SENIOR SUBORDINATED SECURED PROMISSORY NOTE
SUBJECT TO THAT CERTAIN SUBORDINATION AND INTERCREDITOR
AGREEMENT EXECUTED BY AND AMONG COAST BUSINESS CREDIT,
MERCURY PARTNERS, LLC, AND NEW IMAGE INDUSTRIES, INC., DATED AS OF
MAY 22, 1996
$500,000 San Diego, California
"Note Date": May 24, 1996
FOR VALUE RECEIVED, NEW IMAGE INDUSTRIES, INC., a Delaware corporation
("Borrower") promises to pay to Mercury Partners, LLC ("Payee") at 1110 Santa
Monica Blvd., Suite 2020, Los Angeles, California 90025, or such other place as
Payee may designate from time to time by written notice to Borrower, in lawful
money of the United States, the principal sum of Five Hundred Thousand Dollars
($500,000) with interest at the rate of ten percent (10.0%) per annum.
1. PAYMENTS.
1.1 Commencing on August 1, 1996 and on each August 1, November 1,
February 1 and May 1 thereafter until this Note has been paid in full, payments
of interest only shall be payable. If not paid when due, such interest not paid
shall be added to principal and shall bear interest at the rate of ten percent
(10.0%) per annum.
1.2 If not sooner paid, the entire unpaid principal balance, together
with any accrued and unpaid interest shall be due and payable on May 24, 1998
("MATURITY DATE").
2. SUBORDINATION CLAUSES.
2.1 SENIOR DEBT. This Note shall be subordinate to the obligations
of Borrower to Coast Business Credit, a division of Southern Pacific Thrift &
Loan Association ("Coast") under that certain Amended and Restated Loan and
Security Agreement dated as of May 22, 1996 ("Senior Debt"), subject to the
terms of that certain Intercreditor Agreement among Borrower, Payee and Coast of
even date herewith (the "Intercreditor Agreement").
2.2 DEFAULT ON SENIOR DEBT. No interest or principal payment shall
be paid under this Senior Subordinated Secured Promissory Note ("Note") while
Borrower is in default for failure to make any payment due under any of the
Senior Debt.
3. SECURITY. This Note is secured by a Security Agreement of even date
herewith ("Security Agreement") granting a security interest in certain
collateral described in the Security Agreement. The Security Agreement contains
provisions for acceleration of the maturity of the obligations under this Note
and the Security Agreement on the occurrence of certain described events. This
Note and the Security Agreement, and any other documents or instruments
evidencing or securing the loan evidenced by this Note, as the same may be
modified supplemented or amended from time to time in accordance with their
respective terms, are hereinafter referred to as the "Loan Documents."
4. DEFAULTS; REMEDIES. All principal, interest or other sums remaining
unpaid under this Note and the Security Agreement shall, at Payee's option,
become immediately due and payable upon the expiration of 120 days after notice
is provided to Borrower of the occurrence of any of the following events (each,
an "Event of Default"):
4.1 The failure of Borrower to pay in full, within ten (10) days from
the date due, any payment of principal, interest or other sum due under this
Note;
4.2 The occurrence or happening of any Event of Default as defined in
the Security Agreement; or
4.3 The occurrence or happening of a default in any payment
obligations under any of the Senior Debt.
The failure of Payee to exercise any remedy provided hereunder or under the
Security Agreement shall not constitute a waiver of the right to exercise the
same or any other remedy. The acceptance by Payee of any payment hereunder
which is less than the payment in full of all amounts due and payable at the
time of such payment shall not constitute a waiver of the right to exercise any
of the foregoing remedies. Upon default in payments due hereunder, the
principal amount of this Note and all accrued interest shall bear interest at
the rate of twelve percent (12.0%) per annum until such default is cured.
5. PREPAYMENT. Borrower may prepay this Note in whole or in part upon
five (5) days prior notice at any time without penalty.
6. APPLICATION OF PAYMENTS. All payments received shall be applied first
to accrued interest then due, then to principal.
7. NON-NEGOTIABLE. This Note is non-negotiable.
8. WAIVERS. Borrower waives diligence, presentment, protest and demand
and also notice of protest, demand, dishonor and nonpayment of this Note, and
expressly agrees that this Note, or any payment hereunder may be extended from
time to time, all without in anyway affecting the liability of Borrower. The
right to plead any and all statutes of limitations as a defense to any demand on
this Note or any and all obligations or liabilities arising out of or in
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connection with this Note is expressly waived by Borrower to the fullest extent
permitted by law. No extension of the time for the payment of this Note, or any
installment hereof, made by agreement by Payee with any person now or hereafter
liable for the payment of this Note shall affect the original liability under
the terms of this Note by Borrower even if Borrower is not a party to such
agreement.
9. GOVERNING LAW. This Note shall be governed by and construed in
accordance with the laws of the State of California.
EXECUTED as of the Note Date.
BORROWER:
New Image Industries, Inc.,
a Delaware corporation
By: /s/ Harold R. Orr
------------------------------------
Harold R. Orr
Chief Financial Officer
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EXERCISABLE ONLY ON OR BEFORE MAY 24, 2001
NEW IMAGE INDUSTRIES, INC.
COMMON STOCK PURCHASE WARRANT
VOID AFTER MAY 24, 2001 OR SUCH EARLIER TIME
AS THE WARRANT EXPIRES BY ITS TERMS
WARRANT TO PURCHASE 80,000 SHARES OF COMMON STOCK OF
NEW IMAGE INDUSTRIES, INC. AT AN EXERCISE PRICE OF $3.06 PER SHARE
THESE SECURITIES HAVE BEEN ISSUED UNDER EXEMPTIONS FROM APPLICABLE STATE AND
FEDERAL SECURITIES LAWS AND REGULATIONS, AND MAY NOT BE TRANSFERRED UNLESS SUCH
TRANSFER WOULD BE EXEMPT FROM APPLICABLE STATE AND FEDERAL SECURITIES LAWS AND
REGULATIONS OR THE TRANSFER IS MADE UNDER AN EFFECTIVE REGISTRATION STATEMENT
THAT IS NOT SUBJECT TO A STOP ORDER. THIS DOCUMENT CONTAINS OTHER RESTRICTIONS
ON TRANSFER, AS WELL.
1. CERTIFICATE OF ENTITLEMENT. This certifies that Mercury Partners, LLC, a
California limited liability company, being herein called the "REGISTERED
HOLDER", is entitled to purchase (the "WARRANTS"), at any time on or before May
24, 2001 (the "EXPIRATION DATE"), 80,000 "WARRANT SHARES," each Warrant Share
consisting of one share of fully paid Common Stock, $0.001 par value ("Common
Stock"), of NEW IMAGE INDUSTRIES, INC. (the "COMPANY") , as such stock is
constituted at the date of this Warrant Agreement (but the shares included in a
Warrant Share may be adjusted from time to time as stated below), at the price
of $3.06 per Warrant Share, by surrendering this Common Stock Purchase Warrant
("WARRANT AGREEMENT"), with the purchase form included herein, at the executive
office of the Company at 2283 Cosmos Court, Carlsbad, California 92009, and by
paying in full the Exercise Price (as defined below) for the Warrant Shares as
to which this Warrant Agreement is exercised, and upon compliance with and
subject to the conditions set forth herein.
2. EXERCISE PRICE, DURATION AND TRANSFER AND EXERCISE OF WARRANTS
2.1 EXERCISE PRICE. The Registered Holder, subject to the provisions of
this Agreement, is entitled to purchase from the Company the number of Warrant
Shares above, as such Warrant Shares are constituted on the date the Warrants
evidenced hereby are exercised, at the price of $3.06 per Warrant Share (the
"WARRANT EXERCISE PRICE or WARRANT PRICE"), payable in full at the time such
Warrants are exercised. The Warrant Exercise Price shall be adjusted from time
to time upon the adjustment of the number of shares that may be purchased upon
the exercise of all Warrants issued pursuant to this Warrant Agreement in
accordance with Paragraph 3 hereof, so that the aggregate of the Warrant
Exercise Price paid and payable upon the exercise of all Warrants issued under
this Warrant Agreement shall not exceed the amount equal to $3.06 multiplied by
the original number of Warrant Shares.
2.2 DURATION. The Warrants granted under this Warrant Agreement expire on
the earlier of (i) May 24, 2001 or (ii), after May 24, 1998, the thirtieth
(30th) trading day (on a United States exchange or quotation system on which the
Common Stock of the Company is traded) following the date on which the Company
gives written notice to the Registered Holder that the last sales price on each
of the twenty (20) consecutive trading days was Eight Dollars ($8.00) per share
or higher, adjusted for the payment of dividends on the Common Stock in shares
of Common Stock (or securities convertible into, exchangeable for or otherwise
entitling the registered holder to receive Common Stock), subdivision of the
outstanding Common Stock into a greater number of shares of Common Stock or
combination of the outstanding Common Stock into a smaller number of shares of
Common Stock; and no attempted exercise of such Warrants after that date shall
have any effect ("EXPIRATION DATE").
2.3 TRANSFER AND EXERCISE.
2.3.1 The Company shall keep, at its executive office a register,
in which, subject to such reasonable regulations as it may prescribe, the
Company shall register the Warrants at the time of issuance thereof and shall
transfer Warrants so registered as provided in this Warrant Agreement. Subject
to Paragraph 2.3.7, upon surrender for transfer of any Warrant at such office,
the Company shall execute and deliver to the name of the transferees a new
Warrant Agreement or Agreements evidencing Warrants to purchase a like number of
Warrant Shares. All Warrant Agreements presented for transfer or exchange shall
(if required by the Company) be Duly Endorsed or be accompanied by a written
instrument of transfer in form satisfactory to the Company Agreement duly
executed by the Registered Holder or his or her attorney duly authorized. For
purposes of this Warrant Agreement, the term "DULY ENDORSED" shall mean duly
endorsed in blank by the Person or Persons in whose name a Warrant Agreement is
registered or accompanied by a duly executed assignment separate from the
Warrant Agreement with the signatures thereon guaranteed by a commercial bank,
trust company or other financial institution of nationally recognized standing
in the United States.
2.3.2 Subject to Paragraph 2.3.8, a Registered Holder is entitled
to exercise his or her Warrants, in whole or in part, at any time, or from time
to time commencing on the date of issuance, upon written notice to the Company,
until 5:00 p.m. Pacific time on the Expiration Date or, if such day is not a
Business Day, then until 5:00 p.m. Pacific time on the next succeeding day that
shall be a Business Day by presenting and surrendering his Warrant Agreement to
the Company at the executive office of the Company, with the Exercise
Subscription Form set forth herein, duly executed and accompanied by proper
payment, of the Warrant for the number of Warrant specified in such form, all
subject to the terms and conditions of this Warrant Agreement. At the option of
the Registered Holder, the Exercise Price may be paid in cash or by certified or
official bank check or bank cashier's check payable to the order of the Company,
or by any combination of cash or such check or in the manner provided in
Paragraph 4.5. For purposes of this Warrant Agreement, the term "BUSINESS DAY"
shall mean any day except a Saturday, Sunday or other day on which commercial
banks in San Diego, California are authorized by law to close.
2.3.3 Subject to Paragraph 2.3.7, upon surrender of any Warrant
Agreement in conformity with the provisions of this Warrant Agreement, the
Company shall transfer to the Registered Holder under such Warrant Agreement
appropriate evidence of ownership of any Warrant Shares to which the Registered
Holder is entitled, registered or otherwise placed in, or payable to the order
of the Registered Holder, and shall deliver such evidence of ownership, together
with an amount in cash in lieu of any fraction of a Warrant Share as provided in
Paragraph 3.3 below.
2.3.4 If a Registered Holder exercises fewer than all of the
Warrants evidenced by such Registered Holder's Warrant Agreement, such Warrant
Agreement shall be surrendered to the Company and a new Warrant Agreement of the
same tenor evidencing such Registered Holder's remaining Warrants shall be
executed by the Company. The Company shall register such new Warrant Agreement
in the name of such Registered Holder and deliver the new Warrant Agreement to
such Registered Holder.
2.3.5 The Company shall pay all expenses in connection with, and
all taxes and other governmental charges that may be imposed in respect of, the
issue or delivery of any Warrant Shares issuable upon the exercise of any
Warrant. The Company shall not be required, however, to pay any tax or other
charge imposed in connection with any transfer involved in the issue of a
certificate for Warrant Shares in any name other than that of a Registered
Holder of a Warrant, and in such case the Company shall not be required to issue
or deliver any such stock certificate until such tax or other charge has been
paid or it has been established to the Company's reasonable satisfaction that
such tax or other charge is not due.
2.3.6 Each Person in whose name any such certificate for Warrant
Shares is issued shall for all purposes be deemed have become the holder of
record of the Warrant Shares represented thereby on the date on which the
Warrant Agreement was surrendered and payment of the purchase price and any
applicable taxes was made irrespective of the date of issue or delivery of such
certificate except that if the date of such surrender and payment is a date when
the stock transfer books of the Company for the Warrant Shares are closed, such
Person shall be deemed to have become the holder of such shares on the next
succeeding date on which such stock transfer books are open. The Company will
not close such stock transfer books at any one time for a period longer than 20
days.
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2.3.7 Notwithstanding any provision hereof to the contrary, no
Registered Holder may sell, transfer, hypothecate or encumber (a "TRANSFER") any
of the Warrants represented by this Warrant Agreement or any interest in this
Warrant Agreement without the prior written consent of the Company. The Company
shall consent to any such Transfer upon being provided at the cost and expense
of the Registered Holder, reasonable assurances that such Transfer does not
violate any applicable securities law or regulation, which assurances may
include, at the option of the Company, an opinion of counsel to the Registered
Holder (which counsel shall be reasonably approved by the Company) provided at
the expense of the Registered Holder that the Transfer may be made pursuant to
an exemption from applicable securities laws and regulations or a registration
statement that is then effective and not subject to any stop order.
Notwithstanding any provision herein to the contrary, transfer without
consideration to an inter vivos revocable trust where the Registered Holder has
the right to revoke the trust insofar as the interest to be transferred is
concerned shall not be deemed to constitute a Transfer.
2.3.8 Notwithstanding any provision hereof to the contrary, no
Registered Holder may exercise any of the Warrants represented by this Warrant
Agreement without the prior written consent of the Company. The Company shall
consent to any such exercise upon being provided at the cost and expense of the
Company, reasonable assurances that such exercise does not violate any
applicable securities law or regulation, which assurances may include at the
option of the Company an opinion of counsel to the Registered Holder (which
counsel shall be reasonably approved by the Company) provided at the expense of
the Company that the exercise may be made pursuant to an exemption from
applicable securities laws and regulations or a registration statement that is
then effective and not subject to any stop order.
3. ADJUSTMENTS IN WARRANT SHARES; FRACTIONAL SHARES
3.1 ANTI-DILUTION PROVISIONS. The number of Warrant Shares which may be
purchased upon the exercise hereof shall be subject to change or adjustment as
follows:
3.1.1 STOCK DIVIDENDS, SUBDIVISIONS, COMBINATIONS. In case the
Company shall (i) pay a dividend or make a distribution in respect of the Common
Stock in shares of Common Stock (or securities convertible into, exchangeable
for or otherwise entitling the registered holder to receive Common Stock),
(ii) subdivide the outstanding Common Stock into a greater number of shares of
Common Stock or (iii) combine the outstanding Common Stock into a smaller number
of shares of Common Stock, the number of shares of Common Stock purchasable upon
exercise of any Warrant immediately prior to the record date fixing shareholders
to be affected by such event shall be adjusted so that the Registered Holder
shall thereafter be entitled to receive that kind and number of shares of Common
Stock or other securities of the Company that the Registered Holder would have
owned or have been entitled to receive after the happening of any of the events
described above, had the Warrant been exercised immediately prior to the
happening of such event or any record date with respect thereto. An adjustment
made pursuant to this paragraph 3.1.1 shall become effective (i) immediately
after the record date in the case of a dividend or distribution and
(ii) immediately after the effective date in the case of a subdivision or
combination. If the Company shall take a record of the holders of its Common
Stock for the purpose of entitling them to receive a dividend or other
distribution, and shall thereafter and before the distribution to stockholders
thereof legally abandon its plan to pay or deliver such dividend or
distribution, then thereafter no adjustment in the number of shares of Common
Stock issuable upon exercise of a Warrant then in effect shall be required by
reason of the taking of such record. No adjustment shall be made under this
Paragraph 3.1.1 unless such adjustment would require an increase or decrease of
at least one percent in the number of shares of Common Stock or other securities
of the Company that the Registered Holder would have owned or have been entitled
to receive had the Warrant been exercised, provided however, that any
adjustments which by reason of this sentence are not required to be made shall
be carried forward and taken into account in any subsequent adjustment, and all
calculations shall be made to the nearest one-hundredth of a share. The Warrant
Exercise Price per Warrant Share purchasable upon exercise of any Warrant shall
be subject to adjustment from time to time as follows: upon each adjustment of
the number of Warrant Shares purchasable pursuant to this Section 3.1, the
Warrant Exercise Price shall be reduced or increased, as the case may be, to a
price determined by dividing the aggregate Warrant Exercise Price of all Warrant
Shares in effect prior to such adjustment by the total maximum number of Warrant
Shares purchasable upon the exercise of all Warrants immediately after such
adjustment.
3.1.2 REORGANIZATION OR RECLASSIFICATION. In case of any capital
reorganization or any reclassification of the capital stock of the Company
(whether pursuant to a merger or consolidation or otherwise), each Warrant shall
thereafter be exercisable for the number of shares of stock or other securities
or property receivable upon such capital reorganization or reclassification of
capital stock, as the case may be, by a holder of
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the number of shares of Warrant Shares into which the Warrant was exercisable
immediately prior to such capital reorganization or reclassification of capital
stock; and, in any case, appropriate adjustment shall be made in the application
of the provisions herein set forth with respect to the rights and interests
thereafter of the Registered Holder of any Warrant to the end that the
provisions set forth herein shall thereafter be applicable, as nearly as
reasonably may be, in relation to any shares of stock or other securities or
property thereafter deliverable upon the exercise of the Warrant.
3.1.3 NOTICE. In the event that the Company shall propose at any
time to effect any transaction of the type described in Subsections 3.1.1 and
3.1.2 above or take any similar extraordinary corporate action affecting the
Company's capital stock (including but not limited to the transfer of
substantially all of the Company's assets), then, in connection with each such
event, the Company shall send notice thereof to all Registered Holders at least
20 days prior to the earlier of (i) the date on which such event is to become
effective, (ii) the record date for the shareholders affected by such event, or
(iii) the first date on which the Company intends to effect any such
transaction, in each case specifying in reasonable detail what the transaction
or event consists of and, if applicable, the aggregate amount or value of any
cash or property proposed to be distributed, paid, purchased or received by the
Company in connection therewith.
3.1.4 ADJUSTMENT UPON ISSUANCE OF SECURITIES.
i. If the Company shall issue any Common Stock (other than
"Excluded Stock," as defined below, or subdivisions, split-ups, combinations or
dividends, which are covered by subparagraphs 3.1.1 or 3.1.2), for no
consideration or for a consideration per share less than the Warrant Price in
effect immediately prior to the issuance of such Common Stock, the Warrant Price
in effect immediately after such issuance shall be adjusted, concurrent with
such issue (except as provided in this subparagraph i), to a price equal to the
quotient obtained by dividing:
(A) an amount equal to the sum of
(x) the total number of shares of Common Stock
outstanding (including any shares of Common Stock deemed to have been issued
pursuant to subdivision (3) of this subparagraph i and to subparagraph ii below)
immediately prior to such issuance multiplied by the Warrant Price in effect
immediately prior to such issuance (or higher price for which such shares of
Common Stock were actually issued), plus
(y) the consideration received by the Company upon
such issuance, by
(B) the total number of shares of Common Stock outstanding
(including any shares of Common Stock deemed to have been issued pursuant to
subdivision (3) of this subparagraph i and to subparagraph ii below) immediately
after the issuance of Common Stock.
(1) In the case of the issuance of Common Stock for
cash, the consideration shall be deemed to be the amount of cash paid therefor
without deducting any discounts or commissions paid or incurred by the Company
in connection with the issuance and sale thereof.
(2) In the case of the issuance of Common Stock for a
consideration in whole or in part other than cash, the consideration other than
cash shall be deemed to be the fair value thereof as determined by the Board of
Directors of the Company, in accordance with generally accepted accounting
principles; provided, however, that if, at the time of such determination, the
Company's Common Stock is traded in the over-the-counter market or on a national
or regional securities exchange, such fair market value, as determined by the
Board of Directors of the Company, shall not exceed the aggregate "Current
Market Price" (as defined below) of the shares of Common Stock being issued.
(3) In the case of the issuance of (i) options to
purchase or rights to subscribe for Common Stock (other than Excluded Stock),
(ii) securities by their terms convertible into or exchangeable for Common Stock
(other than Excluded Stock), or (iii) options to purchase or rights to subscribe
for such convertible or exchangeable securities:
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(A) The aggregate maximum number of shares of
Common Stock deliverable upon exercise of such options to purchase or rights to
subscribe for Common Stock shall be deemed to have been issued at the time such
options or rights were issued and for a consideration equal to the consideration
(determined in the manner provided in subdivisions (1) and (2) above), if any,
received by the Company upon the issuance of such options or rights plus the
minimum purchase price provided in such options or rights for the Common Stock
covered thereby.
(B) The aggregate maximum number of shares of
Common Stock deliverable upon conversion of or in exchange for any such
convertible or exchangeable securities, or upon the exercise of options to
purchase or rights to subscribe for such convertible or exchangeable securities
and subsequent conversion or exchange thereof, shall be deemed to have been
issued at the time such securities were issued or such options or rights were
issued and for a consideration equal to the consideration received by the
Company for any such securities and related options or rights (excluding any
cash received on account of accrued interest or accrued dividends), plus the
additional consideration, if any, to be received by the Company upon the
conversion or exchange of such securities or the exercise of any related options
or rights (the consideration in each case to be determined in the manner
provided in subdivisions (1) and (2) above).
(C) Upon any change in the number of shares of
Common Stock deliverable upon exercise of any such options or rights or
conversion of or exchange for such convertible or exchangeable securities, or on
any change in the minimum purchase price of such options, rights or securities,
other than a change resulting from the antidilution provisions of such options,
rights or securities, the Warrant Price shall forthwith be readjusted to such
Warrant Price as would have obtained had the adjustment made upon (i) the
issuance of such options, rights or securities not exercised, converted or
exchanged prior to such change or (ii) the options or rights related to such
securities not converted or exchanged prior to such change, as the case may be,
been made upon the basis of such change.
(C) Upon the expiration of any such options or rights, the
termination of any such rights to convert or exchange or the expiration of any
options or rights related to such convertible or exchangeable securities, the
Warrant Price shall forthwith be readjusted to such Warrant Price as would have
obtained had the adjustment made upon the issuance of such options, rights,
convertible or exchangeable securities or options or rights related to such
convertible or exchangeable securities, as the case may be, been made upon the
basis of the issuance of only the number of shares of Common Stock actually
issued upon the exercise of such options or rights, upon the conversion or
exchange of such convertible or exchangeable securities or upon the exercise of
the options or rights related to such convertible or exchangeable securities, as
the case may be.
ii. "Excluded Stock" shall mean (a) up to 1,200,000 shares of
Common Stock issuable at a price below the Warrant Price under any employee,
consultant or Director inventive arrangement or plan adopted by the Board of
Directors of the Company, (b) shares of Common Stock issued in connection with
the acquisition of Insight Imaging Systems, Inc. by the Company, and (c) up to
700,000 shares of Common Stock in a private placement or placements prior to
July 31, 1996 provided that the private placement issuance price of such shares
is not less than $3.00 per share. All shares of Excluded Stock or stock
dividends, subdivisions, split-ups, combinations or dividends which are covered
by subparagraphs 3.1.1 or 3.1.2 shall be deemed to be outstanding for all
purposes of the computations of subparagraph 3.1.4.i above.
3.1.5 ADJUSTMENT OF EXERCISE PRICE. The Warrant Exercise Price
per Warrant Share purchasable upon exercise of any Warrant shall be subject to
adjustment from time to time as follows: upon each adjustment of the number of
Warrant Shares purchasable pursuant to this Section 3.1, the Warrant Exercise
Price shall be reduced or increased, as the case may be, to a price determined
by dividing the aggregate Warrant Exercise Price of all Warrant Shares in effect
prior to such adjustment by the total maximum number of Warrant Shares
purchasable upon the exercise of all Warrants immediately after such adjustment.
3.2 CONSOLIDATION, MERGER, OR SALE OF ASSETS. In addition to any other
rights of Registered Holders set forth herein, in case of any consolidation of
the Company with, or merger of the Company into, any other Person, any merger of
another Person into the Company (other than a merger which does not result in
any reclassification, conversion, exchange or cancellation of outstanding
securities as to which Warrants may then be exercised) or any sale or transfer
of all or substantially all of the assets of the Company to the Person formed by
such consolidation or resulting from such merger or which acquires such assets,
as the case may be, all Registered Holders shall have the right thereafter to
exercise their Warrants for the kind and amount of securities, cash and
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other property receivable upon such consolidation, merger, sale or transfer by a
holder of the number of securities as to which Warrants may then be exercised
for which their Warrants may have been exercised immediately prior to such
consolidation, merger, sale or transfer. Adjustments for events subsequent to
the effective date of such a consolidation, merger and sale of assets shall be
as nearly equivalent as may be practicable to the adjustments provided for in
this Agreement. In any such event, effective provisions shall be made in the
certificate or articles of incorporation of the resulting or surviving
corporation, in any contract of sale, conveyance, lease or transfer, or
otherwise so that the provisions set forth herein for the protection of the
rights of the Registered Holders shall thereafter continue to be applicable; and
any such resulting or surviving corporation shall expressly assume the
obligation to deliver, upon exercise, such shares of stock, other securities,
cash and property. The provisions of this Paragraph 3.2 shall similarly apply
to successive consolidations, mergers, sales, leases or transfers.
3.3 FRACTIONAL SHARES. No fractional shares of Common Stock will be
issued in connection with any subscription hereunder. In lieu of any fractional
shares which would otherwise be issuable, the Company shall pay cash equal to
the product of such fraction multiplied by the fair market value of one share of
Common Stock on the date of exercise, as determined in good faith by the
Company's Board of Directors.
4. OTHER PROVISIONS RELATING TO THE RIGHTS OF REGISTERED HOLDERS OF WARRANTS
4.1 RIGHTS OF REGISTERED HOLDERS. Prior to the exercise of any Warrant, a
Registered Holder shall not, by virtue hereof, be entitled to any rights of a
stockholder of the Company including, without limitation, the right to vote, to
receive dividends or other distributions or to receive any notice of meetings of
shareholders or any notice of any proceedings of the Company, except as may be
specifically provided for herein.
4.2 ASSIGNMENT OR TRANSFER. Subject to Paragraph 2, a Warrant is
transferable by the Registered Holder thereof by surrendering for transfer at
the executive office of the Company, this Warrant Agreement and the Assignment
Form, Duly Endorsed. Thereupon, one or more new Warrant Agreements evidencing
the transferred Warrants of authorized denominations will be issued to the
designated transferee or transferees, and, if necessary, a new Warrant Agreement
evidencing warrants not transferred will be issued to the original Registered
Holder. In any event, Warrants may not be sold, assigned, pledged or otherwise
transferred except in compliance with the Securities Act of 1933, as amended, if
applicable, and transfer or assignment may only be made in compliance with the
other terms of this Warrant Agreement.
4.3 RESERVATION OF SHARES. The Company hereby agrees that at all times
there shall be reserved for issuance and delivery upon exercise of any Warrant
such number of its authorized but unissued shares or other securities of the
Company from time to time issuable upon exercise of the Warrants as will be
sufficient to permit the exercise in full of the Warrants. All such shares
shall be duly authorized and, when issued upon such exercise, shall be validly
issued, fully paid, free and clear of all liens, security interests and charges.
4.4 DUE AUTHORIZATION AND ISSUANCE OF STOCK WARRANT AND SHARES. The
Company covenants and agrees that this Warrant and all shares of its Common
Stock which may be issued upon the exercise of the rights represented by this
Warrant will, upon issuance, be duly authorized and issued, fully paid and non-
assessable and free from all taxes, liens, and charges with respect to the
issuance thereof. The Company further covenants and agrees that during the
period within which the rights represented by this Stock Warrant may be
exercised, the Company will at all times have authorized and reserved, free of
preemptive or other rights, for the exclusive purpose of issuance upon exercise
of the rights provided under this Warrant, a sufficient number of shares of its
Common Stock to provide for the exercise of the rights represented herein.
4.5 CASHLESS EXERCISE. The Holder may also exercise this Warrant in whole
or in part in a "cashless" or "net-issue" exercise of this Warrant. In such
event, the Holder will deliver this Warrant to the Company with a notice stating
the number of shares to be delivered to the Holder and the number of shares with
respect to which the Warrant is being surrendered in payment of the aggregate
Warrant Exercise Price for the shares to be delivered to the Holder and for the
shares as to which the Warrant is being surrendered. For purposes of this
provision, all shares as to which the Warrant is surrendered will be valued at
the Current Market Price (as defined below). The notice accompanying the
Warrant shall also set forth the number of shares remaining subject to the
Warrant. As an example of the foregoing, if the Warrant Exercise Price is
$0.3125 per share, the Current Market Price is $0.9375 per share, and the
Warrant were exercised in full, the Company would deliver 333,333 shares of the
Company's Common Stock to the Holder and the Warrant would be surrendered with
respect to the remaining 166,667 shares. The Company shall not be obligated to
issue fractional shares of Common Stock upon exercise of
6
this Warrant but shall pay to the Holder an amount in cash equal to the Current
Market Price per share multiplied by such fraction (rounded to the nearest
cent), or in the example in the preceding sentence $0.32. "CURRENT MARKET
PRICE," for purposes of this Warrant Agreement shall be deemed to be the average
closing price for the last actual trade on a United States exchange or quotation
system on which the Common Stock is traded during the most recent five trading
days on which shares were actually traded.
4.6 REGISTRATION RIGHTS. See Exhibit "A," incorporated herein by
reference.
5. GENERAL PROVISIONS.
5.1 NOTICES. Unless otherwise specifically permitted by this Warrant
Agreement, all notices or other communications required or permitted under this
Warrant Agreement shall be in writing, and shall be personally delivered or sent
by registered or certified mail, postage prepaid, return receipt requested, or
sent by telecopy, provided that the telecopy cover sheet contain a notation of
the date and time of transmission, and shall be deemed received: (i) if
personally delivered, upon the date of delivery to the address of the person to
receive such notice, (ii) if mailed in accordance with the provisions of this
paragraph, two (2) business days after the date placed in the United States
mail, (iii) if mailed other than in accordance with the provisions of this
paragraph or mailed from outside the United States, upon the date of delivery to
the address of the person to receive such notice, or (iv) if given by telecopy,
when sent. Notices shall be given at the following addresses:
If to the Company:
New Image Industries, Inc.
2283 Cosmos Court
Carlsbad, California
Attention: Corporate Secretary
Telecopier: (619) 930-9999
With a copy to:
Higgs, Fletcher & Mack LLP
401 West "A" Street, Suite 2000
San Diego, California 92101
Attention: Franklin T. Lloyd, Esq.
Telecopier: (619) 696-1410
If to the Registered Holder:
Mercury Partners
11100 Santa Monica Blvd., Suite 2020
Los Angeles, CA 90025
Attention: Brad de Koning
Telecopier: (310) 444-3848
5.2 COMPLETE AGREEMENT; MODIFICATIONS. This Warrant Agreement and written
agreements, if any, entered into concurrently herewith (i) constitute the
parties' entire agreement, including all terms, conditions, definitions,
warranties, representations, and covenants, with respect to the subject matter
hereof, (ii) merge all prior discussions and negotiations between or among any
or all of them as to the subject matter hereof, and (iii) supersede and replace
all terms, conditions, definitions, warranties, representations, covenants,
agreements, promises and understandings, whether oral or written, with respect
to the subject matter hereof. Any provision of this Warrant may be amended or
waived if, and only if, such amendment or waiver is in writing and signed, by
the party against whom the waiver is to be effective. No failure or delay by
either party in exercising any right, power or privilege hereunder shall operate
as a waiver thereof nor shall any single or partial exercise thereof preclude
any other or further exercise thereof or the exercise of any other right, power
or privilege. The rights and remedies herein provide shall be cumulative and
not exclusive of any rights or remedies by law. Any amendment, alteration, or
modification requiring the signature of more than one party may be signed in
counterparts.
7
5.3 FURTHER ACTIONS. Each party agrees to perform any further acts and
execute and deliver any further documents reasonably necessary to carry out the
provisions of this Warrant Agreement.
5.4 ASSIGNMENT. Neither party may assign its rights under this Warrant
Agreement without the prior written consent of the other party hereto.
5.5 SUCCESSORS AND ASSIGNS. Except as explicitly provided herein to the
contrary, this Warrant Agreement shall be binding upon and inure to the benefit
of the parties, their respective successors and permitted assigns.
5.6 SEVERABILITY. If any portion of this Warrant Agreement shall be held
by a court of competent jurisdiction to be invalid, void, or otherwise
unenforceable, the remaining provisions shall remain enforceable to the fullest
extent permitted by law if enforcement would not frustrate the overall intent of
the parties (as such intent is manifested by all provisions of the Warrant
Agreement, including such invalid, void, or otherwise unenforceable portion).
5.7 EXTENSION NOT A WAIVER. No delay or omission in the exercise of any
power, remedy, or right herein provided or otherwise available to any party
shall impair or affect the right of such party thereafter to exercise the same.
Any extension of time or other indulgence granted to a party hereunder shall not
otherwise alter or affect any power, remedy or right of any other party, or the
obligations of the party to whom such extension or indulgence is granted except
as specifically waived.
5.8 TIME OF ESSENCE. Time is of the essence of each and every term,
condition, obligation and provision hereof.
5.9 NO THIRD PARTY BENEFICIARIES. This Warrant Agreement and each and
every provision hereof is for the exclusive benefit of the parties hereto and
not for the benefit of any third party.
5.10 ATTORNEYS' FEES. Should any litigation (including any proceedings in
a bankruptcy court) or arbitration be commenced between the parties hereto or
their representatives concerning any provision of this Warrant Agreement or the
rights and duties of any person or entity hereunder, the party or parties
prevailing in such litigation or arbitration shall be entitled, in addition to
such other relief as may be granted, to the attorneys' fees and court or
arbitration costs incurred by reason of such litigation or arbitration,
including attorneys' and experts' fees incurred in preparation for or
investigation of any matter relating to such litigation or arbitration.
5.11 HEADINGS. The headings in this Warrant Agreement are inserted only as
a matter of convenience, and in no way define, limit, or extend or interpret the
scope of this Warrant Agreement or of any particular provision hereof.
5.12 REFERENCES. A reference to a particular paragraph of this Warrant
Agreement shall be deemed to include references to all subordinate paragraphs,
if any.
5.13 COUNTERPARTS. This Warrant Agreement may be signed in multiple
counterparts with the same force and effect as if all original signatures
appeared on one copy; and in the event this Agreement is signed in counterparts,
each counterpart shall be deemed an original and all of the counterparts shall
be deemed to be one agreement.
8
5.14 APPLICABLE LAW. This Warrant Agreement shall be construed in
accordance with, and governed by, the laws of the State of California.
IN WITNESS WHEREOF, the parties have executed this Agreement as of May 24,
1996.
NEW IMAGE INDUSTRIES, INC.
By: /s/ Harold R. Orr
-----------------------------------
Its: CFO
-----------------------------------
MERCURY PARTNERS, LLC
By:
-----------------------------------
Its:
-----------------------------------
9
EXERCISE SUBSCRIPTION FORM
TO BE EXECUTED BY THE REGISTERED HOLDER
DESIRING TO EXERCISE THE WITHIN WARRANTS OF
NEW IMAGE INDUSTRIES, INC.
Capitalized terms used but not defined herein shall have the meaning
assigned to them in the within Warrant Agreement between NEW IMAGE INDUSTRIES,
INC. and MERCURY PARTNERS dated as of May 24, 1996.
The undersigned Registered Holder hereby exercises __________________
Warrants evidencing the right to purchase shares of the Warrant Shares covered
by the within Warrant Agreement, according to the conditions thereof.
The undersigned Registered Holder herewith makes payment in full of the
Warrant Exercise Price on such shares of (i) $___________________ in cash or by
certified or official bank check or bank cashier's check payable to the order of
the Company, or by any combination of such cash or check and/or (ii) _________
shares of NEW IMAGE INDUSTRIES, INC. Common Stock pursuant to the "Cashless
Exercise" provisions of Paragraph 4.5 of the Warrant Agreement. In the case of
payment pursuant to the foregoing clause (ii), the undersigned Registered Holder
hereby agrees that the number of shares to be delivered to the Registered Holder
pursuant to this exercise is ____________ and that the Warrant will continue to
be exercisable for _________ shares, subject to adjustment, if any, under
Paragraph 4.5 based upon the Current Market Value of the shares.
[The Undersigned Registered Holder has hereby exercised fewer than all the
Warrants evidenced by the within Warrant Agreement and, therefore, requests that
a new Warrant Agreement evidencing the remaining Warrants evidenced by the
within Warrant Agreement be issued in the name of and delivered to the
Registered Holder.](1)
[ ]
By:
-----------------------------------------
Name:
Title:
Address
---------------------------------------------
---------------------------------------------
---------------------------------------------
Dated:
-----------------------
- - ------------------------------------------------------------
- - ------------------------------------------------------------
(1) To be included only if the Registered Holder is exercising fewer than all
of the Warrants evidenced by the within Warrant Agreement.
ASSIGNMENT FORM
TO BE EXECUTED BY THE REGISTERED HOLDER
DESIRING TO EFFECT A TRANSFER OF THE
WITHIN WARRANTS OF
NEW IMAGE INDUSTRIES, INC.
The following abbreviations, when used in the Warrant Agreement, shall be
construed as though they were written out in full according to applicable laws
or regulations.
TEN COM - as tenants in common UNIF GIFT MIN ACT - ________ Custodian
TEN ENT - as tenants by the entireties ------------ (Cust) (Minor)
under the Uniform Gifts
JT TEN - as joint tenants with right to Minors
of survivorship and not Act ____________________
as tenants in common (State)
Additional abbreviations may also be used, though not in the above list.
FOR VALUE RECEIVED, in accordance with the Warrant Agreement between NEW
IMAGE INDUSTRIES, INC. and _____________________________________, dated as of
______________, the Securities Act of 1933, as amended, if applicable, and all
applicable state securities laws, the undersigned hereby sells, assigns and
transfers unto
----------------------------------------
(Name)
----------------------------------------
(Address)
the right to purchase ____________ Warrant Shares evidenced by the within
Warrant Agreement, and does hereby irrevocably constitute and appoint
_____________________________________________________________________________,
attorney to transfer the said right on the books of the Company with full power
of substitution.
By:
-----------------------------------------
Name:
Title:
Address
---------------------------------------------
---------------------------------------------
---------------------------------------------
Dated:
-----------------------
- - ------------------------------------------------------------
NOTICE: The signature to this assignment must correspond with the name as
written upon the face of the within Warrant Agreement in every particular,
without alteration or enlargement, or a change whatsoever and must be guaranteed
by a commercial bank, trust company or by a financial institution of nationally
recognized standing in the United States.
EXHIBIT A
TERMS OF THE REGISTRATION RIGHTS
OF THE WARRANT SHARES
Capitalized terms used herein and not otherwise defined shall have the
respective meanings given such terms in the Warrant Agreement (the "Agreement")
to which this Exhibit A is attached.
I
SECTION 1.1 DEFINITIONS. For purposes of this EXHIBIT A, the
following terms shall have the following meanings:
"Demand Registration" means a Demand Registration as defined in Section
2.1.
"Excess Amount" means the number of Registrable Securities requested by a
Holder or Holders to be sold pursuant to Section 2.1 or 2.2 which the managing
Underwriter or Underwriters determines exceeds the largest number of Registrable
Securities which can successfully be sold in an orderly manner in such offering
within a price range acceptable to the Company.
"Holder" means the Registered Holder (or any Permitted Transferee thereof).
"Other Holder Notice" means an Other Holder Notice as defined in Section
2.1.
"Piggy-Back Registration" means a Piggy-Back Registration as defined in
Section 2.2.
"Registrable Security" means any Warrant Share outstanding until (i) a
registration statement covering such has been declared effective by the SEC and
it has been disposed of pursuant to such effective registration statement, (ii)
it is sold under circumstances in which all of the applicable conditions of Rule
144 (or any similar provisions then in force) under the Securities Act are met
or it may be sold pursuant to Rule 144(k) under such Act or (iii) it has been
otherwise Transferred, the Company has delivered a new certificate or other
evidence of ownership for it not bearing the legend required pursuant to the
Warrant Agreement and it may be resold without subsequent registration under the
Securities Act.
"Requisite Share Number" means a number of Warrant Shares representing not
less than 50% of the total number of Warrant Shares then outstanding.
"Selling Holder" means a Holder who is selling Registrable Securities
pursuant to a registration statement under the Securities Act.
"Transfer" means any direct or indirect transfer, sale, assignment or other
disposition of Common Stock.
"Underwriter" means a securities dealer who purchases any Registrable
Securities as principal in an underwritten offering and not as part of such
dealer's market-making activities.
II
SECTION 2.1 DEMAND REGISTRATION.
(a) REQUEST FOR REGISTRATION. At any time, any Holder or Holders owning,
individually or in the aggregate, at least the Requisite Share Number may make a
written request for registration under the Securities Act of all or part of its
or their Registrable Securities (a "Demand Registration"); PROVIDED that the
Holder or Holders making the request are together requesting that the Requisite
Share Number be registered, and PROVIDED FURTHER that the Company shall not be
obligated to effect more than one Demand Registration. Such request will
specify the number of shares of Registrable Securities proposed to be sold and
will also specify the intended method of disposition thereof. The Company shall
give written notice of such registration request within 10 days after the
receipt thereof to all other Holders. Within 20 days after receipt of such
notice by any Holder, such Holder may request in writing that Registrable
Securities be included in such registration. Each such request by such other
Holders (each, an "Other Holder Notice") shall specify the number of shares of
Registrable Securities proposed to be sold and the intended method of
disposition thereof. With respect to a Demand Registration initiated by the
Registered Holder (or Permitted Transferees) as described above, the Company
shall include such Demand Registration the Registrable Securities of any other
Registered Holder (or Permitted Transferee) requested to be so included and such
Holder shall be deemed to be a Holder who initiated a Demand Registration for
purposes of this Exhibit A, including, without limitation, Sections 2.1 and 2.3.
(b) EFFECTIVE REGISTRATION. A registration will not count as a Demand
Registration until it has become effective.
(c) UNDERWRITTEN OFFERING. If the Holder initiating a Demand Registration
so elects, the offering of such Registrable Securities pursuant to such Demand
Registration shall be in the form of an underwritten offering. The Company and
such Holder shall jointly select one or more nationally recognized firms of
investment bankers to act as the managing Underwriter or Underwriters in
connection with such offering and shall select any additional managers to be
used in connection with the offering.
(d) REQUIRED DELAYS. Notwithstanding anything contained in this Section
2.1 to the contrary, if any request for Demand Registration is delivered at a
time when the Company has determined or is currently planning to file a
Registration Statement with respect to an underwritten primary registration of
Common Stock on behalf of the Company (so long as a Registration Statement is
filed with respect thereto within two months of the Holder's or Holders' request
for Demand Registration), the Company may require the Holder or Holders to
postpone such request until the sooner of the expiration of the 120-day period
following the effective date of such registration or six months from the day of
the Holder's or Holders' request for such
2
Demand Registration; and PROVIDED FURTHER, HOWEVER, that if such request is
delivered at a time when such registration would adversely affect a material
acquisition or merger to which the Company is a party, the Company may require
the Holder to postpone such request for an appropriate period (not to exceed 90
days). In either such event, the Company shall deliver a certificate signed by
the President or the Chairman confirming the Company's reasons for postponing
the registration.
SECTION 2.2 PIGGY-BACK REGISTRATION. If at any time the Company
proposes to file a registration statement under the Securities Act with respect
to an offering by the Company for its own account or for the account of any of
its respective security holders of any class of security of the same class as
the Registrable Securities (other than a registration statement on Form S-4 or
S-8 (or any substitute form that may be adopted by the SEC) or a registration
statement filed in connection with an exchange offer or offering of securities
solely to the Company's existing security holders), then the Company shall give
written notice of such proposed filing to the Holders as soon as practicable
(but in no event less than 10 days before the anticipated filing date), and such
notice shall offer such Holders the opportunity (subject to Section 2.1) to
register such number of shares of Registrable Securities as each such Holder may
request in writing within 5 days of receipt of such notice (which request shall
specify the Registrable Securities intended to be disposed of by such Holder and
the intended method of distribution thereof) (a "Piggy-Back" Registration").
The Company shall use its best efforts to cause the managing Underwriter or
Underwriters of a proposed underwritten offering to permit the Registrable
Securities requested to be included in a Piggy-Back Registration to be included
on the same terms and conditions as any similar securities of the Company
included therein to permit the sale or other disposition of such Registrable
Securities in accordance with the intended method of distribution thereof.
Subject to Section 2.3(b), any Holder shall have the right to withdraw its
request for inclusion of its Registrable Securities in any Piggy-Back
Registration by giving written notice to the Company of its request to withdraw
within 20 days of its request for inclusion. The Company may withdraw a Piggy-
Back Registration at any time prior to the time it becomes effective.
SECTION 2.3 REDUCTION OF OFFERING.
(a) Notwithstanding anything contained herein, if the managing Underwriter
or Underwriters of an offering described in Section 2.1 or 2.2 determine that
the size of the offering that the Holders, the Company or any other persons
intend to make is such that the success of the offering would be adversely
affected by inclusion of the Registrable Securities requested to be included,
then (i) with respect to a Demand Registration, if the size of the offering is
the basis of such Underwriter's or Underwriters' determination, the Company
shall not include in such registration an amount of Registrable Securities
requested to be included in such offering equal to the excess amount, such
reduction first to be allocated pro rata among the Holders or other persons who
did not initiate the request for a Demand Registration according to the number
of Registrable Securities requested for inclusion, with the Holder or Holders or
other persons who initiated the request for a Demand Registration entitled to
include shares therein to the maximum extent possible provided that if such
Holders cannot include all their shares in such offering, the amount of
Registrable Securities to be registered shall be reduced pro rata among the
initiating
3
Holders and (ii) in the case of a Piggy-Back Registration, if securities are
being offered for the account of other persons as well as the Company, the
securities the Company seeks to include shall have priority over securities
sought to be included by any other person, (including the Holders) and, with
respect to the Registrable Securities intended to be offered by Holders, the
proportion by which the amount of such class of securities intended to be
offered by Holders is reduced shall not exceed the proportion by which tile the
amount of such class of securities intended to be offered t)y by such other
persons is reduced (it being understood that with respect to the Holders and
third parties such reduction may be all of such class of securities).
(b) If, as a result of the proration provisions of Section 2.3(a), any
Holder shall not be entitled to include all Registrable Securities in a Demand
Registration or Piggy-Back Registration that such Holder has requested to be
included, such Holder may elect to withdraw his request to include Registrable
Securities in such registration (a "Withdrawal Election"); PROVIDED HOWEVER,
that a Withdrawal Election shall be irrevocable and, after making a Withdrawal
Election, a Holder shall no longer have any right to include Registrable
Securities in the registration as to which Withdrawl Withdrawal Election was
made.
III
SECTION 3.1 FILINGS, INFORMATION. Whenever any Holder requests that any
Registrable Securities be registered pursuant to Section 2.1 hereof, the Company
will use its best efforts to effect the registration and the sale of such
Registrable Securities in accordance with the intended method of disposition
thereof as quickly as practicable, and in connection with any such request:
(a) The Company will as expeditiously as possible prepare and file with the
SEC a registration statement on any form for which the Company then qualifies or
which counsel for the Company shall deem appropriate and which form shall be
available for the sale of the Registrable Securities to be registered thereunder
in accordance with the intended method of distribution thereof, and use its best
efforts to cause such filed registration statement to become and remain
effective until the earlier of (i) 90 days from the date such registration
statement became effective or (ii) the date on which the sale of Registrable
Securities has been completed; PROVIDED that, if the Company shall furnish to
any Holder making a request pursuant to Section 2.1 a certificate signed by
either its Chairman or Chief Executive Officer stating that in his good faith
judgment it would be significantly disadvantageous to the Company or its
shareholders for such a registration statement to be filed as expeditiously as
possible, the Company shall have a period of not more than 90 days within which
to file such registration statement measured from the date of receipt of the
request in accordance with Section 2. 1.
(b) The Company will, prior to filing a registration statement or
prospectus or any amendment or supplement thereto, furnish to each Selling
Holder, one counsel representing all such Selling Holders, and each Underwriter,
if any, of the Registrable Securities covered by such registration statement
copies of such registration statement as proposed to be filed, together with
exhibits thereto, which documents will be subject to prompt review and approval
by the foregoing, and thereafter furnish to such Selling Holder, counsel and
Underwriter, if any, such
4
number of copies of such registration statement, each amendment and supplement
thereto (in each case including all exhibits thereto and documents incorporated
by reference therein), the prospectus included in such registration statement
(including each preliminary prospectus) and such other documents as such Selling
Holder or Underwriter may reasonably request in order to facilitate the
disposition of the Registrable Securities owned by such Selling Holder.
(c) After the filing of the registration statement, the Company will
promptly notify each Selling Holder of Registrable Securities covered by such
registration statement of any stop order issued or threatened by the SEC and
take all reasonable actions required to prevent the entry of such stop order or
to remove it if entered.
(d) The Company will use its best efforts to (i) register or qualify the
Registrable Securities under such other securities in blue sky laws of such
jurisdictions in the United States as any Selling Holder reasonably (in light of
such Selling Holder's intended plan of distribution) requests and (ii) cause
such Registrable Securities to be registered with or approved by such other
governmental agencies or authorities in the United States as may be necessary by
virtue of the business and operations of the Company and do any and all other
acts and things that may be reasonably necessary or advisable to enable such
Selling Holder to consummate the disposition of the Registrable Securities owned
by such Selling Holder; PROVIDED that the Company will not be required to (A)
qualify generally to do business in any jurisdiction where it would not
otherwise be required to qualify but for this paragraph (d), (B) subject itself
to taxation in any such jurisdiction or (C) consent to general service of
process in any such jurisdiction.
(e) The Company will immediately notify each Selling Holder of such
Registrable Securities, at any time when a prospectus relating thereto is
required to be delivered under the Securities Act, of the occurrence of an event
requiring the preparation of a supplement or amendment to such prospectus so
that, as thereafter delivered to the purchasers of such Registrable Securities,
such prospectus will not contain an untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary to make
the statements therein not misleading and promptly make available to each
Selling Holder any such supplement or amendment.
(f) The Company will enter into customary agreements (including, if
applicable, an underwriting agreement in customary form) and take such other
actions as are reasonably required in order to expedite or facilitate the
disposition of such Registrable Securities.
(g) The Company will deliver promptly to each Selling Holder of such
Registrable Securities and each Underwriter, if any, subject to restrictions
imposed by the United States federal government or any agency or instrumentality
thereof, copies of all correspondence between the SEC and the Company, its
counsel or auditors and all memoranda relating to discussions with the SEC or
its staff with respect to the registration statement and make available for
inspection by any Selling Holder of such Registrable Securities, any Underwriter
participating in any disposition pursuant to such registration statement and any
attorney, accountant or other professional retained by any such Selling Holder
or Underwriter (collectively, the "Inspectors"), (it being understood that the
Company is responsible for payment of the reasonable fees and
5
expenses of only one counsel pursuant to clause (viii) of Section 3.2) all
financial and other records, pertinent corporate documents and properties of the
Company (collectively, the "Records"), subject to restrictions imposed by any
governmental authority governing access to classified information, as shall be
reasonably necessary to enable them to exercise their due diligence
responsibility, and cause the Company's officers, directors and employees to
supply all information reasonably requested by any Inspectors in connection with
such registration statement. Records which the Company determines, in good
faith, to be confidential and which it notifies the Inspectors are confidential
shall not be disclosed by the Inspectors unless (i) the disclosure of such
Records is necessary to avoid or correct a misstatement or omission in such
registration statement or (ii) the disclosure or release of such Records is
requested or required pursuant to oral questions, interrogatories, requests for
information or documents or a subpoena or other order from a court of competent
jurisdiction or other process; PROVIDED that prior to any disclosure or release
pursuant to clause (ii), the Inspectors shall provide the Company with prompt
notice of any such request or requirement so that the Company may seek an
appropriate protective order or waive such Inspectors' obligation not to
disclose such Records; and PROVIDED FURTHER, that if failing the entry of a
protective order or the waiver by the Company permitting the disclosure or
release of such Records, the Inspectors, upon advice of counsel, are compelled
to disclose such Records, the Inspectors may disclose that portion of the
Records which counsel has advised the Inspectors that the Inspectors are
compelled to disclose. Each Selling Holder of such Registrable Securities
agrees that information retained by it solely as a result of such inspections
(not including any information obtained from a third party who, insofar as is
known to the Selling Holder after reasonable inquiry, is not prohibited from
providing such information by a contractual, legal or fiduciary obligation to
the Company) shall be deemed confidential and shall not be used by it as the
basis for any market transactions in the securities of the Company or its
Affiliates unless and until such is made generally available to the public.
Each Selling Holder of such Registrable Securities further agrees that it will,
upon learning that disclosure of such Records is sought in a court of competent
jurisdiction, give notice to the Company and allow the Company, at its expense,
to undertake appropriate action to prevent disclosure of the Records deemed
confidential.
(h) The Company will otherwise use its reasonable best efforts to comply
with all applicable rules and regulations of the SEC, and make available to its
security holders, as soon as reasonably practicable, an earnings statement
covering a period of 12 months, beginning within three months after the
effective date of the registration statement, which earnings statement shall
satisfy the provisions of Section 11(a) of the Securities Act.
(i) The Company will use its best efforts (a) to cause all such
Registrable Securities to be listed on each national securities exchange on
which similar securities issued by the Company are then listed (if any), if the
listing of such Registrable Securities is then permitted under the rules of such
exchange or (b) to secure designation of all such Registrable Securities as a
National Association of Securities Dealers Automatic Quotation ("NASDAQ")
"national market system security" within the meaning of Rule 11Aa2-1 of the SEC
or, to secure NASDAQ authorization for such Registrable Securities, if similar
securities issued by the Company are so designated.
6
(j) The Company may require each Selling Holder of Registrable Securities
to promptly furnish in writing to the Company such information regarding the
distribution of the Registrable Securities as the Company may from time to time
reasonably request and such other information as may be legally required in
connection with such registration.
Each Selling Holder agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in Section 3.1(e)
hereof, such Selling Holder will forthwith discontinue disposition of
Registrable Securities pursuant to the registration statement covering such
Registrable Securities until such Selling Holder's receipt of the copies of the
supplemented or amended prospectus contemplated by Section 3.l(e) hereof, and,
if so directed by the Company, such Selling Holder will deliver to the Company
all copies, other than permanent file copies then in such Selling Holder's
possession, of the most recent prospectus covering such Registrable Securities
at the time of receipt of such notice. In the event the Company shall give such
notice, the Company shall extend the period during which such registration
statement shall be maintained effective (including the period referred to in
Section 3.1(a) hereof) by the number of days during the period from and
including the date of the giving of notice pursuant to Section 3.1(e) hereof to
the date when the Company shall make available to the Selling Holders of
Registrable Securities covered by such registration statement a prospectus
supplemented or amended to conform with the requirements of Section 3.1(e)
hereof.
SECTION 3.2 REGISTRATION EXPENSES. In connection with any Demand
Registration pursuant to Section 2.1 hereof as to which no prior registration
rights under Section 2.2 hereof were available prior to the initial filing of
the registration statement with regard to such Demand Registration which would
have resulted in gross proceeds per share to Selling Holders in excess of the
Warrant Price per share, the Company shall pay the Registration Expenses, as
defined below, but otherwise, the Selling Holders shall pay such Registration
Expenses. In the case of any registration statement filed under Section 2.2
hereof as to which prior registration rights under Section 2.2 hereof were
available in two or more instances, the Company and the Selling Holders shall
pay the Registration Expenses in proportion to the shares of Common Stock of
each actually sold, but otherwise the Company shall pay such Registration
Expenses.
The term "Registration Expenses," for purposes of this section, means: (i)
all registration and filing fees, (ii) fees and expenses of compliance with
securities or blue sky laws (including fees and disbursements of counsel in
connection with blue sky qualifications of the Registrable Securities), (iii)
printing expenses, (iv) the Company's internal expenses (including, without
limitation, all salaries and expenses of its officers and employees performing
legal or accounting duties), (v) the fees and expenses, if any, incurred with
the listing of the Registrable Securities, (vi) fees and disbursements of
counsel for the Company and fees and expenses for independent certified public
accountants retained by the Company, (vii) the fees and expenses of any special
experts retained by the Company in connection with such registration, and (viii)
reasonable fees and expenses of one counsel (who shall be reasonably acceptable
to the Company) for all of the Selling Holders.
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The Company shall have no obligation to pay any underwriting fees,
discounts or commissions attributable to the sale of Registrable Securities, or
any out-of-pocket expenses of the Holders.
IV
SECTION 4.1 INDEMNIFICATION BY THE COMPANY. The Company agrees to
indemnify and hold harmless each Selling Holder of Registrable Securities, its
officers, directors and agents, and each person, if any, who controls such
Selling Holder within the meaning of Section 15 of the Securities Act or Section
20 of the Exchange Act from and against any loss, claim, damage or liability and
any action in respect thereof to which such Selling Holder, its officers,
directors and agents, and any such controlling person may become subject under
the Securities Act or otherwise, insofar as such loss, claim, damage, liability
or action arises out of, or is based upon, any untrue statement or prospectus
relating to the Registrable Securities (as amended or supplemented in the
Company shall have furnished any amendments or supplements thereto) or any
preliminary prospectus, or arises out of, or is based upon, 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 shall reimburse
each Selling Holder, its officers, directors and agents, and each such
controlling person for any legal and other expenses reasonably incurred by that
Selling Holder, its officers, directors and agents, or any such controlling
person in investigating or defending or preparing to defend against any such
loss, claim, damage, liability or action. The Company also agrees to indemnity
any Underwriters of the Registrable Securities, their officers and directors and
each person who controls such Underwriters on substantially the same basis as
that of the indemnification of the Selling Holders provided in this Section 4.1.
The indemnity agreement contained in this Section 4.1 shall not apply to amounts
paid in settlement of any such loss, claim, damage or liability and any action
in respect thereof if such settlement is effected without the consent of the
Company (which consent shall not be unreasonably withheld), nor shall the
Company be liable to any person for any loss, claim, damage, liability and any
action in respect thereof to the extent that it arises from or is based upon
written information relating to such person furnished expressly for use in
connection with such registration by such person.
SECTION 4.2 INDEMNIFICATION BY HOLDERS-OF REGISTRABLE SECURITIES. Each
Selling Holder agrees, severally but not jointly, to indemnify and hold harmless
the Company, its officers, directors and agents and each person, if any, who
controls the Company within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act to the same extent as the foregoing indemnity
from the Company to such Selling Holder, but only with reference to information
related to such Selling Holder furnished in writing by such Selling Holder or on
such Selling Holder's behalf expressly for use in any registration statement or
prospectus relating to the Registrable Securities, or any amendment or
supplement thereto, or any preliminary prospectus. Each Selling Holder also
agrees to indemnify and hold harmless Underwriters of the Registrable
Securities, their officers and directors and each person who controls such
Underwriters on substantially the same basis as that of the indemnification of
the Company provided in this Section 4.2. In no event, however, shall any
indemnity obligation under this Section 4.2 exceed the gross proceeds from the
offering received by such Selling Holder.
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SECTION 4.3 CONDUCT OF INDEMNIFICATION PROCEEDINGS. Promptly after
receipt by any person in respect of which indemnity may be sought pursuant to
Section 4.1 or 4.2 (an "Indemnified Party") of notice of any claim or the
commencement of any action, the Indemnified Party shall, if a claim in respect
thereof is to be made against the person against whom such indemnity may be
sought (an "Indemnifying Party") notify the Indemnifying Party in writing of the
claim or the commencement of such action provided that the failure to notify the
Indemnifying Party shall not relieve it from any liability which it may have to
an Indemnified Party otherwise than under Section 4.1 or 4.2 and except to the
extent of any actual prejudice resulting therefrom. If any such claim or action
shall be brought against an Indemnified Party, and it shall notify the
Indemnifying Party thereof, the Indemnifying Party shall be entitled to
participate therein, and, to the extent that it wishes, jointly with any other
similarly notified Indemnifying Party, to assume the defense thereof with
counsel satisfactory to the Indemnified Party. After notice from the
Indemnifying Party to the Indemnified Party of its election to assume the
defense of such claim or action, the Indemnifying Party shall not be liable to
the Indemnified Party for any legal or other expenses subsequently incurred by
the Indemnified Party in connection with the defense thereof other than
reasonable costs of investigation; PROVIDED that the Indemnified Party shall
have the right to employ separate counsel to represent the Indemnified Party and
its controlling persons who may be subject to liability arising out of any claim
in respect of which indemnity may be sought by the Indemnified Party against the
Indemnifying Party, but the fees and expenses of such counsel shall be for the
account of such Indemnified Party unless (i) the Indemnifying Party and the
Indemnified Party shall have mutually agreed to the retention of such counsel or
(ii) based upon the written opinion of counsel of such Indemnified Party
representation of both parties by the same counsel would be inappropriate due to
actual or potential differing interests between them. No Indemnifying Party
shall, without the prior written consent of the Indemnified Party, effect any
settlement of any claim or pending or threatened proceeding in respect of which
the Indemnified Party is or could have been a party and indemnity could have
been sought hereunder by such Indemnified Party, unless settlement includes an
unconditional release of such Indemnified Party from all liability arising out
of such claim or proceeding.
SECTION 4.4 CONTRIBUTION. If the indemnification provided for in this
Article IV is unavailable to the Indemnified Parties in respect of any losses,
claims, damages or liabilities referred to herein, then each such 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 such losses,
claims, damages or liabilities (i) as between the Company and the Selling
Holders on the one hand and the Underwriters on the other, in such proportion as
is appropriate to reflect the relative benefits received by the Company and the
Selling Holders on the one hand and the Underwriters on the other from the
offering of the Registrable Securities, or if such allocation is not permitted
by applicable law, in such proportion as is appropriate to reflect not only the
relative benefits but also the relative fault of the Company and the Selling
Holders on the one hand and of the Underwriters on the other in connection with
the statements or omissions which resulted in such losses, claims, damages or
liabilities, as well as any other relevant equitable considerations and (ii) as
between the Company on the one hand and each Selling Holder on the other, in
such proportion as is appropriate to reflect the relative fault of the Company
and of each Selling Holder in connection with such statements or omissions, as
well as any other relevant equitable considerations. The relative benefits
received by the Company and the Selling Holders
9
on the one hand and the Underwriters on the other shall be deemed to be in the
same proportion as the total proceeds from the offering (net of underwriting
discounts and commissions but before deducting expenses) received by the Company
and the Selling Holders and the total underwriting discounts and commissions
received by the Underwriters, in each case as set forth in the table on the
cover page of the prospectus bears to the total proceeds from the offering. The
relative fault of the Company and the Selling Holders on the one hand and of the
Underwriters on the other shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company and the Selling Holders or by the Underwriters. The
relative fault of the Company on the one hand and of each Selling Holder on the
other shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by such party,
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.
The Company and the Selling Holders agree that it would not be just and
equitable if contribution pursuant to this Section 4.4 were determined by pro
rata allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to in the immediately preceding paragraph.
The amount paid or payable by an Indemnified Party as a result of the losses,
claims, damages or liabilities referred to in the immediately preceding
paragraph shall be deemed to include, subject to the limitations set forth
above, any legal or other expenses reasonably incurred by such Indemnified Party
in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 4.4, no Underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the Registrable Securities underwritten by it and distributed to
the public were offered to the public exceeds the amount of any damages which
such Underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission, and no Selling Holder
shall be required to contribute any amount in excess of the amount by which the
total price at which the Registrable Securities of such Selling Holder were
offered to the public (less underwriting discounts and commissions) exceeds the
amount of any damages which such Selling Holder has otherwise been required to
pay by reason of such untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation. Each
Selling Holder's obligations to contribute pursuant to this Section 4.4 are
several in proportion to the proceeds of the offering received by such Selling
Holder bears to the total proceeds of the offering received by all the Selling
Holders and not joint.
SECTION 5.1 PARTICIPATION IN UNDERWRITTEN REGISTRATIONS. No person
may participate in any written registration hereunder unless such person (a)
agrees to sell such person's securities on the basis provided in any
underwriting arrangements approved by the persons entitled hereunder to approve
such arrangements and (b) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents reasonably
required under the team of such underwriting arrangements and these Registration
10
Rights; PROVIDED that (i) such person will not be required to make any
representations or warranties except those which relate solely to themselves and
(ii) the liability of such person to any Underwriter under such underwriting
agreement will be limited to liability arising from misstatements in, or
omissions from, written information regarding such person for inclusion in the
prospectus.
SECTION 5.2 RULE 144. The Company covenants that it will use its
reasonable best efforts to file any reports required to be filed by it under the
Securities Act and the Exchange Act and that it will take such further action as
any Holder may reasonably request, all to the extent reasonably required from
time to time to enable Holders to sell Registrable Securities without
registration under the Securities Act within the limitation of the exemptions
provided by (a) Rule 144 or Rule 144A under the Securities Act, as such Rules
may be amended from time to time, or (b) any similar Rule or regulation
hereafter adopted by the SEC. Upon the request of any Holder, the Company will
deliver to such Holder a written statement as to whether it has complied with
such requirements.
SECTION 5.3 HOLDBACK AGREEMENTS. To the, extent not inconsistent with
applicable law, each Holder of Registrable Securities agrees not to effect any
sale or distribution of the issue being registered or of a similar security of
the Company, or any securities convertible into or exchangeable or exercisable
for such securities, including a sale pursuant to Rule 144 or Rule 144A under
the Securities Act, during the 14 days prior to, and during the 180-day period
beginning on, the effective date of the registration statement filed by the
Company (except as part of such registration) if, and to the extent, requested
by the managing Underwriters in the case of an underwritten public offering.
11