares of Common Stock, and any
rights or options to purchase any Additional Shares of Common Stock, and any
Convertible Securities.
"Other Property" shall have the meaning set forth in Section 4.8.
"Other Warrants" shall mean (i) warrants to purchase Common Stock issued
as part of Units purchased by Pegasus pursuant to the Unit Purchase Agreement
or issued to Pegasus or their successors or assigns as part of Units issued in
payment of dividends on Preferred Shares, (ii) Litigation Warrants and (iii)
all warrants issued upon transfer, division or combination of, or in
substitution or exchange for, any thereof.
"Outstanding" shall mean, when used with reference to Common Stock, at any
date as of which the number of shares thereof is to be determined, all issued
shares of Common Stock, except shares then owned or held by or for the account
of the Company or any Subsidiary, and shall include all shares issuable in
respect of outstanding scrip or any certificates representing fractional
interests in shares of Common Stock.
"Payment Shares" shall have the meaning set forth in Section 2.1.
"Pegasus" shall mean collectively, Pegasus Partners, L.P., a Delaware
limited partnership and Pegasus Related Partners, L.P., a Delaware limited
partnership.
"Permitted Issuances" shall mean (i) the issuance of shares of Common
Stock pursuant to an underwritten public offering, (ii) the issuance of Other
Warrants, (iii) the issuance of shares of Common Stock upon exercise of the
Warrants or the Other Warrants, (iv) the issuance of up to 280,000 shares of
Common Stock upon the exercise of options issued to management employees of the
Company or its Subsidiaries pursuant to the Company's 1987 Stock Option Plan,
(v) provided that the Charter Amendment (as defined in the Unit Purchase
Agreement) has (1) been approved and adopted by the Company's stockholders, (2)
been filed with the Department of Consumer and Industry Services of the State
of Michigan and (3) become effective, the issuance of up to 1,317,178 shares of
Common Stock or options to acquire such shares to management employees of the
Company or its Subsidiaries pursuant to the Company's 1997 Stock Option Plan,
(vi) the issuance of Preferred Shares and (vii) the issuance to GECC on October
24, 1997 of warrants to purchase up to 131,718 shares of Common Stock (subject
to adjustment as provided therein) and the issuance of Common Stock upon the
exercise thereof.
4
8
"Person" shall mean any individual, sole proprietorship, partnership,
joint venture, trust, incorporated organization, association, corporation,
institution, public benefit corporation, entity or government (whether federal,
state, county, city, municipal or otherwise, including, without limitation, any
instrumentality, division, agency, body or department thereof).
"Preferred Shares" shall mean shares of Series A Preferred Stock of the
Company.
"Registration Rights Agreement" shall mean the Registration Rights
Agreement dated as of the Closing Date among the Company, Pegasus and GECC.
"Reorganization" shall have the meaning set forth in Section 4.8.
"Repurchase Price" shall have the meaning set forth in Section 13.2.
"Restricted Common Stock" shall mean shares of Common Stock which are, or
which upon their issuance on the exercise of this warrant would be, evidenced
by a certificate bearing the restrictive legend set forth in Section 9.1(a).
"Restrictions" shall have the meaning set forth in Section 13.1(c).
"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.
"Shortfall Guarantee" shall mean the guarantee dated as of October 24, 1997
given by Pegasus to GECC, pursuant to which Pegasus has guaranteed up to
$4,000,000 of the Company's obligations to GECC.
"Subsidiary" shall mean any corporation of which an aggregate of more than
50% of the outstanding stock having ordinary voting power to elect a majority
of the board of directors of such corporation (irrespective of whether, at the
time, stock of any other class or classes of such corporation shall have or
might have voting power by reason of the happening of any contingency) is at
the time, directly or indirectly, owned legally or beneficially by the Company
and/or one or more Subsidiaries of the Company.
"Trading Day" shall mean (i) any day on which stock is traded on the
principal stock exchange on which the Common Stock is listed or admitted to
trading, (ii) if the Common Stock is not then listed or admitted to trading on
any stock exchange but is traded on the Nasdaq Stock Market, any day on which
stock is traded on the Nasdaq Stock Market, or (iii) if the Common Stock is not
then traded on the Nasdaq Stock Market, any day on which stock is traded in the
over-the counter market, as reported by the National Quotation Bureau
Incorporated (or any similar organization or agency succeeding to its functions
of reporting prices).
5
9
"Transfer" shall mean any disposition of any Warrant or Warrant Stock or
of any interest in either thereof, which would constitute a sale thereof within
the meaning of the Securities Act.
"Unit Purchase Agreement" shall mean the Unit Purchase Agreement dated as
of the Closing Date, by and among the Company and Pegasus.
"Units" shall mean units consisting of one Preferred Share and one warrant
to purchase 72.2525247 shares of Common Stock, as adjusted from time to time.
"Warrant Price" shall mean an amount equal to (i) the number of shares of
Common Stock being purchased upon exercise of this Warrant pursuant to Section
2.1, multiplied by (ii) the Current Warrant Price as of the date of such
exercise.
"Warrant Stock" shall mean the shares of Common Stock purchased by Holders
of the Warrants upon the exercise thereof.
"Warrants" shall mean this warrant and the other warrants issued to
Pegasus pursuant to Section 3.01(s) of the Unit Purchase Agreement, and all
warrants issued upon transfer, division or combination of, or in substitution
or exchange for, any thereof.
2. EXERCISE OF WARRANT
2.1.. Manner of Exercise. At any time during the Exercise Period, the
Holder may exercise this Warrant, on any Business Day, for all or any part of
the number of shares of Common Stock purchasable hereunder provided, however,
that the Company shall only be required to issue shares to the extent such
shares are required to be available for issuance pursuant to Section 7; and
provided, further, however, that for all purposes hereunder other than its
direct exercise for shares of Common Stock (including but not limited to for
purposes of Section 4.8 and 16), this Warrant shall be deemed to be exercisable
for the full amount of shares of Common Stock represented by this Warrant,
without regard to the number of shares of Common Stock available or set aside
for issuance upon such exercise.
In order to exercise this Warrant, in whole or in part, the Holder shall
deliver to the Company at its office at 000 Xxxx Xxxxxxxx, Xxxxxxx Xxxxxxx,
Xxxxxxxx 00000, or at the office or agency designated by the Company pursuant
to Section 12, (i) a written notice of the Holder's election to exercise this
Warrant, which notice shall specify the number of shares of Common Stock to be
purchased, (ii) payment of the Warrant Price in the manner provided below, and
(iii) this Warrant. Such notice shall be substantially in the form of the
subscription form appearing at the end of this Warrant as Exhibit A, duly
executed by the Holder or its duly appointed agent or attorney. Upon receipt
thereof, the Company shall, as promptly as practicable, and in any event within
five (5) Business Days thereafter, execute or cause to be executed and deliver
or cause to be delivered to the Holder a certificate or certificates
6
10
representing the aggregate number of full shares of Common Stock issuable upon
such exercise, together with cash in lieu of any fraction of a share, as
hereinafter provided. The stock certificate or certificates so delivered shall
be, to the extent possible, in such denomination or denominations as the Holder
shall request in the notice and shall be registered in the name of the Holder
or, subject to Section 9, such other name as shall be designated in the notice.
This Warrant shall be deemed to have been exercised and such certificate or
certificates shall be deemed to have been issued, and the Holder or any other
Person so designated to be named therein shall be deemed to have become a
holder of record of such shares for all purposes, as of the date the notice,
together with the cash or check or checks, if any, and this Warrant, are
received by the Company as described above and all taxes required to be paid by
the Holder, if any, pursuant to Section 2.2 prior to the issuance of such
shares have been paid. If this Warrant shall have been exercised in part, the
Company shall, at the time of delivery of the certificate or certificates
representing Warrant Stock, deliver to the Holder a new Warrant evidencing the
rights of the Holder to purchase the unpurchased shares of Common Stock called
for by this Warrant, which new Warrant shall in all other respects be identical
with this Warrant, or, at the request of the Holder, appropriate notation may
be made on this Warrant and the same returned to the Holder. Notwithstanding
any provision herein to the contrary, the Company shall not be required to
register shares in the name of any Person who acquired this Warrant (or part
hereof) or any Warrant Stock otherwise than in accordance with this Warrant.
Payment of the Warrant Price shall be made at the option of the Holder by
(i) cash, (ii) wire transfer to an account in a bank located in the United
States designated for such purpose by the Company, (iii) certified or official
bank check, or (iv) any combination of the foregoing; provided, however, that
the Holder shall have the right, at its election, in lieu of delivering the
Warrant Price in cash, to instruct the Company in the form of Subscription
Notice to retain, in payment of the Warrant Price, a number of shares of Common
Stock (the "Payment Shares") equal to the quotient of the aggregate Warrant
Price of the shares as to which this Warrant is then being exercised divided by
the Current Market Price.
2.2. Payment of Taxes. All shares of Common Stock issuable upon the
exercise of this Warrant pursuant to the terms hereof shall be validly issued,
fully paid and nonassessable and without any preemptive rights. The Company
shall pay all expenses in connection with, and all taxes and other governmental
charges that may be imposed with respect to, the issue or delivery thereof,
unless such tax or charge is imposed by law upon the Holder, in which case such
taxes or charges shall be paid by the Holder. The Company shall not be
required, however, to pay any tax or other charge imposed in connection with
any transfer involved in the issue of any certificate for shares of Common
Stock issuable upon exercise of this Warrant in any name other than that of the
Holder, and in such case the Company shall not be required to issue or deliver
any stock certificate until such tax or other charge has been paid or it has
been established to the satisfaction of the Company that no such tax or other
charge is due.
2.3. Fractional Shares. The Company shall not be required to issue a
fractional share of Common Stock upon exercise of any Warrant. As to any
fraction of a share which the
7
11
Holder of one or more Warrants, the rights under which are exercised in the
same transaction, would otherwise be entitled to purchase upon such exercise,
the Company shall pay a cash adjustment in respect of such final fraction in an
amount equal to the same fraction of the Current Market Price per share of
Common Stock on the date of exercise.
2.4. Continued Validity. A holder of shares of Common Stock issued upon
the exercise of this Warrant, in whole or in part (other than a holder who
acquires such shares after the same have been publicly sold pursuant to a
Registration Statement under the Securities Act or sold pursuant to Rule 144
thereunder), shall continue to be entitled with respect to such shares to all
rights to which it would have been entitled as the Holder under Sections 6, 10,
13, 14, 15 and 17 of this Warrant, subject to the obligations thereunder. The
Company will, at the time of each exercise of this Warrant, in whole or in
part, upon the request of the holder of the shares of Common Stock issued upon
such exercise hereof, acknowledge in writing, in form reasonably satisfactory
to such holder, its continuing obligation to afford to such holder all such
rights; provided, however, that if such holder shall fail to make any such
request, such failure shall not affect the continuing obligation of the Company
to afford to such holder all such rights.
3. TRANSFER, DIVISION AND COMBINATION
3.1. Transfer. Subject to compliance with Section 9, transfer of this
Warrant and all rights hereunder, in whole or in part, shall be registered on
the books of the Company to be maintained for such purpose, upon surrender of
this Warrant at the principal office of the Company referred to in Section 2.1
or the office or agency designated by the Company pursuant to Section 12,
together with a written assignment of this Warrant substantially in the form of
Exhibit B hereto duly executed by the Holder or its agent or attorney and if
such transfer is not to be made pursuant to Section 13, funds sufficient to pay
any transfer taxes payable upon the making of such transfer. Upon such
surrender and, if required, such payment, the Company shall, subject to Section
9, execute and deliver a new Warrant or Warrants in the name(s) of the assignee
or assignees and in the denomination(s) specified in such instrument of
assignment, and shall issue to the assignor a new Warrant evidencing the
portion of this Warrant not so assigned, and this Warrant shall promptly be
cancelled. A Warrant, if properly assigned in compliance with Section 9, may
be exercised by a new Holder for the purchase of shares of Common Stock without
having a new Warrant issued. If requested by the Company, a new Holder shall
acknowledge in writing, in form reasonably satisfactory to the Company, such
Holder's continuing obligation under Section 9.
3.2. Division and Combination. Subject to Section 9, this Warrant may be
divided or combined with other Warrants upon presentation hereof at the
aforesaid office or agency of the Company, together with a written notice
specifying the names and denominations in which new Warrants are to be issued,
signed by the Holder or its agent or attorney. Subject to compliance with
Section 3.1 and with Section 9, as to any transfer which may be involved in
such division or combination, the Company shall execute and deliver a new
Warrant or Warrants
8
12
in exchange for the Warrant or Warrants to be divided or combined in accordance
with such notice.
3.3. Expenses. The Company shall prepare, issue and deliver at its own
expense (other than transfer taxes) the new Warrant or Warrants under this
Section 3.
3.4. Maintenance of Books. The Company agrees to maintain, at its
aforesaid office or agency, books for the registration and the registration of
transfer of the Warrants.
4. ADJUSTMENTS
The number of shares of Common Stock for which this Warrant is
exercisable, or the price at which such shares may be purchased upon exercise
of this Warrant, shall be subject to adjustment from time to time as set forth
in this Section 4. The Company shall give the Holder notice of any event
described below which requires an adjustment pursuant to this Section 4 at the
time of such event.
4.1. Stock Dividends, Subdivisions and Combinations. If at any time the
Company shall:
(a) take a record of the holders of its Common Stock for the
purpose of entitling them to receive a dividend payable in, or
other distribution of, Additional Shares of Common Stock,
(b) subdivide its outstanding shares of Common Stock into a
larger number of shares of Common Stock, or
(c) combine its outstanding shares of Common Stock into a
smaller number of shares of Common Stock, by a reverse stock split
or otherwise,
then (i) the number of shares of Common Stock for which this Warrant is
exercisable immediately after the occurrence of any such event shall be
adjusted to equal the number of shares of Common Stock which a record holder of
the same number of shares of Common Stock for which this Warrant is exercisable
immediately prior to the occurrence of such event would own or be entitled to
receive after the happening of such event, and (ii) the Current Warrant Price
shall be adjusted to equal (A) the Current Warrant Price multiplied by the
number of shares of Common Stock for which this Warrant is exercisable
immediately prior to the adjustment divided by (B) the number of shares for
which this Warrant is exercisable immediately after such adjustment.
4.2. Certain Other Distributions. If at any time the Company shall take a
record of the holders of its Common Stock for the purpose of entitling them to
receive any dividend or other distribution of:
9
13
(a) cash;
(b) any evidences of its indebtedness, any shares of its stock
or any other securities or property of any nature whatsoever (other
than cash, Convertible Securities or Additional Shares of Common
Stock); or
(c) any warrants or other rights to subscribe for or purchase
any evidences of its indebtedness, any shares of its stock or any
other securities or property of any nature whatsoever (other than
cash, Convertible Securities or Additional Shares of Common Stock);
and the Holder of this Warrant has not received a payment on behalf of such
dividend or distribution pursuant to Section 16 hereof, then (i) the number of
shares of Common Stock for which this Warrant is exercisable shall be adjusted
to equal the product obtained by multiplying the number of shares of Common
Stock for which this Warrant is exercisable immediately prior to such
adjustment by a fraction (A) the numerator of which shall be the Current Market
Price per share of Common Stock at the date of taking such record and (B) the
denominator of which shall be such Current Market Price per share of Common
Stock, minus the amount allocable to one share of Common Stock of (x) any such
cash so distributable and (y) the fair value (as determined in good faith by
the Board of Directors of the Company and, if requested by the Holder,
supported by an opinion from an investment banking firm of recognized national
standing reasonably acceptable to the Majority Holders) of any and all such
evidences of indebtedness, shares of stock, other securities or property or
warrants or other subscription or purchase rights so distributable, and (ii)
the Current Warrant Price shall be adjusted to equal (A) the Current Warrant
Price multiplied by the number of shares of Common Stock for which this Warrant
is exercisable immediately prior to the adjustment divided by (B) the number of
shares for which this Warrant is exercisable immediately after such adjustment.
A reclassification of the Common Stock (other than a change in par value, or
from par value to no par value or from no par value to par value) into shares
of Common Stock and shares of any other class of stock shall be deemed a
distribution by the Company to the holders of its Common Stock of such shares
of such other class of stock within the meaning of this Section 4.2 and, if the
outstanding shares of Common Stock shall be changed into a larger or smaller
number of shares of Common Stock as a part of such reclassification, such
change shall be deemed a subdivision or combination, as the case may be, of the
outstanding shares of Common Stock within the meaning of Section 4.1.
4.3. Issuance of Additional Shares of Common Stock. (a) In the event the
Company shall issue or sell any Additional Shares of Common Stock, other than
Permitted Issuances, for a consideration per Additional Share of Common Stock
less than the greater of the Current Warrant Price and the Current Market
Price, then the Current Warrant Price shall be reduced to the lower of the
prices calculated as follows:
10
14
(1) by dividing (A) an amount equal to the sum of (x) the number of Fully
Diluted Outstanding shares of Common Stock immediately prior to such issue or
sale multiplied by the then existing Current Warrant Price plus (y) the
aggregate consideration, if any, received by the Company upon such issue or
sale, by (B) the total number of Fully Diluted Outstanding shares of Common
Stock outstanding immediately after such issue or sale; and
(2) by multiplying the then existing Current Warrant Price by a fraction
the numerator of which shall be the sum of (x) the number of Fully Diluted
Outstanding shares of Common Stock immediately prior to such issue or sale
multiplied by the Current Market Price per share of Common Stock immediately
prior to such issue or sale plus (y) the consideration received by the Company
upon such issue or sale, and the denominator of which shall be the total number
of Fully Diluted Outstanding shares of Common Stock immediately after such
issue or sale multiplied by the Current Market Price per share of Common Stock
immediately prior to such issue or sale.
For purposes of this subsection (a), the date as of which the Current
Market Price per share of Common Stock shall be computed shall be the earlier
of the date upon which the Company shall (i) enter into a firm contract for the
issuance of such shares or (ii) issue such shares.
Upon any adjustment of the Current Warrant Price as provided in this
Section 4.3(a), the Holder shall thereafter be entitled to purchase, at the
Current Warrant Price resulting from such adjustment, the number of shares of
Common Stock (calculated to the nearest 1/100th of a share) obtained by
multiplying the Current Warrant Price in effect immediately prior to such
adjustment by the number of shares of Common Stock purchasable hereunder
immediately prior to such adjustment and dividing the product thereof by the
Current Warrant Price resulting from such adjustment.
(b) The provisions of this Section 4.3 shall not apply to any issuance of
Additional Shares of Common Stock for which an adjustment is provided under
Section 4.1 or 4.2. No adjustment shall be made under this Section 4.3 upon
the issuance of any Additional Shares of Common Stock which are issued pursuant
to the exercise of any warrants or other subscription or purchase rights or
pursuant to the exercise of any conversion or exchange rights in any
Convertible Securities, if any such adjustment shall previously have been made
upon the issuance of such warrants or other rights or upon the issuance of such
Convertible Securities (or upon the issuance of any warrant or other rights
therefor) pursuant to Section 4.4 or Section 4.5.
4.4. Issuance of Warrants or Other Rights. Except with respect to
Permitted Issuances and distributions on behalf of which a payment is made to
the Holder of this Warrant pursuant to Section 16 hereof, if at any time the
Company shall take a record of the holders of its Common Stock for the purpose
of entitling them to receive a distribution of, or shall in any manner (whether
directly or by assumption in a merger in which the Company is the surviving
corporation) issue or sell, any warrants (other than the Warrants) or other
rights to subscribe for
11
15
or purchase any Additional Shares of Common Stock or any Convertible
Securities, whether or not the rights to exchange or convert thereunder are
immediately exercisable, and the price per share for which Common Stock is
issuable upon the exercise of such warrants or other rights or upon conversion
or exchange of such Convertible Securities shall be less than the greater of
the Current Warrant Price and the Current Market Price in effect immediately
prior to the time of such distribution, issue or sale, then the number of
shares of Common Stock for which this Warrant is exercisable and the Current
Warrant Price shall be adjusted as provided in Section 4.3(a) on the basis that
(i) the maximum number of Additional Shares of Common Stock issuable pursuant
to all such warrants or other rights or necessary to effect the conversion or
exchange of all such Convertible Securities shall be deemed to have been issued
and outstanding, (ii) the price per share for such Additional Shares of Common
Stock shall be deemed to be the lowest price per share at which such Additional
Shares of Common Stock are issuable to such holders, and (iii) the Company
shall have received all of the consideration, if any, payable for such warrants
or other rights as of the date of the actual issuance thereof. No further
adjustments of the number of shares of Common Stock for which this Warrant is
exercisable or of the Current Warrant Price shall be made upon the actual issue
of such Common Stock or of such Convertible Securities upon exercise of such
warrants or other rights or upon the actual issue of such Common Stock upon
such conversion or exchange of such Convertible Securities.
4.5. Issuance of Convertible Securities. Except with respect to Permitted
Issuances and distributions on behalf of which a payment is made to the Holder
of this Warrant pursuant to Section 16 hereof, if at any time the Company shall
take a record of the holders of its Common Stock for the purpose of entitling
them to receive a distribution of, or shall in any manner (whether directly or
by assumption in a merger in which the Company is the surviving corporation)
issue or sell, any Convertible Securities, whether or not the rights to
exchange or convert thereunder are immediately exercisable, and the price per
share for which Common Stock is issuable upon such conversion or exchange shall
be less than the greater of the Current Warrant Price and the Current Market
Price in effect immediately prior to the time of such issue or sale, then the
number of shares of Common Stock for which this Warrant is exercisable and the
Current Warrant Price shall be adjusted as provided in Section 4.3(a) on the
basis that (i) the maximum number of Additional Shares of Common Stock issuable
upon the conversion or exchange of all such Convertible Securities shall be
deemed to have been issued and outstanding, (ii) the price per share of such
Additional Shares of Common Stock shall be deemed to be the lowest possible
price in any range of prices at which such Additional Shares of Common Stock
are available to such holders, and (iii) the Company shall have received all of
the consideration payable therefor, if any, as of the date of actual issuance
of such Convertible Securities. No further adjustment of the number of shares
of Common Stock for which this Warrant is exercisable or of the Current Warrant
Price shall be made under this Section 4.5 upon the issuance of any Convertible
Securities which are issued pursuant to the exercise of any warrants or other
subscription or purchase rights therefor, if any such adjustment shall
previously have been made upon the issuance of such warrants or other rights
pursuant to Section 4.4. No further adjustments of the number of shares of
Common Stock for which this Warrant is exercisable or of the Current Warrant
Price shall be made upon the actual issue of such Common Stock upon
12
16
conversion or exchange of such Convertible Securities and, if any issue or sale
of such Convertible Securities is made upon exercise of any warrant or other
right to subscribe for or to purchase or any warrant or other right to purchase
any such Convertible Securities for which adjustments thereof have been or are
to be made pursuant to other provisions of this Section 4, no further
adjustments shall be made by reason of such issue or sale.
4.6. Superseding Adjustment. If, at any time after any adjustment of the
number of shares of Common Stock for which this Warrant is exercisable shall
have been made pursuant to Section 4.4 or Section 4.5 as the result of any
issuance of warrants, rights or Convertible Securities, and either
(a) such warrants or rights, or the right of conversion or
exchange in such other Convertible Securities, shall expire, and
all or a portion of such warrants or rights, or the right of
conversion or exchange with respect to all or a portion of such
other Convertible Securities, as the case may be, shall not have
been exercised, or
(b) the consideration per share for which shares of Common
Stock are issuable pursuant to such warrants or rights, or such
other Convertible Securities, shall be increased or decreased by
virtue of provisions therein contained,
then such previous adjustment shall be rescinded and annulled and the
Additional Shares of Common Stock which were deemed to have been issued by
virtue of the computation made in connection with the adjustment so rescinded
and annulled shall no longer be deemed to have been issued by virtue of such
computation. Thereupon, a recomputation shall be made of the effect of such
rights or options or other Convertible Securities on the then outstanding
Warrants, but not on any then outstanding Warrant Stock, on the basis of
(c) treating the number of Additional Shares of Common Stock
or other property, if any, theretofore actually issued or issuable
pursuant to the previous exercise of any such warrants or rights or
any such right of conversion or exchange, as having been issued on
the date or dates of any such exercise and for the consideration
actually received and receivable therefor, and
(d) treating any such warrants or rights or any such other
Convertible Securities which then remain outstanding as having been
granted or issued immediately after the time of such increase or
decrease of the consideration per share for which shares of Common
Stock or other property are issuable under such warrants or rights
or other Convertible Securities.
4.7. Other Provisions Applicable to Adjustments Under This Section. The
following provisions shall be applicable to the making of adjustments provided
for in this Section 4:
13
17
(a) Computation of Consideration. To the extent that any
Additional Shares of Common Stock or any Convertible Securities or
any warrants or other rights to subscribe for or purchase any
Additional Shares of Common Stock or any Convertible Securities
shall be issued for cash consideration, the consideration received
by the Company therefor shall be the amount of the cash received by
the Company therefor, or, if such Additional Shares of Common Stock
or Convertible Securities are offered by the Company for
subscription, the subscription price, or, if such Additional Shares
of Common Stock or Convertible Securities are sold to underwriters
or dealers for public offering without a subscription offering, the
public offering price (in any such case subtracting any amounts
paid or receivable for accrued interest or accrued dividends, but
not subtracting any compensation, discounts or expenses paid or
incurred by the Company for and in the underwriting of, or
otherwise in connection with, the issuance thereof). To the extent
that such issuance shall be for a consideration other than cash,
then, except as herein otherwise expressly provided, the amount of
such consideration shall be deemed to be the fair value of such
consideration at the time of such issuance as determined in good
faith by the Board of Directors of the Company. In case any
Additional Shares of Common Stock or any Convertible Securities or
any warrants or other rights to subscribe for or purchase such
Additional Shares of Common Stock or Convertible Securities shall
be issued in connection with any merger in which the Company issues
any securities, the amount of consideration therefor shall be
deemed to be the fair value, as determined in good faith by the
Board of Directors of the Company, of such portion of the assets
and business of the nonsurviving corporation as such Board in good
faith shall determine to be attributable to such Additional Shares
of Common Stock, Convertible Securities, warrants or other rights,
as the case may be. The consideration for any Additional Shares of
Common Stock issuable pursuant to any warrants or other rights to
subscribe for or purchase the same shall be the consideration
received by the Company for issuing such warrants or other rights
plus the additional consideration payable to the Company upon
exercise of such warrants or other rights. The consideration for
any Additional Shares of Common Stock issuable pursuant to the
terms of any Convertible Securities shall be the consideration, if
any, received by the Company for issuing warrants or other rights
to subscribe for or purchase such Convertible Securities, plus the
consideration paid or payable to the Company in respect of the
subscription for or purchase of such Convertible Securities, plus
the additional consideration, if any, payable to the Company upon
the exercise of the right of conversion or exchange in such
Convertible Securities. In case of the issuance at any time of any
Additional Shares of Common Stock or Convertible Securities in
payment or satisfaction of any dividends upon any class of stock
other than Common Stock, the Company shall be deemed to have
received for such Additional Shares of Common Stock or Convertible
Securities a consideration equal to the amount of such dividend so
paid or satisfied.
14
18
(b) When Adjustments to Be Made. The adjustments required by
this Section 4 shall be made whenever and as often as any specified
event requiring an adjustment shall occur, except that any
adjustment of the number of shares of Common Stock for which this
Warrant is exercisable that would otherwise be required may be
postponed (except in the case of a subdivision or combination of
shares of the Common Stock, as provided for in Section 4.1) up to,
but not beyond the date of exercise if such adjustment either by
itself or with other adjustments not previously made adds or
subtracts less than 1% of the shares of Common Stock for which this
Warrant is exercisable immediately prior to the making of such
adjustment. Any adjustment representing a change of less than such
minimum amount (except as aforesaid) which is postponed shall be
carried forward and made upon the earlier of (i) the date upon
which such adjustment, together with other adjustments required by
this Section 4 and not previously made, would result in a minimum
adjustment, and (ii) the date of exercise. For the purpose of any
adjustment, any specified event shall be deemed to have occurred at
the close of business on the date of its occurrence.
(c) Fractional Interests. In computing adjustments under this
Section 4, fractional interests in Common Stock shall be taken into
account to the nearest 1/10th of a share.
(d) When Adjustment Not Required. If the Company shall take a
record of the holders of its Common Stock for the purpose of
entitling them to receive a dividend or distribution or
subscription or purchase rights and shall, thereafter and before
the distribution to stockholders thereof, legally abandon its plan
to pay or deliver such dividend, distribution, subscription or
purchase rights, then thereafter no adjustment shall be required by
reason of the taking of such record and any such adjustment
previously made in respect thereof shall be rescinded and annulled.
(e) Escrow of Warrant Stock. If after any property becomes
distributable pursuant to this Section 4 by reason of the taking of
any record of the holders of Common Stock, but prior to the
occurrence of the event for which such record is taken, the Holder
exercises this Warrant, any Additional Shares of Common Stock
issuable and other property distributable upon exercise by reason
of such adjustment shall be held in escrow for the Holder by the
Company to be issued to the Holder upon and to the extent that the
event actually takes place, upon payment of the then Current
Warrant Price. Notwithstanding any other provision to the contrary
herein, if the event for which such record was taken fails to occur
or is rescinded, then such escrowed shares shall be cancelled by
the Company and escrowed property returned.
15
19
(f) Challenge to Good Faith Determination. Whenever the Board
of Directors of the Company shall be required to make a
determination in good faith of the fair value of any item under
this Section 4, such determination may be challenged in good faith
by the Majority Holders, and any dispute shall be resolved by an
investment banking firm of recognized national standing selected by
the Company and acceptable to the Majority Holders.
4.8. Reorganization, Reclassification, Liquidation, Dissolution, Merger,
Consolidation or Disposition of Assets. In case the Company shall reorganize
its capital, reclassify its capital stock, liquidate its assets, dissolve,
consolidate or merge with or into another corporation (where the Company is not
the surviving corporation or where there is a change in or distribution with
respect to the Common Stock of the Company), or sell, transfer or otherwise
dispose of all or substantially all its property, assets or business to another
corporation or other entity (hereinafter, a "Reorganization") and, pursuant to
the terms of such Reorganization, shares of common stock of the successor or
acquiring corporation, or any cash, shares of stock or other securities or
property of any nature whatsoever (including warrants or other subscription or
purchase rights) in addition to or in lieu of common stock of the successor or
acquiring corporation ("Other Property"), are to be received by or distributed
to the holders of Common Stock of the Company, then the Holder shall have the
right following the effectiveness of such Reorganization to receive, upon
exercise of such Warrant, or, in the case of a liquidation of assets or a
dissolution to receive, upon such liquidation or dissolution, without taking
any further action, the number of shares of common stock of the successor or
acquiring corporation or of the Company, if it is the surviving corporation,
and Other Property receivable upon or as a result of such Reorganization by a
holder of the number of shares of Common Stock for which this Warrant is
exercisable immediately prior to such event (without regard to the number of
shares of Common Stock available or set aside for issuance upon such exercise).
In case of any such Reorganization, the successor or acquiring corporation (if
other than the Company) shall expressly assume the due and punctual observance
and performance of each and every covenant and condition of this Warrant to be
performed and observed by the Company and all the obligations and liabilities
hereunder, subject to such appropriate modifications as are satisfactory to the
Holder in order to provide for adjustments of shares of the Common Stock for
which this Warrant is exercisable which shall be as nearly equivalent as
practicable to the adjustments provided for in this Section 4. For purposes of
this Section 4.8 "common stock of the successor or acquiring corporation" shall
include stock of such corporation of any class which is not preferred as to
dividends or assets over any other class of stock of such corporation and which
is not subject to redemption and shall also include any evidences of
indebtedness, shares of stock or other securities which are convertible into or
exchangeable for any such stock, either immediately or upon the arrival of a
specified date or the happening of a specified event and any warrants or other
rights to subscribe for or purchase any such stock. The foregoing provisions
of this Section 4.8 shall similarly apply to successive Reorganizations.
4.9. Other Action Affecting Common Stock. In case at any time or from
time to time the Company shall take any action in respect of its Common Stock,
other than any action
16
20
described in this Section 4 for which a specific adjustment is provided, then,
unless such action will not have a materially adverse effect upon the rights of
the Holder, the number of shares of Common Stock or other stock for which this
Warrant is exercisable and/or the purchase price thereof shall be adjusted in
such manner as may be equitable in the circumstances.
4.10. Certain Limitations. Notwithstanding anything herein to the
contrary, the Company agrees not to enter into any transaction which, by reason
of any adjustment hereunder, would cause the Current Warrant Price to be less
than the par value per share of Common Stock.
5. NOTICES TO WARRANTHOLDERS
5.1. Notice of Adjustments. Whenever the number of shares of Common Stock
or the class or type of stock or other property for which this Warrant is
exercisable, or whenever the price at which a share of such Common Stock may be
purchased upon exercise of this Warrant, shall be adjusted pursuant to Section
4, the Company shall forthwith prepare a certificate to be executed by the
chief financial officer of the Company setting forth, in reasonable detail, the
event requiring the adjustment and the method by which such adjustment was
calculated (including a description of the basis on which the Board of
Directors of the Company determined the fair value of any evidences of
indebtedness, shares of stock, other securities or property or warrants or
other subscription or purchase rights referred to in Section 4.2 or 4.7(a)),
specifying the number of shares of Common Stock for which this Warrant is
exercisable and (if such adjustment was made pursuant to Section 4.8 or 4.9)
describing the number and kind of any other shares of stock or Other Property
for which this Warrant is exercisable, and any change in the purchase price or
prices thereof, after giving effect to such adjustment or change. The Company
shall promptly cause a signed copy of such certificate to be delivered to the
Holder in accordance with Section 17.2. The Company shall keep at its office
or agency designated pursuant to Section 12 copies of all such certificates and
cause the same to be available for inspection at said office during normal
business hours by the Holder or any prospective purchaser of a Warrant
designated by the Holder.
5.2. Notice of Certain Corporate Action. The Holder shall be entitled to
the same rights to receive notice of corporate action as any holder of Common
Stock.
6. NO IMPAIRMENT
The Company shall not by any action including, without limitation,
amending its certificate of incorporation or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms of this Warrant, but will at all times in
good faith assist in the carrying out of all such terms and in the taking of
all such actions as may be necessary or appropriate to protect the rights of
the Holder against impairment. Without limiting the generality of the
foregoing, the Company will (a) not increase the par value of any shares of
Common Stock receivable upon the exercise of this Warrant above the Current
Warrant
17
21
Price immediately prior to such increase in par value, (b) take all such action
as may be necessary or appropriate in order that the Company may validly and
legally issue fully paid and nonassessable shares of Common Stock, free and
clear of any liens, claims, encumbrances and restrictions (other than as
provided herein) upon the exercise of this Warrant, and (c) use its best
efforts to obtain all such authorizations, exemptions or consents from any
public regulatory body having jurisdiction thereof as may be necessary to
enable the Company to perform its obligations under this Warrant.
Upon the request of the Holder, the Company will at any time during the
period this Warrant is outstanding acknowledge in writing, in form satisfactory
to the Holder, the continuing validity of this Warrant and the obligations of
the Company hereunder.
7. RESERVATION AND AUTHORIZATION OF COMMON STOCK; REGISTRATION WITH OR
APPROVAL OF ANY GOVERNMENTAL AUTHORITY
From and after the Closing Date, subject to the limitation set forth in
the last sentence of this paragraph, the Company shall at all times reserve and
keep available for issue upon the exercise of warrants such number of its
authorized but unissued shares of Common Stock as will be sufficient to permit
the exercise in full of all outstanding Warrants. If at any time the number of
authorized but unissued shares of Common Stock shall not be sufficient to
permit the exercise in full of all outstanding Warrants and Other Warrants, the
Company will take such corporate action as may, in the opinion of its counsel,
be necessary to increase its authorized but unissued shares of Common Stock to
such number of shares as shall be sufficient for such purpose, including,
without limitation, taking appropriate board action, recommending such an
increase to the holders of Common Stock, holding shareholders meetings,
soliciting votes and proxies in favor of such increase to obtain the requisite
shareholder approval and upon such approval, the Company shall reserve and keep
available such additional shares solely for the purpose of permitting the
exercise of Warrants or Other Warrants. Prior to the earlier of (i) May 31,
1998 or (ii) the approval by the shareholders of the Company of an increase in
the number of authorized shares of Common Stock as contemplated in the Unit
Purchase Agreement, the Company shall be in compliance with this Section 7 to
the extent that it reserves and keeps available out of its authorized but
unissued shares of Common stock, solely for the purpose of permitting the
exercise of Warrants and Attached Warrants (as defined in the Unit Purchase
Agreement), 2,267,421 shares of Common Stock.
All shares of Common Stock which shall be so issuable, when issued upon
exercise of any Warrant and payment therefor in accordance with the terms of
such Warrant, shall be duly and validly issued, fully paid and nonassessable
and free and clear of any liens, claims and restrictions (other than as
provided herein). Except as provided in this Warrant, no stockholder of the
Company has or shall have any preemptive rights to subscribe for such shares of
Common Stock.
18
22
Before taking any action which would result in an adjustment in the number
of shares of Common Stock or the type of consideration for which this Warrant
is exercisable or in the Current Warrant Price, the Company shall obtain all
such authorizations or exemptions thereof, or consents thereto, as may be
necessary from any public regulatory body or bodies having jurisdiction
thereof.
If any shares of Common Stock required to be reserved for issuance upon
exercise of Warrants require registration or qualification with any
governmental authority under any federal or state law (otherwise than as
provided in Section 9) before such shares may be so issued, the Company will in
good faith and as expeditiously as possible and at its expense endeavor to
cause such shares to be duly registered.
8. TAKING OF A RECORD; STOCK AND WARRANT TRANSFER BOOKS
In the case of all dividends or other distributions by the Company to the
holders of its Common Stock with respect to which any provision of Section 4
refers to the taking of a record of such holders, the Company will in each such
case take such a record and will take such record as of the close of business
on a Business Day. The Company will not at any time, except upon dissolution,
liquidation or winding up of the Company, close its stock transfer books or
Warrant transfer books so as to result in preventing or delaying the exercise
or transfer of any Warrant.
9. RESTRICTIONS ON TRANSFERABILITY
The Warrants and the Warrant Stock shall not be transferred, hypothecated
or assigned before satisfaction of the conditions specified in this Section 9.
The Holder, by acceptance of this Warrant, agrees to be bound by the provisions
of this Section 9.
9.1. Restrictive Legends. (a) Except as otherwise provided in this
Section 9, each certificate for Warrant Stock initially issued upon the
exercise of this Warrant, and each certificate for Warrant Stock issued to any
subsequent transferee of any such certificate, shall be stamped or otherwise
imprinted with legends in substantially the following form:
"The shares represented by this certificate have not
been registered under the Securities Act of 1933, as
amended, or under the securities or blue sky laws of any
state and are subject to the conditions specified in a
certain Warrant dated October 27, 1997, originally issued by
Code Alarm Inc. The shares represented by this certificate
may not be sold, or otherwise transferred, in the absence of
such registration or an exemption therefrom under such Act
and under any such applicable state laws, or in violation of
the provisions of the Warrant. A copy of the form of said
Warrant is on file with the Secretary of Code Alarm Inc.
The holder of
19
23
this certificate, by acceptance of this certificate, agrees
to be bound by the provisions of such Warrant."
"The shares represented by this certificate are subject
to the terms and conditions of a Registration Rights
Agreement, dated as of October 27, 1997."
(b) Except as otherwise provided in this Section 9, each Warrant shall be
stamped or otherwise imprinted with legends in substantially the following
form:
"This Warrant and the securities represented hereby
have not been registered under the Securities Act of 1933,
as amended, or under the securities or blue sky laws of any
state and may not be sold, or otherwise transferred, in the
absence of such registration or an exemption therefrom under
such Act and under any such applicable state laws, or in
violation of the provisions of this Warrant."
"This Warrant and the securities represented hereby are
subject to the terms and conditions of a Registration Rights
Agreement, dated as of October 27, 1997."
9.2. Notice of Proposed Transfers; Requests for Registration. Prior to
any Transfer or attempted Transfer of any Warrants or any shares of Restricted
Common Stock, the Holder of such Warrants or Restricted Common Stock shall
deliver to the Company either a written opinion reasonably acceptable to the
Company of Independent Counsel addressed to the Company or a no-action letter
from the Commission to the effect that the proposed Transfer of such Warrants
or such Restricted Common Stock may be effected without registration under the
Securities Act and applicable state securities or blue sky laws. After delivery
of the written opinion or the no-action letter to the Company, such Holder
shall thereupon be entitled to Transfer such Warrants or such Restricted Common
Stock. Each certificate, if any, evidencing such shares of Restricted Common
Stock issued upon such Transfer shall bear the restrictive legend set forth in
Section 9.1(a), and each Warrant issued upon such Transfer shall bear the
restrictive legend set forth in Section 9.1(b), unless in the written opinion
of Independent Counsel addressed to the Company such legend is not required in
order to ensure compliance with the Securities Act.
9.3. No Transfer to Directed Electronics, Inc. The Holder shall not sell
or otherwise transfer any Warrants to DEI, any affiliate of DEI, Mr. Xxxxxxx
Xxxx, the president of DEI, any entity which, to the knowledge of the Holder,
is controlled by Xx. Xxxx, or any person who, to the knowledge of the Holder,
is a member of the immediate family (as such term is defined in Rule 16a-1
promulgated under the Exchange Act) of Xx. Xxxx.
20
24
9.4. Termination of Restrictions. Notwithstanding the foregoing
provisions of Section 9, the restrictions imposed by this Section upon the
transferability of the Warrants, the Warrant Stock and the Restricted Common
Stock (or Common Stock issuable upon the exercise of the Warrants) and the
legend requirements of Section 9.1 shall terminate as to any particular Warrant
or share of Warrant Stock or Restricted Common Stock (or Common Stock issuable
upon the exercise of the Warrants) (i) when and so long as such security shall
have been effectively registered under the Securities Act and disposed of
pursuant thereto, or (ii) when the Company shall have delivered to the Holder
or Holders of Warrants, Warrant Stock or Restricted Common Stock the written
opinion of Independent Counsel stating that such legend is not required in
order to ensure compliance with the Securities Act. Whenever the restrictions
imposed by Section 9 shall terminate as to this Warrant, as hereinabove
provided, the Holder hereof shall be entitled to receive from the Company, at
the expense of the Company, a new Warrant bearing the following legend in place
of the first restrictive legend set forth hereon:
"THE RESTRICTIONS ON TRANSFERABILITY OF THE WITHIN WARRANT
CONTAINED IN SECTION 9 HEREOF TERMINATED ON ____________,
199_, AND ARE OF NO FURTHER FORCE AND EFFECT."
All Warrants issued upon registration of transfer, division or combination
of, or in substitution for, any Warrant or Warrants entitled to bear such
legend shall have a similar legend endorsed thereon. Whenever the restrictions
imposed by this Section shall terminate as to any share of Restricted Common
Stock, as hereinabove provided, the Holder thereof shall be entitled to receive
from the Company, at the Company's expense, a new certificate representing such
Common Stock not bearing the restrictive legend set forth in Section 9.1(a).
10. SUPPLYING INFORMATION
The Company shall cooperate with each Holder of a Warrant and each Holder
of Restricted Common Stock in supplying such information as may be reasonably
requested by such Holder or reasonably necessary for such Holder to complete
and file any information reporting forms presently or hereafter required by the
Commission as a condition to the availability of an exemption from the
Securities Act for the sale of any Warrant or Restricted Common Stock.
11. LOSS OR MUTILATION
Upon receipt by the Company from the Holder of evidence reasonably
satisfactory to it of the ownership of and the loss, theft, destruction or
mutilation of this Warrant and indemnity reasonably satisfactory to it (it
being understood that the written indemnity agreement of Pegasus Partners, L.P.
or Pegasus Related Partners, L.P. shall be sufficient indemnity) and in case of
mutilation upon surrender and cancellation hereof, the Company will execute and
deliver in lieu hereof a new Warrant of like tenor to the Holder; provided, in
the case
21
25
of mutilation, no indemnity shall be required if this warrant in identifiable
form is surrendered to the Company for cancellation.
12. OFFICE OF THE COMPANY
As long as any of the Warrants remain outstanding, the Company shall
maintain an office or agency (which may be the principal executive offices of
the Company) where the warrants may be presented for exercise, registration of
transfer, division or combination as provided in this Warrant.
13. REPURCHASE BY THE COMPANY OF WARRANT AND WARRANT STOCK
13.1. Obligation to Repurchase Warrant and Warrant Stock. (a) At any time
and from time to time, at the election of the Holder, after the date which is
three years and six months after the Closing Date, the Holder may, by notice to
the Company (the "Put Notice"), demand repurchase of this Warrant, in whole or
in part, and/or all or part of the Holder's shares of Warrant Stock which are
Restricted Common Stock. Subject to the provisions of Section 13.2, the
Company shall, on the date (not less than 30 days after the date of the Put
Notice) designated in such Put Notice, repurchase from the Holder all or the
portion of this Warrant and/or the number of shares of such Holder's Warrant
Stock designated in the Put Notice for an amount determined by multiplying (x)
the number of shares of Warrant Stock and/or the Common Stock subject to this
Warrant or portion thereof being repurchased by (y) the Current Market Price
per share of Common Stock determined as of the date of the repurchase demand
and, in the event of repurchase of all or a portion of this Warrant, deducting
from the product thereby obtained the Current Warrant Price times the number of
shares of Common Stock subject to this Warrant (or portion thereof) being
repurchased.
(b) Notwithstanding the provisions of Section 13.1(a), if, at any time
during the period between the date on which the Holder shall have delivered a
Put Notice and the date of repurchase by the Company pursuant thereto, a
Reorganization shall occur and the consideration received or receivable by
stockholders in connection with such Reorganization shall consist solely of
cash, then the Holder shall (whether or not the Holder shall have previously
surrendered its Warrant and/or Warrant Stock for repurchase by the Company
pursuant to this Section 13) be entitled to receive, on the date of such
repurchase, the higher of (i) the amount payable to the Holder as determined
pursuant to Section 13.1(a) and (ii) an amount equal to the amount of cash the
Holder would have received upon the occurrence of such Reorganization had the
Holder's Warrant (or the portion thereof being repurchased) been fully
exercised immediately prior thereto less, in the event of a repurchase of all
or a portion of this Warrant, the purchase price payable at such time for the
purchase of the shares of Common Stock then subject to the Holder's Warrant (or
the portion thereof being repurchased).
(c) The Company shall not be obligated under this Section 13.1 to
repurchase any Warrant or portion thereof and/or issued Warrant Stock if the
Company is in default under
22
26
any agreement or instrument evidencing the Company's or any of its
Subsidiaries' indebtedness for borrowed money, and such default has not been
waived, or if and to the extent such a repurchase (i) would cause an event of
default to exist by reason of such repurchase, which event of default has not
been waived, with respect to any such agreement or would violate any provision
of any such agreement or instrument, or (ii) would be in violation of
applicable law ("Restrictions"), in any such case as determined by an opinion
of counsel to the Company reasonably acceptable to the Holder; provided,
however, that the Company shall use its reasonable best efforts to have any
such Restriction either waived or terminated (including, without limitation, by
obtaining refinancing for any such indebtedness). In the event that, following
receipt of a Put Notice, the Company will not repurchase all or any portion of
such Warrant and/or Warrant Stock because of the existence of any Restriction,
the Company shall, within twenty (20) days of receipt of the Put Notice, so
notify the Holder in writing, setting forth the portion of the Warrant and/or
Warrant Stock which will not be repurchased and the Restrictions which apply,
and deliver to the Holder a copy of the opinion referred to in the prior
sentence. In addition, in such event, the Company shall thereafter, upon the
request of the Holder, use its best efforts to register the Warrant Stock
and/or the Common Stock subject to this Warrant, in accordance with the terms
of the Registration Rights Agreement.
13.2. Payment of Repurchase Price. The purchase price for any repurchase
pursuant to Section 13.1 (the "Repurchase Price") shall be determined pursuant
to Section 13.1 and shall be payable in cash.
On the date of any repurchase of Warrants and/or Warrant Stock pursuant to
this Section 13, the Holder shall assign to the Company its Warrant or portion
thereof being repurchased and a certificate for the number of shares of Warrant
Stock being repurchased, as the case may be, without any representation or
warranty (other than that the Holder has good and marketable title thereto,
free and clear of liens, encumbrances and restrictions of any kind), by the
surrender of the Holder's Warrant and certificate for Warrant Stock together
with, in the case of Warrant Stock, instruments of transfer reasonably
acceptable to the Company, at the principal office of the Company referred to
in Section 2.1 against payment therefor of the Repurchase Price by, at the
option of the Holder, (i) wire transfer to an account in a bank located in the
United States designated by the Holder for such purpose or (ii) a certified or
official bank check payable to the order of the Holder. If less than all of
the Holder's Warrant is being repurchased, the Company shall, pursuant to
Section 3, cancel such Warrant and issue in the name of, and deliver to, the
Holder a new Warrant for the portion not being repurchased. If less than all
of the shares represented by a certificate for Warrant Stock are being
repurchased, the Company shall cancel such certificate and issue in the name
of, and deliver to, the Holder a new certificate for the number of shares of
Warrant Stock not being repurchased.
13.3. Right to Repurchase Portion of Warrant and Warrant Stock.
(a) In the event the Company shall cause Pegasus to be fully and
unconditionally released from the Shortfall Guarantee (without any payment by
Pegasus pursuant
23
27
thereto) within the time periods specified below, the Company shall have the
right, exercisable at any time during such period, but subject to and as may be
extended by Section 13.3(c), to repurchase from the Holders the percentage of
the Warrants initially issued set forth below:
Date of Release Percentage
--------------- ----------
Closing Date through April 26, 1998 75%
April 27, 1998 through July 26, 1998 50%
July 27, 1998 through October 26, 1998 25%
In the event that, at the time the Company exercises its repurchase right,
the Warrants shall have been exercised for a greater percentage than the
difference between (i) 100% and (ii) the applicable percentage set forth above,
the Company shall also have the right to purchase from any Person who shall
have exercised Warrants (and such Person shall be obligated to sell to the
Company) a number of shares of Common Stock equal to the number of shares of
Warrant Stock for which Warrants shall have been exercised by such Person.
(b) The purchase price to be paid by the Company for any Warrants
repurchased pursuant to this Section 13.3 shall be $.0001 per share of Common
Stock underlying the portion of the Warrants repurchased. The purchase price
per share to be paid by the Company for any shares of Common Stock purchased
pursuant to this Section 13.3 shall be the sum of (i) the exercise price paid
for any corresponding share of Warrant Stock and (ii) $.0001. In either case,
the purchase price shall be paid in cash and the aggregate purchase price shall
be rounded to the nearest xxxxx.
(c) Notwithstanding anything to the contrary contained herein, the Company
shall not purchase any portion of the Warrants or any Common Stock pursuant to
this Section 13.3 until the earlier of (i) the date which is six months and one
day following the issuance to Pegasus of the Litigation Warrants or (ii) such
time as Pegasus is fully and unconditionally released from the Litigation
Guarantee, provided that no Litigation Warrants shall have been issued to
Pegasus prior to such release. In the event the Company is precluded from
purchasing Warrants and Common Stock at any time pursuant to the preceding
sentence, the period of time during which the Company may exercise its right to
purchase Warrants and Common Stock shall be extended to a date which is thirty
days following the date on which the restriction set forth in the preceding
sentence terminates.
(d) Notice of repurchase pursuant to this Section 13.3 shall be given by
first class mail, postage prepaid, mailed not less than 10 nor more than 20
days prior to the repurchase date to each Holder's address as the same appears
on the books of the Company. Each such notice shall state: (i) the purchase
date; (ii) the portion of Warrants and the number of shares of Common Stock to
be purchased; (iii) the amount of the purchase price; and (iv) the place or
24
28
places where such Warrants and certificates for such shares of Common Stock are
to be surrendered for payment of the purchase price.
(e) In the event only a portion of this Warrant is being repurchased
pursuant to this Section 13.3, the Holder shall surrender this Warrant to the
Company for cancellation on the repurchase date at the place specified in the
repurchase notice, and the Company shall thereupon issue to the Holder a new
Warrant evidencing the portion of this Warrant not so repurchased.
14. REGISTRATION RIGHTS
This Warrant is entitled to the benefits of the registration rights
provisions contained in the Registration Rights Agreement. The Company shall
keep a copy of the Registration Rights Agreement, and any amendments thereto,
at the office or agency designated by the Company pursuant to Section 12 and
shall furnish copies thereof to the Holder upon request.
15. LIMITATION OF LIABILITY
No provision hereof, in the absence of affirmative action by the Holder to
purchase shares of Common Stock, and no enumeration herein of the rights or
privileges of the Holder hereof, shall give rise to any liability of the Holder
for the purchase price of any Common Stock or as a stockholder of the Company,
whether such liability is asserted by the Company or by creditors of the
Company.
16. DIVIDENDS ON UNDERLYING COMMON STOCK
In the event that, at any time before the Charter Amendment (as defined in
the Unit Purchase Agreement) shall have (a) been approved and adopted by the
Company's stockholders, (b) been filed with the Department of Consumer and
Industry Services of the State of Michigan and (c) become effective, or at any
time after the Company shall have failed for any reason to issue Common Stock
to the Holder upon exercise of this Warrant or shall have failed to comply with
Section 7 hereof, the Company shall pay a dividend or make any other
distribution with respect to its Common Stock whether in the form of cash,
evidences of indebtedness, securities or other property (other than a Common
Stock dividend subject to the provisions of Section 4.1 or a dividend of
warrants or rights to purchase Common Stock subject to the provisions of
Section 4.2), then the Company shall pay to the Holder of this Warrant on the
date of payment of such dividend or other distribution, an amount in cash equal
to the number of shares of Common Stock issuable upon exercise of this Warrant
in full on the record date for such dividend or other distribution (without
regard to the number of shares of Common Stock available or set aside for
issuance upon such exercise) multiplied by the sum of (i) the amount of cash
and (ii) the fair value of any evidences of indebtedness, securities or other
property distributed with respect to each share of Common Stock. The "fair
value" of any such evidences
25
29
of indebtedness, securities or other property shall mean the fair market value
thereof, as determined by the Board of Directors in good faith, which good
faith determination may be challenged by the Holder in accordance with Section
4.7(f).
17. MISCELLANEOUS
17.1. Nonwaiver and Expenses. No course of dealing or any delay or
failure to exercise any right hereunder on the part of the Holder shall operate
as a waiver of such right or otherwise prejudice the Holder's rights, powers or
remedies. If the Company fails to make, when due, any payments provided for
hereunder, or fails to comply with any other provision of this Warrant, the
Company shall pay to the Holder such amounts as shall be sufficient to cover
any costs and expenses including, but not limited to, reasonable attorneys'
fees, including those of appellate proceedings, incurred by the Holder in
collecting any amounts due pursuant hereto or in otherwise enforcing any of its
rights, powers or remedies hereunder.
17.2. Notice Generally. All notices, demands, requests, or other
communications which may be or are required to be given, served, or sent by any
party to any other party pursuant to this Warrant shall be in writing and shall
be mailed by first-class, registered or certified mail, return receipt
requested, postage prepaid, or transmitted by hand delivery (including delivery
by courier), or facsimile transmission, addressed as follows:
(a) If to the Company:
Code Alarm Inc.
000 Xxxx Xxxxxxxx
Xxxxxxx Xxxxxxx, Xxxxxxxx 00000
Attention: Xxxx Xxxxxxx and Xxxxx Xxxxxx
Facsimile: (000) 000-0000
with a copy to:
Xxxxxx Xxxxxxxx & Xxxxxxx LLP
000 Xxxxxxxxxxx Xxxxxx
Xxxxxxx, Xxxxxxxx 00000
Attention: Xxxxxx X. Xxxxx, Esq.
Facsimile: (000) 000-0000
(b) If to the Holder, at its last known address appearing on the books of
the Company maintained for such purpose.
Each party may designate by notice in writing a new address to which any
notice, demand, request or communication may thereafter be so given, served or
sent. Each notice, demand, request or communication shall be deemed to have
been duly given five business days after being
26
30
deposited in the mail, postage prepaid, if mailed; when delivered by hand, if
personally delivered; or upon receipt, if sent by facsimile (followed by a
confirmation copy sent by either overnight or two (2) day courier).
17.3. Indemnification. The Company agrees to indemnify and hold harmless
the Holder, its officers, directors, employees, agents, and attorneys from and
against any liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, claims, costs, attorneys' fees, expenses and disbursements of
any kind which may be imposed upon, incurred by or asserted against the Holder
relating to or arising out of any litigation to which the Holder is made a
party in its capacity as a stockholder or warrantholder of the Company;
provided, however, that the Company will not be liable hereunder to the extent
that any liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, claims, costs, attorneys' fees, expenses or disbursements are
found in a judgment by a court to have resulted from (i) the Holder's gross
negligence or willful misconduct, (ii) actions or omissions taken or not taken
by the Holder in any capacity other than as a stockholder or warrantholder of
the Company or (iii) actions or omissions taken or not taken by the Holder
solely as a stockholder or warrantholder of the Company and for which
stockholders or warrantholders may be held liable under Michigan law.
17.4. Successors and Assigns. Subject to the provisions of Sections 3.1
and 9, (i) this Warrant and the rights evidenced hereby shall inure to the
benefit of and be binding upon the successors of the Company and the successors
and assigns of the Holder, and (ii) the provisions of this Warrant are intended
to be for the benefit of all Holders from time to time of this Warrant, and
shall be enforceable by any such Holder.
17.5. Amendment. The Warrants may be modified or amended or the
provisions thereof waived with the written consent of the Company and the
Holder.
17.6. Severability. Wherever possible, each provision of this Warrant
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Warrant shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Warrant.
17.7. Headings. The headings used in this Warrant are for the convenience
of reference only and shall not, for any purpose, be deemed a part of this
Warrant.
17.8. Governing Law; Consent to Jurisdiction and Venue. In all respects,
including all matters of construction, validity and performance, this Agreement
and the obligations arising hereunder shall be governed by, and construed and
enforced in accordance with, the laws of the State of Michigan applicable to
contracts made and performed in such state, without regard to the principles
thereof regarding conflict of laws, and any applicable laws of the United
States of America. EACH OF THE COMPANY AND HOLDER CONSENTS TO PERSONAL
JURISDICTION, WAIVES ANY OBJECTION AS TO JURISDICTION OR
27
31
VENUE, AND AGREES NOT TO ASSERT ANY DEFENSE BASED ON LACK OF JURISDICTION OR
VENUE, IN XXX XXXX XX XXX XXXX, XXXXX XX XXX XXXX. Service of process on the
Company or the Holder in any action arising out of or relating to this
Agreement shall be effective if mailed to such party in accordance with the
procedures and requirements set forth in Section 17.2. Nothing herein shall
preclude the Holder or the Company from bringing suit or taking other legal
action in any other jurisdiction.
17.9. Mutual Waiver of Jury Trial. BECAUSE DISPUTES ARISING IN CONNECTION
WITH COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY RESOLVED
BY AN EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH APPLICABLE STATE AND
FEDERAL LAWS TO APPLY (RATHER THAN ARBITRATION RULES), THE PARTIES DESIRE THAT
THEIR DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE LAWS.
THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL
SYSTEM AND OF ARBITRATION, THE PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY JURY
IN ANY ACTION, SUIT OR PROCEEDING BROUGHT TO ENFORCE OR DEFEND ANY RIGHTS OR
REMEDIES UNDER THIS WARRANT.
28
32
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed by its duly authorized officer and its corporate seal to be impressed
hereon and attested by its Secretary or Assistant Secretary.
Dated: October __, 1997
CODE ALARM INC.
By:_______________________
Name:
Title:
Attest:
By:_______________________
Name:
Title:
33
EXHIBIT A
SUBSCRIPTION FORM
[To be executed only upon exercise of Warrant]
The undersigned registered owner of this Warrant irrevocably exercises
this Warrant for the purchase of _______ shares of Common Stock of CODE ALARM
INC. and herewith makes payment therefor, all at the price and on the terms and
conditions specified in this Warrant and requests that certificates for the
shares of Common Stock hereby purchased (and any securities or other property
issuable upon such exercise) be issued in the name of and delivered to
__________________ whose address is ___________________________ and, if such
shares of Common Stock shall not include all of the shares of Common Stock
issuable as provided in this Warrant, that a new Warrant of like tenor and date
for the balance of the shares of Common Stock issuable hereunder be delivered
to the undersigned.
_____________________ (Name of Registered Owner)
_____________________ (Signature of Registered Owner)
_____________________ (Street Address)
_____________________ (City) (State) (Zip Code)
NOTICE: The signature on this subscription must correspond with the name as
written upon the face of the within Warrant in every particular,
without alteration or enlargement or any change whatsoever.
34
EXHIBIT B
ASSIGNMENT FORM
FOR VALUE RECEIVED the undersigned registered owner of this Warrant hereby
sells, assigns and transfers unto the Assignee named below all of the rights of
the undersigned under this Warrant, with respect to the number of shares of
Common Stock set forth below:
Name and Address of Assignee No. of Shares of Common Stock
and does hereby irrevocably constitute and appoint ______________
attorney-in-fact to register such transfer on the books of Code Alarm Inc.
maintained for the purpose, with full power of substitution in the premises.
Dated:_________________
Name:__________________
Signature:_____________
Witness:_______________
NOTICE: The signature on this assignment must correspond with the name as
written upon the face of the within Warrant in every particular, without
alteration or enlargement or any change whatsoever.
