1
EXHIBIT 10.3
AGREEMENT REGARDING
ISSUANCE OF COMMON STOCK
IN CONNECTION WITH
$3,699,484.38 CONVERTIBLE PROMISSORY NOTE
THIS AGREEMENT (the "Agreement") is made and entered into as of January
24, 2001, by and between CYBERGUARD CORPORATION, a Florida corporation (the
"Company"), and FERNWOOD PARTNERS II, LLC, a Delaware limited liability company
(the "Holder").
RECITALS:
A. The Company is indebted to the Holder pursuant to that certain
Convertible Promissory Note dated August 26, 1999, in the original principal
amount of $3,699,484.38 (the "Note"), which Note was executed and delivered by
the Company to the Holder.
B. Pursuant to the Note, the Holder has the right to convert all
or any portion of the principal and accrued interest of the Note into fully paid
and nonassessable shares of the Company's Common Stock ("Common Stock").
C. In connection with the issuance of the Note, the Company
granted the Holder the right to purchase 3,699,484 shares of Common Stock
pursuant to the terms of that certain Common Stock Purchase Warrant dated August
26, 1999 (the "Warrant"), which Warrant was executed and delivered by the
Company to the Holder.
D. The Holder desires to convert the Note in full and exercise
its rights under the Warrant to purchase 2,292,000 shares of Common Stock.
E. The conversion of the Note and the exercise of the Warrant
will result in substantial benefits to the Company through the reduction of the
Company's indebtedness, the elimination of interest payments and/or interest
accruals and the addition of equity capital.
F. The Note and the Warrant both contain an anti-dilution
provision which requires the Company to adjust the conversion price and exercise
price of the Note and the Warrant, respectively, in the event the Company
distributes evidences of its indebtedness, securities, assets, rights or
warrants in connection with the settlement of certain legal proceedings (the
"Anti-Dilution Provision").
G. In consideration of the substantial benefits to the Company
which will result from the early conversion of the Note and exercise of the
Warrant, and in exchange for the Holder's agreement to convert the Note prior to
its maturity and to exercise the Warrant prior to its expiration date, the
Company hereby agrees to extend the application of the Anti-Dilution
1
2
Provision so that it applies to any litigation resolved after the conversion of
the Note and exercise of the Warrant, on the terms and conditions set forth in
this Agreement.
AGREEMENT:
NOW, THEREFORE, for and in consideration of the Holder's conversion of
the Note and exercise of the Warrant, and the agreements and covenants
hereinafter set forth and other good and valuable consideration, the receipt and
adequacy of which are forever acknowledged and confessed, the parties hereto
agree as follows:
1. Issuance of Additional Shares of Common Stock.
1.1 Note. In the event the Company after the
date hereof shall distribute evidences of its indebtedness, securities, assets,
rights or warrants to any Person in connection with or as a result of or related
to any pending or future claims, suits, actions or proceedings against the
Company or any of its subsidiaries, then in each such case the Company shall
issue to the Holder the number of shares of Common Stock obtained by (i)
dividing the number of shares of Common Stock into which the Note was converted
by a fraction, of which the numerator shall be the current market price per
share of Common Stock (as determined pursuant to Section 1.3 below) on the date
of such distribution, less the fair market value (as determined in good faith by
the Company's Board and Directors) of the portion of such evidences of
indebtedness, securities, assets, rights or warrants so distributed applicable
to one share of Common Stock, and of which the denominator shall be such current
market price per share of Common Stock, and (ii) subtracting from the quotient
so obtained the number of shares of Common Stock into which the Note was
converted.
1.2 Warrant. In the event the Company after the
date hereof shall distribute evidences of its indebtedness, securities, assets,
rights or warrants to any Person in connection with or as a result of or related
to any pending or future claims, suits, actions or proceedings against the
Company or any of its subsidiaries, then in each such case the Company shall
issue to the Holder the number of shares of Common Stock obtained by (i)
dividing the number of shares of Common Stock purchased by the Holder pursuant
to the Warrant by a fraction, of which the numerator shall be the current market
price per share of Common Stock (as determined pursuant to Section 1.3 below) on
the date of such distribution, less the fair market value (as determined in good
faith by the Company's Board and Directors) of the portion of such evidences of
indebtedness, securities, assets, rights or warrants so distributed applicable
to one share of Common Stock, and of which the denominator shall be such current
market price per share of Common Stock, and (ii) subtracting from the quotient
so obtained the number of shares of Common Stock purchased by the Holder
pursuant to the Warrant.
1.3 Market Price Determination. For the purpose
of any computation under Sections 1.1 and 1.2 above, the current market price
per share of Common Stock on any date shall be deemed to be the average of the
daily closing prices for the ten (10) consecutive trading dates immediately
preceding such date. The closing price for each day shall be the last reported
sale price on that day or, in case no such reported sale takes place on such
date, the
2
3
average of the last reported bid and asked prices, regular way, on that day, in
either case, as reported in the consolidated transaction reporting system with
respect to securities quoted on NASDAQ or, if the shares of Common Stock are not
quoted on NASDAQ, as reported in the principal consolidated transaction
reporting system with respect to securities listed on the principal national
securities exchange on which the shares of Common Stock are listed or admitted
to trading or, if the shares of Common Stock are not quoted on NASDAQ and not
listed or admitted to trading on any national securities exchange, the last
quoted price or, if not so quoted, the average of the high bid and low asked
prices on such other nationally recognized quotation system then in use, or, if
on any such day the shares of Common Stock are not quoted on any such quotation
system, the average of the closing bid and asked prices as furnished by a
professional market maker selected by the Company's Board of Directors making a
market in the shares of Common Stock. If the shares of Common Stock are not
publicly held or so listed, quoted or publicly traded, the current market price
per share of Common Stock shall be determined in good faith by the Company's
Board of Directors.
1.4 Certificate; Delivery. Whenever the Company
distributes evidences of its indebtedness, securities, assets, rights or
warrants to any Person in connection with or as a result of or related to any
pending or future claims, suits, actions or proceedings against the Company, the
Company shall promptly cause a certificate setting forth a brief statement
describing such distribution to be mailed to the Holder at the address shown in
the registration books of the Company. As promptly as practicable thereafter,
the Company at its expense shall issue and deliver to the Holder a certificate
or certificates for the number of shares of Common Stock issuable to the Holder
pursuant to Sections 1.1 and 1.2 above.
2. Miscellaneous.
2.1 Further Acts and Assurances. At the request
of a party, the other party shall execute such additional instruments and take
such additional actions as the requesting party may deem necessary to effectuate
this Agreement.
2.2 Term. This Agreement shall terminate two
(2) years from the date hereof (the "Termination Date"). As of the Termination
Date, the parties shall have no further rights or obligations under this
Agreement. Without limiting the generality of the foregoing, after the
Termination Date the Holder shall have no right to receive any shares of Common
Stock under this Agreement regardless of what claims, suits, actions or
proceedings may be pending against the Company or any of its subsidiaries as of
the Termination Date.
2.3 Entire Agreement. This Agreement and the
Exhibits and documents delivered pursuant hereto constitute the entire agreement
between the parties hereto relating to the subject matter of this Agreement. To
be effective, any modification of this Agreement must be in writing and signed
by each of the parties hereto.
2.4 Governing Law. The validity and construction
of this Agreement shall be governed by the laws of the State of Connecticut,
notwithstanding its conflict of laws principles.
3
4
2.5 Section Headings. The Section headings are
for reference only and shall not limit or control the meaning of any provision
of this Agreement.
2.6 Exhibits. All Exhibits and documents
referred to in or attached to this Agreement are integral parts of this
Agreement as if fully set forth herein, and all statements appearing therein
shall be deemed to be representations.
2.7 Assignment. The rights of the Holder under
this Agreement may not be transferred or otherwise assigned, in whole or in
part, by the Holder.
2.8 No Third Party Beneficiaries. The terms and
provisions of this Agreement are intended solely for the benefit of each party
hereto and their respective successors or permitted assigns, and it is not the
intention of the parties hereto to confer third-party beneficiary rights upon
any other person.
2.9 Legal Fees and Costs. In the event a party
elects to incur legal expenses to enforce or interpret any provision of this
Agreement by judicial proceedings, the prevailing party will be entitled to
recover such reasonable legal expenses, including, without limitation,
reasonable attorneys' fees, costs, and necessary disbursements at all court
levels, in addition to any other relief to which such party shall be entitled.
2.10 Enforcement of Agreement. The parties hereto
agree that irreparable damage would occur in the event that any of the
provisions of this Agreement was not performed in accordance with its specific
terms or was otherwise breached. It is accordingly agreed that the parties shall
be entitled to an injunction or injunctions to prevent breaches of this
Agreement and to enforce specifically the terms and provisions hereof in any
court of competent jurisdiction, this being in addition to any other remedy to
which they are entitled at law or in equity.
2.11 Counterparts. This Agreement may be executed
in any number of counterparts, each of which shall be an original, but all of
which together shall comprise one and the same instrument.
2.12 Certain Definitions. For purposes of this
Agreement, the term "Person" shall mean any individual, firm, corporation,
company, limited liability company, association, partnership, joint venture or
other entity.
2.13 Registration Rights. The Holder shall have
and be entitled to exercise the registration rights granted under that certain
Loan Agreement dated August 26, 1999, by and between the Company and the Holder
with respect to the shares of Common Stock issued pursuant to the terms hereof.
2.14 Investment Intent; Etc. The Holder
represents, understands and agrees that (i) any shares of Common Stock that may
be issued to the Holder pursuant to this
4
5
Agreement (the "Shares") will be acquired by the Holder for its own account for
investment and not with a view to, with the present intention of, or in
connection with, any resale or distribution of such shares or any interest
therein; (ii) the Shares will be issued to the Holder in reliance upon specific
exemptions from the registration requirements of the Securities Act of 1933, as
amended (the "Act"), and applicable state securities laws, and must be held
indefinitely unless they are subsequently registered under the Act and
applicable states securities laws or an exemption from such registrations is
then available; (iii) he/she/it will not sell, transfer, assign, hypothecate,
pledge or otherwise dispose of the Shares unless (a) such transaction has been
registered under the Act and applicable state securities laws, or (b) in the
opinion of counsel for the Company, or of counsel for the undersigned which is
satisfactory to the Company, the proposed sale, transfer, assignment,
encumbrance or other disposition will not result in the violation of the
registration provisions of the Act and applicable state securities laws; and
(iv) the certificates representing the Shares will bear a legend stating
substantially what is set forth in (iii) above.
SIGNATURE PAGE FOLLOWS
IN WITNESS WHEREOF, the parties have entered into this Agreement as of
the date first written above.
CYBERGUARD CORPORATION
By:
----------------------------------
Its:
---------------------------------
FERNWOOD PARTNERS II, LLC
By:
----------------------------------
Its:
---------------------------------
Signature Page to Agreement Regarding Issuance of Common Stock in Connection
with $3,699,484.38 Convertible Promissory Note
5
6
AGREEMENT REGARDING
ISSUANCE OF COMMON STOCK
IN CONNECTION WITH
$1,000,000 CONVERTIBLE PROMISSORY NOTE
THIS AGREEMENT (the "Agreement") is made and entered into as of January
24, 2001, by and between CYBERGUARD CORPORATION, a Florida corporation (the
"Company"), and FERNWOOD PARTNERS II, LLC, a Delaware limited liability company
(the "Holder").
RECITALS:
C. The Company is indebted to the Holder pursuant to that certain
Convertible Promissory Note dated December 29, 2000, in the original principal
amount of $1,000,000 (the "Note"), which Note was executed and delivered by the
Company to the Holder.
D. Pursuant to the Note, the Holder has the right to convert all
or any portion of the principal and accrued interest of the Note into fully paid
and nonassessable shares of the Company's Common Stock ("Common Stock").
E. The Holder desires to convert the Note in full.
D. The conversion of the Note will result in substantial benefits
to the Company through the reduction of the Company's indebtedness, the
elimination of interest payments and/or interest accruals and the addition of
equity capital.
E. The Note contains an anti-dilution provision which requires
the Company to adjust the conversion price of the Note in the event the Company
distributes evidences of its indebtedness, securities, assets, rights or
warrants in connection with the settlement of certain legal proceedings (the
"Anti-Dilution Provision").
F. In consideration of the substantial benefits to the Company
which will result from the early conversion of the Note, and in exchange for the
Holder's agreement to convert the Note prior to its maturity, the Company hereby
agrees to extend the application of the Anti-Dilution Provision so that it
applies to any litigation resolved after the conversion of the Note, on the
terms and conditions set forth in this Agreement.
AGREEMENT:
NOW, THEREFORE, for and in consideration of the Holder's conversion of
the Note, and the agreements and covenants hereinafter set forth and other good
and valuable consideration, the receipt and adequacy of which are forever
acknowledged and confessed, the parties hereto agree as follows:
3. Issuance of Additional Shares of Common Stock.
3.1 Note. In the event the Company after the
date hereof shall distribute evidences of its indebtedness, securities, assets,
rights or warrants to any Person in connection with or as a result of or related
to any pending or future claims, suits, actions or proceedings against the
Company or any of its subsidiaries, then in each such case the Company
6
7
shall issue to the Holder the number of shares of Common Stock obtained by (i)
dividing the number of shares of Common Stock into which the Note was converted
by a fraction, of which the numerator shall be the current market price per
share of Common Stock (as determined pursuant to Section 1.2 below) on the date
of such distribution, less the fair market value (as determined in good faith by
the Company's Board and Directors) of the portion of such evidences of
indebtedness, securities, assets, rights or warrants so distributed applicable
to one share of Common Stock, and of which the denominator shall be such current
market price per share of Common Stock, and (ii) subtracting from the quotient
so obtained the number of shares of Common Stock into which the Note was
converted.
3.2 Market Price Determination. For the purpose of any
computation under Section 1.1 above, the current market price per share of
Common Stock on any date shall be deemed to be the average of the daily closing
prices for the ten (10) consecutive trading dates immediately preceding such
date. The closing price for each day shall be the last reported sale price on
that day or, in case no such reported sale takes place on such date, the average
of the last reported bid and asked prices, regular way, on that day, in either
case, as reported in the consolidated transaction reporting system with respect
to securities quoted on NASDAQ or, if the shares of Common Stock are not quoted
on NASDAQ, as reported in the principal consolidated transaction reporting
system with respect to securities listed on the principal national securities
exchange on which the shares of Common Stock are listed or admitted to trading
or, if the shares of Common Stock are not quoted on NASDAQ and not listed or
admitted to trading on any national securities exchange, the last quoted price
or, if not so quoted, the average of the high bid and low asked prices on such
other nationally recognized quotation system then in use, or, if on any such day
the shares of Common Stock are not quoted on any such quotation system, the
average of the closing bid and asked prices as furnished by a professional
market maker selected by the Company's Board of Directors making a market in the
shares of Common Stock. If the shares of Common Stock are not publicly held or
so listed, quoted or publicly traded, the current market price per share of
Common Stock shall be determined in good faith by the Company's Board of
Directors.
3.3 Certificate; Delivery. Whenever the Company
distributes evidences of its indebtedness, securities, assets, rights or
warrants to any Person in connection with or as a result of or related to any
pending or future claims, suits, actions or proceedings against the Company, the
Company shall promptly cause a certificate setting forth a brief statement
describing such distribution to be mailed to the Holder at the address shown in
the registration books of the Company. As promptly as practicable thereafter,
the Company at its expense shall issue and deliver to the Holder a certificate
or certificates for the number of shares of Common Stock issuable to the Holder
pursuant to Section 1.1 above.
4. Miscellaneous.
4.1 Further Acts and Assurances. At the request of a
party, the other party shall execute such additional instruments and take such
additional actions as the requesting party may deem necessary to effectuate this
Agreement.
7
8
4.2 Term. This Agreement shall terminate two (2) years
from the date hereof (the "Termination Date"). As of the Termination Date, the
parties shall have no further rights or obligations under this Agreement.
Without limiting the generality of the foregoing, after the Termination Date the
Holder shall have no right to receive any shares of Common Stock under this
Agreement regardless of what claims, suits, actions or proceedings may be
pending against the Company or any of its subsidiaries as of the Termination
Date.
4.3 Entire Agreement. This Agreement and the Exhibits and
documents delivered pursuant hereto constitute the entire agreement between the
parties hereto relating to the subject matter of this Agreement. To be
effective, any modification of this Agreement must be in writing and signed by
each of the parties hereto.
4.4 Governing Law. The validity and construction of this
Agreement shall be governed by the laws of the State of Connecticut,
notwithstanding its conflict of laws principles.
4.5 Section Headings. The Section headings are for
reference only and shall not limit or control the meaning of any provision of
this Agreement.
4.6 Exhibits. All Exhibits and documents referred to in
or attached to this Agreement are integral parts of this Agreement as if fully
set forth herein, and all statements appearing therein shall be deemed to be
representations.
4.7 Assignment. The rights of the Holder under this
Agreement may not be transferred or otherwise assigned, in whole or in part, by
the Holder.
4.8 No Third Party Beneficiaries. The terms and
provisions of this Agreement are intended solely for the benefit of each party
hereto and their respective successors or permitted assigns, and it is not the
intention of the parties hereto to confer third-party beneficiary rights upon
any other person.
4.9 Legal Fees and Costs. In the event a party elects to
incur legal expenses to enforce or interpret any provision of this Agreement by
judicial proceedings, the prevailing party will be entitled to recover such
reasonable legal expenses, including, without limitation, reasonable attorneys'
fees, costs, and necessary disbursements at all court levels, in addition to any
other relief to which such party shall be entitled.
4.10 Enforcement of Agreement. The parties hereto agree
that irreparable damage would occur in the event that any of the provisions of
this Agreement was not performed in accordance with its specific terms or was
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions hereof in any court of competent
jurisdiction, this being in addition to any other remedy to which they are
entitled at law or in equity.
8
9
4.11 Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be an original, but all of which
together shall comprise one and the same instrument.
4.12 Certain Definitions. For purposes of this Agreement,
the term "Person" shall mean any individual, firm, corporation, company, limited
liability company, association, partnership, joint venture or other entity.
4.13 Registration Rights. The Holder shall have and be
entitled to exercise the registration rights granted under that certain Loan
Agreement dated August 26, 1999, by and between the Company and the Holder with
respect to the shares of Common Stock issued pursuant to the terms hereof.
4.14 Investment Intent; Etc. The Holder represents,
understands and agrees that (i) any shares of Common Stock that may be issued to
the Holder pursuant to this Agreement (the "Shares") will be acquired by the
Holder for its own account for investment and not with a view to, with the
present intention of, or in connection with, any resale or distribution of such
shares or any interest therein; (ii) the Shares will be issued to the Holder in
reliance upon specific exemptions from the registration requirements of the
Securities Act of 1933, as amended (the "Act"), and applicable state securities
laws, and must be held indefinitely unless they are subsequently registered
under the Act and applicable states securities laws or an exemption from such
registrations is then available; (iii) he/she/it will not sell, transfer,
assign, hypothecate, pledge or otherwise dispose of the Shares unless (a) such
transaction has been registered under the Act and applicable state securities
laws, or (b) in the opinion of counsel for the Company, or of counsel for the
undersigned which is satisfactory to the Company, the proposed sale, transfer,
assignment, encumbrance or other disposition will not result in the violation of
the registration provisions of the Act and applicable state securities laws; and
(iv) the certificates representing the Shares will bear a legend stating
substantially what is set forth in (iii) above.
SIGNATURE PAGE FOLLOWS
IN WITNESS WHEREOF, the parties have entered into this Agreement as of
the date first written above.
CYBERGUARD CORPORATION
By:
----------------------------------
Its:
---------------------------------
FERNWOOD PARTNERS II, LLC
By:
----------------------------------
Its:
---------------------------------
Signature Page to Agreement Regarding Issuance of Common Stock in Connection
with $1,000,000 Convertible Promissory Note
9
10
FIRST AMENDMENT
TO
COMMON STOCK PURCHASE WARRANT
THIS FIRST AMENDMENT TO COMMON STOCK PURCHASE WARRANT (the "Amendment")
is made and entered into as of January 24, 2001, by and between CYBERGUARD
CORPORATION, a Florida corporation (the "Company"), and FERNWOOD PARTNERS II,
LLC, a Delaware limited liability company (the "Holder").
RECITALS:
A. The Company executed and delivered on December 29, 2000, that
certain Common Stock Purchase Warrant (the "Warrant"), which Warrant is
exercisable into one-half (1/2) of the total number of shares of the Company's
Common Stock into which the Promissory Note (as defined in the Warrant) may be
converted from time to time.
B. The parties desire to amend the Warrant in certain respects as
set forth herein.
AGREEMENT:
NOW, THEREFORE, for and in consideration of these premises, the mutual
promises set forth herein, and other good and valuable consideration, the
receipt and adequacy of which are hereby acknowledged, the parties hereby agree
as follows:
1. DEFINED TERMS. Capitalized terms not otherwise defined in this
Amendment shall have the meanings ascribed to such terms in the Warrant.
2. WARRANT NUMBER. The definition of "Warrant Number" contained
in Section 1.0 of the Warrant shall be deleted in its entirety and replaced with
the following:
"Warrant Number" shall mean 333,877 shares of Common Stock.
The Warrant Number shall be adjusted from time to time
pursuant to Section 6.0 hereof.
3. EFFECT OF AMENDMENT; GENERAL PROVISIONS. Except as set forth
in this Amendment, the terms and provisions of the Warrant are hereby ratified
and declared to be in full force and effect. This Amendment shall become
effective upon its execution, which may
10
11
occur in one or more counterparts, each of which shall be deemed an original,
but all of which together shall constitute one and the same instrument. Captions
and paragraph headings are used herein for convenience only, are not a part of
this Amendment or the Warrant as amended by this Amendment and shall not be used
in construing either document. Other than the reference to the Warrant contained
in the first paragraph of this Amendment, each reference to the Warrant and any
agreement contemplated thereby or executed in connection therewith, whether or
not accompanied by reference to this Amendment, shall be deemed a reference to
the Warrant as amended by this Amendment.
SIGNATURE PAGE FOLLOWS
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed in multiple originals by their authorized officers, all as of the day
and year first above written.
CYBERGUARD CORPORATION
By:
---------------------------------------
Title:
------------------------------------
("Company")
FERNWOOD PARTNERS II, LLC
By:
---------------------------------------
Title:
------------------------------------
("Holder")
SIGNATURE PAGE TO FIRST AMENDMENT TO COMMON STOCK PURCHASE WARRANT
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS. THEY 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 APPLICABLE LAWS OR SOME
OTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT AND APPLICABLE
LAWS OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION
IS NOT REQUIRED.
11
12
NO. _________ WARRANT TO PURCHASE
1,407,484
SHARES OF COMMON STOCK
CYBERGUARD CORPORATION
0000 Xxxx Xxxxxxxxxx Xxxx.
Xxxxx 000
Xx. Xxxxxxxxxx, Xxxxxxx
COMMON STOCK PURCHASE WARRANT
Dated August 26, 1999
THIS CERTIFIES that, for Ten Dollars ($10.00) and other good and
valuable consideration received, FERNWOOD PARTNERS II, LLC, a Delaware limited
liability company (the "Original Holder"), or its registered and permitted
assigns (the Original Holder or such registered assigns at the time being the
registered holder or holders hereof are hereinafter collectively referred to as
the "Holder"), is entitled, at any time, to subscribe for and purchase from
CyberGuard Corporation, a Florida corporation (the "Company"), 1,407,484 shares
(subject to adjustment as provided herein) of the fully paid, nonassessable
shares of Common Stock (hereinafter defined) of the Company at a price per share
equal to the Exercise Price (as hereinafter defined).
This Warrant is subject to the following terms and conditions:
SECTION 1.0. Defined Terms. For the purposes of this Warrant, the
following terms shall have the respective meanings set forth below:
(a) "COMMON STOCK" shall mean the Company's Common Stock,
par value $.01 per share, authorized as of the date of this Warrant, and shall
include also any capital stock of the Company of any class which shall be
authorized at any time after the date of this Warrant and which shall have the
right to participate in the distribution of earnings and assets of the Company
without limitation as to amount.
"CLOSING PRICE" with respect to a share of Common
Stock on any day means, subject to Section 6.1(g), the last reported sale price
on that day or, in case no such reported sale takes place on such day, the
average of the last reported bid and asked prices, regular way, on that day, in
either case, as reported in the consolidated transaction reporting system with
respect to securities quoted on Nasdaq or, if the shares of Common Stock are not
quoted on Nasdaq, as reported in the principal consolidated transaction
reporting system with respect to securities listed on the principal national
securities exchange on which the shares of Common Stock are listed or admitted
to trading or, if the shares of Common Stock are not quoted on Nasdaq and not
listed or admitted to trading on any national securities exchange, the last
quoted price or, if not
12
13
so quoted, the average of the high bid and low asked prices on such other
nationally recognized quotation system then in use, or, if on any such day the
shares of Common Stock are not quoted on any such quotation system, the average
of the closing bid and asked prices as furnished by a professional market maker
selected by the Board of Directors making a market in the shares of Common
Stock. If the shares of Common Stock are not publicly held or so listed, quoted
or publicly traded, the "Closing Price" means the fair market value of a share
of Common Stock, as determined in good faith by the Board of Directors.
"EXERCISE PRICE" shall mean $2.00 per share, subject to adjustment as
set forth herein.
"INITIAL WARRANT NUMBER" shall mean 1,407,484 shares of Common Stock.
"LOAN AGREEMENT" shall mean that certain Loan Agreement by and between
the Company and the Original Holder dated as of the date hereof.
"PERSON" means any individual, firm, corporation, company, limited
liability company, association, partnership, joint venture, trust or
unincorporated organization, or a government or any agency or political
subdivision thereof.
"PROMISSORY NOTE" shall mean the Convertible Subordinated Promissory
Note which was executed and delivered by the Company on the date of this Warrant
to the Original Holder.
"ORGANIC CHANGE" means, with respect to any Person, any transaction
(including without limitation any recapitalization, capital reorganization or
reclassification of any class or series of equity securities, any consolidation
of such person with, or merger of such person into, any other person, any merger
of another person into such Person (other than a merger which does not result in
a reclassification, conversion, exchange or cancellation of outstanding shares
of capital stock of such Person), and any sale or transfer or lease of all or
substantially all of the assets of such Person, but not including any stock
split, combination or subdivision which is the subject of Section 6.1(b))
pursuant to which any class or series of equity securities of such Person is
converted into the right to receive other securities, cash or other property.
"STRIKE DIFFERENTIAL" shall mean, with respect to any day, the amount
by which the closing price of the Common Stock on such day (or in the event that
such day is not a trading day with respect to the Common Stock, on the last
trading day with respect to the Common Stock preceding such day) exceeds the
Exercise Price on such day.
"WARRANT NUMBER" shall mean the Initial Warrant Number as the same
shall be adjusted from time to time pursuant to Section 6.0 hereof.
"WARRANT RIGHTS" shall mean rights to obtain shares of Common Stock
pursuant to a Warrant Rights Exercise (as defined below). The number of Warrant
Rights that the Holder is entitled to exercise at any time shall equal the
number of shares of Common Stock that the holder would be entitled to purchase
at such time if a Cash Exercise (as defined below) were effected in accordance
with the terms of this Warrant.
13
14
"WARRANT STOCK" shall mean Common Stock issued upon any exercise of
this Warrant.
SECTION 2.0. Exercise of Warrant. The purchase rights represented
by this Warrant may be exercised, in whole or in part, by the registered Holder
hereof, at any time or from time to time, but not later than August 26, 2004
(the "Termination Date"), by the delivery of this Warrant and the Form of
Subscription annexed hereto as Schedule I to the principal office of the Company
at 0000 Xxxx Xxxxxxxxxx Xxxx., Xxxxx 000, Xx. Xxxxxxxxxx, Xxxxxxx (or at such
other office of the Company as the Company shall designate by notice in writing
to the Holder hereof at the address of such Holder appearing on the books of the
Company), and upon payment to the Company of the Exercise Price for the shares
thereby purchased ("Cash Exercise"). Notwithstanding the foregoing, at any time
and from time to time, the Holder hereof may elect to exercise this Warrant by
delivering to the Company this Warrant and the Form of Subscription annexed
hereto as Schedule I for conversion without payment of cash or other
consideration ("Warrant Rights Exercise"). In the event of a Warrant Rights
Exercise, this Warrant shall be converted into a number of shares of Common
Stock, which number shall equal the quotient of (i) the product of the Strike
Differential on the day of such Warrant Rights Exercise and the number of
Warrant Rights exercised by the Holder and (ii) the closing price of the Common
Stock on the day of such Warrant Rights Exercise (or in the event that such day
is not a trading day with respect to the Common Stock, on the last trading day
with respect to the Common Stock preceding such day). To the extent that this
Warrant is not exercised in full prior to 5:00 p.m., eastern standard time on
the Termination Date, this Warrant shall be converted without any action or
delivery of any consideration on behalf of the Holder hereof into a number of
shares of Common Stock, which number shall equal the quotient of (i) the product
of the Strike Differential on the Termination Date and the number of Warrant
Rights to which the Holder is then entitled and (ii) the closing price of the
Common Stock on the Termination Date (or in the event that such day is not a
trading day with respect to the Common Stock, on the last trading day with
respect to the Common Stock preceding such day).
The Company covenants that the shares of Common Stock purchased
pursuant to this Section 2.0 shall be and be deemed to be issued to the Holder
hereof as the record owner of such Common Stock as of the close of business of
the Company on the date on which this Warrant shall have been exercised as
aforesaid. The Company further covenants that all shares of Common Stock which
may be issued upon the exercise of this Warrant will, upon exercise of the
rights represented by this Warrant be fully paid and nonassessable and free from
all taxes, liens and charges in respect of the issue thereof.
The certificates for the shares of Common Stock so purchased shall be
delivered to the Holder hereof within a reasonable time, not exceeding ten (10)
days, after the date on which the rights represented by this Warrant shall have
been so exercised.
Payment of the applicable Exercise Price may be made (a) by cash, or
(b) by certified check, or bank cashier's check, payable to the Company.
14
15
In the event of a partial exercise of this Warrant, the Company shall
issue and deliver to Holder, on or within ten (10) days of the date on which
such Warrant was exercised, and in substitution of such Warrant, a new warrant
or warrants (at Holder's option), of even date herewith and with the terms
identical to the terms hereof, except that such new warrant or warrants shall be
exercisable, in the aggregate, for a percentage of all issued and outstanding
Common Stock, subject to the antidilution provisions of Section 6.0 hereof,
which represents the number of shares of Common Stock with respect to which this
Warrant has not yet been exercised.
SECTION 3.0. No Fractional Shares or Scrip. No fractional shares shall
be issued upon the exercise of this Warrant. With respect to any fraction of a
share called for upon the exercise of this Warrant, an amount equal to such
fraction multiplied by the closing price of the Common Stock on the day of such
exercise (or in the event that such day is not a trading day with respect to the
Common Stock, on the last trading day with respect to the Common Stock preceding
such day) shall be paid to the Holder hereof in cash by the Company.
SECTION 4.0. Charges, Taxes and Expenses. Issuance of certificates for
shares of Common Stock upon the exercise of this Warrant shall be made without
charge to the Holder hereof for any issue or transfer taxes or any other
incidental expenses in respect of the issuance of such certificates to and in
the name of the registered Holder of this Warrant, all of which transfer taxes
and expenses shall be paid by the Company, and such certificates shall be issued
in the name of the Holder of this Warrant. Certificates will be issued in a name
other than that of the Holder upon the request of the Holder and payment by the
Holder of any applicable transfer taxes.
SECTION 5.0. Certain Obligations of the Company. The Company covenants
that it will at all times reserve and keep available out of its authorized and
unissued Common Stock, solely for the purpose of issuing upon exercise of the
purchase rights evidenced by this Warrant, the number of shares of Common Stock
purchasable and deliverable hereunder.
The Company will not, by amendment of its Certificate of Incorporation
or through reorganization, consolidation, merger, dissolution, issuance of
capital stock or sale of treasury stock (otherwise than upon exercise of this
Warrant) or sale of assets, or by any other voluntary act or deed, avoid or seek
to avoid the performance or observance of any of the covenants, stipulations or
conditions in this Warrant to be observed or performed by the Company. The
Company will at all times in good faith assist in the carrying out of all of the
provisions of this Warrant and in the taking of all other action which may be
necessary in order to protect the rights of the Holder of this Warrant against
dilution consistent with the provisions of this Warrant.
The Company covenants and agrees to maintain, on a current basis, the
reports, notices and statements required to be filed with the Securities
Exchange Commission.
The Company will maintain an office where presentations and demands to
or upon the Company in respect of this Warrant may be made. The Company will
give notice in writing to
15
16
the registered Holder of this Warrant, at the address of the registered Holder
of this Warrant appearing on the books of the Company, of each change in the
locations of such office.
SECTION 6.0. Adjustment of Exercise Price and Number of Shares.
The number of shares of Common Stock purchasable upon the exercise of this
Warrant and the Exercise Price thereof shall be subject to adjustment from time
to time after the date hereof upon the happening of certain events, as follows:
6.1. Adjustments to Exercise Price. The Exercise Price shall be
subject to adjustment as follows:
(a) Stock Dividends. In case the Company after the date
hereof shall pay a dividend or make a distribution to all holders of shares of
Common Stock in shares of Common Stock, then in any such case the Exercise Price
in effect at the opening of business on the day following the record date for
the determination of stockholders entitled to receive such dividend or
distribution shall be reduced to a price obtained by multiplying such Exercise
Price by a fraction of which (x) the numerator shall be the number of shares of
Common Stock outstanding at the close of business on such record date and (y)
the denominator shall be the sum of such number of shares of Common Stock
outstanding and the total number of shares of Common Stock constituting such
dividend or distribution, such reduction to become effective immediately after
the opening of business on the day following such record date. The Company will
not pay any dividend or make any distribution on shares of Common Stock held in
the treasury of the Company.
(b) Stock Splits and Reverse Splits. In case after the
date hereof outstanding shares of Common Stock shall be subdivided into a
greater number of shares of Common Stock, the Exercise Price in effect at the
opening of business on the day following the day upon which such subdivision
becomes effective shall be proportionately reduced, and, conversely, in case
after the date hereof outstanding shares of Common Stock shall be combined into
a smaller number of shares of Common Stock, the Exercise Price in effect at the
opening of business on the day following the day upon which such combination
becomes effective shall be proportionately increased, such reduction or
increase, as the case may be, shall entitle the Holder hereof to receive the
number and kind of shares which the Holder would have owned or have been
entitled to receive if this Warrant had been exercised immediately prior to such
subdivision or combination. Such adjustment shall become effective immediately
prior to the opening of business on the day following the day upon which such
subdivision or combination becomes effective.
(c) Issuances Below Market. In case the Company after the
date hereof shall fix a record date of the issuance of rights or warrants to all
holders of its shares of Common Stock entitling them to subscribe for or
purchase shares of Common Stock at a price per share less than the Closing Price
per share on the record date for the determination of stockholders entitled to
receive such rights or warrants, the Exercise Price in effect at the opening of
business on the day following such record date shall be adjusted to a price
obtained by multiplying such Exercise Price by a fraction of which (x) the
numerator shall be the number of shares of Common Stock
16
17
outstanding at the close of business on such record date plus the number of
shares of Common Stock that the aggregate offering price of the total number of
shares to be offered would purchase at such Closing Price and (y) the
denominator shall be the number of shares of Common Stock outstanding at the
close of business on such record date plus the number of additional shares of
Common Stock to be offered for subscription or purchase, such adjustment to
become effective immediately prior to the opening of business on the day
following such record date; provided, however, that no adjustment shall be made
if the Company issues or distributes to each Holder the rights or warrants that
each Holder would have been entitled to receive had the Warrants held by such
Holder been exercised prior to such record date. The Company shall not issue any
rights or warrants in respect of shares of Common Stock held in the treasury of
the Company.
(d) Special Dividends. In case the Company after the date
hereof shall fix a record date for the making of a distribution to all holders
of shares of Common Stock (including any such distribution made in connection
with a consolidation or merger in which the Company is the surviving
corporation) evidences of its indebtedness, securities or assets (excluding any
dividends paid out of retained earnings), or subscription rights or warrants
(excluding those referred to in subsection (c) above), in each such case the
Exercise Price in effect immediately prior to the close of business on the
record date for the determination of stockholders entitled to receive such
distribution shall be adjusted to a price obtained by multiplying such Exercise
Price by a fraction of which (x) the numerator shall be the Closing Price per
share of Common Stock on such record date, less the then-current fair market
value as of such record date (as determined by the Board of Directors in its
good faith judgment) of the portion of assets, evidences of indebtedness,
securities or subscription rights or warrants so distributed applicable to one
share of Common Stock, and (y) the denominator shall be such Closing Price, such
adjustment to become effective immediately prior to the opening of business on
the day following such record date; provided, however, that no adjustment shall
be made (1) if the Company issues or distributes to each Holder the subscription
rights referred to above that each Holder would have been entitled to receive
had the Warrants held by such Holder been exercised prior to such record date,
or (2) if the Company grants to each Holder the right to receive, upon the
exercise of the Warrants held by such Holder at any time after the distribution
of the evidences of indebtedness or assets or equity securities referred to
above, the evidences of indebtedness or assets or equity securities that such
Holder would have been entitled to receive had such Warrants been exercised
prior to such record date. The Company shall provide any Holder, upon receipt of
a written request therefor, with any indenture or other instrument defining the
rights of the holders of any indebtedness, assets, subscription rights or equity
securities referred to in this subsection (d).
(e) Other Distributions. In case the Company after the
date hereof shall distribute evidences of its indebtedness, assets, equity
securities, rights or warrants to any Person in connection with or as a result
of or related to any pending or future claims, suits, actions or proceedings
against the Company or any of its subsidiaries, then in each such case the
Exercise Price in effect immediately prior to the close of business on the date
of such distribution shall be adjusted to a price obtained by multiplying such
Exercise Price by a fraction of which (x) the numerator shall be the Closing
Price per share of Common Stock on such date, less the then-current fair market
value as of such date (as determined by the Board of Directors in its good faith
judgment) of the portion of such evidences of indebtedness, assets, equity
securities,
17
18
rights or warrants so distributed applicable to one share of Common Stock, and
(y) the denominator shall be such Closing Price, such adjustment to become
effective immediately prior to the opening of business on the day following the
date of such distribution. The intent of this subsection is that if any
evidences of indebtedness, securities, assets, rights or warrants are
distributed in connection with or as a result of or related to any pending or
future claims, suits, actions or proceedings against the Company or any of its
subsidiaries, that the Holder of this Warrant shall be entitled to exercise this
Warrant for the same percentage of the outstanding capital stock of the Company
for the same aggregate exercise price immediately after such distribution as the
Holder of this Warrant could acquire immediately prior to such distribution.
(f) Tender or Exchange Offer. In case a tender or
exchange offer made by the Company or any subsidiary of the Company for all or
any portion of the Common Stock shall be consummated and such tender offer shall
involve an aggregate consideration having a fair market value (as determined by
the Board of Directors in its good faith judgment) at the last time (the "Offer
Time") tenders may be made pursuant to such tender or exchange offer (as it may
be amended) that, together with the aggregate of the cash plus the fair market
value (as determined by the Board of Directors in its good faith judgment), as
of the Offer Time, of consideration payable in respect of any tender or exchange
offer by the Company or any such subsidiary for all or any portion of the Common
Stock consummated preceding the Offer Time and in respect of which no Exercise
Price adjustment pursuant to this subsection (f) has been made, exceeds 5% of
the product of the Closing Price of the Common Stock at the Offer Time
multiplied by the number of shares of Common Stock outstanding (including any
tendered shares) at the Offer Time, the Exercise Price shall be reduced so that
the same shall equal the price determined by multiplying the Exercise Price in
effect immediately prior to the Offer Time by a fraction of which (x) the
numerator shall be (i) the product of the Closing Price of the Common Stock at
the Offer Time multiplied by the number of shares of Common Stock outstanding
(including any tendered shares) at the Offer Time minus (ii) the fair market
value (determined as aforesaid) of the aggregate consideration payable to
stockholders based on the acceptance (up to any maximum specified in the terms
of the tender or exchange offer) of all shares validly tendered and not
withdrawn as of the Offer Time (the shares deemed so accepted, up to any such
maximum, being referred to as the "Purchased Shares") and (y) the denominator
shall be the product of (i) such Closing Price at the Offer Time multiplied by
(ii) such number of outstanding shares at the Offer Time minus the number of
Purchased Shares, such reduction to become effective immediately prior to the
opening of business on the day following the Offer Time. For purposes of this
subsection (f), the number of shares of Common Stock at any time outstanding
shall not include shares held in the treasury of the Company but shall include
shares issuable in respect of scrip certificates issued in lieu of fractions of
shares of Common Stock.
(g) Other Dilutive Events. In case any event shall occur
as to which the provisions of Section 6.1 are not strictly applicable but the
failure to make any adjustment would not fairly protect the purchase rights
represented by this Warrant in accordance with the essential intent and
principles hereof then, in each such case, the Company shall appoint a firm of
independent certified public accountants of recognized national standing (which
may be the regular auditors of the Company), which shall give its opinion upon
the adjustment, if any, on a basis consistent with the essential intent and
principles established in Section 6.1, necessary to
18
19
preserve, without dilution, the purchase rights represented by this Warrant.
Upon receipt of such opinion, the Company will promptly mail a copy thereof to
the Holder of this Warrant and shall make the adjustments described therein.
Notwithstanding anything contained in this subsection (g) to the contrary, this
subsection (g) shall not apply to any issuance of Common Stock by the Company
for which the Company has received consideration equal to the fair market value
of such Common Stock on the date of issuance, as determined by the Board of
Directors of the Company in good faith.
(h) No Dilution or Impairment. The Company will not, by
amendment of 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 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 this Section 6.1 and in the taking of all such action as may
be necessary or appropriate in order to protect the purchase privilege of the
Holder of this Warrant against dilution or other impairment.
(i) Closing Price Determination. For the purpose of any
computation under subsections (c), (d) and (e) of this Section 6.1, the Closing
Price of Common Stock on any date shall be deemed to be the average of the
Closing Prices for the ten (10) consecutive trading days immediately preceding
such date; provided, however, that (i) if the "ex" date for any event (other
than the issuance or distribution requiring such computation) that requires an
adjustment to the Exercise Price pursuant to this Section 6 occurs on or after
the tenth (10th) trading day prior to the day in question and prior to the "ex"
date for the issuance or distribution requiring such computation, the Closing
Price for each trading day prior to the "ex" date for such other event shall be
adjusted by multiplying such Closing Price by the same fraction which the
Exercise Price is so required to be adjusted as a result of such other event,
(ii) if the "ex" date for any event (other than the issuance or distribution
requiring such computation) that requires an adjustment to the Exercise Price
pursuant to this Section 6 occurs on or after the "ex" date for the issuance or
distribution requiring such computation and on or prior to the day in question,
the Closing Price for each trading day on and after the "ex" date for such other
event shall be adjusted by multiplying such Closing Price by the reciprocal of
the fraction by which the Exercise Price is so required to be adjusted as a
result of such other event, and (iii) if the "ex" date for the issuance or
distribution requiring such computation is on or prior to the day in question,
after taking into account any adjustment required pursuant to clause (ii) of
this proviso, the Closing Price for each trading day on or after such "ex" date
shall be adjusted by adding thereto the fair market value on the day in question
(as determined by the Board of Directors in a manner consistent with any
determination of such value for the purposes of subsection (d) of this Section
6.1) of the assets, evidences of indebtedness, equity securities or subscription
rights being distributed applicable to one share of Common Stock as of the close
of business on the day before such "ex" date. For the purposes of any
computation under subsection (f) of this Section 6.1, the Closing Price on any
date shall be deemed to be the average of the daily Closing Prices for the ten
(10) consecutive trading days immediately preceding the Offer Time; provided,
however, that if the "ex" date for any event (other than the tender or exchange
offer requiring such computation) that requires an adjustment to the Exercise
Price pursuant to this Section 6
19
20
occurs on or after the tenth (10th) trading day prior to the Offer Time for the
tender or exchange offer requiring such computation, the Closing Price for each
trading day prior to the "ex" date for such other event shall be adjusted by
multiplying such Closing Price by the same fraction by which the Exercise Price
is so required to be adjusted as a result of such other event. For purposes of
this subsection (g), the term "ex" date, (i) when used with respect to any
issuance or distribution, means the first date on which the Common Stock trades
regular way on the relevant exchange or in the relevant market from which the
Closing Price was obtained without the right to receive such issuance or
distribution, (ii) when used with respect to any subdivision or combination of
shares of Common Stock, means the first date on which the Common Stock trades
regular way on such exchange or in such market after the time at which such
subdivision or combination becomes effective, and (iii) when used with respect
to any tender or exchange offer means the first date on which the Common Stock
trades regular way on such exchange or in such market after the Offer Time of
such tender or exchange offer.
(j) Minimum Adjustment Requirement. No adjustment shall
be required unless such adjustment would result in an increase or decrease of at
least $0.01 in the Exercise Price then subject to adjustment; provided, however,
that any adjustments that are not made by reason of this subsection (j) shall be
carried forward and taken into account in any subsequent adjustment. In case the
Company shall at any time issue shares of Common Stock by way of dividend on any
stock of the Company or subdivide or combine the outstanding shares of Common
Stock, said amount of $0.01 specified in the preceding sentence (as theretofore
increased or decreased, if said amount shall have been adjusted in accordance
with the provisions of this subsection (h)) shall forthwith be proportionately
increased in the case of such a combination or decreased in the case of such a
subdivision or stock dividend so as appropriately to reflect the same.
(k) Calculations. All calculations under this Section 6.1
shall be made to the nearest $0.01.
(l) Certificate. Whenever an adjustment in the Exercise
Price is made as required or permitted by the provisions of this Section 6.1,
the Company shall promptly cause a certificate of its chief financial officer
setting forth (A) the adjusted Exercise Price as provided in this Section 6.1
and a brief statement of the facts requiring such adjustment and the computation
thereof and (B) the number of shares of Common Stock (or portions thereof)
purchasable upon exercise of this Warrant after such adjustment in the Exercise
Price in accordance with Section 6.2 hereof and the record date therefor to be
mailed to the Holder of this Warrant at the address shown on the registration
books of the Company. Such certificate, in the absence of manifest error, shall
be conclusive and final evidence of the correctness of such adjustment.
(m) Section 305. Anything in this Section 6.1 to the
contrary notwithstanding, the Company shall be entitled, but not required, to
make such reductions in the Exercise Price, in addition to those required by
this Section 6.1, as it in its discretion shall determine to be advisable,
including, without limitation, in order that any dividend in or distribution of
shares of Common Stock or shares of capital stock of any class other than Common
Stock, subdivision, reclassification or combination of shares of Common Stock,
issuance of rights or
20
21
warrants, or any other transaction having a similar effect, shall not be treated
as a distribution of property by the Company to its stockholders under Section
305 of the Internal Revenue Code of 1986, as amended, or any successor provision
and shall not be taxable to them.
(n) When Adjustment Not Required. If the Company shall
take a record of the holders of its Common Stock for purposes of taking any
action that requires an adjustment of the Exercise Price under this Section 6,
and shall, thereafter and before the effective date of such action, legally
abandon its plan to take such action, 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.
6.2. Adjustment to Number of Shares of Stock. Upon each adjustment
of the Exercise Price pursuant to Section 6.1 hereof the number of shares of
Common Stock purchasable upon exercise of this Warrant outstanding prior to the
effectiveness of such adjustment shall be adjusted to the number, calculated to
the nearest one-hundredth of a share, obtained by (x) multiplying the number of
shares of Common Stock purchasable immediately prior to such adjustment upon the
exercise of this Warrant by the Exercise Price in effect prior to such
adjustment and (y) dividing the product so obtained by the Exercise Price in
effect after such adjustment of the Exercise Price.
6.3. Organic Change.
(a) Company Survives. Upon the consummation of an Organic
Change (other than a transaction in which the Company is not the surviving
entity), lawful provision shall be made as part of the terms of such transaction
whereby the terms of this Warrant shall be modified, without payment of any
additional consideration therefor, so as to provide that upon exercise this
Warrant following the consummation of such Organic Change, the Holders of such
Warrant shall have the right to purchase only the kind and amount of securities,
cash and other property receivable upon such Organic Change by a holder of the
number of shares of Common Stock into which such Warrant might have been
exercised immediately prior to such Organic Change, assuming such holder of
Common Stock (i) is not a Person with which the Company consolidated or into
which the Company merged or which merged into the Company or to which a sale,
transfer or lease of all or substantially all of the assets of the Company was
made, as the case may be (a "Constituent Person"), or an affiliate of a
Constituent Person, and (ii) failed to exercise his or her rights of election,
if any, as to the kind and amount of securities, cash and other property
receivable upon such Organic Change (provided that if the kind and amount of
securities, cash and other property receivable upon such Organic Change is not
the same for each share of Common Stock held immediately prior to such Organic
Change by others than a Constituent Person or an affiliate thereof and in
respect of which such rights of election shall not have been exercised
("Non-Electing Shares"), then for the purpose of this subsection (a) the kind
and amount of securities, cash and other property receivable upon such Organic
Change by each Non-Electing Share shall be deemed to be the kind and amount so
receivable per share by a plurality of the Non-Electing Shares); provided,
however, that no adjustment shall be made as a result of such Organic Change to
the Exercise Price or the number of shares of Common Stock notwithstanding any
provision of Section 6 hereof unless any event requiring any such
21
22
adjustment shall have occurred or shall occur prior to, upon or after such
Organic Change. Lawful provision also shall be made as part of the terms of the
Organic Change so that all other terms of this Warrant shall remain in full
force and effect following such an Organic Change. The provisions of this
Section 6.3(a) shall similarly apply to successive Organic Changes.
(b) Company Does Not Survive. The Company shall not enter
into an Organic Change that is a transaction in which the Company is not the
surviving entity unless lawful provision shall be made as part of the terms of
such transaction whereby the surviving entity shall issue new securities to each
Holder, without payment of any additional consideration therefor, with terms
that provide that upon the exercise of this Warrant, the Holders of such Warrant
shall have the right to purchase only the kind and amount of securities, cash
and other property receivable upon such Organic Change by a holder of the number
of shares of Common Stock into which such Warrant might have been exercised
immediately prior to such Organic Change, assuming such holder of Common Stock
(i) is not a Constituent Person or an affiliate of a Constituent Person and (ii)
failed to exercise his rights of election, if any, as to the kind and amount of
securities, cash and other property receivable upon such Organic Change
(provided that if the kind and amount of securities, cash and other property
receivable upon such Organic Change is not the same for each Non-Electing Share,
then for the purpose of this subsection (b) the kind and amount of securities,
cash and other property receivable upon such Organic Change by each Non-Electing
Share shall be deemed to be the kind and amount so receivable per share by a
plurality of the Non-Electing Shares); provided, however, that no adjustment
shall be made as a result of such Organic Change to the Exercise Price or the
number of shares of Common Stock notwithstanding any provision of Section 6
hereof unless any event requiring any such adjustment shall have occurred or
shall occur prior to, upon or after such Organic Change. The certificate or
articles of incorporation or other constituent document of the surviving entity
shall provide for such adjustments which, for events subsequent to the effective
date of such certificate or articles of incorporation or other constituent
document, shall be equivalent to the adjustments provided for in Section 6.1
hereof.
6.4. Statement on Warrants. This Warrant need not be changed
because of any adjustment made pursuant to Section 6.1 or Section 6.2 hereof,
and Warrants issued after such adjustment may state the same Exercise Price and
the same Warrant Number as are stated in this Warrant.
SECTION 7.0. Prior Notice of Certain Events. In the event that:
(a) the Company shall declare any dividend, whether
payable in cash or in any capital stock upon its Common Stock, or authorize any
other issuance or distribution to the holders of its Common Stock; or
(b) there shall be any capital reorganization or
reclassification of the capital stock of the Company, or consolidation or merger
of the Company or a sale of all or substantially all its assets; or
(c) there shall be a voluntary or involuntary
dissolution, liquidation or winding-up of the Company;
22
23
then, in any of said cases, the Company shall give prior written notice, by
first-class mail, postage prepaid, addressed to the registered Holder of this
Warrant at the address of such registered Holder as shown on the registration
books of the Company, of the date on which (i) the books of the Company shall
close or a record shall be taken for such stock dividend, distribution or
subscription rights, (ii) such reorganization, reclassification, consolidation,
merger, sale, dissolution, liquidation or winding-up shall be consummated, or
(iii) such other event shall be consummated, as the case may be. Such notice
shall also specify the date as of which the holders of the Common Stock of
record shall receive said dividend, distribution or subscription rights or shall
be entitled to exchange their Common Stock for securities or other property
deliverable upon such reorganization, reclassification, consolidation, merger,
sale, dissolution, liquidation or winding-up, as the case may be. Such written
notice shall be given at least thirty (30) days prior to the date of the event
in question and the record date or the date on which the Company's transfer
books are closed in respect thereto.
SECTION 8.0. No Rights or Responsibilities as Shareholder. Except
as otherwise agreed in writing by the Holder and the Company, a Holder of this
Warrant, as such, shall not be subject to any responsibilities as a shareholder
of the Company and shall not be entitled to vote or be deemed the Holder of
Common Stock or any other securities of the Company which may at any time be
issuable on the exercise hereof, nor shall anything contained herein be
construed to confer upon the Holder of this Warrant, as such, the rights of a
shareholder of the Company or the right to vote for the election of directors or
upon any matter submitted to shareholders at any meeting thereof, or to give or
withhold consent to any corporate section (except as provided herein) or to
receive notice of meetings or other actions affecting shareholders (except as
provided herein), or to receive dividends or subscription rights or otherwise
(except as provided herein), until the date of exercise of this Warrant shall
have occurred.
SECTION 9.0 Registration Rights. Upon exercise of this Warrant,
the Holder shall have and be entitled to exercise, together with all other
holders of Common Stock possessing registration rights under the Loan Agreement,
the rights of registration granted under the Loan Agreement with respect to the
shares of Common Stock issued upon exercise of this Warrant.
SECTION 10.0. Loss, Theft, Destruction or Mutilation of Warrant.
Upon receipt by the Company of evidence reasonably satisfactory to it of the
loss, theft, destruction or mutilation of this Warrant, and, in case of loss,
theft or destruction, of indemnity or security reasonably satisfactory to it,
and upon reimbursement to the Company of all reasonable expenses incidental
thereto, and upon surrender and cancellation of this Warrant, if mutilated, the
Company will make and deliver a new warrant of like tenor and date, in lieu of
this Warrant.
SECTION 11.0. Transfer and Exchange of Warrant. This Warrant and
all rights hereunder are transferable at the office or agency of the Company by
the registered Holder hereof in person or by a duly authorized attorney, upon
surrender of this Warrant together with a properly endorsed assignment in the
form attached hereto as Schedule II. The Company shall be entitled to receive,
as a condition to any transfer of this Warrant, an opinion of counsel reasonably
satisfactory to the Company that such transfer does not violate the registration
23
24
requirements of the Securities Act of 1933, as amended, or applicable state
securities laws. Until transfer hereof on the registration books of the Company,
the Company may treat the registered Holder as the owner hereof for all
purposes. This Warrant is exchangeable, upon the surrender hereof by Holder, at
the principal offices of the Company, together with a properly endorsed
assignment in the form attached hereto as Schedule II, for new warrants, in such
denominations as Holder shall designate at the time of surrender for exchange,
of like tenor and date representing in the aggregate the right to subscribe for
and purchase the number of shares which may be subscribed for and purchased
hereunder, each of such new warrants to represent the right to subscribe for and
purchase not less than one hundred thousand (100,000) shares of Common Stock
(except to the extent necessary to round out the balance of the number of
shares).
SECTION 12.0. Investment Intent. Contemporaneously with the
original issuance of this Warrant to the Holder hereof, the Holder has executed
and delivered to the Company an investment representation letter (in the form of
Schedule III hereto) regarding the Holder's investment intent and imposing a
requirement that any transferee of this Warrant execute and deliver to the
Company a representation letter in form and substance similar to the contents of
such letter.
SECTION 13.0. Communications and Notices. All communications and
notices hereunder must be in writing, either delivered in hand or sent by
first-class mail, postage prepaid, or sent by confirmed facsimile and, if to the
Company, shall be addressed to it at the address set forth on the first page
hereof, Attention: C. Xxxxxxx Xxxxx, or at such other address as the Company may
hereafter designate in writing by notice to the registered Holder of this
Warrant, and if to such registered Holder, addressed to such Holder at the
address of such Holder as shown on the books of the Company.
SECTION 14.0. Sundays, Holidays, Etc. If the last or appointed day
for the taking of any action required or the expiration of any right granted
herein shall be a Sunday, or a Saturday or shall be a legal holiday or a day on
which banking institutions in New York, New York, are authorized or required by
law to remain closed, then such action may be taken or right may be exercised on
the next succeeding day which is not a Sunday, a Saturday or a legal holiday and
not a day on which banking institutions in New York, New York, are authorized or
required by law to remain closed.
SECTION 15.0. Remedies. The Company stipulates that the remedies at
law of the Holder of this Warrant in the event of any default or threatened
default by the Company in the performance of or compliance with any of the terms
of this Warrant are not and will not be adequate, and that such terms may be
specifically enforced by a decree for the specific performance of any agreement
contained herein or by an injunction against a violation of any of the terms
hereof or otherwise.
SECTION 16.0. Miscellaneous. This Warrant shall be binding upon the
Company's successors. In case any provision of this Warrant shall be invalid,
illegal or unenforceable, or partially invalid, illegal or unenforceable, the
provision shall be unenforced to the extent, if any, that it may legally be
enforced, and the validity, legality and enforceability of the remaining
24
25
provisions shall not in any way be affected or impaired thereby. This Warrant
and any term hereof may be changed, waived, discharged or terminated only by a
statement in writing signed by the party against which enforcement of such
change, waiver, discharge or termination is sought. The five (5) year term of
this Warrant shall be stayed during any bankruptcy proceedings involving the
Company. The headings in this Warrant are for purposes of reference only, and
shall not limit or otherwise affect any of the terms hereof. This Warrant shall
take effect as an instrument under seal.
SECTION 17.0. GOVERNING LAW. THIS WARRANT SHALL BE GOVERNED BY THE
LAWS OF THE STATE OF CONNECTICUT, WITHOUT REGARD TO CONFLICT OF LAW PRINCIPLES.
SECTION 18.0 Conflict. In the event of a conflict of the terms and
conditions hereof and the terms and conditions of the Loan Agreement, the terms
and conditions of this Warrant shall prevail.
SIGNATURE PAGE FOLLOWS
IN WITNESS WHEREOF, CyberGuard Corporation has caused this Warrant to
be signed in its corporate name and its corporate seal to be impressed hereon by
its duly authorized officers.
Date: August 26, 1999 CyberGuard Corporation, a Florida Corporation
By:
-------------------------------------
Its:
------------------------------------
25
26
SCHEDULE I
FORM OF SUBSCRIPTION
(To be signed only on exercise of
Common Stock Purchase Warrant)
TO: CyberGuard Corporation
The undersigned, the Holder of the within Common Stock Purchase
Warrant, hereby irrevocably elects to exercise this Common Stock Purchase
Warrant for, and to purchase thereunder ___ * shares of Common Stock of
CyberGuard Corporation, and herewith makes payment of $________ therefor, and
requests that the certificates for such shares be issued in the name
of_______________, and delivered to ________________________, whose address is
____________________________________________.
Dated: ___________________
--------------------------------------------------
(Signature must conform in all respects to name
of Holder as specified on the face of the Warrant)
--------------------------------------------------
(Address)
*Insert here the number of shares (all shares called for in the Common
Stock Purchase Warrant) as to which the Common Stock Purchase Warrant is being
exercised without making any adjustment for any other stock or other securities
or property or cash which, pursuant to the adjustment provisions of the Common
Stock Purchase Warrant, may be deliverable on exercise.
26
27
SCHEDULE II
FORM OF ASSIGNMENT
(To be signed only on transfer of
Common Stock Purchase Warrant)
For value received, the undersigned hereby sells, assigns and transfers
unto of , the right represented by the within Common Stock Purchase
Warrant to purchase ___ shares of Common Stock of CyberGuard Corporation, to
which the within Common Stock Purchase Warrant relates, and appoints
____________ Attorney to transfer such right on the books of CyberGuard
Corporation, with full power of substitution in the premises.
Dated:
--------------------------------------------------
(Signature must conform in all respects to name
of Holder as specified on the face of the Warrant)
--------------------------------------------------
(Address)
Signed in the presence of
--------------------------
Signature guaranteed by*
--------------------------
[*Signature guarantee by a bank is required for all Holders other than the
Original Holder.]
27
28
SCHEDULE III
INVESTMENT REPRESENTATION LETTER
CyberGuard Corporation
Attn: Office of Corporate Secretary
0000 Xxxx Xxxxxxxxxx Xxxx.
Xxxxx 000
Xx. Xxxxxxxxxx, XX 00000
RE: Common Stock Purchase Warrant
Dated ___________, 1999
TO: CYBERGUARD CORPORATION
The Common Stock Purchase Warrant ("Warrant") and the rights to the
underlying shares has been acquired for investment for the Holder's own account,
not as a nominee or agent, and not with a view to the Holder's distribution of
any part thereof, and the Holder has no present intention of selling, granting
any participation in, or otherwise distributing the same. The Holder does not
have any contract, undertaking, agreement or arrangement with any person to
sell, transfer or grant participations to such person or to any third person,
with respect to the Warrant.
The Holder further undertakes to require any transferee of the Warrant
to execute and deliver to the CyberGuard Corporation a representation letter in
form and substance similar to the contents of this letter.
DATED: August __, 1999.
By:
---------------------------
28
29
AGREEMENT REGARDING
ISSUANCE OF COMMON STOCK
IN CONNECTION WITH
$ CONVERTIBLE PROMISSORY NOTE
THIS AGREEMENT (the "Agreement") is made and entered into as of January
24, 2001, by and between CYBERGUARD CORPORATION, a Florida corporation (the
"Company"), and , a (the "Holder").
RECITALS:
F. The Company is indebted to the Holder pursuant to that certain
Convertible Promissory Note dated August 26, 1999, in the original principal
amount of $ (the "Note"), which Note was executed and delivered by
the Company to the Holder.
G. Pursuant to the Note, the Holder has the right to convert all
or any portion of the principal and accrued interest of the Note into fully paid
and nonassessable shares of the Company's Common Stock ("Common Stock").
C. In connection with the issuance of the Note, the Company
granted the Holder the right to purchase shares of Common Stock pursuant
to the terms of that certain Common Stock Purchase Warrant dated August 26, 1999
(the "Warrant"), which Warrant was executed and delivered by the Company to the
Holder.
H. The Holder desires to convert the Note in full and exercise
its rights under the Warrant to purchase shares of Common Stock.
I. The conversion of the Note and the exercise of the Warrant
will result in substantial benefits to the Company through the reduction of the
Company's indebtedness, the elimination of interest payments and/or interest
accruals and the addition of equity capital.
J. The Note and the Warrant both contain an anti-dilution
provision which requires the Company to adjust the conversion price and exercise
price of the Note and the Warrant, respectively, in the event the Company
distributes evidences of its indebtedness, securities, assets, rights or
warrants in connection with the settlement of certain legal proceedings (the
"Anti-Dilution Provision").
K. In consideration of the substantial benefits to the Company
which will result from the early conversion of the Note and exercise of the
Warrant, and in exchange for the Holder's agreement to convert the Note prior to
its maturity and to exercise the Warrant prior to its expiration date, the
Company hereby agrees to extend the application of the Anti-Dilution Provision
so that it applies to any litigation resolved after the conversion of the Note
and exercise of the Warrant, on the terms and conditions set forth in this
Agreement.
29
30
AGREEMENT:
NOW, THEREFORE, for and in consideration of the Holder's conversion of
the Note and exercise of the Warrant, and the agreements and covenants
hereinafter set forth and other good and valuable consideration, the receipt and
adequacy of which are forever acknowledged and confessed, the parties hereto
agree as follows:
5. Issuance of Additional Shares of Common Stock.
5.1 Note. In the event the Company after the
date hereof shall distribute evidences of its indebtedness, securities, assets,
rights or warrants to any Person in connection with or as a result of or related
to any pending or future claims, suits, actions or proceedings against the
Company or any of its subsidiaries, then in each such case the Company shall
issue to the Holder the number of shares of Common Stock obtained by (i)
dividing the number of shares of Common Stock into which the Note was converted
by a fraction, of which the numerator shall be the current market price per
share of Common Stock (as determined pursuant to Section 1.3 below) on the date
of such distribution, less the fair market value (as determined in good faith by
the Company's Board and Directors) of the portion of such evidences of
indebtedness, securities, assets, rights or warrants so distributed applicable
to one share of Common Stock, and of which the denominator shall be such current
market price per share of Common Stock, and (ii) subtracting from the quotient
so obtained the number of shares of Common Stock into which the Note was
converted.
5.2 Warrant. In the event the Company after the
date hereof shall distribute evidences of its indebtedness, securities, assets,
rights or warrants to any Person in connection with or as a result of or related
to any pending or future claims, suits, actions or proceedings against the
Company or any of its subsidiaries, then in each such case the Company shall
issue to the Holder the number of shares of Common Stock obtained by (i)
dividing the number of shares of Common Stock purchased by the Holder pursuant
to the Warrant by a fraction, of which the numerator shall be the current market
price per share of Common Stock (as determined pursuant to Section 1.3 below) on
the date of such distribution, less the fair market value (as determined in good
faith by the Company's Board and Directors) of the portion of such evidences of
indebtedness, securities, assets, rights or warrants so distributed applicable
to one share of Common Stock, and of which the denominator shall be such current
market price per share of Common Stock, and (ii) subtracting from the quotient
so obtained the number of shares of Common Stock purchased by the Holder
pursuant to the Warrant.
5.3 Market Price Determination. For the purpose
of any computation under Sections 1.1 and 1.2 above, the current market price
per share of Common Stock on any date shall be deemed to be the average of the
daily closing prices for the ten (10) consecutive trading dates immediately
preceding such date. The closing price for each day shall be the last reported
sale price on that day or, in case no such reported sale takes place on such
date, the average of the last reported bid and asked prices, regular way, on
that day, in either case, as reported in the consolidated transaction reporting
system with respect to securities quoted on NASDAQ or, if the shares of Common
Stock are not quoted on NASDAQ, as reported in the
30
31
principal consolidated transaction reporting system with respect to securities
listed on the principal national securities exchange on which the shares of
Common Stock are listed or admitted to trading or, if the shares of Common Stock
are not quoted on NASDAQ and not listed or admitted to trading on any national
securities exchange, the last quoted price or, if not so quoted, the average of
the high bid and low asked prices on such other nationally recognized quotation
system then in use, or, if on any such day the shares of Common Stock are not
quoted on any such quotation system, the average of the closing bid and asked
prices as furnished by a professional market maker selected by the Company's
Board of Directors making a market in the shares of Common Stock. If the shares
of Common Stock are not publicly held or so listed, quoted or publicly traded,
the current market price per share of Common Stock shall be determined in good
faith by the Company's Board of Directors.
5.4 Certificate; Delivery. Whenever the Company
distributes evidences of its indebtedness, securities, assets, rights or
warrants to any Person in connection with or as a result of or related to any
pending or future claims, suits, actions or proceedings against the Company, the
Company shall promptly cause a certificate setting forth a brief statement
describing such distribution to be mailed to the Holder at the address shown in
the registration books of the Company. As promptly as practicable thereafter,
the Company at its expense shall issue and deliver to the Holder a certificate
or certificates for the number of shares of Common Stock issuable to the Holder
pursuant to Sections 1.1 and 1.2 above.
6. Miscellaneous.
6.1 Further Acts and Assurances. At the request of a
party, the other party shall execute such additional instruments and take such
additional actions as the requesting party may deem necessary to effectuate this
Agreement.
6.2 Term. This Agreement shall terminate two (2) years
from the date hereof (the "Termination Date"). As of the Termination Date, the
parties shall have no further rights or obligations under this Agreement.
Without limiting the generality of the foregoing, after the Termination Date the
Holder shall have no right to receive any shares of Common Stock under this
Agreement regardless of what claims, suits, actions or proceedings may be
pending against the Company or any of its subsidiaries as of the Termination
Date.
6.3 Entire Agreement. This Agreement and the Exhibits and
documents delivered pursuant hereto constitute the entire agreement between the
parties hereto relating to the subject matter of this Agreement. To be
effective, any modification of this Agreement must be in writing and signed by
each of the parties hereto.
6.4 Governing Law. The validity and construction of this
Agreement shall be governed by the laws of the State of Connecticut,
notwithstanding its conflict of laws principles.
6.5 Section Headings. The Section headings are for
reference only and shall not limit or control the meaning of any provision of
this Agreement.
31
32
6.6 Exhibits. All Exhibits and documents referred to in
or attached to this Agreement are integral parts of this Agreement as if fully
set forth herein, and all statements appearing therein shall be deemed to be
representations.
6.7 Assignment. The rights of the Holder under this
Agreement may not be transferred or otherwise assigned, in whole or in part, by
the Holder.
6.8 No Third Party Beneficiaries. The terms and
provisions of this Agreement are intended solely for the benefit of each party
hereto and their respective successors or permitted assigns, and it is not the
intention of the parties hereto to confer third-party beneficiary rights upon
any other person.
6.9 Legal Fees and Costs. In the event a party elects to
incur legal expenses to enforce or interpret any provision of this Agreement by
judicial proceedings, the prevailing party will be entitled to recover such
reasonable legal expenses, including, without limitation, reasonable attorneys'
fees, costs, and necessary disbursements at all court levels, in addition to any
other relief to which such party shall be entitled.
6.10 Enforcement of Agreement. The parties hereto agree
that irreparable damage would occur in the event that any of the provisions of
this Agreement was not performed in accordance with its specific terms or was
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions hereof in any court of competent
jurisdiction, this being in addition to any other remedy to which they are
entitled at law or in equity.
6.11 Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be an original, but all of which
together shall comprise one and the same instrument.
6.12 Certain Definitions. For purposes of this Agreement,
the term "Person" shall mean any individual, firm, corporation, company, limited
liability company, association, partnership, joint venture or other entity.
6.13 Registration Rights. The Holder shall have and be
entitled to exercise the registration rights granted under that certain Loan
Agreement dated August 26, 1999, by and between the Company and the Holder with
respect to the shares of Common Stock issued pursuant to the terms hereof.
6.14 Investment Intent; Etc. The Holder represents,
understands and agrees that (i) any shares of Common Stock that may be issued to
the Holder pursuant to this Agreement (the "Shares") will be acquired by the
Holder for its own account for investment and not with a view to, with the
present intention of, or in connection with, any resale or distribution of such
shares or any interest therein; (ii) the Shares will be issued to the Holder in
reliance
32
33
upon specific exemptions from the registration requirements of the Securities
Act of 1933, as amended (the "Act"), and applicable state securities laws, and
must be held indefinitely unless they are subsequently registered under the Act
and applicable states securities laws or an exemption from such registrations is
then available; (iii) he/she/it will not sell, transfer, assign, hypothecate,
pledge or otherwise dispose of the Shares unless (a) such transaction has been
registered under the Act and applicable state securities laws, or (b) in the
opinion of counsel for the Company, or of counsel for the undersigned which is
satisfactory to the Company, the proposed sale, transfer, assignment,
encumbrance or other disposition will not result in the violation of the
registration provisions of the Act and applicable state securities laws; and
(iv) the certificates representing the Shares will bear a legend stating
substantially what is set forth in (iii) above.
SIGNATURE PAGE FOLLOWS
IN WITNESS WHEREOF, the parties have entered into this Agreement as of
the date first written above.
CYBERGUARD CORPORATION
By:
-----------------------------------
Its:
----------------------------------
--------------------------------------
By:
-----------------------------------
Its:
----------------------------------
33
