Exhibit 10.31
WARRANT TO PURCHASE
COMMON STOCK
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED FOR RESALE UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), OR ANY STATE SECURITIES LAWS AND MAY NOT BE OFFERED, SOLD, TRANSFERRED,
PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS
TO SUCH SECURITIES AND SUCH DISPOSITION FILED UNDER THE ACT, OR AN EXEMPTION
FROM REGISTRATION, AND COMPLIANCE WITH APPLICABLE STATE SECURITIES LAWS. THE
ISSUER MAY REQUIRE AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER HEREOF THAT
SUCH REGISTRATION IS NOT REQUIRED AND THAT SUCH LAWS ARE COMPLIED WITH.
Void After 5:00 p.m., Eastern Time, on May 14, 2006
Warrant to Purchase
500,000 shares of
Common Stock, par value $.01 per share
of
DESIGNS, INC.
This is to Certify That, FOR VALUE RECEIVED, the receipt and sufficiency
of which is hereby acknowledged, _________________________ (the "Holder") is
entitled to purchase, subject to the provisions of this Warrant, from Designs,
Inc. ("Company"), a Delaware corporation, at any time prior to 5:00 p.m.,
Eastern Time, on May 14, 2006, a total of 500,000 shares of Common Stock, par
value $.01 per share, of the Company ("Securities") at an initial purchase price
of $4.25 per share. The number of Securities to be received upon the exercise of
this Warrant and the price to be paid for the Securities may be adjusted from
time to time as hereinafter set forth. The number of Securities to be received
upon the exercise of this Warrant in effect at any time and as adjusted from
time to time is hereinafter sometimes referred to as the "Exercise Rate" and the
purchase price per Security in effect at any time and as adjusted from time to
time, and subject to the minimum purchase price set forth in Section 7(k), is
hereinafter sometimes referred to as the "Exercise Price" per Security. The
Securities, as adjusted from time to time, together with any other Securities
issuable upon exercise of this Warrant are hereinafter sometimes referred to as
"Warrant Securities". Certain capitalized terms used in this Warrant are defined
in Section 14 hereof.
1. Exercise of Warrant. This Warrant may be exercised at the option of
the Holder in whole or in part at any time or from time to time beginning at
such time as the Company has obtained the requisite stockholder approval
required by Nasdaq for the issuance of such shares of Common Stock (the
"Stockholder Approval"), but prior to 5:00 p.m., Eastern Time on May 14, 2006,
or if May 14, 2006, is a Saturday, Sunday or a day on which banking institutions
in New York, New York are authorized by law to close, then on the next
succeeding day (a "Business Day") which shall not be such a day, by presentation
and surrender hereof to the Company or at the office of its stock transfer
agent, if any, with the Purchase Form annexed hereto duly executed, and
accompanied by payment of the Exercise Price, for the number of Securities
specified in such Form, together with all federal and state taxes applicable
upon such exercise. If, upon exercise of this Warrant, the Warrant Securities
issuable upon exercise of this Warrant are not then registered under the Act
pursuant to an effective registration statement thereunder, the Holder shall be
deemed to have represented and warranted to the
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Company that such Holder (x) is a "qualified institutional buyer" as defined in
Rule 144A under the Act or and "accredited investor" as defined in Rule 501
under the Act, in either case with such knowledge and experience in financial
and business matters as is necessary to evaluate the merits and risks of an
investment in the Warrant Securities, and (y) such Holder is not acquiring the
Warrant Securities with a view to any distribution thereof or with any intention
of offering or selling any Warrant Securities in a transaction that would
violate the Act or the securities laws of any state of the United States. If
this Warrant should be exercised in part only, the Company shall, upon surrender
of this Warrant for cancellation, execute and deliver a new Warrant evidencing
the right of the Holder to purchase the balance of the Securities purchasable
hereunder. Upon receipt by the Company of this Warrant at the office of the
Company or at the office of the Company's stock transfer agent, in proper form
for exercise and accompanied by the Exercise Price, if and as applicable, the
Holder shall be deemed to be the holder of record of the Securities issuable
upon such exercise, notwithstanding that the stock transfer books of the Company
shall then be closed or that certificates representing such Securities shall not
then be actually delivered to the Holder. It is understood and agreed that this
Warrant shall not be exercisable until Stockholder Approval is obtained. It is
further understood and agreed by the Holder that this Warrant shall not be
exercisable until 20 days following the Holder's notice to the Company of its
election to exercise this Warrant to enable the Company to give notice of
issuance and effect the listing of the Securities issuable upon such exercise on
The Nasdaq Stock Market prior to such exercise.
2. Reservation of Securities. The Company hereby agrees that at all
times there shall be reserved for issuance and/or delivery upon exercise of this
Warrant such number of shares of Securities as shall be required for issuance or
delivery upon exercise of this Warrant. The Company covenants and agrees that,
upon exercise of this Warrant and payment of the Exercise Price therefor, if and
as applicable, all Securities and other securities issuable upon such exercise
shall be duly and validly issued, fully paid, non-assessable and not subject to
the preemptive rights of any stockholder. As long as this Warrant shall be
outstanding, the Company shall use its best efforts to cause all Securities
issuable upon the exercise of this Warrant to be listed (subject to official
notice of issuance) on all securities exchanges or quotation systems on which
its Common Stock issued may then be listed and/or quoted.
3. Fractional Shares. No fractional shares or scrip representing
fractional shares shall be issued upon the exercise of this Warrant. With
respect to any fraction of a share called for upon any exercise hereof, the
Company shall pay to the Holder an amount in cash equal to such fraction
multiplied by the Prior Day Market Value of such fractional share.
4. Loss of Warrant. Upon receipt by the Company of evidence
satisfactory to it of the loss, theft, destruction or mutilation of this
Warrant, and (in the case of loss, theft or destruction) of reasonably
satisfactory indemnification, and upon surrender and cancellation of this
Warrant, if mutilated, the Company will execute and deliver a new Warrant of
like tenor and date. Any such new Warrant executed and delivered shall
constitute an additional contractual obligation on the part of the Company,
whether or not the Warrant so lost, stolen, destroyed, or mutilated shall be at
any time enforceable by anyone.
5. Rights of the Holder. The Holder shall not, by virtue hereof, be
entitled to any rights of a stockholder in the Company, either at law or equity,
and the rights of the Holder are limited to those expressed in this Warrant.
6. Certain Notices to Warrant Holders. The Company shall give prompt
written notice to the Holder of any determination to make a distribution to the
holders of its Common Stock of any cash dividends, assets, debt securities,
preferred stock, or any rights or warrants to purchase debt securities,
preferred stock, assets or other securities (other than Common Stock, or rights,
options, or warrants to purchase Common Stock) of the Company, which notice
shall state the nature and amount of such planned dividend or distribution
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and the record date therefor, and shall be received by the Holder or sent to the
Holder by reputable overnight courier, in either case to its address as provided
in Section 8, at least 10 days prior to such record date therefor. The Company
shall provide notice to the Holder that any tender offer is being made for
securities of the same class as any Warrant Securities no later than the first
Business Day after the day the Company becomes aware of any such tender offer.
Notwithstanding any notice provided to the Holder pursuant to this Section 6,
the Holder shall be entitled to any and all applicable adjustments to the
Exercise Rate and the Exercise Price per Security as provided in Section 7
arising out of any event requiring notice to the Holder in this Section 6.
7. Adjustment of Exercise Rate and Exercise Price.
The Exercise Rate and the Exercise Price are subject to adjustment
from time to time upon the occurrence of the events enumerated in this Section
7. The Exercise Rate shall initially be the number of Securities for which this
Warrant is initially exercisable as set forth in the introductory paragraph to
this Warrant. In the event that this Warrant is transferred or exercised in
part, the initial Exercise Rate of the portion not exercised or transferred
shall be adjusted proportionately as shall the initial Exercise Rate of any
partial transfer of this Warrant. For the purposes of Sections 7(a) and 7(b),
(i) shares of Common Stock issuable upon the exercise of this Warrant and all
other warrants issued in connection with the private placement referred to in
Section 15 shall be deemed to be outstanding and (ii) all shares of Common Stock
that would be deemed to be outstanding as of the date of determination in
respect of Convertible Securities, as determined in accordance with GAAP, shall
be deemed to be outstanding.
(a) Adjustment for Change in Capital Stock. If, after the Issue Date, the
Company:
(i) pays a dividend or makes a distribution on shares of its Common
Stock payable in shares of its Common Stock to the Holder
pursuant to Section 7(c));
(ii) subdivides or splits its outstanding shares of Common Stock into
a greater number of shares; or
(iii) combines its outstanding shares of Common Stock into a smaller
number of shares;
then (1) the Exercise Rate in effect immediately prior to such action for this
Warrant shall be adjusted by multiplying the Exercise Rate in effect immediately
prior to such action by a fraction (A) the numerator of which shall be the
number of shares of Common Stock outstanding immediately after such action and
(B) the denominator of which shall be the number of shares of Common Stock
outstanding immediately prior to such action or the record date applicable to
such action, if any and (2) the Exercise Price per Security in effect
immediately prior to such action shall be adjusted by multiplying the Exercise
Price per Security in effect immediately prior to such action by a fraction (A)
the numerator of which is one and (B) the denominator of which shall be the
fraction calculated in clause (1) of the above formula. The adjustments shall
become effective immediately after the record date in the case of a dividend or
distribution and immediately after the effective date in the case of a
subdivision or combination. In the event that such dividend or distribution is
not so paid or made or such subdivision, combination or reclassification is not
effected, the Exercise Rate and the Exercise price per Security shall again be
adjusted to be the Exercise Rate and the Exercise Price per Security which would
then be in effect if such record date or effective date had not been so fixed.
(b) Adjustment for Certain Sales of Common Stock Below Current Market
Value. If, after the Issue Date, the Company (i) grants or sells to any
Affiliate of the Company (other than a wholly owned subsidiary of the Company)
or (ii) grants, sells or offers to grant or sell to all holders of Common Stock,
any shares of Common Stock or Convertible Securities (other than, in the case of
each of clauses (i) and (ii),
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(1) pursuant to any Convertible Security or other right outstanding as of
the Issue Date or issuable in connection with the Transactions and
financing therefor and the fees and expenses thereof, or (2) upon the
conversion, exchange or exercise of any Convertible Security or other right
as to which upon the issuance thereof an adjustment pursuant to this
Section 7 has been made), at a price below the then Current Market Value,
the Exercise Rate and the Exercise price per Security for this Warrant
shall be adjusted in accordance with the formulae:
E1 = E x (O+N) $1 = $ x (O + N x P/M)
------------------ -----------------
(O + (N x P/M)) (O + N)
where:
E1 = the adjusted Exercise Rate for this Warrant;
E = the then current Exercise Rate for this Warrant;
$1 = the adjusted Exercise Price per Security for this Warrant;
$ = the then current Exercise Price per Security for this
Warrant;
O = the number of shares of Common Stock outstanding
immediately prior to the sale of such Common Stock or
issuance of Convertible Securities;
N = the number of shares of Common Stock so sold or the maximum
stated number of shares of Common Stock issuable upon the
conversion, exchange or exercise of any such Convertible
Securities;
P = the proceeds per share of Common Stock received by the
Company, which (i) in the case of shares of Common Stock is
the amount received by the Company in consideration for the
sale and issuance of such shares; and (ii) in the case of
Convertible Securities is the amount received by the
Company in consideration for the sale and issuance of such
Convertible Securities, plus the minimum aggregate amount
of additional consideration, other than the surrender of
such Convertible Securities, payable to the Company upon
exercise, conversion or exchange thereof; and
M = the Current Market Value as of the Time of Determination or
at the time of sale, as the case may be, of a share of Common
Stock.
The adjustments shall become effective immediately after the record date
for the determination of shareholders entitled to receive the rights, warrants
or options to which this paragraph (b) applies or upon consummation of the sale
of Common Stock, as the case may be. To the extent that shares of Common Stock
are not delivered after the expiration of such rights, warrants or options or
exercise, conversion or exchange rights in respect to such Convertible
Securities, the Exercise Rate and the Exercise Price per Security for this
Warrant shall be readjusted to the Exercise Rate and the Exercise Price per
Security which would otherwise be in effect had the adjustment made upon the
issuance of such rights, warrants or options or Convertible Securities been made
on the basis of delivery of only the number of shares of Common Stock actually
delivered. In the event that such rights or warrants are not so issued, the
Exercise Rate and the Exercise Price per Security for this Warrant shall again
be adjusted to be the Exercise Rate and the Exercise Price per Security which
would then be in
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effect if such date fixed for determination of shareholders entitled to receive
such rights, warrants or options had not been so fixed.
No adjustments shall be made under this paragraph (b) if the application
of the formula stated above in this paragraph (b) would result in a value of E1
that is lower than the value of E.
No adjustments shall be made under this paragraph (b) for any adjustments
which are the subject of paragraphs (a) or (d) of this Section 7.
Anything in this Warrant to the contrary notwithstanding, an event which
would otherwise give rise to adjustments pursuant to this Section 7(b) shall not
give rise to such adjustments if the Company grants, sells or offers to sell
shares of Common Stock or Convertible Securities, in each case on the same terms
as the underlying event, to the Holder on a pro rata basis, assuming for the
purpose of this Section 7(b) that all warrants issued in connection with the
private placement referred to in Section 15 had been exercised.
Notwithstanding the foregoing, no adjustment in the Exercise Rate or the
Exercise Price per Security will be required in respect of: (a) the grant of any
stock option or other stock incentive award pursuant to any present stock option
or stock incentive plan or arrangement or pursuant to any other customary
compensatory stock option or stock incentive plan for employees, officer and/or
directors, (b) the grant of any stock option or stock incentive award at an
exercise price at least equal to the then Prior Day Market Value or (c) the
exercise of any stock option or stock incentive award or similar award or right.
(c) Notice of Adjustments. Whenever the Exercise Rate and Exercise Price
per Security are adjusted, the Company shall promptly mail to the Holder a
notice of the adjustments. The Company shall also provide the Holder with a
certificate from the Company's independent public accountants briefly stating
the facts requiring the adjustments and the manner of computing it. The
certificate shall be conclusive evidence that the adjustments are correct,
absent manifest error.
(d) Reorganization of Company; Fundamental Transaction.
(i) If (x) the Company shall reclassify its Common Stock (other than
a change in par value, or from par value to no par value, or a
subdivision or combination thereof), or (y) the Company, in a
single transaction or through a series of related transactions,
consolidates with or merges with or into any other person or
sells, assigns, transfers, leases, conveys or otherwise disposes
of all or substantially all of its properties and assets to
another person or group of affiliated persons or is a party to a
merger or binding share exchange which, in the case of any of
the transactions referred to in this clause (y), reclassifies or
changes its outstanding Common Stock (each of (x) and (y) above
being referred to as a "Fundamental Transaction"), as a
condition to consummating any such Fundamental Transaction, the
Company, in the case of any such reclassification referred to in
clause (x), or the person formed by or surviving any such
consolidation or merger if other than the Company or the person
to whom such transfer has been made in the case of clause (y)
above (the "Surviving Person"), shall enter into a supplemental
warrant agreement. The supplemental warrant agreement shall
provide (a) that the Holder may exercise this Warrant for the
kind and amount of securities, cash or other assets which the
Holder would have received immediately after the Fundamental
Transaction if the Holder had exercised this Warrant immediately
before the effective date of the transaction, assuming (to the
extent applicable) that the Holder (i) was not a constituent
person or an affiliate of a constituent person to any
transaction described in clause (y) above, (ii) made no election
with respect to any transaction described in clause (y) above,
and (b) in the case of any transaction described in clause (y)
above, that the Surviving Person shall succeed to and be
substituted to every right and obligation of the Company in
respect of this War
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rant. The supplemental warrant agreement shall provide for
adjustments which shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Section 7.
The Surviving Person or the Company, as applicable, shall mail
to the Holder a notice briefly describing the supplemental
warrant agreement. If the issuer of securities deliverable upon
exercise of this Warrant is an affiliate of a Surviving Person,
that issuer shall join in the supplemental warrant agreement.
(ii) Notwithstanding the foregoing, if a Fundamental Transaction
shall occur and, upon consummation of such Fundamental
Transaction, consideration is payable to holders of shares of
Common Stock which consideration consists solely of cash,
assuming (to the extent applicable) that the Holder (i) was not
a constituent person or an affiliate of a constituent person to
a transaction described in Section 7(d)(i)(y) above and (ii)
made no election with respect thereto, then the Holder shall be
entitled to receive distributions upon consummation of such
Fundamental Transaction on an equal basis with holders of Common
Stock as if this Warrant had been exercised immediately prior to
such event, less the aggregate Exercise Price therefor; provided
that the Company or the Surviving Person, as the case may be,
may require the surrender of this Warrant to such person prior
to making any such distribution to the Holder. Upon receipt of
such payment, if any, the rights of the Holder shall terminate
and cease and this Warrant shall expire.
(iii) If this paragraph (e) applies, it shall supersede the
application of paragraph (a) or (b) of this Section 7.
(e) Other Events If any event occurs as to which the provisions of this
Section 7 are not strictly applicable or, if strictly applicable, would not, in
the good faith judgment of the board of directors of the Company, fairly and
adequately protect the rights of the Holder in accordance with the essential
intent and principles of such provisions, then such board of directors shall
make such adjustments in the application of such provisions, in accordance with
such essential intent and principles, as shall be reasonably necessary, in the
good faith opinion of such board of directors, to protect such rights as
aforesaid, but in no event shall any such adjustment have the effect of
decreasing the Exercise Rate or decreasing the number of Securities issuable
upon exercise of this Warrant or increasing the Exercise Price per Security.
(f) Company Determination Final. Any determination that the Company or
the board of directors of the Company must make pursuant to this Section 7 shall
be conclusive, absent manifest error.
(g) Specificity of Adjustments. Regardless of any adjustments in the
number or kind of shares purchasable upon the exercise of this Warrant or the
Exercise Price per Security, this Warrant may continue to express the same
number and kind of Securities initially issuable pursuant to this Warrant and
the initial Exercise Price per Security as set forth in the first paragraph
hereof.
(h) Voluntary Adjustment. The Company from time to time may increase the
Exercise Rate and correspondingly decrease the Exercise Price per Security by
any number and for any period of time; provided, however, that such period is
not less than 20 Business Days. Whenever the Exercise Rate is so increased and
the Exercise Price per Security is so decreased, the Company shall mail to the
Holder a notice thereof. The Company shall give the notice at least 10 days
before the date the increased Exercise Rate and decreased Exercise Price per
Security takes effect. The notice shall state the increased Exercise Rate and
decreased Exercise Price per Security and the period it will be in effect. A
voluntary increase in the Exercise Rate and decrease in the Exercise Price per
Security shall not change or adjust the Exercise Rate or Exercise Price per
Security otherwise in effect as determined by this Section 7.
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(i) Multiple Adjustments. After an adjustment to the Exercise Rate and
Exercise Price per Security for this Warrant under this Section 7, any
subsequent event requiring an adjustment under this Section 7 shall cause an
adjustment to the Exercise Rate and Exercise Price per Security for this Warrant
as so adjusted.
(j) When De Minimis Adjustment May Be Deferred. No adjustment in the
Exercise Rate or Exercise Price per Security shall be required unless such
adjustment would require an increase or decrease of at least 1% in the Exercise
Rate; provided, however, that any adjustments which by reason of the foregoing
are not required to be made shall be carried forward and taken into account in
any subsequent adjustment. All calculations of the Exercise Rate shall be
rounded to the nearest whole number. All calculations of the Exercise Price per
Security shall be rounded to the nearest ten thousandth of one cent. No
adjustments need be made for a change in the par value of the Common Stock and
no adjustments shall be deferred beyond the date on which this Warrant is
exercised.
(k) Notwithstanding any adjustment to the Exercise Price called for by
this Section 7, in no event will the Exercise Price per share of Common Stock be
adjusted to an amount that is less than the par value per share of the Common
Stock at the time of such adjustment, and if, but for the provisions of this
Section 7(k), an adjustment to the Exercise Price would be required under this
Section 7 that would result in an Exercise Price per share of Common Stock that
is less than the par value per share of the Common Stock, then the Exercise
Price shall be adjusted such that the Exercise Price per share of Common Stock
equals the par value of the Common Stock.
(l) Amendments of the Certificate of Incorporation. The Company shall
not amend its Certificate of Incorporation to increase the par value of any
Warrant Security such that such par value would exceed the Exercise Price per
share of such Warrant Security.
8. Notices. Any notices or certificates by the Company to the Holder
and by the Holder to the Company shall be deemed delivered if in writing and
delivered personally or sent by certified mail or reputable overnight courier,
to the Holder, addressed as set forth in the Instructions for Registration of
Warrant delivered to the Company, which may be superseded from time to time upon
notice to the Company, and, if to the Company, addressed to Designs, Inc., 555
Turnpike Street, Canton, Massachusetts, 02021, Attention: Chief Financial
Officer. The Company may change its address by written notice to the Holder.
9. Limitations on Transferability. This Warrant may be divided or
combined, upon request to the Company by the Holder, into a certificate or
certificates evidencing the same aggregate number of Warrants. This Warrant may
not be offered, sold, transferred, pledged or hypothecated (i) in the absence of
an effective registration statement as to this Warrant and such transaction
filed under the Act, or an exception from the requirement of such registration,
and compliance with the applicable federal and state securities laws, (ii) in an
amount representing the right to purchase fewer than 140,000 shares of Common
Stock, and (iii) with the consent of the Company, which consent shall not
unreasonably be withheld. The Company may require an opinion of counsel
satisfactory to the Company that such registration is not required and that such
laws are complied with. The Company may treat the registered holder of this
Warrant as he or it appears on the Company's books at any time as the Holder for
all purposes. The Company shall permit the Holder or his duly authorized
attorney, upon written request during ordinary business hours, to inspect and
copy or make extracts from its books showing the registered holders of Warrants.
10. Transfer to Comply With the Securities Act of 1933. The Company
may cause the following legend, or one similar thereto, to be set forth on this
Warrant and on each certificate representing Warrant Securities, or any other
security issued or issuable upon exercise of this Warrant, unless (a) the
Company has received an opinion of counsel satisfactory to the Company as to any
such certificate that such
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legend, or one similar thereto, is unnecessary or (b) a registration statement
with respect to this Warrant and the Warrant Securities has become effective
under the Act.
"THIS SECURITY HAS NOT BEEN REGISTERED FOR RESALE UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAWS AND MAY NOT
BE OFFERED, SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF
AN EFFECTIVE REGISTRATION STATEMENT AS TO SUCH SECURITY AND SUCH
DISPOSITION FILED UNDER THE ACT, OR AN EXEMPTION FROM REGISTRATION, AND
COMPLIANCE WITH APPLICABLE STATE SECURITIES LAWS. THE ISSUER MAY REQUIRE
AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER HEREOF THAT SUCH
REGISTRATION IS NOT REQUIRED AND THAT SUCH LAWS ARE COMPLIED WITH."
11. Applicable Law. This Warrant shall be governed by, and construed
in accordance with, the laws of the State of New York, without giving effect to
conflict of law principles.
12. Amendments. This Warrant may not be amended except in a writing
signed by the Holder and the Company.
13. Severability. If any provisions of this Warrant shall be held to
be invalid or unenforceable, such invalidity or enforceability shall not affect
any other provision of this Warrant.
14. Certain Definitions. In addition to the capitalized terms
defined elsewhere in this Warrant, the following capitalized terms shall have
the meanings set forth below.
"Act" shall mean the Securities Act of 1933, as amended, together with the
rules and regulations promulgated thereunder.
"Affiliate" of a person shall mean a person who directly or indirectly
through one or more intermediaries controls, or is controlled by, or is under
common control with, such person. The term "control" means the power to direct
or cause the direction of the management and policies of a person, whether
through the ownership of voting securities, by contract or otherwise.
"Convertible Security" shall mean any security convertible into or
exchangeable or exercisable for Common Stock, including but not limited to,
rights, options or warrants entitling the holder thereof to acquire Common Stock
or any security convertible into or exchangeable for Common Stock.
"Current Market Value" per share of Common Stock of the Company at any
date shall mean:
(1) if Common Stock is not then registered under the Exchange Act and traded
on a national securities exchange or on the Nasdaq National Market System,
(a) the value of such Common Stock, determined in good faith by the
board of directors of the Company and certified in a board
resolution, taking into account the most recently completed
arms-length transaction between the Company and a person other
than an Affiliate of the Company and the closing of which occurs
on such date or shall have occurred within the six-month period
preceding such date, or
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(b) if no such transaction shall have occurred on such date or
within such six-month period, the fair market value of the
security as determined by a nationally recognized investment
bank; provided, however, that, in the case of the calculation of
Current Market Value for determining the cash value of
fractional shares, no such determination by an investment bank
shall be required and the good faith judgment of the board of
directors as to such value shall be conclusive, or
(2) (a) if Common Stock is then registered under the Exchange Act
and traded on a national securities exchange or on the Nasdaq National Market
System, the average of the daily closing sales prices of such Common Stock for
the 20 consecutive trading days immediately preceding such date, or
(b) if Common Stock has been registered under the Exchange Act and
traded on a national securities exchange or on the Nasdaq
National Market System for less than 20 consecutive trading days
before such date, then the average of the daily closing sales
prices for all of the trading days before such date for which
closing sales prices are available,
in the case of each of (2)(a) and (2)(b), as certified by the Chief
Executive Officer, the President, any Executive Vice President or the
Chief Financial Officer or Treasurer of the Company. The closing sales
price of each such trading day shall be the closing sales price, regular
way, on such day or, if no sale takes place on such day, the average of
the closing bid and asked prices on such day.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended,
together with the rules and regulations promulgated thereunder.
"GAAP" shall mean generally accepted accounting principles in the United
States as in effect on April 26, 2002.
"Issue Date" shall mean May 14, 2002.
"Permitted Cash Dividend" shall mean any cash dividend in respect of
Common Stock that, together with all such dividends (other than dividends with
respect to which an adjustment has been made pursuant to Section 7(c)(i))
declared in respect of Common Stock during the previous twelve months, on a per
share basis, does not exceed 10% of the average closing sales prices per share
of the Common Stock for each trading day during such twelve month period.
"Prior Day Market Value" per share of Common Stock of the Company at any
date shall mean:
(1) if Common Stock is not then registered under the Exchange Act
and traded on a national securities exchange or on the Nasdaq
National Market System, the Current Market Value per share of
Common Stock, or
(2) if Common Stock is then registered under the Exchange Act and
traded on a national securities exchange or on the Nasdaq
National Market System, the closing sales price of Common Stock
for the trading day ending immediately prior to the event
causing the Prior Day Market Value to be determined.
"Time of Determination" shall mean (i) in the case of any distribution of
securities or other property to existing shareholders to which Section 7(b)
applies, the time and date of the determination of shareholders enti
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tled to receive such securities or property or (ii) in the case of any other
issuance and sale to which Section 7(b) applies, the time and date of such
issuance or sale.
15. Registration Rights. If the Company shall at any time, or from
time to time, file with the Securities and Exchange Commission a registration
statement under the Securities Act of 1933, as amended (the "Securities Act"),
with respect to any of the securities issued pursuant to the private placement
arranged by Holder, Holder shall then have the right to include a part or all of
its securities received in connection with arranging such private placement, of
the same class otherwise subject to such registration statement, in any such
registration statement. The Company will not be responsible for Holder's legal
fees, underwriting commissions or other expenses related to the filing of a
registration statement under the Securities Act.
[Remainder of Page Intentionally Left Blank]
Date: June ___, 2002
DESIGNS, INC.
By:
---------------------------------
Name:
Title: