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EXHIBIT 10.5
WARRANT
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE HEREUNDER HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY
APPLICABLE STATE SECURITIES LAWS AND MUST BE HELD INDEFINITELY UNLESS
SUBSEQUENTLY REGISTERED UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES
LAWS OR DISPOSED OF PURSUANT TO AN EXEMPTION FROM SUCH REGISTRATION
REQUIREMENTS
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE HEREUNDER HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY
APPLICABLE STATE SECURITIES LAWS AND MUST BE HELD INDEFINITELY UNLESS
SUBSEQUENTLY REGISTERED UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES
LAWS OR DISPOSED OF PURSUANT TO AN EXEMPTION FROM SUCH REGISTRATION
REQUIREMENTS
WARRANT
Corporation: Commonwealth Energy Corporation, a California
corporation
Number of Shares: 100,000
Class of Stock: Common Stock
Initial Exercise Price: $5.50 per share Issued as of. June 28, 2000
Expiration Date: Ninety days after expiration of the Term of the Loan and
Security
Agreement dated of even date herewith between the parties hereto
FOR VALUE RECEIVED, the adequacy and receipt of which is hereby
acknowledged, COMMONWEALTH ENERGY CORPORATION, a California corporation, hereby
certifies that COAST BUSINESS CREDIT(R), a division of Southern Pacific Bank, a
California corporation, and its successors and assigns, are entitled to purchase
from the Company one hundred thousand (100,000) fully paid and nonassessable
shares of Common Stock of the Company at any time and from time to time on and
after the date hereof until 12:00 midnight California local time on the
ninetieth day after expiration of the Term of the Loan and Security Agreement
dated of even date herewith between the parties hereto at an exercise price of
FIVE DOLLARS AND FIFTY CENTS ($5.50) per share of Common Stock, on the terms and
conditions hereinafter set forth.
The number of such shares of Common Stock and the Exercise Price are
subject to adjustment as provided in this warrant.
1. Certain Definitions. As used in this Warrant, the following
terms have the following definitions:
"Additional Shares of Common Stock" means all shares of Common Stock
issued or issuable by the Company after the date of this Warrant.
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"Common Stock" means the Company's Common Stock, no par value per
share, and includes any common stock of the Company of any class or classes
resulting from any reclassification or reclassifications thereof which is not
limited to a fixed sum or percentage of par value in respect of the rights of
the holders thereof to participate in dividends and in the distribution of
assets upon the voluntary or involuntary liquidation, dissolution or winding up
of the Company.
"Company" means Commonwealth Energy Corporation, a California
corporation.
"Convertible Securities" means evidence of indebtedness, shares of
stock or other securities which are at any time directly or indirectly
convertible into or exchangeable for Additional Shares of Common Stock.
"Current Market Price" of a share of Common Stock or any other
security as of a relevant date means: (i) the Fair Value thereof as determined
in accordance with clause (ii) of the definition of Fair Value with respect to
Common Stock or any other security that is not listed on a national securities
exchange or traded on the over-the-counter market or quoted on NASDAQ, and (ii)
the average of the daily closing prices for the ten (10) trading days before
such date (excluding any trades which are not bona fide arm's length
transactions) with respect to Common Stock or any other security that is listed
on a national securities exchange or traded on the over-the-counter market or
quoted on NASDAQ. The closing price for each day shall be (i) the last sale
price of shares of Common Stock or such other security, regular way, on such
date or, if no such sale takes place on such date, the average of the closing
bid and asked prices thereof on such date, in each case as officially reported
on the principal national securities exchange on which the same are then listed
or admitted to trading, or (ii) if no shares of Common Stock or if no securities
of the same class as such other security are then listed or admitted to trading
on any national securities exchange, the average of the reported closing bid and
asked prices thereof on such date in the over-the-counter market as shown by the
National Association of Securities Dealers automated quotation system or, if no
shares of Common Stock or if no securities of the same class as such other
security are then quoted in such system, as published by the National Quotation
Bureau, Incorporated or any similar successor organization, and in either case
as reported by any member firm of the New York Stock Exchange selected by
Warrantholders.
"Exchange Act" means the Securities Exchange Act of 1934
"Exercise Period" means the period commencing on the date hereof and
ending at 12:00 midnight California local time on the Expiration Date.
"Exercise Price" means initially Five Dollars and Fifty Cents
($5.50) per share, subject to adjustment as provided in this Warrant.
"Expiration Date" means ninety days after expiration of the Term of
the Loan and Security Agreement dated of even date herewith between the parties
hereto.
"Fair Value" means: (i) with respect to a share of Common Stock or
any other security, the Current Market Price thereof, and (ii) with respect to
any other property, assets, business or entity, an amount determined in
accordance with the following procedure: The Company and the holders of the
Warrants and Warrant Shares, as applicable, shall use their best efforts to
mutually agree to a determination of Fair Value within ten (10) days of the date
of the event requiring that such a determination be made. If the Company and
such holders are unable to reach an agreement within said ten (10) day period,
the Company and such holders shall within ten (10) days of the expiration of the
ten (10) day period referred to above each retain a separate independent
investment banking firm (which firm shall not be the investment banking firm
regularly retained by the Company). If either the Company or such holders fails
to retain such an investment banking firm during such period, then the
independent investment banking firm
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retained by such holders or the Company, as the case may be, acting alone, shall
take the actions outlined below. Such firms shall determine (within thirty (30)
days of their being retained) the Fair Value of the security, property, assets,
business or entity, as the case may be, in question and deliver their opinion in
writing to the Company and to such holders. If such firms cannot jointly make
the determination, then, unless otherwise directed by agreement of the Company
and such holders, such firms, in their sole discretion, shall choose another
investment banking firm independent of the Company and such holders, which firm
shall make the determination and render an opinion as promptly as practicable.
In either case, the determination so made shall be conclusive and binding on the
Company and such holders. The fees and expenses of any such determination made
by any and all such investment banking firms shall be paid by the Company. If
there is more than one holder of Warrants, and/or Warrant Shares entitled to a
determination of Fair Value in any particular instance, each action to be taken
by a majority in interest of such holders and the action taken by such majority
(including as to any mutual agreement with the Company with respect to Fair
Value and as to any selection of investment banking firms) shall be binding upon
all such holders. In the case of a determination of the Fair Value per share of
Common Stock, the Company and such holders shall not take into consideration,
any premium for shares representing control of the Company, any discount for any
minority interest therein or any restrictions on transfer under applicable
federal and state securities laws or otherwise.
"Indemnified Part" and "Indemnifying Party" have the same meanings
set fourth in Section 1l(e)(iii).
"Registerable Stock" means: (i) all Warrant Shares which are
issuable to the Warrantholders pursuant to the Warrants, whether or not the
Warrants have in fact been exercised and whether or not such warrant Shares have
in fact been issued, (ii) all Warrant Shares acquired by the Warrantholders
pursuant to the Warrants, and (iii) any shares of Common Stock, whether or not
such shares of Common Stock have in fact been issued, and stock or other
securities of the Company issued upon conversion of, in a stock split or
reclassification of, or a stock dividend or other distribution on, or in
substitution or exchange for, or otherwise in connection with, such Warrant
Shares. For purposes of Section 11, a Warrantholder of record shall be treated
as the record holder of the related Warrant Shares and other securities pursuant
to the warrants.
"Securities Act" means the Securities Act of 1933, as amended.
"Warrant(s)" means this Warrant and any warrants issued in exchange
or replacement of this Warrant or upon transfer hereof.
"Warrantholder(s)" means COAST BUSINESS CREDIT, a division of
Southern Pacific Bank, a California corporation, and its successors and assigns.
"Warrant Shares" means shares of common stock issuable to
Warrantholders pursuant to the warrants.
2. Exercise of Warrant. This Warrant may be exercised, in whole or
in part, at any time and from time to time during the Exercise Period by written
notice to the Company and upon payment to the Company of the Exercise Price
(subject to adjustment as provided herein) for the shares of Common Stock in
respect of which the warrant is exercised.
3. Form of Payment of Exercise Price. Anything contained herein to
the contrary notwithstanding, at the option of the Warrantholders, the exercise
Price may be paid in any one or a combination of the following forms: (a) by
wire transfer to the Company, (b) by the Warrantholder's check to the Company,
(c) by the cancellation of any indebtedness owed by the Company and/or any
subsidiaries of the Company to the Warrantholder, and/or (d) by the surrender to
the Company of Warrants, Warrant Shares, Common Stock and/or other securities of
the Company and/or any subsidiaries of the Company having a Fair Value equal to
the Exercise Price.
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4. Cashless Exercise/Conversion; Appreciation Right.
(a) Cashless Exercise/Conversion. In lieu of exercising
this Warrant as specified in Sections 2 and 3 above, the Warrantholders may from
time to time at the Warrantholders' option convert this Warrant, in whole or in
part, into a number of shares of Common Stock of the Company determined by
dividing (A) the aggregate Fair Value of such shares or other securities
otherwise issuable upon the exercise of this Warrant minus the aggregate
Exercise Price of such shares by (B) the Fair Value of one such share.
(b) Appreciation Right. In lieu of exercising, this Warrant as
specified in Sections 2 and 3 above, the Warrantholders may from time to time at
the Warrantholders' option require the Company to purchase this Warrant or any
portion hereof, for cash, at a price equal to the then Fair Value of the Common
Stock issuable upon exercise of this Warrant less the Exercise Price. Upon the
Warrantholders' exercise of this option, the Company shall promptly wire
transfer to the Warrantholders such amount in immediately available funds as is
required under this Section 4(b), but in no event later than five (5) business
days after the exercise of such option, in immediately available funds.
5. Certificates for Warrant Shares: New Warrant. The Company agrees
that the Warrant Shares shall be deemed to have been issued to the
Warrantholders as the record owner of such Warrant Shares as of the close of
business on the date on which payment for such Warrant Shares has been made (or
deemed to be made by conversion) in accordance with the terms of this Warrant.
Certificates for the Warrant Shares shall be delivered to the Warrantholders
within a reasonable time, not exceeding five (5) days, after this Warrant has
been exercised or converted. A new Warrant representing the number of shares, if
any, with respect to which this Warrant remains exercisable also shall be issued
to the Warrantholders within such time so long as this Warrant has been
surrendered to the Company at the time of exercise.
6. Adjustment of Exercise Price, Number of Shares and Nature of
Securities Issuable Upon Exercise of Warrants.
(a) Exercise Price: Adjustment of Number of Shares. The
Exercise Price shall be subject to adjustment from time to time as hereinafter
provided. Upon each adjustment of the Exercise Price, the Warrantholders shall
thereafter be entitled to purchase, at the Exercise Price resulting from such
adjustment, a number of shares determined by multiplying the Exercise Price in
effect immediately prior to such adjustment by the number of shares purchasable
pursuant hereto immediately prior to such adjustment and dividing the product
thereof by the Exercise Price resulting from such adjustment.
(b) Adjustment of Exercise Price Upon Issuance of Common
Stock. If and whenever after the date hereof the Company shall issue or sell
Additional Shares of Common Stock without consideration or for a consideration
per share less the Current Market Price or the Exercise Price then in effect
immediately prior to the issuance or sale of such shares, then the Exercise
Price in effect immediately prior to such issuance or sale of such shares shall
be reduced to a number which shall be calculated by dividing (A) an amount equal
to the sum of (1) the number of shares of Common Stock outstanding immediately
prior to such issue or sale multiplied by the then existing Exercise Price plus
(2) the aggregate consideration, if any received by the Company upon issue or
sale, by (B) the total number of shares of Common Stock outstanding immediately
after such issue or sale.
No adjustment of the Exercise Price, however, shall be
made in an amount less than $.01 per share, but any such lesser adjustment shall
be carried forward and shall be made at the time and together with the next
subsequent adjustment which, together with any adjustments so carried forward,
shall amount to $10 per share or more.
The provisions of this Section 6(b) shall not apply to
any Additional Shares of Common Stock which are distributed to holders of Common
Stock pursuant to a stock split for which an adjustment is provided for under
Section 6(f).
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(c) Further Provisions for Adjustment of Exercise Price Upon
Issuance of Additional Shares of Common Stock and Convertible Securities. For
purposes of Section 6(b), the following, provisions shall also be applicable:
(i) In case at any time on or after the date hereof,
the Company shall declare any dividend, or authorize any other distribution,
upon any stock of the Company of any class, payable in Additional Shares of
Common Stock or by the issuance of Convertible Securities, such declaration or
distribution shall be deemed to have been issued or sold (as of the record date)
without consideration and shall thereby cause an adjustment in the Exercise
Price as required by Section 6(b).
(ii) (A) In case at any time on or after the
date hereof, the Company shall in any manner issue or sell any Convertible
Securities, whether or not the rights to exchange or convert thereunder are
immediately exercisable, there shall be determined the price per share for which
Additional Shares of Common Stock are issuable upon the conversion or exchange
thereof, such determination to be made by dividing, (a) the total amount
received or receivable by the Company as consideration for the issue or sale of
such Convertible Securities, plus the minimum aggregate amount of additional
consideration, if any, payable to the Company upon the conversion or exchange
thereof by (b) the maximum aggregate number of Additional Shares of Common Stock
issuable upon conversion or exchange of all such Convertible Securities for such
minimum aggregate amount of additional consideration; and such issue or sale
shall be deemed to be an issue or sale for cash (as of the date of issue or sale
of such Convertible Securities) of such maximum number of Additional Shares of
Common Stock at the price per share so determined, and shall thereby cause an
adjustment in the Exercise Price, if such an adjustment is required by Section
6(b) hereof.
(B) If such Convertible Securities
shall by their terms provide for an increase or increases, with the passage of
time, in the amount of additional consideration, if any, payable to the Company,
or in the rate of exchange upon the conversion or exchange thereof, the adjusted
Exercise Price shall, upon any such increase becoming effective, be increased to
such Exercise Price as would have been in effect had the adjustments made upon
the issuance of such Convertible Securities been made upon the basis of (and the
total consideration received therefor) (a) the issuance of the number of shares
of Common Stock theretofore actually delivered upon the exercise of such
Convertible Securities, (b) the issuance of all Common Stock, all Convertible
Securities and all rights and options to purchase Common Stock issued after-the
issuance of such Convertible securities, and (c) the original issuance at the
time of such change of any such Convertible Securities then still outstanding;
provided however, that any such increase or increases shall not exceed, in the
aggregate, the amount of the original reduction of the Exercise Price
attributable to the Convertible Securities.
(C) If any rights of conversion or exchange
evidenced by such Convertible Securities shall expire without having been
exercised, the adjusted Exercise Price shall forthwith be readjusted to such
Exercise Price as would have been in effect had an adjustment with respect to
such Convertible Securities been made on the basis that the only Additional
Shares of Common Stock issued or sold were those issued upon the conversion or
exchange of such Convertible Securities, and that they were issued or sold for
the consideration actually received by the Company upon the exercise, plus the
consideration, if any, actually received by the Company for the granting, of
such Convertible Securities.
(iii) (A) In case at any time on or after the date
hereof, the Company shall in any manner grant or issue any rights or options to
subscribe for, purchase or otherwise acquire Additional Shares of Common Stock,
whether or not such rights or options are immediately exercisable, there shall
be determined the price per share for which Additional Shares of Common Stock
are issuable upon the exercise of such rights or options, such determination to
be made by dividing (a) the total amount, if any, received or receivable by the
Company as consideration for the granting of such rights or options, plus the
minimum aggregate amount of additional consideration, if any, payable to the
Company upon the exercise of such rights or options if the maximum number of
Additional Shares were issued pursuant to such rights or options for such
minimum aggregate amount of additional consideration, by (b) the maximum number
of Additional Shares of Common Stock of the Company issuable upon the exercise
of all such rights or options for such minimum aggregate amount of additional
consideration; and the granting
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of such rights or options shall be deemed to be an issue or sale for cash (as of
the date of the granting of such rights or options) of such maximum number of
Additional Shares of Common Stock at the price per share so determined, and
shall thereby cause an adjustment in the Exercise Price, if such an adjustment
is required by Section 6(b) hereof.
(B) If such rights or options shall by
their terms provide for an increase or increases, with passage of time, in the
amount of additional consideration payable to the Company upon the exercise
thereof, the adjusted Exercise Price shall, upon any such increases becoming
effective, be increased to such Exercise Price as would have been in effect had
the adjustments made upon the issuance of such rights or options been made upon
the basis of (and the total consideration received therefor) (a) the issuance of
the number of shares of Common Stock theretofore actually delivered upon the
exercise of such rights or options, (b) the issuance of all Common Stock, all
rights and options and all Convertible Securities issued after the issuance of
such rights and options, and (c) the original issuance at the time of such
change of any such rights or options then still outstanding; provided, however,
that any such increase or increases in the Exercise Price shall not exceed, in
the aggregate, the amount of the original reduction of the Exercise Price
attributable to the grant of such rights or options.
(C) If any such rights or options shall
expire without having been exercise, the adjusted Exercise Price shall forthwith
be readjusted to such Exercise Price as would have been in effect had an
adjustment with respect to such rights or options been made on the basis that
the only Additional Shares of Common Stock so issued or sold were those issued
or sold upon the exercise of such rights or options and that they were issued or
sold for the consideration actually received by the Company upon such exercise,
plus the consideration, if any, actually received by the Company for the
granting of such rights or options.
(iv) (A) In case at any time on or after the
date hereof, the Company shall grant any rights or options to subscribe for,
purchase or otherwise acquire Convertible Securities, there shall be determined
the price per share for which Additional Shares of Common Stock are issuable
upon the exchange or conversion of such Convertible Securities if such rights or
options were exercised, such determination to be made by dividing (a) the total
amount, if any, received or receivable by the Company as consideration for the
issuance of such rights or options, plus the minimum aggregate amount of
additional consideration, if any, payable to the Company upon the exercise of
such rights or options if the maximum number of Convertible Securities were
issued pursuant to such rights or options for such minimum aggregate amount of
additional consideration, plus the minimum aggregate amount of additional
consideration, if any, payable to the Company upon the exchange or conversion of
such Convertible Securities if the maximum number of Additional Shares were
issued pursuant to such Convertible Securities for such minimum aggregate amount
of additional consideration, by (b) the maximum aggregate number of Additional
Shares of Common Stock issuable upon the exchange or conversion of the
Convertible Securities for such minimum aggregate amount of additional
consideration; and the issue or sale of such rights or options shall be deemed
to be an issue or sale for cash (as of the date of the granting of such rights
or options) of such maximum number of Additional Shares of Common Stock at the
price per share to be determined, and thereby shall cause an adjustment in the
Exercise Price, if such an adjustment is required by Section 6(b).
(B) If such rights or options to
subscribe for or otherwise acquire Convertible Securities shall by their terms
provide for an increase or increases, with the passage of time, in the amount of
additional consideration payable to the Company upon the exercise, exchange or
conversion thereof, the adjusted Exercise Price shall, forthwith upon any such
increase becoming effective, be increased to such Exercise Price as would have
been in effect had the adjustments made upon the issuances of such rights or
options been made upon the basis of (and the total consideration received
therefor) (a) the issuance of the number of shares of Common Stock theretofore
actually delivered upon the exchange or conversion of such Convertible
Securities (b) the issuances of all Common Stock and all rights, options and
Convertible Securities issued after the issuance of such rights and options and
(c) the original issuances at the time of such change of any such rights,
options and Convertible Securities issued upon the exercise of such rights or
options which are then still outstanding; provided, however, that any
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such increase or increases shall not exceed, in the aggregate, the amount of the
original reduction of the Exercise Price attributable to the grant of such
rights or options.
(C) If any such rights, options or
rights of conversion or exchange of such Convertible Securities shall expire
without having been exercised, exchanged or converted, the adjusted Exercise
Price shall forthwith be readjusted to such Exercise Price as would have been in
effect had an adjustment been made with respect to such rights, options or
rights of conversion or exchange of such Convertible Securities on the basis
that the only Additional Shares of Common Stock so issued or sold were those
issued or sold upon the exercise of such rights or options and exchange or
conversion of such Convertible Securities and that they were issued or sold for
the consideration actually received by the Company upon the exercise of such
rights and options and exchange or conversion of such Convertible Securities,
plus the consideration, if any, actually received by the Company for the
granting of such rights, options or Convertible Securities.
(v) In any case where an adjustment has been made in
the Exercise Price upon the issuance of Convertible Securities or any right or
options to purchase Convertible Securities or any rights or options to purchase
Convertible Securities or Additional Shares of Common Stock pursuant to this
Section 6(c), no further adjustment shall be made at the time of the conversion
of any such Convertible Securities or at the time of the exercise of any such
rights or options.
(vi) In case at any time on or after the issuance of
this Warrant any shares of Common Stock or Convertible Securities shall be
issued or sold for a consideration other than cash, the amount of the
consideration other than cash payable to the Company shall be deemed to be the
Fair Value of such consideration. Whether or not the consideration so received
is cash, the amount thereof shall be determined after deducting therefrom any
expenses incurred or any underwriting commissions or concessions or discounts
paid or allowed by the Company in connection therewith.
(vii) In case at any time the Company shall fix a record
date of the holders of its Common Stock for the purpose of entitling them (a) to
receive a dividend or other distribution payable in Common Stock, Convertible
Securities or rights or options to purchase either thereof, or (b) to subscribe
for or purchase Common Stock, Convertible Securities or rights or options to
purchase either thereof, then such record date shall be deemed to be the date of
the issue or sale of the shares of Common stock deemed, pursuant to this Section
6(c), to have been issued or sold upon the declaration of such dividend or the
making of such other distribution or the date of the granting of such right of
subscription or purchase, as the case may be.
(viii) The number of shares of Common Stock
outstanding at any given time shall not include shares owned or held by or for
the account of the Company, and the disposition of any such shares shall be
considered an issue or sale of Common stock for the purposes of this Section
6(c).
(d) Reorganization, Reclassification, Consolidation, Merger or
Sale. If any capital reorganization or reclassification of the capital stock of
the Company, or any consolidation or merger of the Company with another
corporation, or the sale of all or substantially all of its assets to another
corporation shall be effected in such a way that holders of Common Stock shall
be entitled to receive cash, stock, securities or assets with respect to or in
exchange for Common Stock, then, as a condition of such reorganization,
reclassification, consolidation, merger or sale, lawful and adequate provisions
shall be made whereby the Warrantholders shall thereafter have the right to
purchase and receive upon the basis and upon the terms and conditions specified
in this Warrant upon exercise of this Warrant and in lieu of the shares of the
Common Stock of the Company immediately theretofore purchasable and receivable
upon the exercise of the rights represented hereby, such cash, shares of stock,
securities or assets as may be issued or payable with respect to or in exchange
for a number of outstanding shares of Common Stock equal to the number of shares
of such Common Stock immediately theretofore purchasable and receivable upon the
exercise of the rights represented hereby, and in any such case appropriate
provision shall be made with respect to the rights and interest of the
Warrantholders to the end that the provisions hereof (including, without
limitation, provisions for adjustments of the Exercise Price and of the number
of shares purchasable and receivable upon the exercise of this Warrant) shall
thereafter be applicable, as
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nearly as may be, in relation to any shares of stock, securities or assets
thereafter deliverable upon the exercise hereof. The Company shall-not effect
any consolidation, merger or sale of all or substantially all of the assets of
the Company unless prior to or simultaneous with the consummation thereof the
successor corporation (if other than the Company) resulting from such
consolidation, merger or purchase of such assets shall assume, by written
instrument executed and mailed or delivered to the Warrantholders, the
obligation to deliver to such Warrantholders such cash (or cash equivalent),
shares of stock, securities or assets as, in accordance with the foregoing
provisions, the Warrantholders may be entitled to receive and containing the
express assumption of such successor corporation of the due and punctual
performance and observance of each provision of this Warrant to be performed and
observed by the Company and of all liabilities and obligations of the Company
hereunder; provided, however, in the case of any consolidation or merger of the
Company with another corporation or the sale of all or substantially all of its
assets to another corporation effected in such a manner that the holders of
Common Stock shall be entitled to receive stock, securities or assets with
respect to or in exchange for Common Stock, then, at the election of each
Warrantholder, in lieu of receiving such stock, securities or assets, such
Warrantholder shall receive cash equal to the Fair Value of the Common Stock
issuable upon exercise of the Warrant, less the Exercise Price payable upon
exercise thereof.
In case any Additional Shares of Common Stock or Convertible
Securities or any rights or options to purchase any Additional Shares of Common
Stock or Convertible Securities shall be issued in connection with any merger of
another corporation into the Company, the amount of consideration therefor shall
be deemed to be the Fair Value of such portion of the assets of such merged
corporation as the Board of Directors of the Company shall in good faith
determine to be attributable to such Additional Shares of Common Stock,
Convertible Securities or rights or options, as the case may be, and the
Exercise Price shall be adjusted in accordance with this Section 6(d).
(e) Company to Prevent Dilution. In case at any time or from
time to time conditions arise by reason of action taken by the Company which are
not adequately covered by the provisions of this Section 6, and which might
materially and adversely affect the exercise rights of the Warrantholders under
any provision of this Warrant, unless the adjustment necessary shall be agreed
upon by the Company and the Warrantholders, the Board of Directors of the
Company shall appoint a firm of independent certified public accountants of
recognized national standing (who have not been employed by the Company within
the last five years), acceptable to the Warrantholders, who at the Company's
expense shall give their opinion upon the adjustment, if any, on a basis
consistent with the standards established in the other provisions of this
Section 6, necessary with respect to the Exercise Price and the number of shares
purchasable upon exercise of the Warrants, so as to preserve, without dilution,
the exercise rights of the Warrantholders. Upon receipt of such opinion, such
Board of Directors shall forthwith make the adjustments described therein.
(f) Stock Splits and Reverse Splits. In case at any time the
Company shall subdivide its outstanding shares of Common Stock into a greater
number of shares, the Exercise price in effect immediately prior to such
subdivision shall be proportionately reduced and the number of shares of Common
Stock purchasable pursuant to this Warrant immediately prior to such subdivision
shall be proportionately increased, and conversely, in case at any time the
Company shall combine it outstanding shares of Common Stock into a smaller
number of shares, the Exercise Price in effect immediately prior to such
combination shall be proportionately increased and the number of shares of
Common Stock purchasable upon the exercise of this Warrant immediately prior to
such combination shall be proportionately reduced.
(g) Dissolution, Liquidation and Wind-Up. In case the Company
shall, at any time prior to the expiration of this Warrant, dissolve, liquidate
or wind up its affairs, the Warrantholders shall be entitled, upon the exercise
of this Warrant, to receive in lieu of the shares of Common Stock of the Company
which such Warrantholders would have been entitled to receive, the same kind and
amount of assets as would have been issued, distributed or paid to such
Warrantholders upon any such dissolution, liquidation or winding up with respect
to such shares of Common Stock of the Company, had such Warrantholders been the
holders of record of the Warrant Shares receivable upon the exercise of this
Warrant on the record date for the determination of those persons entitled to
receive any such liquidating
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distribution. After such dissolution, liquidation or winding up which shall
result in any cash distribution in excess of the Exercise Price provided for by
this Warrant, the Warrantholders may, at each such Warrantholder's option,
exercise the same without making payment of the Exercise Price, and in such case
the Company shall, upon the distribution to said Warrantholders, consider that
said Exercise Price has been paid in full to it and in making settlement to said
Warrantholders, shall deduct from the amount payable to such Warrantholders an
amount equal to such Exercise Price.
(h) Noncash Consideration. In case any Additional Shares of
Common Stock or Convertible Securities or any rights or options to purchase any
Additional Shares of Common Stock or Convertible Securities shall be issued for
a consideration in a form other than cash, the amount of such consideration
shall be deemed to be fair Value thereof.
(i) Accountants' Certificate. In each case of an adjustment in
the number of shares of Common Stock or other stock, securities or property
receivable on the exercise of the Warrants, the Company at its expense shall
cause independent public accountants of recognized standing selected by the
Company and acceptable to the Warrantholders to compute such adjustment in
accordance with the terms of this Warrant and prepare a certificate setting
forth such adjustment and showing in detail the facts upon which such adjustment
is based, including a statement of (a) the consideration received or to be
received by the Company for any Additional Shares of Common Stock, rights
options or Convertible Securities issued or sold or deemed to have been issued
or sold, (b) the number of shares of Common Stock of each class outstanding or
deemed to be outstanding, (c) the adjusted Exercise Price and (d) the number of
shares issuable upon exercise of this Warrant. The Company will forthwith mail a
copy of each such certificate to each Warrantholder.
7. Special Agreements of the Company.
(a) Reservation of Shares. The Company covenants and agrees
that all Warrant Shares will, upon issuance, be validly issued, fully paid and
nonassessable and free from all preemptive rights of any stockholder, and from
all taxes, liens and charges with respect to the issue thereof. The Company
further covenants and agrees that during the period within which the rights
represented by this Warrant may be exercised, the Company will at all times have
authorized, and reserved, a sufficient number of shares of Common Stock to
provide for the exercise of the rights represented by this Warrant. The Company
hereby covenants and agrees to take all such action as may be necessary to
assure that the par value per share of the Common Stock is at all times equal to
or less than the Exercise Price.
(b) Avoidance of Certain Actions. The Company will not, by
amendment of its Articles or Certificates of Incorporation or through any
reorganization, transfer of assets, consolidation, merger, issue or sale of
securities or otherwise, avoid or take any action which would have the effect of
avoiding 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 carrying out all of the provisions of this Warrant and in taking all of such
actions as may be necessary or appropriate in order to protect the rights of the
Warrantholders against dilution or other impairment of their rights hereunder.
(c) Securing Governmental Approvals. If any shares of Common
Stock required to be reserved for the purposes of exercise of this Warrant
require registration with or approval of any governmental authority under any
federal law (other than the Securities Act) or under any state law before such
shares may be issued upon exercise of this Warrant, the company will, at its
expense, as expeditiously as possible, cause such shares to be duly registered
or approved, as the case may be.
(d) Listing on Securities Exchanges: Registration. If,
and so long as, any class of the Company's Common Stock shall be listed on
any national securities exchange (as defined in the Exchange Act), the
Company will, at its expense, obtain and maintain the approval for listing
upon official notice of issuance of all Warrant Shares and maintain the
listing of Warrant Shares after their issuance; and the Company will so list
on such national securities exchange, will register under the Exchange Act
(or any similar statute then in effect), and will maintain such listing of,
any other securities that at any time are
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issuable upon exercise of this Warrant if and at the time any securities of the
same class shall be listed on such national securities exchange by the Company.
(e) Information Rights. So long as the Warrantholders hold
this Warrant and/or any of the Warrant Shares, the Company shall deliver to the
Warrantholders (i) promptly after mailing, copies of all communications to the
shareholders of the Company, (ii) within ninety (90) days after the end of each
fiscal year of the Company, the annual audited financial statements of the
Company certified by the independent public accountants of recognized standing,
and (iii) within forty-five (45) days after the end of each of the first three
quarters of each fiscal year, the Company's quarterly, unaudited financial
statements.
(f) Restrictions on Public Sale by the Company. The Company
will not effect any public or private sale or distribution of its convertible
debt or equity securities, including a sale pursuant to Regulation D under the
Securities Act, during the ten (10) day period prior to, and during the ninety
(90) day period beginning on, the closing date of each underwritten offering by
the Company made pursuant to a registration statement filed pursuant to Sections
11(a) or 11(b); and the Company shall cause each holder of its privately
placed convertible debt or equity securities issued by it at any time on or
after the date of this Warrant to agree not to effect any public sale or
distribution of any such securities during such period, including a sale
pursuant to Rule 144 or Rule 144A under the Securities Act.
(g) Preemptive Rights. In the event the Company offers to the
Company's shareholders the right to purchase any securities of the Company, then
all shares of Common Stock issuable pursuant to the Warrants shall be deemed to
be issued and outstanding and held by the Warrantholders and the Warrantholders
shall be entitled to participate in such rights offering.
(h) Compliance with Law. The Company shall comply with all
applicable laws, rules and regulations of the United States and of all states,
municipalities and agencies and of any other jurisdiction applicable to the
Company and shall-do all things necessary to preserve, renew and keep in full
force and effect and in good standing its corporate existence and authority
necessary to. continue its business.
8. 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 exercise hereof, the Company
shall pay to the Warrantholder an amount in cash equal to such fraction
multiplied by the Current Market Value of one share of Common Stock.
9. Notices of Stock Dividends, Subscriptions, Reclassifications,
Consolidations, Mergers, etc. If at any time: (i) the Company shall declare a
cash dividend (or an increase in the then existing dividend rate), or declare a
dividend on Common Stock payable otherwise than in cash out of its net earnings
after taxes for the prior fiscal year; or (ii) the Company shall authorize the
granting to the holders of Common Stock or rights to subscribe for or purchase
any shares of capital stock of any class or of any other rights; or (iii) there
shall be any capital reorganization, or reclassification, or redemption of the
capital stock of the Company, or consolidation or merger of the Company with, or
sale of all or substantially all of its assets to, another corporation or firm;
or (iv) there shall be a voluntary or involuntary dissolution, liquidation or
winding, up of the Company, then the Company shall give to the Warrantholders at
the addresses of such Warrantholders as shown on the books of the Company, at
least twenty (20) days prior to the applicable record date hereinafter
specified, a written notice summarizing such action or event and stating the
record date for any such dividend or rights (or, if a record date is not to be
selected, the date as of which the holders of Common Stock of record entitled to
such dividend or rights are to be determined), the date on which any such
reorganization, reclassification, consolidation, merger, sale of assets,
dissolution, liquidation or winding up is expected to become effective, and the
date as of which it is expected the holders of common Stock of record shall be
entitled to effect any exchange of their shares of Common Stock for cash (or
cash equivalent), securities or other property deliverable upon any such
reorganization, reclassification, consolidation, merger, sale of assets,
dissolution, liquidation or winding up.
10. Registered Holder-, Transfer of Warrants or Warrant Shares.
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(a) Maintenance of Registration Books; Ownership of this
Warrant. The Company shall keep at its principal office a register in which the
Company shall provide for the registration, transfer and exchange of this
Warrant. The Company shall not at any time, except upon the dissolution,
liquidation or winding-up of the Company, close such register so as to result in
preventing or delaying the exercise or transfer of this Warrant.
(b) Exchange and Replacement. This Warrant is exchangeable
upon surrender hereof by the registered holder to the Company at its principal
office for new Warrants of like tenor and date representing in the aggregate the
right to purchase the number of shares purchasable hereunder, each of such new
Warrants to represent the right to purchase such number of shares as shall be
designated by said registered holder at the time of surrender. This Warrant and
all rights hereunder are transferable in whole or in part upon the books of the
Company by the registered holder hereof in person or by duly authorized
attorney, and new Warrants shall be made and delivered by the Company, of the
same tenor and date as this Warrant but registered in the name of the
transferee(s), upon surrender of this Warrant, duly endorsed, to said office of
the Company. Upon receipt by the Company of evidence reasonably satisfactory to
it of the loss, theft, destruction or mutilation of this Warrant, and upon
surrender and cancellation of this Warrant, if mutilated, the Company will make
and deliver a new Warrant of like tenor, in lieu of this Warrant, without
requiring the posting of any bond or the giving, of any other security. This
Warrant shall be promptly canceled by the Company upon the surrender hereof in
connection with any exchange, or transfer or replacement. The Company shall pay
all expenses, taxes and other charges payable in connection with the
preparation, execution and delivery of Warrants pursuant to this Section 10.
(c) Warrants and Warrant Shares Not Registered. The holder of
this Warrant, by accepting this Warrant, represents and acknowledges that this
Warrant and the Warrant Shares are not being registered under the Securities Act
on the grounds that the issuance of this Warrant and the offering and sale of
such Warrant Shares are exempt from registration under Section 4(2) of the
Securities Act as not involving any public offering.
11. Registration.
(a) Required Registration. Whenever the Company shall receive
a written request therefor from any holder or holders of at least 10% of the
Registrable Stock, the Company shall promptly prepare and file a registration
statement under the Securities Act covering the Registrable Stock which is the
subject of such request and shall use its best efforts to cause such
registration statement to become effective as expeditiously as possible. Upon
the receipt of such request, the Company shall promptly give written notice to
all holders of Registrable Stock that such registration is to be effected. The
Company shall include in such registration statement such Registrable Stock for
which it has received written requests to register such shares by the holders
thereof within thirty (30) days after the effectiveness of the Company's written
notice to such other holders. Except as hereinafter expressly provided, without
the written consent of the holders of a majority of the shares of Registrable
Stock for which registration has been requested pursuant to this Section,
neither the Company nor any other holder of securities of the Company may
include securities in such registration.
(b) Incidental Registration. Each time the Company shall
determine to file a registration statement under the Securities Act (other than
on Form S-8 or Form SD-4) in connection with the proposed offer and sale for
money of any of its securities by it or by any of its security holders. the
Company will give written notice of its determination to all holders of
Registrable Stock. Upon the written request of a holder of any Registrable
Stock, the Company will cause such Registrable Stock, the holders of which have
so requested registration thereof, to be included in such registration
statement, all to the extent requisite to permit the sale or other disposition
by the prospective seller or sellers of the Registrable Stock to be so
registered in accordance with the terms of the proposed offering. If the
registration statement is to cover an underwritten distribution, the Company
shall use its best efforts to cause the Registrable Stock requested for
inclusion pursuant to this Section 11 (b) to be included in the underwriting on
the same terms and conditions as the securities otherwise being sold through the
underwriters. If, in the good faith judgment of the managing underwriter of such
public offering, the inclusion of all of the Registrable Stock requested to be
registered would materially and adversely affect the successful marketing of the
other
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shares proposed to be offered, then the amount of the Registrable Stock to be
included in the offering shall be reduced and the Registrable Stock and the
other shares to be offered shall participate in such offering as follows: the
shares to be sold by the Company, the Registrable Stock to be included in such
offering and the other shares of Common Stock to be included in such offering
shall each be reduced pro rata in proportion to the number of shares of Common
Stock proposed to be included in such offering by each holder of such shares and
by the Company,
(c) Registration Procedures. If and whenever the Company is
required by the provisions of Section 11(a) or 11(b) to effect the registration
of Registrable Stock under the Securities Act, the Company will, at its expense,
as expeditiously as possible:
(i) In accordance with the Securities Act and the
rules and regulations of the Commission, prepare and file with the commission a
registration statement on the form of registration statement appropriate with
respect to such securities and use its best efforts to cause such registration
statement to become and remain effective until the securities covered by such
registration statement have been sold, and prepare and file with the Commission
such amendments to such registration statement and supplements to the prospectus
contained therein as may be necessary to keep - such registration statement
effective and such registration statement and prospectus accurate and complete
until the securities covered by such registration statement have been sold;
(ii) If the offering is to be underwritten, in whole or
in part, enter into a written underwriting agreement with the holders of the
Registrable Stock participating in such offering and the underwriter in form and
substance reasonably satisfactory to the managing underwriter of the public
offering and the holders of the Registrable Stock participating in such
offering;
(iii) Furnish to the holders of securities participating
in such registration and to the underwriters of the securities being registered
such reasonable number of copies of the registration statement, preliminary
prospectus, final prospectus and such other documents as such underwriters and
holders may reasonably request in order to facilitate the public offering of
such securities;
(iv) Use its best efforts to register or qualify the
securities covered by such registration statement under such state securities or
blue sky laws of such jurisdictions as such participating holders and
underwriters may reasonably request;
(v) Notify the holders participating in such
registration, promptly after it shall receive notice thereof, of the date and
time when such registration statement and each post-effective amendment thereto
has become effective or a supplement to any prospectus forming a part of such
registration statement has been filed;
(vi) Notify such holders promptly of any request by the
Commission for the amending or supplementing of such registration statement
or prospectus or for additional information;
(vii) Prepare and file with the Commission, promptly
upon the request of any such holders, any amendments or supplements to such
registration statement or prospectus which, in the opinion of counsel for such
holders, is required under the Securities Act or the rules and regulations
thereunder in connection with the distribution of the Registrable Stock by such
holders;
(viii) Prepare and promptly file with the Commission,
and promptly notify such holders of the filing of, such amendments or
supplements to such registration statement or prospectus as may be necessary to
correct any statements or omissions if, at the time when a prospectus relating
to such securities is required to be delivered under the Securities Act, any
event has occurred as the result of which any such prospectus or any other
prospectus as then in effect may include an untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary to
make the statements therein not misleading;
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(ix) In case any of such holders or any underwriter for
any such holders is required to deliver a prospectus at a time when the
prospectus then in circulation is not in compliance with the Securities Act or
the rules and regulations of the Commission, prepare promptly upon request such
amendments or supplements to such registration statement and such prospectus as
may be necessary in order for such prospectus to comply with the requirements of
the Securities Act and such rules and regulations;
(x) Advise such holders, promptly after it shall
receive notice or obtain knowledge thereof, of the issuance of any stop order by
the Commission suspending the effectiveness of such registration statement or
the initiation or threatening of any proceeding for that purpose and promptly
use its best efforts to prevent the issuance of any stop order or to obtain its
withdrawal if such stop order should be issued;
(xi) If requested by the managing underwriter or
underwriters or a holder of Registrable Stock being sold in connection with an
underwritten offering, immediately incorporate in a prospectus supplement or
post-effective amendment such information as the managing underwriters and the
holders of a majority of the Registrable Stock being sold agree should be
included therein relating, to the plan of distribution with respect to such
Registrable Stock, including information with respect to the Registrable Stock
being sold to such underwriters, the purchase price being paid therefor by such
underwriters and with respect to any other tens of the underwritten (or best
efforts underwritten) offering of the Registrable Stock to be sold in such
offering; and make all required filings of such prospectus supplement or
post-effective amendment as soon as notified of the matters to be incorporated
in such prospectus supplement or post-effective amendment;
(xii) Cooperate with the selling holders of Registrable
Stock and the managing underwriters, if any, to facilitate the timely
preparation and delivery of certificates representing Registrable Stock to be
sold and not bearing any restrictive legends; and enable such Registrable Stock
to be in such denominations and registered in such names as the managing
underwriters may request at least two business days prior to any sale of
Registrable Securities to the under-writers;
(xiii) Prepare a prospectus supplement or
post-effective amendment to the registration statement or the related prospectus
or any document incorporated therein by reference or file any other required
documents so that, as thereafter delivered to the purchasers of the Registrable
Stock, the prospectus will not contain an untrue statement of material fact or
omit to state any material fact necessary to make the statements therein not
misleading;
(xiv) Enter into such agreements (including an
underwriting agreement) and take all such other actions in connection therewith
in order to expedite or facilitate the disposition of such Registrable
Securities and in such connection, whether or not an underwriting agreement is
entered into and whether or not the registration is an underwritten
registration:
(A) make such representations and
warranties to the holders of such Registrable Stock and the underwriters, if
any, in form, substance and scope as are customarily made by issuers to
underwriters in primary underwritten offerings;
(B) If an underwriting agreement is
entered into, the same shall set forth in full the indemnification provisions
and procedures of Section 11(e) hereof with respect to all parties to be
indemnified pursuant to said Section; and
(C) The Company shall deliver such
documents and certificates as may be requested by the holders of the majority of
the Registrable Stock being sold and the managing underwriters, if any, to
evidence compliance with the terms of this Section 11 (c) and with any customary
conditions contained in the underwriting agreement or other agreement entered
into by the Company.
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The above shall be done at each closing under such underwriting or similar
agreement or as and to the extent required thereunder;
(xv) Make available for inspection by a representative
of the holders of a majority of the Registrable Stock, any underwriter
participating in any disposition pursuant to a registration statement, and any
attorney or accountant retained by the sellers or underwriter, all financial and
other records, pertinent corporate documents and properties of the Company, and
cause the Company's officers, directors and employees to supply all information
reasonably requested by any such representative, underwriter, attorney or
accountant in connection with the preparation of the registration statement;
provided, that any records, information or documents that are designated by the
Company in writing as confidential shall be kept confidential by such persons
unless disclosure of such records, information or documents is required by court
or administrative order;
(xvi) Otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission, and make generally available
to the Company's security holders, earning statements satisfying the provisions
of Section 11 (a) of the Securities Act, no later ' than forty-five (45) days
after the end of any twelve (12) month period (or ninety (90) days, if such a
period is a fiscal year) (i) commencing at the end of any fiscal quarter in
which Registrable Stock is sold to underwriters in an underwritten offering, or,
if not sold to underwriters in such an offering, (ii) beginning with the first
month of the Company's first fiscal quarter commencing after the effective date
of a registration statement;
(xvii) Not file any amendment or supplement to such
registration statement or prospectus to which a majority in interest of such
holders has objected on the grounds that such amendment or supplement does not
comply in all material respects with the requirements of the Securities Act or
the rules and regulations thereunder, after having been furnished with a copy
thereof at least five (5) business days prior to the filing thereof, provided,
however, that the failure of such holders or their counsel to review or object
to any amendment or supplement to such registration statement or prospectus
shall not affect the rights of such holders or any controlling person or persons
thereof or any underwriter or underwriters therefor under Section I I (e)
hereof; and
(xviii) At the request of any such holder (i) furnish
to such holder on the effective date of the registration statement or , if such
registration includes an underwritten public offering, at the closing provided
for in the underwriting agreement, an opinion, dated such date, of the counsel
representing the Company for the purposes of such registration, addressed to the
underwriters, if any, and to the holder or holders making such request, covering
such matters with respect to the registration statement, the prospectus and each
amendment or supplement thereto, proceedings under state and federal securities
laws, other matters relating to the Company, the securities being registered and
the offer and sale of such securities as are customarily the subject of opinions
of issuer's counsel provided to underwriters in underwritten public offerings,
and such opinion of counsel shall additionally cover such legal and factual
matters with respect to the registration as such requesting holder or holders
may reasonably request, and (ii) use its best effort to furnish to such holder
letters dated each such effective date and such closing date, from the
independent certified public accountants of the Company, addressed to the
underwriters, if any, and to the holder or holders making such request, stating
that they are independent certified public accountants within the meaning, of
the Securities act and dealing with such matters as the underwriters may
request, or, if the offering is not underwritten, that in the opinion of such
accountants the financial statements and other financial data of the Company
included in the registration statement or the prospectus or any amendment or
supplement thereto comply in all material respects with the applicable
accounting requirements of the Securities Act, and additionally covering such
other financial matters, including information as to the period ending
immediately prior to the date of such letter with respect to the registration
statement and prospectus, as such requesting holder or holders may reasonably
request.
(d) Expenses of Registration. All expenses incident to the
Company's performance of or compliance with this Warrant, including, without
limitation, the following shall be borne by the Company, regardless of whether
the registration statement becomes effective:
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(i) All registration and filing fees (including those
with respect to filings required to be made with the National Association of
Securities Dealers, Inc.);
(ii) Fees and expenses of compliance with all
securities or blue sky laws (including fees and disbursements of counsel for the
underwriters or selling holders in connection with blue sky qualifications of
the Registerable Stock and in determination of their eligibility for investment
under the laws of such jurisdictions as the managing underwriters or holders of
a majority of the Registerable Stock being sold may designate);
(iii) Printing, messenger, telephone and delivery
expenses;
(iv) Fees and disbursements of counsel for the Company,
the underwriters and for the sellers of the Registerable Stock as hereinafter
provided;
(v) Fees and disbursements of all independent
certified public accountants of the Company (including the expenses of any
special audit and "comfort" letters required by or incident to such
performance);
(vi) Fees and disbursements of underwriters (excluding
discounts, commissions or fees of underwriters, selling brokers, dealer managers
or similar securities industry professionals relating to the distribution of the
Registerable Stock or legal expenses of any person other than the Company and
the selling holders); and
(vii) Fees and expenses of other person retained by the
Company.
The Company will, in any event, pay its internal expenses (including
without limitation, all salaries and expenses of its officers and employees
performing legal or accounting duties), the expense of any annual audit, the
fees and expenses incurred in connection with the listing of the securities to
be registered on each securities exchange on which similar securities issued by
the Company are then listed, rating agency fees and the fees and expenses of any
person, including special experts, retained by the Company.
In connection with the registration statement required hereunder,
the Company will reimburse the holders of Registerable Stock being registered
pursuant to the registration statement for the reasonable fees and disbursements
of not more than one counsel (or more than one counsel if conflict exists among
such selling holders in the exercise of the reasonable judgment of counsel for
the selling holders and counsel for the Company) chosen by the holders of a
majority of such Registerable Stock.
(e) Indemnification.
(i) The Company hereby agrees to indemnify each of the
holders of Registrable Stock in connection with a registration of any of the
securities purchased upon exercise of the Warrants against all claims, losses,
damages and liabilities (or actions in respect thereof) arising out of or based
on any untrue statement (or alleged untrue statement) of a material fact
contained in any registration statement, preliminary or final prospectus, or
other document incident to any registration, qualification or compliance (or in
any related registration statement, notification or the like) or any omission
(or alleged omission) to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, or any
violation by the Company of any rule or regulation promulgated under the
Securities Act applicable to the Company and relating to action or inaction
required of the Company in connection with any such registration, qualification
or compliance, and to reimburse holders of Registrable Stock (including officers
and directors of the same and controlling persons) for any legal and other
expenses reasonably incurred in connection with investigating or defending any
such claim, loss, damage, liability or action, provided, however that the
Company will not be liable in any such case to the extent that any such claim,
loss, damage or liability arises out of or is based on any untrue statement or
omission based
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upon written information furnished to the Company by Warrantholders in an
instrument duly executed by Warrantholders and stated to be specifically for use
therein.
(ii) The Warrantholders severally and not jointly agree
to indemnify the Company and its officers and directors and each person, if any,
who controls any thereof within the meaning of Section 15 of the Securities Act
and their respective successors against all claims, losses damages and
liabilities (or actions in respect thereof) arising out of or based on any
untrue statement of a material fact contained in any prospectus, offering
circular or other document incident to any registration, qualification or
compliance relating to securities purchased pursuant to the Warrants (or in any
related registration statement, notification or the like) or any omission (or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading and will reimburse
the Company and each other person indemnified pursuant to this subsection (ii)
for any legal and any other expenses reasonably incurred in connection with
investigating or defending any such claim, loss damage, liability or action;
provided, however, that this subsection (ii) shall apply only if (and only to
the extent that) such statement or omission was made in reliance upon
information (including, without limitation, written negative responses to
inquiries) furnished to the Company by an instrument duly executed by
Warrantholders and stated to be specifically for use in such prospectus, or
other document (or related registration statement, notification or the like) or
any amendment or supplement thereto.
(iii) Each party entitled to indemnification hereunder
(the "Indemnified party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party (at such Indemnifying Party's expense) to assume
the defense of any claim or any litigation resulting therefrom, provided that
counsel for the Indemnifying Party, who shall conduct the defense of such claim
or litigation, shall be satisfactory to the Indemnified Party, and the
Indemnified Party may participate in such defense at such party's expense, and
provided, further, that the omission by any Indemnified Party to give notice as
provided herein shall not relieve the Indemnifying Party of its obligations
under this Section 11 (e) except to the extent that the omission results in a
failure of actual notice to the Indemnifying Party and such Indemnifying party
is materially damaged solely as a result of the failure to give notice. No
Indemnifying Party, in the defense of any such claim or litigation, shall,
except with the consent of each Indemnified Party, consent to entry of any
judgment or enter into any settlement which does not include as an unconditional
term thereof the giving by the claimant or plaintiff to such Indemnified Party
of a release from all liability in respect in respect to such claim or
litigation.
(iv) If the indemnification provided for in this
Section 11(e) is unavailable or insufficient to hold harmless an Indemnified
Party in respect of any losses, claims, damages, liabilities, expenses or
actions in respect thereof referred to herein, then the Indemnifying Party shall
contribute to the amount paid or payable by such Indemnified Party as a result
of such losses, claims, damages, liabilities, expenses or actions in such
proportion as is appropriate to reflect the relative fault of the Indemnifying
Party on the one hand, and the Indemnified Party on the other, in connection
with the statements or omissions which resulted in such losses, claims, damages,
liabilities, expenses or actions as well as any other relevant equitable
considerations, including the failure to give the notice required hereunder. The
relative fault of the Indemnifying Party and the Indemnified Party shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact relates to information supplied by the
Indemnifying Party or the Indemnified Party and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The Company and the Warrantholders agree that it would
not be just and equitable if contributions pursuant to this Section 11(e) were
determined by pro rata allocation or by any other method of allocation which did
not take account of the equitable considerations referred to above. The amount
paid or payable to an Indemnified Party as a result of the losses, claims,
damages, liabilities or actions in respect thereof, referred to above, shall be
deemed to include any legal or other expenses reasonably incurred by such
Indemnified Party in connection with investigating or defending any such action
or claim. Notwithstanding the contribution provisions of this Section 11(e), in
no event shall the amount contributed by any seller of Registrable Stock exceed
the aggregate net offering proceeds received by such seller from the sale of
Registrable Stock to-which such contribution or indemnification claim relates.
No person guilty of
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fraudulent misrepresentation (within the meaning of Section 11 (f) of the
Securities Act) shall be entitled to contribution from any person who is not
guilty of such fraudulent misrepresentation.
(v) The indemnification required by this Section I I
(e) shall be made by periodic payments during the course of the investigation or
defense, as and when the bills are received or expenses incurred. Anything
contained herein to the contrary notwithstanding, the liability of any holder of
Registrable Stock under this Section 11 (e) shall not exceed the amount of the
net proceeds actually received by such holder from the sale of its Registrable
Stock pursuant to the registration, qualification, notification or compliance in
respect of which such liability arose.
(f) Reporting Requirements Under Exchange Act. The Company
shall maintain the registration of its Common Stock under Section 12 of the
Exchange Act and shall keep effective such registration and shall timely file
such information, documents and reports as the Commission may require or
prescribe under Section 13 of the Exchange Act, or other-wise. From and after
the effective date of the first registration statement filed by the Company
under the Securities act, the Company shall (whether or not it shall then be
required to do so) timely file such information, documents and reports as the
Commission may require or prescribe under Section 13 or 15(d) (whichever is
applicable) of the Exchange Act. Immediately upon becoming subject to the
reporting requirements of either Section 13 or 15 (d) of the Exchange Act, the
Company shall forthwith upon request furnish any holder of Registrable Stock (i)
a written statement by the Company that it has complied with such reporting
requirements, (ii) a copy of the most recent annual or quarterly report of the
Company, and (iii) such other reports and documents filed by the Company with
the Commission as such holder may reasonably request in availing itself of an
exemption for the sale of Registrable Stock without registration under the
Securities Act. The Company acknowledges and agrees that the purpose of the
requirements contained in this Section 11(f) is to enable any such holder to
comply with the current public information requirement contained in Rule 144
under the Securities Act should such holder ever wish to dispose of any of the
securities of the Company acquired by it without registration under the
Securities Act in reliance upon Rule 144 (or any other similar exemptive
provision). In addition, the Company shall take such other measures and file
such other information, documents and reports as shall hereafter be required by
the Commission as a condition to the availability of Rule 144 and Rule 144A
under the Securities Act (or any similar exemptive provision hereafter in
effect).
(g) Stockholder Information. The Company may require each
holder of Registrable Stock as to which any registration is to be effected
pursuant to this Section 11 to furnish the Company such information with respect
to such holder and the distribution of such Registrable Stock as shall be
required by law or by the Commission in connection therewith.
12. Representation and Warranties. The Company hereby
represents and warrants to and covenants with each Warrantholder, and each
holder of Warrant Shares that:
(a) Organization and Capitalization of the Company. The
Company is a corporation duly organized, validly existing and in good standing
under the laws of the State of California. As of the date hereof, the authorized
capital of the Company consists of __________ shares of Common Stock and
__________ shares of Preferred Stock, of which __________ shares of Common Stock
and __________ shares of Preferred Stock are issued and outstanding. The Company
has, and at all time during the Exercise Period will have, reserved for issuance
pursuant to the Warrants that number of shares of Common Stock that are issuable
pursuant to the Warrants. No unissued shares of Common Stock are reserved for
any purpose other than for issuance upon the exercise of the Warrants. As of the
date hereof, the Company has not issued or agreed to issue any stock purchase
rights, options, convertible securities, warrants (other than this Warrant) or
any other securities or indebtedness convertible into shares of Common Stock,
and there are no preemptive rights in effect with respect to the issuance of any
shares of Common Stock. All the outstanding shares of Common Stock and Preferred
Stock have been validly issued without violation of any preemptive or similar
rights, are fully paid and nonassessible and have been issued in compliance with
all federal and applicable state securities laws.
(b) Authority. The Company has full corporate power and
authority to execute and deliver this Warrant, to issue the shares of Common
Stock issuable upon exercise of this Warrant, and
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to perform all of its obligations hereunder, and the execution, delivery and
performance hereof has been duly authorized by all necessary corporate action on
its part. This Warrant has been duly executed on behalf of the Company and
constitutes the legal, valid and binding obligation of the Company enforceable
in accordance with its term.
(c) No Legal Bar. Neither the execution, delivery or
performance of this Warrant nor the issuance of shares of Common Stock issuable
upon exercise of this Warrant will (a) conflict with or result in a violation of
the Certificate of Incorporation or By-Laws of the Company, (b) conflict with or
result in a violation of any law, statute, regulation, order or decree
applicable to the Company or any affiliate, (c) require any consent or
authorization or filing with, or other act by or in respect of any governmental
authority or (d) result in a breach of, constitute a default under or
constitute an event creating rights of acceleration, termination or cancellation
under any mortgage, lease, contract, franchise, instrument or other agreement to
which the Company is a party or by which it is bound.
(d) Validity of Shares. When issued upon the exercise of this
Warrant as contemplated herein, the shares of Common stock so issued will have
been validly issued and will be fully paid and nonassessable. On the date
hereof, the par value of the Common Stock is less than the Exercise Price per
share of Common Stock.
13. Continuing Validity. A holder of Warrant Shares shall continue
to be entitled to all rights to which a Warrantholder is entitled pursuant to
the provisions of this Warrant except such rights as by their terms apply solely
to a Warrantholder, notwithstanding the fact that this Warrant has been
exercised or the period of exercisability has expired. The Company will, at any
time upon the request of the holder of the Warrant Shares, acknowledge in
writing, in form reasonably satisfactory to such holder, the Company's
continuing obligation to afford such holder all rights to which such holder
shall continue to be entitled in accordance with the provisions of this Warrant;
provide, however, that if such holder shall fail to make any such request, such
failure shall not affect the continuing obligation of the Company to afford to
such holder all such rights.
14. Miscellaneous Provisions.
(a) Notice of Expiration. The Company shall give written
notice to the Warrantholders specifically advising them of the Expiration Date
and of their right to exercise the warrants not more than one hundred eighty
(180) days and not less than ninety (90) days before the Expiration Date. If
such written notice is not so given, the Expiration Date shall automatically be
extended until (90) days after the date that the Company gives the
Warrantholders such written notice.
(b) Governing Law, Venue and Waiver of Jury Trial. This
Warrant shall be deemed to have been made in the State of California and the
validity this warrant, the construction, interpretation, and enforcement
thereof, and the rights of the parties thereto shall be determined under,
governed by, and construed in accordance with the internal laws of the State of
California, without regard to principles of conflicts of law. The parties agree
that all actions or proceedings arising in connection with this Warrant shall be
tried and litigated only in the state or federal courts located in the County of
Los Angeles, State of California or, at the sole option of a Warrantholder, in
any other court in which a Warrantholder shall initiate legal or equitable
proceedings and which has the subject matter jurisdiction over the matter in
controversy. The Warrantholders and the Company each waive the right to trial by
jury and any right each may have to assert the doctrine of forum non conveniens
or to object to the extent any proceeding is brought in accordance with this
Section 14(b). Service of process, sufficient for personal jurisdiction in any
action against the Company, may be made by registered or certified mail, return
receipt requested, to its address indicated in Section 14(c).
(c) Notices. All notices hereunder shall be in writing and
shall be deemed to have been given five (5) days after being mailed by certified
mail, addressed to the address below stated of the party to which notice is
given, or to such changed address as such party may have fixed by notice:
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To the Company: Commonwealth Energy Corp.
15901 Red Hill, Ste. 100
Tustin, CA 92870
Attention: John A. Barthrop, Esq.
To the Warrantholders
or holder of Warrant
Shares: Coast Business Credit
a division of Southern Pacific Bank
12121 Wilshire Boulevard
Suite 1400
Los Angeles, California 90025
Attention: Portfolio Manager
With a copy (which
shall not constitute
notice to: Law Offices of Clay Lorinsky
12424 Wilshire Blvd.
Suite 1200
Los Angeles, California 90025
provided, however, that any notice of change of address shall be effective only
upon receipt.
(d) Successors and Assigns. This Warrant shall be binding upon
and inure to the benefit of the Company, the Warrantholders and the holders of
warrant Shares and the successors, assigns and transferees of the Company, the
Warrantholders and the holders of Warrant Shares.
(e) Attorneys' Fees. The Company agrees to pay, on demand, all
attorneys' fees (including attorneys' fees incurred pursuant to proceedings
arising under the Bankruptcy Code) and all other costs and expenses which may be
incurred by the Warrantholders and the holders of Warrant Shares in connection
with any amendment to this Warrant and/or in connection with the enforcement of
this Warrant, whether or not suit is brought.
(f) Entire Agreement: Amendments and Waivers. This Warrant
sets forth the entire understanding of the parties with respect to the
transactions contemplated hereby. The failure of any party to seek redress for
the violation or to insist upon the strict performance of any term of this
Warrant shall not constitute a waiver of such term and such party shall be
entitled to enforce such term without regard to such forbearance. This Warrant
may be amended, the Company may take any action herein prohibited or omit to
take any action herein required to be performed by it, and any breach of or
compliance with any covenant, agreement, warranty or representation may be
waived, only if the Company has obtained the written consent or written waiver
of the majority in interest of the Warrantholders, and then such consent or
waiver shall be effective only in the specific instance and for the specific
purpose for which given.
(g) Severability. If any term of this Warrant as applied to
any person or to any circumstance is prohibited, void, invalid or unenforceable
in any jurisdiction, such term shall, as to such jurisdiction, be ineffective to
the extent of such prohibition or invalidity without in any way affecting any
other term of this Warrant or affecting the validity or enforceablity of this
Warrant or of such provision in any other jurisdiction.
(h) Headings. The headings in this Warrant are inserted
only for convenience of reference and shall not be used in the construction
of any of its terms.
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IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its duly authorized officers effective as of the date first set forth above.
COMMONWEALTH ENERGY CORPORATION
By: /s/ James L. Oliver
----------------------------------
Name: James L. Oliver
Title: Chief Financial Officer
And by: /s/ John A. Barthrop
-------------------------------
Name: John Barthrop
Title: Secretary
Signature page to Warrant
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