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EXHIBIT 10.37
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED OR ANY STATE SECURITIES LAWS. NO SALE OR DISPOSITION MAY BE
EFFECTED WITHOUT (i) AN EFFECTIVE REGISTRATION STATEMENT RELATED
THERETO, (ii) AN OPINION OF COUNSEL FOR THE HOLDER, REASONABLY
SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION IS NOT REQUIRED,
(iii) RECEIPT OF A NO-ACTION LETTER(S) FROM THE APPROPRIATE
GOVERNMENTAL AUTHORITY(IES), OR (iv) OTHERWISE COMPLYING WITH THE
PROVISIONS OF SECTION 7 OF THIS WARRANT.
GRAPHIX ZONE, INC.
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WARRANT TO PURCHASE SHARES
OF COMMON STOCK (this "Warrant")
GRAPHIX ZONE, INC., a Delaware corporation (the "Company"), hereby
certifies that, for value received, Madeleine L.L.C., a New York limited
liability company ("Madeleine"), or registered assigns, is the registered holder
of warrants (the "Warrants") to subscribe for and purchase the Initial Amount
(as defined below) of shares of the fully paid and nonassessable Common Stock
(as adjusted pursuant to the second paragraph hereof and Section 4 hereof, the
"Shares") of the Company, at the price equal to the lowest of (i) $0.2366 per
share, (ii) the lower of (a) the fair market value of the Common Stock as
determined pursuant to Section 4 hereof or (b) $1.00 per share, as of the
effective date (the "S-4 Date") of the Company's filing of a registration
statement on Form S-4, or such other form, if in connection with a merger or
consolidation involving the Company, with the Securities and Exchange Commission
(the "Filing Event"), or (iii) the fair market value of the Common Stock as
determined pursuant to Section 4 hereof as of the date the Warrants are
exercised (or converted pursuant to Section 10.3(b) hereof) (such price and such
other price as shall result, from time to time, from the adjustments specified
in Section 4 hereof is herein referred to as the "Warrant Price"), subject to
the provisions and upon the terms and conditions hereinafter set forth. As used
herein, (a) the term "Common Stock" shall mean the Company's presently
authorized Common Stock, $0.01 par value per share, and any stock into or for
which such Common Stock may hereafter be converted or exchanged, (b) the term
"Date of Grant" shall mean June 5, 1997, (c) the term "Warrant Percentage" shall
mean the quotient of 1,250,000 divided by 1,500,000, (d) the term "Other
Warrants" shall mean any warrant issued upon transfer or partial exercise of
this Warrant, and (e) the term "Warrant #3" shall have the meaning of such term
as set forth in the Amendment (defined below) and shall be deemed to include any
warrant issued upon transfer or partial exercise of Warrant #3. The terms
"Warrant" and "this Warrant" as used herein shall be deemed to include Other
Warrants, and the term "Shares" shall be deemed to include shares of the Common
Stock of the Company to be issued upon exercise of Other Warrants, unless the
context hereof or thereof clearly requires otherwise. Solely for the purposes of
Section 9 hereof, the terms "Warrant" and "this Warrant" shall also be deemed to
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include Warrant #3 and the term "Shares" shall also be deemed to include shares
of the Common Stock of the Company to be issued upon exercise of Warrant #3,
unless the context hereof or thereof clearly requires otherwise.
As of the Date of Grant, the "Initial Amount" shall be an amount equal
to such number of shares of Common Stock as would, if issued on the Date of
Grant, equal the Warrant Percentage multiplied by product of (i) the quotient of
thirty percent (30%) divided by seventy percent (70%) and (ii) the outstanding
Common Stock of the Company immediately prior to such issuance (calculated on a
fully diluted basis as described below). If the Company, during the ninety (90)
day period beginning on the Date of Grant (the "Restructuring Period"), effects
the Series B Stock Exchange Transaction or Series C Stock Exchange Transaction,
as such terms are defined in that certain Consent and Amendment Number Two to
Loan and Security Agreement (the "Amendment") entered into as of June 5, 1997 by
and between Madeleine and the Company, or the stock option and warrant reduction
plan of the Company (by which certain stock options and warrants of the Company
set forth on Exhibit B hereto will be exchanged for other securities of the
Company), (each, a "Transaction"), whereby the outstanding Common Stock of the
Company (calculated on a fully diluted basis) decreases in connection with such
a Transaction (net of any increases pursuant to such Transaction), then the
number of Shares to be issued upon exercise or conversion of this Warrant shall
be decreased by an amount equal to such number of shares of Common Stock (the
"Decreased Amount") as would equal the Warrant Percentage multiplied by the
product of (i) the amount by which the number of shares of outstanding Common
Stock of the Company (calculated on a fully diluted basis) are reduced as a
result of the Transaction (net of any increases pursuant to such Transaction and
without regard to the corresponding reduction in the number of (A) Shares for
which the Warrant is exercisable and (B) shares of Common Stock for which
Warrant #3 is exercisable) and (ii) the quotient of thirty percent (30%) divided
by seventy percent (70%). For all purposes of this paragraph, when determining
the number of outstanding shares of Common Stock calculated on a fully diluted
basis, the maximum number of shares of Common Stock which a holder of any
rights, options, warrants or convertible or exchangeable securities shall be
entitled to subscribe for or purchase shall be deemed to be issued and
outstanding excluding the number of Shares for which the Warrant is exercisable.
Adjustments described in this paragraph shall be made successively. Section 1 of
this Warrant notwithstanding, this Warrant may not be exercised, in whole or
part, during the Restructuring Period. Any adjustment, pursuant to the terms of
this paragraph, to the number of Shares to be issued upon exercise or conversion
of the Warrant are to be made in addition to any adjustments to such number of
Shares as are required pursuant to, and in the order described in, Section 4
hereof.
1. Term. The purchase right represented by this Warrant is exercisable,
in whole or in part, at any time and from time to time from the Date of Grant
through and including the third anniversary thereof.
2. Method of Exercise; Payment; Issuance of New Warrant. Subject to
Section 1 hereof, the purchase right represented by this Warrant may be
exercised by the holder hereof, in whole or in part and from time to time, by
the surrender of this Warrant (with the notice of exercise form attached hereto
as Exhibit A duly executed) at the principal office of the Company and by the
payment to the Company of an amount equal to the then applicable Warrant
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Price multiplied by the number of Shares then being purchased. The person or
persons in whose name(s) any certificate(s) representing shares of Common Stock
shall be issuable upon exercise of this Warrant shall be deemed to have become
the holder(s) of record of, and shall be treated for all purposes as the record
holder(s) of, the shares represented thereby (and such shares shall be deemed to
have been issued) immediately prior to the close of business on the date or
dates upon which this Warrant is exercised. In the event of any exercise of the
rights represented by this Warrant, certificates for the shares of stock so
purchased shall be delivered to the holder hereof as soon as possible and in any
event within thirty (30) days after such exercise and, unless this Warrant has
been fully exercised or expired, a new Warrant representing the portion of the
Shares, if any, with respect to which this Warrant shall not then have been
exercised shall also be issued to the holder hereof as soon as possible and in
any event within such thirty-day period.
3. Stock Fully Paid; Reservation of Shares. All Shares that may be
issued upon the exercise of the rights represented by this Warrant will, upon
issuance pursuant to the terms and conditions herein, be fully paid and
nonassessable, and free from all taxes, liens, charges, and pre-emptive rights
with respect to the issue thereof. The Company shall pay all transfer taxes, if
any, attributable to the issuance of Shares upon the exercise of the Warrants.
During the period within which the rights represented by this Warrant may be
exercised, the Company will at all times have authorized, and reserved for the
purpose of the issue upon exercise of the purchase rights evidenced by this
Warrant, a sufficient number of shares of its Common Stock to provide for the
exercise of the rights represented by this Warrant.
4. Adjustment of Warrant Price and Number of Shares. The number and
kind of securities purchasable upon the exercise of this Warrant and the Warrant
Price shall be subject to adjustment from time to time upon the occurrence of
certain events, as follows:
a. Reclassification or Merger. In case of any
reclassification, change or conversion of securities of the class issuable upon
exercise of this Warrant (other than a change in par value, or from par value to
no par value, or from no par value to par value, or as a result of a subdivision
or combination), or in case of any merger of the Company with or into another
corporation (other than a merger with another corporation in which the Company
is the acquiring and the surviving corporation and which does not result in any
reclassification or change of outstanding securities issuable upon exercise of
this Warrant), or in case of any sale of all or substantially all of the assets
of the Company, the Company, or such successor or purchasing corporation, as the
case may be, shall duly execute and deliver to the holder of this Warrant a new
Warrant (in form and substance satisfactory to the holder of this Warrant), so
that the holder of this Warrant shall have the right to receive, at a total
purchase price not to exceed that payable or to be payable upon the exercise of
the unexercised portion of this Warrant, and in lieu of the shares of Common
Stock theretofore issuable upon exercise of the unexercised portion of this
Warrant, the kind and amount of shares of stock, other securities, money and
property receivable upon such reclassification, change or merger by a holder of
the number of shares of Common Stock then purchasable under this Warrant. Such
new Warrant shall provide for adjustments that shall be as nearly equivalent as
may be practicable to the adjustments provided for in this Section 4. The
provisions of this subparagraph (a) shall similarly apply to successive
reclassifications, changes, mergers and transfers.
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b. Subdivision or Combination of Shares. If the Company at any
time while this Warrant remains outstanding and unexpired shall subdivide or
combine its outstanding shares of Common Stock, the Warrant Price shall be
proportionately decreased in the case of a subdivision or increased in the case
of a combination, effective at the close of business on the date the subdivision
or combination becomes effective.
c. Stock Dividends and Other Distributions. If the Company at
any time while this Warrant is outstanding and unexpired shall (i) pay a
dividend with respect to Common Stock payable in Common Stock, or (ii) make any
other distribution with respect to Common Stock (except any distribution
specifically provided for in the foregoing sub-paragraphs (a) and (b)) of Common
Stock, then the Warrant Price shall be adjusted, from and after the date of
determination of shareholders entitled to receive such dividend or distribution,
to that price determined by multiplying the Warrant Price in effect immediately
prior to such date of determination by a fraction (i) the numerator of which
shall be the total number of shares of Common Stock outstanding immediately
prior to such dividend or distribution, and (ii) the denominator of which shall
be the total number of shares of Common Stock outstanding immediately after such
dividend or distribution.
d. Rights Offerings. In case the Company shall issue rights,
options or warrants to any person or persons who are at the time of such
issuance the holders of equity securities of the Company, entitling them to
subscribe for or purchase shares of Common Stock (or securities convertible or
exchangeable into Common Stock) at a price per share of Common Stock (or having
a conversion or exchange price per share of Common Stock if a security
convertible or exchangeable into Common Stock) less than the fair market value
per share of Common Stock on the record date for such issuance (or the date of
issuance, if there is no record date), the Warrant Price to be in effect on and
after such record date (or issuance date, as the case may be) shall be
determined by multiplying the Warrant Price in effect immediately prior to such
record date (or issuance date, as the case may be) by a fraction (i) the
numerator of which shall be the number of shares of Common Stock outstanding on
such record date (or issuance date, as the case may be) plus the number of
shares of Common Stock which the aggregate offering price of the total number of
shares of such Common Stock so to be offered (or the aggregate initial exchange
or conversion price of the exchangeable or convertible securities so to be
offered) would purchase at such fair market value on such record date (or
issuance date, as the case may be) and (ii) the denominator of which shall be
the number of shares of Common Stock outstanding on such record date (or
issuance date, as the case may be) plus the number of additional shares of
Common Stock to be offered for subscription or purchase (or into which the
convertible securities to be offered are initially exchangeable or convertible).
In case such subscription price may be paid in part or in whole in a form other
than cash, the fair value of such consideration shall be determined by the Board
of Directors of the Company in good faith as set forth in a duly adopted board
resolution certified by the Company's Secretary or Assistant Secretary. Such
adjustment shall be made successively whenever such an issuance occurs; and in
the event that such rights, options, warrants, or convertible or exchangeable
securities are not so issued or expire or cease to be convertible or
exchangeable before they are exercised, converted, or exchanged (as the case may
be), then the Warrant Price shall again be adjusted to be the Warrant Price that
would then be in effect if such issuance had
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not occurred, but such subsequent adjustment shall not affect the number of
Shares issued upon any exercise of Warrants prior to the date such subsequent
adjustment is made.
e. Special Distributions. In case the Company shall fix a
record date for the making of a distribution to all holders of shares of Common
Stock (including any such distribution made in connection with a consolidation
or merger in which the Company is the surviving corporation) of evidences of
indebtedness or assets (other than dividends and distributions referred to in
subparagraphs (b) and (c) above and other than cash dividends) or of
subscription rights, options, warrants, or exchangeable or convertible
securities containing the right to subscribe for or purchase shares of any class
of equity securities of the Company (excluding those referred to in subparagraph
(d) above), the Warrant Price to be in effect on and after such record date
shall be adjusted by multiplying the Warrant Price in effect immediately prior
to such record date by a fraction (i) the numerator of which shall be the fair
market value per share of Common Stock on such record date, less the fair value
(as determined by the Board of Directors of the Company in good faith as set
forth in a duly adopted board resolution certified by the Company's Secretary or
Assistant Secretary) of the portion of the assets or evidences of indebtedness
so to be distributed or of such subscription rights, options, warrants, or
exchangeable or convertible securities applicable to one (1) share of the Common
Stock outstanding as of such record date, and (ii) the denominator of which
shall be such fair market value per share of Common Stock. Such adjustment shall
be made successively whenever such a record date is fixed; and in the event that
such distribution is not so made, the Warrant Price shall again be adjusted to
be the Warrant Price which would then be in effect if such record date had not
been fixed, but such subsequent adjustment shall not affect the number of Shares
issued upon any exercise of Warrants prior to the date such subsequent
adjustment was made.
f. Other Issuances of Securities. In case the Company or any
subsidiary shall issue shares of Common Stock, or rights, options, warrants or
convertible or exchangeable securities containing the right to subscribe for or
purchase shares of Common Stock (excluding (i) shares, rights, options,
warrants, or convertible or exchangeable securities described in subparagraphs
(f) or (g) of Section 11 hereof or issued in any of the transactions described
in subparagraphs (b), (c), (d) or (e) above, (ii) shares issued upon the
exercise of such rights, options or warrants or upon conversion or exchange of
such convertible or exchangeable securities, and (iii) the Warrants, Warrant #3
and any shares issued upon exercise thereof), at a price per share of Common
Stock (determined in the case of such rights, options, warrants, or convertible
or exchangeable securities by dividing (x) the total amount receivable by the
Company in consideration of the sale and issuance of such rights, options,
warrants, or convertible or exchangeable securities, plus the total minimum
consideration payable to the Company upon exercise, conversion, or exchange
thereof by (y) the total maximum number of shares of Common Stock covered by
such rights, options, warrants, or convertible or exchangeable securities) lower
than the fair market value per share of Common Stock on the date the Company
fixes the offering price of such shares, rights, options, warrants, or
convertible or exchangeable securities, then the Warrant Price shall be adjusted
so that it shall equal the price determined by multiplying the Warrant Price in
effect immediately prior thereto by a fraction (i) the numerator of which shall
be the sum of (A) the number of shares of Common Stock outstanding immediately
prior to such sale and issuance plus (B) the number of shares of Common Stock
which the aggregate consideration received (determined as provided below) for
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such sale or issuance would purchase at such fair market value per share, and
(ii) the denominator of which shall be the total number of shares of Common
Stock outstanding immediately after such sale and issuance. Such adjustment
shall be made successively whenever such an issuance is made. For the purposes
of such adjustment, the maximum number of shares of Common Stock which the
holder of any such rights, options, warrants or convertible or exchangeable
securities shall be entitled to subscribe for or purchase shall be deemed to be
issued and outstanding as of the date of such sale and issuance and the
consideration received by the Company therefor shall be deemed to be the
consideration received by the Company for such rights, options, warrants, or
convertible or exchangeable securities, plus the minimum consideration or
premium stated in such rights, options, warrants, or convertible or exchangeable
securities to be paid for the shares of Common Stock covered thereby. In case
the Company shall sell and issue shares of Common Stock, or rights, options,
warrants, or convertible or exchangeable securities containing the right to
subscribe for or purchase shares of Common Stock for a consideration consisting,
in whole or in part, of property other than cash or its equivalent, then in
determining the price per share of Common Stock and the consideration received
by the Company for purposes of the first sentence of this subparagraph (f), the
Board of Directors of the Company shall determine, in good faith, the fair value
of said property, and such determination shall be described in a duly adopted
board resolution certified by the Company's Secretary or Assistant Secretary. In
case the Company shall sell and issue rights, options, warrants, or convertible
or exchangeable securities containing the right to subscribe for or purchase
shares of Common Stock together with one or more other securities as a part of a
unit at a price per unit, then in determining the price per share of Common
Stock and the consideration received by the Company for purposes of the first
sentence of this subparagraph (f), the Board of Directors of the Company shall
determine, in good faith, which determination shall be described in a duly
adopted board resolution certified by the Company's Secretary or Assistant
Secretary, the fair value of the rights, options, warrants, or convertible or
exchangeable securities then being sold as part of such unit. Such adjustment
shall be made successively whenever such an issuance occurs, and in the event
that such rights, options, warrants, or convertible or exchangeable securities
expire or cease to be convertible or exchangeable before they are exercised,
converted, or exchanged (as the case may be), then the Warrant Price shall again
be adjusted to the Warrant Price that would then be in effect if such sale and
issuance had not occurred, but such subsequent adjustment shall not affect the
number of Shares issued upon any exercise of Warrants prior to the date such
subsequent adjustment is made.
g. Adjustment of Number of Shares; Exception to Warrant Price
Adjustment; Calculations for Complex Transactions. Upon each adjustment pursuant
to this Section 4 (but other than pursuant to Section 4(a) hereof) that would
represent an adjustment in the Basis (i) Warrant Price (defined below), the
number of Shares of Common Stock purchasable upon exercise of the Warrant shall
be adjusted, to the nearest whole share, to the product obtained by multiplying
the number of Shares purchasable immediately prior to such adjustment in the
Basis (i) Warrant Price by a fraction, the numerator of which shall be the Basis
(i) Warrant Price immediately prior to such adjustment and the denominator of
which shall be the Basis (i) Warrant Price immediately thereafter. The "Basis
(i) Warrant Price" shall mean the Warrant Price calculated by using the basis
for determining same set forth in clause (i) of the first paragraph of this
Warrant (as adjusted pursuant to this Section 4), as if such basis were the
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only basis for determining the Warrant Price. For the purposes of this Section
4, the adjustments to the Warrant Price set forth herein shall not apply to or
be made with respect to (i) the second alternative basis for determining the
Warrant Price as set forth in the first paragraph of this Warrant (the lower of
$1.00 per share or the fair market value of the Common Stock as of the S-4 Date)
with respect to the period prior to the Filing Event, or (ii) the third
alternative basis for determining the Warrant Price as set forth in such
paragraph (the fair market value of the Common Stock as of the date the Warrants
are exercised or converted) with respect to the period prior to the date of such
exercise or conversion. In the event an adjustment or adjustments to the number
of Shares for which this Warrant is exercisable and/or the Warrant Price
(including the Basis (i) Warrant Price) pursuant to this Section 4 would occur
simultaneously with an adjustment or adjustments to the number of Shares for
which this Warrant is exercisable pursuant to the second paragraph of this
Warrant, calculations (including without limitation pursuant to the following
sentence) and adjustments pursuant to this Section 4 shall be made first and
without taking into account adjustments to be made pursuant to such second
paragraph, which second paragraph adjustments shall then subsequently be made.
In determining whether an adjustment to the Warrant Price (including the Basis
(i) Warrant Price) will be made, or in calculating the amount of same, in the
event an increase in the outstanding Common Stock of the Company (calculated on
a fully diluted basis if so described herein) occurs simultaneously with a
decrease in same, such decrease shall be taken into account when determining,
and reflected in, the number of shares of Common Stock outstanding immediately
prior to the increasing issuance, dividend or distribution, notwithstanding the
actual time of such decrease.
h. Determination of Fair Market Value. For purposes of this
Section 4 and for determining the Warrant Price of this Warrant, "fair market
value" of a share of Common Stock as of a particular date (the "Determination
Date") shall mean (i) if shares of Common Stock are traded as a national
securities exchange (an "Exchange"), the average of the closing prices of a
share of the Common Stock of the Company on the last seven (7) trading days
prior to the Determination Date reported on such Exchange as reported in The
Wall Street Journal, or (ii) if shares of Common Stock are not traded on an
Exchange but trade in the over-the-counter market and such shares are quoted on
the National Association of Securities Dealers Automated Quotations System
("NASDAQ"), (A) the average of the last sale prices reported on NASDAQ or (B) if
such shares are an issue for which last sale prices are not reported on NASDAQ,
the average of the closing bid and ask prices, in each case on the last seven
(7) trading days (or if the relevant price or quotation did not exist on any of
such days, the relevant price or quotation on the next preceding business day on
which there was such a price or quotation) prior to the Determination Date as
reported in The Wall Street Journal.
5. Notice of Adjustments. Whenever the Warrant Price (including a basis
for determining same) or the number of Shares purchasable hereunder shall be
adjusted pursuant to Section 4 hereof, the Company shall make a certificate
signed by its chief financial officer setting forth, in reasonable detail, the
event requiring the adjustment, the amount of the adjustment, the method by
which such adjustment was calculated, and the Warrant Price and the number of
Shares purchasable hereunder after giving effect to such adjustment, which shall
be mailed (without regard to Section 13 hereof, by first class mail, postage
prepaid) to the holder of this Warrant.
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6. Fractional Shares. No fractional shares of Common Stock will be
issued in connection with any exercise hereunder, but in lieu of such fractional
shares the Company shall make a cash payment therefor based on the fair market
value (as determined in accordance with Section 4(h) above) of a share of Common
Stock on the date of exercise.
7. Compliance with Securities Act; Disposition of Warrant or Shares of
Common Stock.
a. Compliance with Securities Act. The holder of this Warrant,
by acceptance hereof, agrees that this Warrant, the shares of Common Stock to be
issued upon exercise hereof are being acquired for investment and that such
holder will not offer, sell or otherwise dispose of this Warrant, or any shares
of Common Stock to be issued upon exercise hereof except under circumstances
which will not result in a violation of the Securities Act of 1933, as amended
(the "Act"). Upon exercise of this Warrant, the holder hereof shall confirm in
writing, by executing the form attached as Schedule 1 to Exhibit A hereto, that
the shares of Common Stock so purchased are being acquired for investment and
not with a view toward distribution or resale. This Warrant and all shares of
Common Stock issued upon exercise of this Warrant (unless registered under the
Act) shall be stamped or imprinted with a legend in substantially the following
form:
"THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. NO
SALE OR DISPOSITION MAY BE EFFECTED WITHOUT (i) AN EFFECTIVE
REGISTRATION STATEMENT RELATED THERETO, (ii) AN OPINION OF COUNSEL FOR
THE HOLDER, REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH
REGISTRATION IS NOT REQUIRED, (iii) RECEIPT OF A NO-ACTION LETTER(S)
FROM THE APPROPRIATE GOVERNMENTAL AUTHORITY(IES), OR (iv) OTHERWISE
COMPLYING WITH THE PROVISIONS OF SECTION 7 OF THE WARRANT UNDER WHICH
THESE SECURITIES WERE ISSUED DIRECTLY OR INDIRECTLY."
In addition, in connection with the issuance of this Warrant,
the holder specifically represents to the Company by acceptance of this Warrant
as follows:
(1) The holder is aware of the Company's business
affairs and financial condition, and has acquired information about the Company
sufficient to reach an informed and knowledgeable decision to acquire this
Warrant. The holder is acquiring this Warrant for its own account for investment
purposes only and not with a view to, or for the resale in connection with, any
"distribution" thereof for purposes of the Act.
(2) The holder understands that this Warrant and the
Shares have not been registered under the Act in reliance upon a specific
exemption therefrom, which exemption depends upon, among other things, the bona
fide nature of the holder's investment intent as expressed herein. In this
connection, the holder understands that, in the view of the Securities and
Exchange Commission (the "SEC"), the statutory basis for such exemption may be
unavailable if the holder's representation was predicated solely upon a present
intention to
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hold the Warrant and the Shares for the minimum capital gains period specified
under applicable tax laws, for a deferred sale, for or until an increase or
decrease in the market price of the Warrant and the Shares, or for a period of
one (1) year or any other fixed period in the future.
(3) The holder further understands that this Warrant
and the Shares must be held indefinitely unless subsequently registered under
the Act and any applicable state securities laws, or unless exemptions from
registration are otherwise available.
(4) The holder is aware of the provisions of Rule 144
and 144A, promulgated under the Act, which, in substance, permit limited public
resale of "restricted securities" acquired, directly or indirectly, from the
issuer thereof (or from an affiliate of such issuer), in a non-public offering
subject to the satisfaction of certain conditions, if applicable, including,
among other things: the availability of certain public information about the
Company, the resale occurring not less than one (1) year after the party has
purchased and paid for the securities to be sold; the sale being made through a
broker in an unsolicited "broker's transaction" or in transactions directly with
a market maker (as said term is defined under the Securities Exchange Act of
1934, as amended) and the amount of securities being sold during any three-month
period not exceeding the specified limitations stated therein.
(5) The holder further understands that at the time
it wishes to sell this Warrant and the Shares there may be no public market upon
which to make such a sale, and that, even if such a public market then exists,
the Company may not be satisfying the current public information requirements of
Rule 144 and 144A, and that, in such event, the holder may be precluded from
selling this Warrant and the Shares under Rule 144 and 144A even if the one-year
minimum holding period had been satisfied.
(6) The holder further understands that in the event
all of the requirements of Rule 144 and 144A are not satisfied, registration
under the Act, compliance with Regulation A, or some other registration
exemption will be required; and that, notwithstanding the fact that Rule 144 and
144A is not exclusive, the Staff of the SEC has expressed its opinion that
persons proposing to sell private placement securities other than in a
registered offering and otherwise than pursuant to Rule 144 and 144A will have a
substantial burden of proof in establishing that an exemption from registration
is available for such offers or sales, and that such persons and their
respective brokers who participate in such transactions do so at their own risk.
b. Disposition of Warrant or Shares. With respect to any
offer, sale or other disposition of this Warrant, or any Shares acquired
pursuant to the exercise of this Warrant prior to registration of such Warrant
or Shares, the holder hereof and each subsequent holder of this Warrant agrees
to give written notice to the Company prior thereto, describing briefly the
manner thereof, together with a written opinion of such holder's counsel, if
reasonably requested by the Company, to the effect that such offer, sale or
other disposition may be effected without registration or qualification (under
the Act as then in effect or any federal or state law then in effect) of this
Warrant or such Shares and indicating whether or not under the Act certificates
for this Warrant or such Shares to be sold or otherwise disposed of require any
restrictive legend as to applicable restrictions on transferability in order to
ensure
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compliance with applicable law. Promptly upon receiving such written notice and
reasonably satisfactory opinion, if so requested, the Company, as promptly as
practicable, shall notify such holder that such holder may sell or otherwise
dispose of this Warrant or such Shares, all in accordance with the terms of the
notice delivered to the Company. If a determination has been made pursuant to
this subsection (b) that the opinion of counsel for the holder is not reasonably
satisfactory to the Company, the Company shall so notify the holder promptly
after such determination has been made. The foregoing notwithstanding, this
Warrant or such Shares may, as to such federal laws, be offered, sold or
otherwise disposed of in accordance with Rule 144 and 144A under the Act,
provided that the Company shall have been furnished with such information as the
Company may reasonably request to provide a reasonable assurance that the
provisions of Rule 144 and 144A have been satisfied. Each certificate
representing this Warrant or the Shares thus transferred (except a transfer
pursuant to Rule 144) shall bear a legend as to the applicable restrictions on
transferability in order to ensure compliance with such laws, unless in the
aforesaid opinion of counsel for the holder, such legend is not required in
order to ensure compliance with such laws. The Company may issue stop transfer
instructions to its transfer agent or, if acting as its own transfer agent, the
Company may stop transfer on its corporate books, in connection with such
restrictions.
8. Rights as Shareholders; Information. No holder of this Warrant, as
such, shall be entitled to vote or receive dividends or be deemed the holder of
Common Stock or any other securities of the Company which may at any time be
issuable on the exercise hereof for any purpose, nor shall anything contained
herein be construed to confer upon the holder of this Warrant, as such, any of
the rights of a shareholder of the Company or any right to vote for the election
of the directors or upon any matter submitted to shareholders at any meeting
thereof, or to receive notice of meetings, or to receive dividends or
subscription rights or otherwise until this Warrant shall have been exercised
and the Shares purchasable upon the exercise hereof shall have become
deliverable, as provided herein. The foregoing notwithstanding, the Company will
transmit to the holder of this Warrant such information, documents and reports
as are generally distributed to the holders of any class or series of the
securities of the Company concurrently with the distribution thereof to the
shareholders.
9. Registration Rights.
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9.1. Demand Registration.
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a. The Company covenants and agrees that at any time
after receipt of a written request (a "Demand Registration Request") from the
holders of this Warrant and the Other Warrants and/or holders of Shares (this
Warrant, the Other Warrants, and the Shares are referred to herein,
collectively, as the "Securities") (hereinafter, the "Securityholders")
constituting in the first instance, at least fifty percent (50%), and in the
second instance, one hundred percent (100%), of the Securities outstanding on
such date (determined on an as-converted basis) and then eligible for inclusion
in a registration pursuant to this Section 9.1, stating that the Initiating
Securityholders (as defined below) desire and intend to transfer all or a
portion of the Securities held by them under such circumstances (constituting in
the first instance, at least fifty percent (50%), and in the second instance,
one hundred percent (100%) of the aggregate of all such outstanding and eligible
Securities), the Company shall give
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notice (the "Registration Notice") to all of the Securityholders within fifteen
(15) days of the Company's receipt of such registration request, and the Company
shall cause to be included in such requested registration all Securities
requested to be included therein by any such Securityholder within fifteen (15)
days after such Registration Notice is effective (subject to the provisions of
the final sentence of this Section 9.1(a)). After such 15-day period, the
Company shall file as promptly as practicable a registration statement and use
its reasonable best efforts to cause such registration statement to become
effective under the Act and remain effective for one hundred and twenty (120)
days or such shorter period as may be required if all such Securities covered by
such registration statement are sold prior to the expiration of such 120-day
period; provided that the Company shall not be obligated to effect any such
registration pursuant to this Section 9.1 after the Company has effected two (2)
such registrations pursuant to this Section 9.1. The Company shall have the
right to select the form used to effect the registration hereunder (subject to
the approval of a majority in interest of the Securityholders requesting
registration, which will not be unreasonably withheld). Each Securityholder
making a demand for registration under this Section 9.1 is referred to herein as
an "Initiating Securityholder." For purposes of this Section 9, a registration
shall not be deemed to have been effected unless a registration statement with
regard thereto has been declared effective and remained effective for a period
of one hundred and twenty (120) days (or such shorter period as is permitted in
the second sentence of this Section 9.1). The foregoing notwithstanding, in the
event of an underwritten offering pursuant to this Section 9.1, if the managing
underwriter of such offering shall advise the Securityholders in writing that,
in its opinion, the distribution of a specified portion of the securities
requested to be included in the registration would materially adversely affect
the distribution of such securities by increasing the aggregate amount of the
offering in excess of the maximum amount of securities which such managing
underwriter believes can reasonably be sold in the contemplated distribution,
then the securities to be included in the registration shall be included in the
following order: (i) first, all of the Securities requested to be included
therein by the Initiating Securityholders, (ii) second, the Securities requested
to be included therein by the other Securityholders, pro rata among such
Securityholders according to the number of Securities requested to be included
by each such Securityholder requesting inclusion therein, and (iii) third, the
securities the Company proposes to include therein and (iv) fourth, such other
securities requested to be included therein, pro rata among the holders of such
other securities according to the number of securities requested to be included
by each such holder requesting inclusion therein.
b. For purposes of this Section 9.1, the
Securityholders who have requested registration of Shares to be acquired upon
the exercise of Warrants not theretofore exercised shall furnish the Company
with an undertaking that they or the underwriters or other persons to whom such
Warrants will be transferred have undertaken to exercise such Warrants and to
sell, transfer or otherwise dispose of the Shares received upon exercise of such
Warrants in such registration.
c. In the event of an underwritten offering pursuant
to this Section 9.1, the Initiating Securityholders requesting registration of
the Securities being registered shall be entitled to select the underwriter;
provided, that the underwriter so selected shall be subject to approval by the
Company, which approval shall not be withheld unreasonably.
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d. Notwithstanding the terms of Section 9.1(a), the
Company shall not be required to register the Securities of Securityholders
pursuant to Section 9.1, if the Company elects, at its sole option and to the
extent that it may legally do so, to purchase such Securities and completes such
purchase pursuant to the provisions of this Section 9.1(d). Within fifteen (15)
days after receipt of a Demand Registration Request, the Company may elect to
purchase all and not less than all of the Securities that would otherwise be
subject to registration pursuant to Section 9.1(a) by providing written notice
(the "Purchase Notice") to all of the Securityholders setting forth (i) its
election to purchase such Securities, (ii) the purchase price of the Securities,
and (iii) the closing date for such purchase. The Company shall thereafter
purchase all of the Securities requested to be included in such purchase by the
Securityholders within fifteen (15) days after the Purchase Notice becomes
effective. The purchase price for each Share shall be the fair market value (as
defined in Section 4) of a share of Common Stock on the date of the Demand
Registration Request; the purchase price for each Warrant shall be (x) the fair
market value (as defined in Section 4) of a share of Common Stock on the date of
the Demand Registration Request less (y) the Warrant Price as of such date. The
closing of the purchase of the Securities shall take place on the date set forth
in the Purchase Notice, which date shall be not less than fifteen (15) not more
than forty-five (45) days after the date of the Purchase Notice. At the closing,
the Company shall deliver to each Securityholder, in cash, the purchase price
for the Securities surrendered by such Securityholder.
9.2. Piggy-Back Registration Rights.
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a. The Company covenants and agrees with the
Securityholders that in the event that the Company proposes to file a
registration statement under the Act with respect to any of its equity
securities (other than pursuant to registration statements on Form S-4 or Form
S-8 or any successor or similar forms), whether or not for its own account, then
the Company shall give written notice of such proposed filing to all
Securityholders promptly (and in any event at least twenty (20) days before the
anticipated filing date). Such notice shall offer to such Securityholders,
together with others who have similar rights, the opportunity to include in such
registration statement such number of Securities as they may request. The
Company shall cause the managing underwriter of a proposed underwritten offering
(unless the offering is an underwritten offering of a class of the Company's
equity securities other than Common Stock and the managing underwriter has
advised the Company in writing that, in its opinion, the inclusion in such
offering of Common Stock would materially adversely affect the distribution of
such offering) to permit the holders of Securities requested to be included in
the registration to include such Securities in the proposed offering and the
Company shall use its reasonable best efforts to include such Securities in such
proposed offering on the same terms and conditions as any similar securities of
the Company included therein. If the offering of which the Company gives notice
is a public offering involving an underwriter, the right of a Securityholder to
registration pursuant to this Section 9.2 shall be conditioned upon such
Securityholder's participation in such underwriting and the inclusion of the
Securities to be sold by such Securityholder in the underwriting. All
Securityholders proposing to distribute Securities through such underwriting
shall enter into an underwriting agreement in customary form with the
representative of the underwriter or underwriters. The foregoing
notwithstanding, in the case of a firm commitment offering on underwriting terms
appropriate for such a transaction, other than a registration requested by
Securityholders pursuant to Section 9.1, if any such managing
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underwriter of recognized standing shall advise the Company and the
Securityholders in writing that, in its opinion, the distribution of all or a
specified portion of the Securities requested to be included in the registration
concurrently with the securities being registered by the Company would
materially adversely affect the distribution of such securities by increasing
the aggregate amount of the offering in excess of the maximum amount of
securities which such managing underwriter believes can reasonably be sold in
the contemplated distribution, then the securities to be included in a
registration which is a primary underwritten offering on behalf of the Company
shall be included in the following order: (i) first, the securities the Company
proposes to include therein and (ii) second, such other securities (including
the Securities) requested to be included, pro rata among the holders (including
the Securityholders) of such other securities according to the number of
securities requested to be included by each such holder requesting inclusion
therein.
b. In the event that a holder or holders of the
Company's securities (other than a Securityholder or Securityholders) requests,
pursuant to rights granted to such holder or holders, that the Company file a
registration statement for the public offering of securities and the Company and
the other holders of the Company's securities (including the Securityholders)
who have rights to be included in such registration, request to be included in
such registration and the managing underwriter of such offering shall advise the
Company and the holders requesting inclusion in the offering that, in its
opinion, the distribution of a specified portion of the securities requested to
be included in the registration would materially adversely affect the
distribution of such securities by increasing the aggregate amount of the
offering in excess of the maximum amount of securities which such managing
underwriter believes can reasonably be sold in the contemplated distribution
then, the securities to be included in the registration shall be included in the
following order: (i) first, all of the securities requested to be included
therein by the holder or holders making the initial request for the
registration, and (ii) second, such other securities requested to be included
therein by the Company and the holders of such other securities, pro rata among
the Company and the holders of such other securities according to the number of
securities requested to be included by the Company and each such holder
requesting inclusion therein. For purposes of this Section 9.2(b), the Company
agrees to request for inclusion in the registration only that number of
securities that the Company intends, in good faith, to sell, if all such
securities so requested by the Company were permitted to be included by the
managing underwriter in such registration and sold pursuant thereto.
9.3. Company Covenants; Registration Right Provisions.
------------------------------------------------
a. In connection with the registration of Securities
on behalf of the holders thereof (such Securityholders being referred to herein
as "Sellers") in accordance with Section 9.1 or Section 9.2 above, the Company
agrees to:
(i) enter into a cross-indemnity agreement,
in customary form, with each underwriter, if any, and each Seller;
(ii) subject to the provisions of Section
9.1(a), Section 9.2(a) and Section 9.2(b) regarding reductions by the managing
underwriter, include in
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the registration statement filed with the SEC, the Securities for which requests
for registration have been made; provided, however, that promptly after filing a
registration statement or prospectus or any amendments or supplements thereto,
the Company shall furnish to each Seller copies of all such documents proposed
to be filed including documents incorporated by reference in the registration
statement; and notify each Seller of any stop order issued or threatened by the
SEC and use its best efforts to prevent the entry of such stop order or to
remove it if entered;
(iii) prepare and file with the SEC such
amendments of and supplements to such registration statement and the prospectus
used in connection therewith as may be necessary to keep such registration
statement effective (A) in the case of a registration pursuant to Section 9.1,
for a period of one hundred and twenty (120) days, or, in the case of a
registration pursuant to Section 9.2, for a period of ninety (90) days or (B)
such shorter period as may be required if all such Securities covered by such
registration statement are sold prior to the expiration of such periods, and
comply with the provisions of the Act with respect to the disposition of all
securities covered by such registration statement during such period in
accordance with the intended methods of disposition by the Sellers set forth in
such registration statement;
(iv) furnish to each Seller and each
underwriter, if any, without charge, such number of copies of the registration
statement, each amendment and supplement thereto (in each case including all
exhibits thereto), the prospectus included in such registration statement
(including each preliminary prospectus) and such other documents as such Seller
may reasonably request in order to facilitate the disposition of the Securities
proposed to be sold by such Seller;
(v) use its reasonable best efforts to
register or qualify such Securities under such other securities or Blue Sky laws
of such jurisdictions as any Seller or any such underwriter reasonably requests
and keep such registrations or qualifications in effect for so long as such
registration statement remains in effect and do any and all acts and things
which may be reasonably necessary or advisable to enable such Seller to
consummate the disposition in such jurisdictions of the Securities owned by such
Seller; provided, however, that the Company shall not be required to (i) qualify
generally to do business in any jurisdiction where it would not otherwise be
required to qualify but for this subsection (v), (ii) subject itself to taxation
in any such jurisdiction, or (iii) consent to general service of process in any
jurisdiction;
(vi) notify each Seller, at any time when a
prospectus relating to such Seller's Securities is required to be delivered
under the Act, of the occurrence of any event as a result of which the
prospectus included in such registration statement contains an untrue statement
of a material fact or omits to state any material fact necessary to make the
statements therein not misleading, and as soon as practicable prepare a
supplement or amendment to such prospectus so that, as thereafter delivered to
the purchasers of such Securities, such prospectus will not contain an untrue
statement of a material fact or omit to state any material fact necessary to
make the statements therein not misleading;
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(vii) cause all such Securities to be listed
on any Exchange on which similar securities issued by the Company are then
listed;
(viii) provide a transfer agent, registrar
and CUSIP number for all such Securities not later than the effective date of
such registration statement;
(ix) enter into such customary agreements
(including an underwriting agreement in customary form) and take all such other
actions that the Sellers or the underwriters, if any, reasonably request in
order to expedite or facilitate the disposition of such Securities;
(x) make available for inspection by the
Sellers and their counsel, any underwriter participating in any disposition
pursuant to such registration statement, and any counsel retained by any such
underwriter, all pertinent financial and other information and corporate
documents of the Company, and cause the Company's officers, directors and
employees to supply all information reasonably requested by any such Seller,
underwriter or counsel in connection with such registration statement;
(xi) use its reasonable best efforts to
obtain a "cold comfort" letter from the Company's independent public accountants
in customary form and covering such matters of the type customarily covered by
"cold comfort" letters as the Sellers or any underwriter may reasonably request;
(xii) obtain an opinion of counsel to the
Company, addressed to the Sellers and any underwriter, in customary form and
including such matters as are customarily covered by such opinions in
underwritten registered offerings of equity securities as the Sellers or any
underwriter may reasonably request, such opinion to be reasonably satisfactory
in form and substance to each Seller; and
(xiii) otherwise use its best efforts to
comply with all applicable rules and regulations of the SEC, and make available
to its securityholders, as soon as reasonably practicable, an earnings statement
covering the period of at least twelve (12) months subsequent to the effective
date of the registration statement, which earnings statement shall satisfy the
provisions of Section 11(a) of the Act and Rule 158 thereunder.
b. Any other provisions of this Section 9
notwithstanding, upon receipt by the Securityholders of a written notice signed
by the chief executive officer, chief operating officer or chief financial
officer of the Company to the effect set forth below, the Company shall not be
obligated during a reasonable period of time thereafter to effect any
registrations pursuant to this Section 9, and the Securityholders agree that
they will immediately suspend sales of shares under any effective registration
statement for a reasonable period of time, in either case not to exceed ninety
(90) days, at any time at which, in the Company's reasonable judgment, (i) there
is a development involving the Company or any of its affiliates which is
material but which has not yet been publicly disclosed or (ii) sales pursuant to
the registration statement would materially and adversely affect an underwritten
public offering for the account of the Company or any other material financing
project or a proposed or pending material
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merger or other material acquisition or material business combination or
material disposition of the Company's assets, to which the Company or any of its
affiliates is, or is expected to be, a party. In the event a registration is
postponed or sales by the Securityholders pursuant to an effective registration
statement are suspended in accordance with this Section 9.3(b), there shall be
added to the period during which the Company is obligated to keep a registration
effective the number of days for which the registration was postponed or sales
were suspended pursuant to this Section 9.3(b).
c. The Company may require each Seller to furnish to
the Company such information regarding the distribution of the Securities
proposed to be sold by such Seller as the Company may from time to time
reasonably request in writing.
d. Each Seller agrees that, upon receipt of any
notice from the Company of the occurrence of any event of the kind described in
subsection (vi) of Section 9.3(a) above, such Seller shall forthwith discontinue
disposition of Securities pursuant to the registration statement covering such
Securities until such Seller's receipt of copies of the supplemented or amended
prospectus contemplated by Section 9.3(a)(vi) above and, if so directed by the
Company, such Seller will deliver to the Company (at the Company's expense) all
copies, other than permanent file copies in such Seller's possession, of the
prospectus covering such Securities current at the time of receipt of such
notice. In the event the Company shall give any such notice, the period
mentioned in Section 9.3(a)(iii) above shall be extended by the number of days
during the period from and including the date of giving of such notice to and
including the date when each Seller shall have received the copies of the
supplemented or amended prospectus contemplated by Section 9.3(a)(vi) above.
e. The Company shall not file or permit the filing of
any registration or comparable statement which refers to any Seller by name or
otherwise as the Seller of any securities of the Company unless such reference
to such Seller is specifically required by the Act or any similar federal
statute then in force.
9.4 Expenses. All expenses incident to the Company's
performance of or compliance with this Warrant, including without limitation all
registration and filing fees, fees and expenses relating to filings with any
Exchange, fees and expenses of compliance with securities or Blue Sky laws in
jurisdictions reasonably requested by any Seller or underwriter pursuant to
Section 9.3(a)(v) (including reasonable fees and disbursements of counsel in
connection with Blue Sky qualifications of the Securities), all word processing,
duplicating and printing expenses, messenger and delivery expenses, fees and
disbursements of counsel for the Company and one (1) counsel for the Sellers,
independent public accountants (including the expenses of any special audit or
"cold comfort" letters required by or incident to such performance) and
underwriters (excluding discounts, commissions or fees of underwriters, selling
brokers, dealer managers or similar securities industry professionals
attributable to the securities being registered, or legal expenses of any person
other than the Company and the Sellers, but including liability insurance if the
Company so desires), all the Company's 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 expense of any
liability insurance (if the Company determines to obtain such insurance) and the
fees and
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expenses incurred in connection with the listing of the securities to be
registered on each Exchange on which such securities issued by the Company are
then listed, the reasonable fees and expenses of any special experts (including
attorneys) retained by the Company (if it so desires) in connection with such
registration and fees and expenses of other persons retained by the Company (all
such expenses being herein called "Registration Expenses"), shall be borne by
the Company.
9.5 Registration Statement Preparation; Investigation. In
connection with the preparation and filing of each registration statement under
the Act pursuant to this Section 9, the Company shall give the Sellers under
such registration statement, their underwriters, if any, and their respective
counsel and accountants, the opportunity to participate in the preparation of
such registration statement, each prospectus included therein or filed with the
Commission, and each amendment thereof or supplement thereto, and will give each
of them such access to its books and records and such opportunities to discuss
the business of the Company with its officers and the independent public
accountants who have certified its financial statements as shall be necessary,
in the opinion of such Sellers' and such underwriters' respective counsel, to
conduct a reasonable investigation within the meaning of the Act.
9.6. Indemnification.
----------------
a. In the event of any registration of any securities
of the Company under the Act, the Company shall, and hereby does, indemnify and
hold harmless in the case of any registration statement filed pursuant to
Section 9.1 or Section 9.2, the Seller of any Securities covered by such
registration statement, its directors, officers and employees, each other person
who participates as an underwriter in the offering or sale of such Securities
and each other person, if any, who controls such Seller or any such underwriter
within the meaning of the Act against any losses, claims, damages, or
liabilities (or actions or proceedings whether commenced or threatened in
respect thereof), joint or several, to which such Seller or any such director or
officer or underwriter or controlling person may become subject under the Act or
otherwise, insofar as such losses, claims, damages, or liabilities (or actions
or proceedings, whether commenced or threatened, in respect thereof) arise out
of or are based upon any untrue statement or alleged untrue statement of any
material fact contained in any registration statement under which such
Securities were registered under the Act, any preliminary prospectus, final
prospectus or summary prospectus contained therein, or any amendment or
supplement thereto, 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 the Company shall reimburse such Seller and each
such director, officer, employee, underwriter and controlling person for any
legal or any other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, liability, action, or
proceeding; provided, however, that the Company shall not be liable in any such
case to the extent that any such loss, claim, damage, liability (or action or
proceeding, whether commenced or threatened in respect thereof), or expense
arises out of or is based upon an untrue statement or alleged untrue statement
or omission or alleged omission made in such registration statement, any such
preliminary prospectus, final prospectus, summary prospectus, amendment, or
supplement in reliance upon
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and in conformity with written information furnished to the Company through an
instrument duly executed by such Seller specifically stating it is for use in
the preparation thereof and, provided, further, that the Company shall not be
liable in any such case to the extent that any such loss, claim, damage,
liability (or action or proceeding, whether commenced or threatened, in respect
thereof), or expense arises out of such person's failure to send or give a copy
of the final prospectus, as the same may be then supplemented or amended, within
the time required by the Act to the person asserting an untrue statement or
alleged untrue statement or omission or alleged omission if such statement or
omission was corrected in such final prospectus. Such indemnity shall remain in
full force and effect regardless of any investigation made by or on behalf of
such Seller or any such director, officer, underwriter or controlling person and
shall survive the transfer of such Securities by such Seller.
b. The Company may require, as a condition to
including any Securities in any registration statement filed pursuant to Section
9.3, that the Company shall have received an undertaking satisfactory to it from
the prospective Seller, to indemnify and hold harmless (in the same manner and
to the same extent as set forth in Section 9.6(a)) the Company, each director,
officer and employee of the Company, and each other person, if any, who controls
the Company within the meaning of the Act, with respect to any statement or
alleged statement in or omission or alleged omission from such registration
statement, any preliminary prospectus, final prospectus, or summary prospectus
contained therein, or any amendment or supplement thereto, if such statement or
alleged statement or omission or alleged omission was made in reliance upon and
in conformity with written information furnished to the Company through an
instrument duly executed by such Seller specifically stating that it is for use
in the preparation of such registration statement, preliminary prospectus, final
prospectus, summary prospectus, amendment, or supplement. Such indemnity shall
remain in full force and effect, regardless of any investigation made by or on
behalf of the Company or any such director, officer, or controlling person and
shall survive the transfer of such Securities by such Seller. In no event shall
the liability of any selling Seller hereunder (including without limitation
indemnification liability in connection with Section 9.6(d) hereof) be in the
aggregate greater in amount than the dollar amount, if any, by which (1) the
proceeds received by such Seller upon the sale of the Securities giving rise to
such indemnification obligation exceed (2) the purchase or exercise price paid
by such Seller for such Securities. The Company shall be entitled to receive
indemnities from underwriters, selling brokers, dealer managers, and similar
securities industry professionals participating in the distribution to the same
extent as provided above with respect to information so furnished in writing by
such persons specifically for inclusion in any prospectus or registration
statement.
c. Promptly after receipt by an indemnified party of
notice of the commencement of any action or proceeding involving a claim
referred to in this Section 9.6, such indemnified party shall, if a claim in
respect thereof is to be made against an indemnifying party, give written notice
to the latter of the commencement of such action; provided, however, that the
failure of any indemnified party to give notice as provided herein shall not
relieve the indemnifying party of its obligations under the preceding
subdivisions of this Section 9.6, except to the extent that the indemnifying
party is actually prejudiced by such failure to give notice. In case any such
action is brought against an indemnified party, unless in such indemnified
party's reasonable judgment a conflict of interest between such indemnified and
indemnifying
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parties may exist in respect of such claim, the indemnifying party shall be
entitled to participate in and to assume the defense thereof, jointly with any
other indemnifying party similarly notified, to the extent that the indemnifying
party may wish, with counsel reasonably satisfactory to such indemnified party,
and after notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party shall not be
liable to such indemnified party for any legal or other expenses subsequently
incurred by the latter in connection with the defense thereof other than
reasonable costs of investigation. If, in the indemnified party's reasonable
judgment a conflict of interest between such indemnified and indemnifying
parties may exist in respect of such claim, the indemnified party may assume the
defense of such claim, jointly with any other indemnified party that reasonably
determines such conflict of interest to exist, and the indemnifying party shall
be liable to such indemnified parties for the reasonable legal fees and expenses
of one counsel for all such indemnified parties and for other expenses
reasonably incurred in connection with the defense thereof incurred by the
indemnified party. No indemnifying party shall, without the consent of the
indemnified party, consent to entry of any judgment or enter into any settlement
of any such action 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, or a covenant not to sue, in respect of such claim or litigation.
No indemnified party shall consent to entry of any judgment or enter into any
settlement of any such action the defense of which has been assumed by an
indemnifying party without the consent of such indemnifying party.
d. Indemnification and contribution similar to that
specified in this Section 9.6 (with appropriate modifications) shall be given by
the Company and may be required of each Seller with respect to any required
registration or other qualification of Securities under any Federal or state law
or regulation of any governmental authority, other than the Act.
e. The indemnification required by this Section 9.6
shall be made by periodic payments of the amount thereof during the course of
the investigation or defense, as and when bills are received or expense, loss,
damage or liability is incurred.
f. If the indemnification provided for in this
Section 9.6 from the indemnifying party is unavailable to an indemnified party
hereunder in respect of any losses, claims, damages, liabilities, or expenses
referred to herein, then the indemnifying party, in lieu of indemnifying such
indemnified party, shall contribute to the amount paid or payable by such
indemnified party as a result of losses, claims, damages, liabilities, or
expenses in such proportion as is appropriate to reflect the relative fault of
the indemnifying party and indemnified party in connection with the actions
which resulted in such losses, claims, damages, liabilities, or expenses, as
well as any other relevant equitable considerations. The relative fault of such
indemnifying party and indemnified party shall be determined by reference to,
among other things, whether any action in question, including any untrue or
alleged untrue statement of a material fact or omission or alleged omission to
state a material fact, has been made by, or relates to information supplied by,
such indemnifying party or indemnified party, and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
action. The amount paid or payable by a party as a result of the losses, claims,
damages, liabilities, and expenses referred to above shall be deemed to include
any legal or other fees or
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expenses reasonably incurred by such party in connection with any investigation
or proceeding. In no event shall the liability of any Seller hereunder
(including without limitation contribution liability in connection with Section
9.6(d) hereof) be in the aggregate greater in amount than the dollar amount, if
any, by which (1) the proceeds received by such Seller upon the sale of the
Securities giving rise to such contribution obligation exceed (2) the purchase
or exercise price paid by such Seller for such Securities. The parties hereto
agree that it would not be just and equitable if contribution pursuant to this
Section 9.6(f) were determined by pro rata allocation or by any other method of
allocation which does not take into account the equitable considerations
referred to in this Section 9.6(f). No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person or entity who was not guilty of such
fraudulent misrepresentation.
9.7 Conflicting Rights. The Company hereby represents and
covenants that, prior to and as of the Date of Grant the Company has not
granted, and after the Date of Grant the Company shall not grant, any
registration rights which conflict with the rights under this Section 9.
9.8 Lock-up Period. If requested by the managing underwriter
of an offering for which Shares of such Securityholder have been registered, a
Securityholder shall not sell or otherwise transfer or dispose of any Securities
held by such Securityholder (other than those included in the registration)
during such period following the effective date of such registration as is usual
and customary at such time in similar public offerings of similar securities;
provided, however, that the Company shall use its reasonable best efforts to
cause each holder of a material number of shares of Common Stock to enter into
similar "lock-up" agreements in respect of such offering. The obligations
described in this Section 9.8 shall not apply to offerings pursuant to a
registration statement on Form S-4 or Form S-8 or any successor or similar form.
10. Additional Rights.
-----------------
10.1 Secondary Sales. The Company agrees that, to the extent
reasonable, it will cooperate with the holder of this Warrant in obtaining
liquidity if opportunities to make secondary sales of the Company's securities
become available. To this end, the Company will promptly provide the holder of
this Warrant with notice of any offer to acquire from the Company's security
holders more than five percent (5%) of the total voting power of the Company and
will cooperate with the holder, if requested, in consummating the sale of this
Warrant to the person or persons making such offer. The foregoing paragraph
notwithstanding, the provisions of this Section 10.1 shall not require the
Company to take any action which would constitute a violation of Federal
securities laws.
10.2 Mergers. In the event that the Company undertakes to (i)
sell, lease, exchange, convey or otherwise dispose of all or substantially all
of its property or business, or (ii) merge into or consolidate with any other
corporation (other than a wholly-owned subsidiary of the Company), or effect any
transaction (including a merger or other reorganization) or series of related
transactions, in which more than 50% of the voting power of the Company is
disposed of, the Company will use its reasonable best efforts to provide at
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least thirty (30) days notice of the terms and conditions of the proposed
transaction. The Company will cooperate with the holder in consummating the sale
of this Warrant in connection with any such transaction. The foregoing paragraph
notwithstanding, the provisions of this Section 10.2 shall not require the
Company to take any action which would constitute a violation of, or create a
material liability for the Company under, Federal securities laws.
10.3 Right to Convert Warrant into Common Stock; Net Issuance.
--------------------------------------------------------
a. Right to Convert. In addition to and without limiting the
rights of the holder under the terms of this Warrant, the holder shall have the
right to convert this Warrant or any portion thereof (the "Conversion Right")
into shares of Common Stock as provided in this Section 10.3 at any time or from
time to time during the term of this Warrant. Upon exercise of the Conversion
Right with respect to a particular number of shares subject to this Warrant (the
"Converted Warrant Shares"), the Company shall deliver to the holder (without
payment by the holder of any exercise price or any cash or other consideration)
that number of shares of fully paid and nonassessable Common Stock equal to the
quotient obtained by dividing (i) the value of this Warrant (or the specified
portion hereof) on the Conversion Date (as defined in subsection (b) hereof),
which value shall be equal to (A) the aggregate fair market value of the
Converted Warrant Shares issuable upon exercise of this Warrant (or the
specified portion hereof) on the Conversion Date less (B) the aggregate Warrant
Price of the Converted Warrant Shares immediately prior to the exercise of the
Conversion Right by (ii) the fair market value of one share of Common Stock on
the Conversion Date.
Expressed as a formula, such conversion shall be computed as
follows:
X= A - B
-----
Y
Where: X = the number of shares of Common Stock that may be
issued to holder
Y = the fair market value (FMV) of one share of
Common Stock
A = the aggregate FMV (i.e., FMV x Converted
Warrant Shares)
B = the aggregate Warrant Price (i.e., Converted
Warrant Shares x Warrant Price)
No fractional shares shall be issuable upon exercise of the
Conversion Right, and, if the number of shares to be issued determined in
accordance with the foregoing formula is other than a whole number, the Company
shall pay to the holder an amount in cash equal to the fair market value of the
resulting fractional share on the Conversion Date. For purposes of Section 9 of
this Warrant, shares issued pursuant to the Conversion Right shall be treated as
if they were issued upon the exercise of this Warrant.
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b. Method of Exercise. The Conversion Right may be exercised
by the holder by the surrender of this Warrant at the principal office of the
Company together with a written statement specifying that the holder thereby
intends to exercise the Conversion Right and indicating the number of shares
subject to this Warrant which are being surrendered (referred to in subsection
(a) hereof as the Converted Warrant Shares) in exercise of the Conversion Right.
Such conversion shall be effective upon receipt by the Company of this Warrant
together with the aforesaid written statement, or on such later date as is
specified therein (the "Conversion Date"). Certificates for the shares issuable
upon exercise of the Conversion Right and, if applicable, a new warrant
evidencing the balance of the shares remaining subject to this Warrant, shall be
issued as of the Conversion Date and shall be delivered to the holder within
thirty (30) days following the Conversion Date.
c. Determination of Fair Market Value. For purposes of this
Section 10.3, "fair market value" of a share of Common Stock shall have the
meaning set forth in Section 4(h) above.
11. Representations and Warranties. The Company represents and warrants
to the holder of this Warrant as follows:
a. This Warrant has been duly authorized and executed by the
Company and is a valid and binding obligation of the Company enforceable in
accordance with its terms, subject to laws of general application relating to
bankruptcy, insolvency and the relief of debtors and the rules of law or
principles at equity governing specific performance, injunctive relief and other
equitable remedies;
b. The Shares have been duly authorized and reserved for
issuance by the Company and, when issued in accordance with the terms hereof,
will be validly issued, fully paid and nonassessable;
c. The rights, preferences, privileges and restrictions
granted to or imposed upon the Common Stock and the holders thereof are as set
forth in the articles or certificate of incorporation of the Company, as amended
to the Date of Grant (as so amended, the "Charter"), a true and complete copy of
which has been delivered to the original holder of this Warrant;
d. The execution and delivery of this Warrant are not, and the
issuance of the Shares upon exercise of this Warrant in accordance with the
terms hereof will not be, inconsistent with the Charter or by-laws of the
Company, do not and will not contravene, in any material respect, any
governmental rule or regulation, judgment or order applicable to the Company,
and do not and will not conflict with or contravene, in any material respect,
any provision of, or constitute a material default under, any indenture,
mortgage, contract or other instrument of which the Company is a party or by
which it is bound or require the consent or approval of, the giving of notice
to, the registration or filing with or the taking of any action in respect of or
by, any Federal, state or local government authority or agency or other person,
except for the filing of notices pursuant to federal and state securities laws,
which filings will be effected by the time required thereby;
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e. Except for the pending judicial settlements with Time, Inc.
and CNN, there are no actions, suits, audits, investigations or proceedings
pending or, to the knowledge of the Company, threatened against the Company in
any court or before any governmental commission, board or authority which, if
adversely determined, will have a material adverse effect on the ability of the
Company to perform its obligations under this Warrant;
f. The authorized capital stock of the Company consists of One
Hundred Million (100,000,000) shares of Common Stock, $0.01 par value per share,
of which approximately Twelve Million Two Hundred Sixty-Eight Thousand
Sixty-Nine (12,268,069) shares were issued and outstanding as of the close of
business on May 20, 1997, and Twenty-Five Million (25,000,000) shares of
Preferred Stock, $0.01 par value per share, of which Three Thousand Five Hundred
(3,500) shares are authorized as Series A Convertible Preferred Stock, of which
no shares are issued and outstanding as of the Date of Grant, Three Thousand
Five Hundred (3,500) shares are authorized as Series B Convertible Preferred
Stock, of which Two Thousand Two Hundred Four (2,204) shares are issued and
outstanding as of the Date of Grant and One Million Three Hundred Thousand
(1,300,000) shares are authorized as Series C Convertible Preferred Stock, of
which One Million One Hundred Eighty-Five Thousand One Hundred Eighty Five
(1,185,185) shares are issued and outstanding as of the Date of Grant. All such
outstanding shares have been validly issued and are fully paid, nonassessable
shares free of preemptive rights, except that the Company makes no
representations or warranties as to the valid issuance of shares of Common Stock
issued upon conversion of Series B Convertible Preferred Stock at a conversion
price not in accordance with the provisions of the Certificate of Designations
of Series B Convertible Preferred Stock of the Company.
g. Other than the Warrants, Warrant #3 and as provided in the
Company's Certificate of Designations of Series A Convertible Preferred Stock,
as amended, Certificate of Designations of Series B Convertible Preferred Stock,
and Certificate of Designations of Series C Convertible Preferred Stock, and
except as disclosed in the Schedule of Outstanding Rights attached hereto as
Exhibit B, there are no subscriptions, rights, options, warrants, or calls
relating to any shares of the Company's capital stock, including any right of
conversion or exchange under any outstanding security or other instrument; and
h. Except as disclosed in the Company's most recent Proxy
Statement and Form 10-K, and except as provided in the Company's Certificate of
Designations of Series A Convertible Preferred Stock, as amended, Certificate of
Designations of Series B Convertible Preferred Stock, and Certificate of
Designations of Series C Convertible Preferred Stock, (each of which the Company
represents and warrants have been delivered to Madeleine or its counsel and in
the form of same most recently filed with the Secretary of State of the State of
Delaware), the Company is not subject to any obligation (contingent or
otherwise) to repurchase or otherwise acquire or retire any shares of its
capital stock or any security convertible into or exchangeable for any of its
capital stock.
12. Modification and Waiver. This Warrant and any provision hereof may
be changed, waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of the same is sought.
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13. Notices. Any notice, request, communication or other document
required or permitted to be given or delivered to the holder hereof or the
Company shall be delivered, or shall be sent by private courier or certified or
registered mail, postage prepaid, to each such holder at its address as shown on
the books of the Company or to the Company at the address indicated therefor on
the signature page of this Warrant.
14. Binding Effect on Successors. This Warrant shall be binding upon
any corporation succeeding the Company by merger, consolidation or acquisition
of all or substantially all of the Company's assets, and all of the obligations
of the Company relating to the Common Stock issuable upon the exercise or
conversion of this Warrant shall survive the exercise, conversion and
termination of this Warrant and all of the covenants and agreements of the
Company shall inure to the benefit of the successors and assigns of the holder
hereof. The Company will, at the time of the exercise or conversion of this
Warrant, in whole or in part, upon request of the holder hereof but at the
Company's expense, acknowledge in writing its continuing obligation to the
holder hereof in respect of any rights to which the holder hereof shall continue
to be entitled after such exercise or conversion in accordance with this
Warrant; provided, that the failure of the holder hereof to make any such
request shall not affect the continuing obligation of the Company to the holder
hereof in respect of such rights.
15. Lost Warrants or Stock Certificates. The Company covenants to the
holder hereof that, upon receipt of evidence reasonably satisfactory to the
Company of the loss, theft, destruction or mutilation of this Warrant or any
stock certificate and, in the case of any loss, theft or destruction, upon
receipt of an executed lost securities bond or indemnity reasonably satisfactory
to the Company, or in the case of any such mutilation upon surrender and
cancellation of such Warrant or stock certificate, the Company will make and
deliver a new Warrant or stock certificate, of like tenor, in lieu of the lost,
stolen, destroyed or mutilated Warrant or stock certificate.
16. Descriptive Headings. The descriptive headings of the several
paragraphs of this Warrant are inserted for convenience only and do not
constitute a part of this Warrant.
17. Governing Law. This Warrant shall be construed and enforced in
accordance with, and the rights of the parties shall be governed by, the laws of
the State of Delaware.
18. Survival of Representations, Warranties and Agreements. All
representations and warranties of the Company and the holder hereof contained
herein shall survive the Date of Grant, the exercise or conversion of this
Warrant (or any part hereof) or the termination or expiration of rights
hereunder. All agreements of the Company and the holder hereof contained herein
shall survive indefinitely until, by their respective terms, they are no longer
operative.
19. Remedies. In case any one or more of the covenants and agreements
contained in this Warrant shall have been breached, the holders hereof (in the
case of a breach by the Company), or the Company (in the case of a breach by a
holder), may proceed to protect and enforce their or its rights either by suit
in equity and/or by action at law, including, but not
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limited to, an action for damages as a result of any such breach and/or an
action for specific performance of any such covenant or agreement contained in
this Warrant.
20. Acceptance. Receipt of this Warrant by the holder hereof
shall constitute acceptance of and agreement to the foregoing terms and
conditions.
21. No Impairment of Rights. The Company will not, by
amendment of its Charter or through any other means, avoid or seek to avoid the
observance or performance of any of the terms of this Warrant, but will at all
times in good faith assist in the carrying out of all such terms and in the
taking of all such action as may be necessary or appropriate in order to protect
the rights of the holder of this Warrant against impairment.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, Graphix Zone, Inc. has caused this Warrant
to be executed on its behalf by one of its officers thereunto duly authorized.
GRAPHIX ZONE, INC.
By: /s/ DAVID J. HIRSCHHORN
--------------------------------------
Name: David J. Hirschhorn
Title: President and Chief Executive
Officer
Address: 42 Corporate Park, Suite 200
Irvine, California 92606
Date: June 5, 1997
S-1
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EXHIBIT A
NOTICE OF EXERCISE
To: GRAPHIX ZONE, INC.
1. The undersigned hereby elects to purchase _________ shares
of Common Stock of GRAPHIX ZONE, INC. pursuant to the terms of the attached
Warrant, and tenders herewith payment of the purchase price of such shares in
full.
2. Please issue a certificate or certificates representing
said shares in the name of the undersigned or in such other name or names as are
specified below:
--------------------------------------
(Name)
--------------------------------------
--------------------------------------
(Address)
3. The undersigned represents that the aforesaid shares are
being acquired for the account of the undersigned for investment and not with a
view to, or for resale in connection with, the distribution thereof and that the
undersigned has no present intention of distributing or reselling such shares.
In support thereof, the undesigned has executed an Investment Representation
Statement attached hereto as Schedule 1.
--------------------------------------
(Signature)
- ------------------
(Date)
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Schedule 1
----------
INVESTMENT REPRESENTATION STATEMENT
Purchaser:
Company: GRAPHIX ZONE, INC.
Security: Common Stock
Amount:
Date:
In connection with the purchase of the above-listed securities (the
"Securities"), the undersigned (the "Purchaser") represents to the Company as
follows:
(a) The Purchaser is aware of the Company's business affairs and
financial condition, and has acquired sufficient information about the Company
to reach an informed and knowledgeable decision to acquire the Securities. The
Purchaser is purchasing the Securities for its own account for investment
purposes only and not with a view to, or for the resale in connection with, any
"distribution" thereof for purposes of the Securities Act of 1933, as amended
(the "Act").
(b) The Purchaser understands that the Securities have not been
registered under the Act in reliance upon a specific exemption therefrom, which
exemption depends upon, among other things, the bona fide nature of the
Purchaser's investment intent as expressed herein. In this connection, the
Purchaser understands that, in the view of the Securities and Exchange
Commission ("SEC"), the statutory basis for such exemption may be unavailable if
the Purchaser's representation was predicated solely upon a present intention to
hold these Securities for the minimum capital gains period specified under
applicable tax laws, for a deferred sale, for or until an increase or decrease
in the market price of the Securities, or for a period of one year or any other
fixed period in the future.
(c) The Purchaser further understands that the Securities must be held
indefinitely unless subsequently registered under the Act or unless an exemption
from registration is otherwise available. In addition, the Purchaser understands
that the certificate evidencing the Securities will be imprinted with the legend
referred to in the Warrant under which the Securities are being purchased.
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(d) The Purchaser is aware of the provisions of Rule 144 and 144A,
promulgated under the Act, which, in substance, permit limited public resale of
"restricted securities" acquired, directly or indirectly, from the issuer
thereof (or from an affiliate of such issuer), in a non-public offering subject
to the satisfaction of certain conditions, if applicable, including, among other
things: The availability of certain public information about the Company, the
resale occurring not less than one (1) year after the party has purchased and
paid for the securities to be sold; the sale being made through a broker in an
unsolicited "broker's transaction" or in transactions directly with a market
maker (as said term is defined under the Securities Exchange Act of 1934, as
amended) and the amount of securities being sold during any three-month period
not exceeding the specified limitations stated therein.
(e) The Purchaser further understands that at the time it wishes to
sell the Securities there may be no public market upon which to make such a
sale, and that, even if such a public market then exists, the Company may not be
satisfying the current public information requirements of Rule 144 and 144A, and
that, in such event, the Purchaser may be precluded from selling the Securities
under Rule 144 and 144A even if the one-year minimum holding period had been
satisfied.
(f) The Purchaser further understands that in the event all of the
requirements of Rule 144 and 144A are not satisfied, registration under the Act,
compliance with Regulation A, or some other registration exemption will be
required; and that, notwithstanding the fact that Rule 144 is not exclusive, the
Staff of the SEC has expressed its opinion that persons proposing to sell
private placement securities other than in a registered offering and otherwise
than pursuant to Rule 144 will have a substantial burden or proof in
establishing that an exemption from registration is available for such offers or
sales, and that such persons and their respective brokers who participate in
such transactions do so at their own risk.
Purchaser:
---------------------
Date: ---------------