THE SECURITIES REPRESENTED BY THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS.
SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT AND ANY APPLICABLE STATE
SECURITIES LAWS.
WARRANT TO PURCHASE COMMON STOCK OF CYLINK CORPORATION
Void after October 30, 2012
Warrant No.: W-1 Number of Shares: 500,000
CUSIP No.: 232565101
This certifies that Orchard Gateway Investors, LLC or assigns
(collectively, the "Holder"), for value received, is entitled to purchase,
subject to the terms and conditions of this warrant (this "Warrant"), from
Cylink Corporation, a California corporation (the "Company"), up to five hundred
thousand (500,000) shares of the Company's Common Stock, par value $0.01 per
share (the "Warrant Shares") at a price per share of $0.3838; provided, however,
that if prior to a Reorganization Event (as defined below) the Company closes a
Qualified Financing (as defined below) within twelve months of the Initial
Exercise Date (as defined below), the purchase price per share of the Warrant
Shares shall equal the lower of (i) $0.3838; and (ii) the price per share of the
Company's capital stock sold in such Qualified Financing (the "Exercise Price
Adjustment Right"). For purpose of this Warrant, the term "Stock Purchase Price"
shall mean $0.3838 or, if there is a Qualified Financing and the price per share
of the Company's capital stock sold in such Qualified Financing is less than
$0.3838, then such lower price. For the purposes of this Warrant, the term
"Qualified Financing" shall mean the sale by the Company of shares of its
capital stock sold to qualified investors in one or more series of related
transactions for aggregate cash proceeds to the Company of not less than One
Million dollars ($1,000,000). For avoidance of doubt, the Exercise Price
Adjustment Right shall expire on the earlier of (x) a Reorganization Event or
(y) twelve months from the Initial Exercise Date.
This Warrant shall be exercisable, in whole or in part' at any time or
from time to time from and after the date of execution of that certain Amendment
To Lease at 3101-3151 Jay Street, Santa Clara, between Orchard Gateway
Investors, LLC and the Company (such date being referred to herein as the
"Initial Exercise Date") up to and including 5:00 p.m. (Pacific Time) on the ten
(10) year anniversary of the date hereof (such date being referred to herein as
the "Expiration Date"), upon surrender to the Company at its principal office
(or at such other location as the Company may advise the Holder in writing) of
this Warrant properly endorsed with (i) the Form of Subscription attached hereto
duly completed and executed and (ii) payment pursuant to Section 2 of the
aggregate Stock Purchase Price for the number of shares for which this Warrant
is being exercised determined in accordance with the provisions hereof. The
Stock
Purchase Price and the number of shares purchasable hereunder are subject to
further adjustment as provided in Section 4 of this Warrant.
1. Exercise; Issuance of Certificates; Acknowledgement. This Warrant is
exercisable at the option of the holder of record hereof, at any time or from
time to time from or after the Initial Exercise Date up to the Expiration Date
for all or any part of the Warrant Shares (but not for a fraction of a share)
which may be purchased hereunder. The Company agrees that the shares of Common
Stock purchased under this Warrant shall be and are deemed to be issued to the
Holder hereof as the record owner of such shares as of the close of business on
the date on which this Warrant shall have been surrendered, properly endorsed,
the completed, executed Exercise Form delivered and payment made for such
shares. Certificates for the shares of the Common Stock so purchased, together
with any other securities or property to which the Holder hereof is entitled
upon such exercise, shall be delivered to the Holder hereof by the Company at
the Company's expense within a reasonable time after the rights represented by
this Warrant have been so exercised. Each certificate so delivered shall be in
such denominations of the Warrant Shares as may be requested by the Holder
hereof and shall be registered in the name of such Holder. In case of a purchase
of less than all the Warrant Shares, the Company shall execute and deliver to
Holder within a reasonable time an Acknowledgement in the form attached hereto
indicating the number of Warrant Shares which remain subject to this Warrant, if
any.
2. Payment for Shares. The aggregate purchase price for Warrant Shares
being purchased hereunder may be paid either (i) by cash or wire transfer of
immediately available funds, or (ii) by surrender of a number of Warrant Shares
which have a fair market value equal to the aggregate purchase price of the
Warrant Shares being purchased ("Net Issuance") as determined herein. If the
Holder elects the Net Issuance method of payment, the Company shall issue to
Holder upon exercise a number of shares of Warrant Shares determined in
accordance with the following formula:
Y (A-B)
X = ------
A
where: X = the number of Warrant Shares to be issued to the
Holder;
the number of Warrant Shares with respect to which
the Holder is exercising its purchase rights under
this Warrant;
the fair market value of one (1) share of the
Warrant Shares on the date of exercise; and
B = the Stock Purchase Price.
No fractional shares arising out of the above formula for determining
the number of shares to be issued to the Holder shall be issued upon exercise of
this Warrant. In lieu thereof, the Company shall make payment to the Holder of
cash in the amount of such fraction multiplied by the fair market value of one
(1) share of the Warrant Shares on the date of exercise. For
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purposes of the above calculation, the fair market value of one (1) share of the
Warrant Shares shall mean the average of the closing sale prices of such Common
Stock on the NASDAQ National Market or The NASDAQ SmallCap Market (or, if the
Common Stock is not listed on the NASDAQ National Market or NASDAQ SmallCap
Market but regularly quoted on an automated quotation system, including the OTC
Bulleting Board, or by a recognized securities dealer, the mean between the high
bid and low asked prices for the Common Stock) over the fifteen (15) calendar
day period (or portion thereof) ending three (3) days prior to the date of
exercise.
3. Shares to be Fully Paid; Reservation of Shares. The Company
covenants and agrees that all shares of Common Stock which may be issued upon
the exercise of the rights represented by this Warrant will, upon issuance, be
duly authorized, validly issued, fully paid and nonassessable and free from all
preemptive rights of any shareholder and free and clear of all taxes, liens and
charges with respect to the issue thereof. The Company further covenants and
agrees that during the period within which the rights represented by this
Warrant may be exercised, the Company will at all times have authorized and
reserved, for the purpose of issue or transfer upon exercise of the rights
evidenced by this Warrant, a sufficient number of shares of authorized but
unissued shares of Common Stock, or other securities and property, when and as
required to provide for the exercise of the rights represented by this Warrant
in full.
4. Adjustment of Stock Purchase Price and Number of Shares. The Stock
Purchase Price and the number of shares purchasable upon the exercise of this
Warrant shall be subject to adjustment from time to time upon the occurrence of
certain events described in this Section 4. Upon each adjustment of the Stock
Purchase Price, the Holder of this Warrant shall thereafter be entitled to
purchase, at the Stock Purchase Price resulting from such adjustment, the number
of shares obtained by multiplying the Stock Purchase Price in effect immediately
prior to such adjustment by the number of shares purchasable pursuant hereto
immediately prior to such adjustment, and dividing the product thereof by the
Stock Purchase Price resulting from such adjustment.
4.1 Split, Subdivision or Combination of Stock. In case the
Company shall at any time subdivide its outstanding shares of Common Stock into
a greater number of shares, the Stock Purchase Price in effect immediately prior
to such split or subdivision shall be proportionately reduced, and conversely,
in case the outstanding shares of the Common Stock of the Company shall be
combined into a smaller number of shares, the Stock Purchase Price in effect
immediately prior to such combination shall be proportionately increased.
4.2 Reclassification. If any reclassification of the capital
stock of the Company shall be effected in such a way that holders of Common
Stock shall be entitled to receive stock, securities, or other assets or
property, then, as a condition of such reclassification, lawful and adequate
provisions shall be made whereby the Holder hereof shall thereafter have the
right to purchase and receive (in lieu of the shares of the Common Stock
immediately theretofore purchasable and receivable upon the exercise of the
rights represented hereby) such shares of stock, securities or other assets or
property as may be issued or payable with respect to or in exchange for a number
of outstanding shares of such Common Stock equal to the number of shares of such
Common Stock immediately theretofore purchasable and receivable upon the
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exercise of the rights represented hereby. In any reclassification described
above, appropriate provision shall be made with respect to the rights and
interests of the Holder of this Warrant to the end that the provisions hereof
(including, without limitation, provisions for adjustments of the Stock Purchase
Price and of the number of shares purchasable and receivable upon the exercise
of this Warrant) shall thereafter be applicable, as nearly as may be, in
relation to any shares of stock, securities or assets thereafter deliverable
upon the exercise hereof.
4.3 Reorganization, Mergers, Consolidations or Sale of Assets.
If at any time there shall be a capital reorganization of the Company's
outstanding equity securities (other than a combination, reclassification,
exchange, or subdivision of shares provided for elsewhere in this Warrant) or a
merger or consolidation of the Company with or into another corporation, or the
sale of the Company's properties and assets as, or substantially as, an entity
to any other person (a "Reorganization Event"), then, as a part of such
Reorganization Event, lawful provision shall be made so that the Holder of this
Warrant shall thereafter be entitled to receive upon exercise of this Warrant,
during the period specified in this Warrant and upon payment of the Stock
Purchase Price then in effect, the number of shares of stock or other securities
or property of the Company, or of the successor corporation resulting from such
Reorganization Event, to which a holder of the shares issuable upon exercise of
this Warrant would have been entitled in such Reorganization Event if this
Warrant had been exercised immediately prior thereto. In any such case,
appropriate adjustment (as determined by the Company's Board of Directors) shall
be made in the application of the provisions of this Warrant with respect to the
rights and interests of the Holder of this Warrant after the Reorganization
Event if this Warrant (including adjustment of the Stock Purchase Price then in
effect and the number of shares purchasable upon exercise of this Warrant) shall
be applicable after that event, as near as reasonably may be, in relation to any
shares or other property deliverable after that event upon exercise of this
Warrant. The provisions of this paragraph shall similarly apply to successive
capital reorganizations, mergers, consolidations or sales.
4.4 Notice of Certain Events. If at any time after the date
hereof and before the expiration of the Exercise Period:
(i) the Company declares any dividend or distribution
on its Common Stock payable in shares of its capital stock;
(ii) there shall be a Reorganization Event;
(iii) there shall be any voluntary or involuntary
dissolution, liquidation or winding-up of the Company; or
(iv) there shall be any other event that would result
in an adjustment pursuant to this Section 4 in the Stock Purchase Price or the
number of Warrant Shares that may be purchased upon the exercise hereof
the Company will cause to be mailed to the Holder, at least twenty days before
the applicable record or effective date hereinafter specified, a notice stating
(A) the date as of which the holders of Common Stock of record entitled to
receive any such dividends or distributions is to be
4
determined, or (B) the date on which any Reorganization Event, dissolution,
liquidation or winding-up is expected to become effective, and the date as of
which it is expected that holders of Common Stock of record will be entitled to
exchange their shares of Common Stock for securities or other property, if any,
deliverable upon such Reorganization Event, dissolution, liquidation or winding
up.
4.5 Notice of Adjustment. Upon any adjustment of the Stock
Purchase Price or any increase or decrease in the number of shares purchasable
upon the exercise of this Warrant, the Company shall give written notice
thereof, by first class mail postage prepaid, addressed to the registered Holder
of this Warrant at the address of such Holder as shown on the books of the
Company. The notice shall be signed by the Company's chief financial officer and
shall state the Stock Purchase Price resulting from such adjustment and the
increase or decrease, if any, in the number of shares purchasable at such price
upon the exercise of this Warrant, setting forth in reasonable detail the method
of calculation and the facts upon which such calculation is based.
5. Rights of Holder. Nothing contained in this Warrant shall be
construed as conferring upon the Holder hereof the right to vote, to consent, or
to receive notice as a shareholder of the Company or any other matters or any
rights whatsoever as a shareholder of the Company, except as expressly provided
in this Warrant. No dividends or interest shall be payable or accrued in respect
of this Warrant or the interest represented hereby or the shares purchasable
hereunder until, and only to the extent that, this Warrant shall have been
exercised.
6. Warrants Transferable. Subject to compliance with applicable federal
and applicable state securities laws, this Warrant and all rights hereunder may
be transferred, in whole or in part, without charge to the holder hereof (except
for transfer taxes) to one or more of Holder's affiliates, not to exceed ten
transferees, upon surrender of this Warrant properly endorsed and compliance
with the provisions of the Agreement. Each taker and holder of this Warrant, by
taking or holding the same, consents and agrees that this Warrant, when endorsed
in blank, shall be deemed negotiable, and that the holder hereof, when this
Warrant shall have been so endorsed, may be treated by the Company, at the
Company's option, and all other persons dealing with this Warrant as the
absolute owner hereof for any purpose and as the person entitled to exercise the
rights represented by this Warrant, or to the transfer hereof on the books of
the Company and notice to the contrary notwithstanding; but until such transfer
on such books, the Company may treat the registered owner hereof as the owner
for all purposes.
7. Lost Warrants. Upon receipt of evidence reasonably satisfactory to
the Company of the loss, theft, destruction, or mutilation of this Warrant and,
in the case of any such loss, theft or destruction, upon receipt of an indemnity
reasonably satisfactory to the Company, or in the case of any such mutilation
upon surrender and cancellation of such Warrant, the Company, at its expense,
will make and deliver a new Warrant, of like tenor, in lieu of the lost, stolen,
destroyed or mutilated Warrant.
8. Incidental Registration Rights. If the Company proposes to register
any of its stock or other securities under the Securities Act of 1933, as
amended (the "Act"), in connection with the public offering of such securities
(other than a registration relating solely to the sale of
5
securities to participants in a Company stock plan, a registration relating to a
corporate reorganization or other transaction under Rule 145 of the Act, a
registration on any form which does not include substantially the same
information as would be required to be included in a registration statement
covering the sale of the securities underlying the Warrant or a registration in
which the only Common Stock being registered is Common Stock issuable upon
conversion of debt securities which are also being registered), the Company
shall, at such time, promptly give the Holder written notice of such
registration. Upon the written request of the Holder given within twenty (20)
days after mailing of such notice by the Company in accordance with Section 12,
the Company shall use its commercially reasonable efforts to cause to be
registered under the Act all of the Warrant Shares that such Holder has
requested to be registered. This right shall terminate as to any Holder on the
earlier of (i) such earlier time at which all securities held by such Holder
(and any affiliate of the Holder with whom such Holder must aggregate its sales
under Rule 144) can be sold in any three (3) month period with registration in
compliance with Rule 144 of the Act, and (ii) in connection with a
Reorganization Event, the filing of a registration statement on Form S-4 of the
shares of common stock that may be issued by the registering corporation (the
"Acquiring Company") pursuant to a Reorganization Event, provided that such
registration statement include shares of the Acquiring Company's common stock
that may be issued pursuant to a Reorganization Event for Warrant Shares
outstanding prior to the date of the Reorganization Event; and no other
registration statement shall be required to be filed by the Company or the
Acquiring Company with respect to any Warrant Shares that are not purchased
prior to such Reorganization Event. In connection with any offering involving an
underwriting of shares of the Company's capital stock, the Company shall not be
required under this Section 8 to include any Holder's Warrant Shares in such
underwriting unless such Holder accepts the terms of the underwriting as agreed
upon between the Company and the underwriters selected by it and then only in
such quantity as the underwriters determine in their sole discretion will not
jeopardize the success of the offering by the Company.
9. Representations and Warranties of the Company. The Company hereby
represents and warrants to the initial Holder as of the date of execution of
this Warrant as follows:
(a) The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of California. The
Company has all requisite corporate power and authority to execute and deliver
this Warrant and to perform its obligations hereunder.
(b) This Warrant has been duly authorized, executed and
delivered by the Company, and constitutes its valid and legally binding
obligation, enforceable in accordance with its terms except (i) as limited by
any applicable bankruptcy, insolvency, reorganization, moratorium, and other
laws of general application affecting enforcement of creditors' rights
generally, and (ii) as limited by laws relating to the availability of specific
performance, injunctive relief, or other equitable remedies.
10. Representations and Warranties of Holder. The Holder hereby
represents and warrants to the Company as of the date of execution of this
Warrant as follows:
(a) Purchase for Own Account. The Holder represents that it is
acquiring this Warrant and the Warrant Shares (collectively, the "Securities")
solely for investment for such
6
Holder's own account not as a nominee or agent, and not with a view to the
resale or distribution of any part thereof, and that such Holder has no present
intention of selling, granting any participation in, or otherwise distributing
the same. The acquisition by such Holder of any of the Securities shall
constitute confirmation of the representation by such Holder that such Holder
does not have any contract, undertaking, agreement or arrangement with any
person to sell, transfer or grant participations to such person or to any third
person, with respect to any of the Securities.
(b) Access to Information. The Holder represents that it has
been furnished or afforded access to information describing the Company, the
terms of an investment in the Company, the Company's past, present and future
activities and other matters the Holder has deemed relevant to its investment
decision. The Holder further represents that it has had an opportunity to ask
questions and receive answers from the Company regarding the terms and
conditions of the offering of the Securities and the business, properties,
prospects and financial condition of the Company.
(c) Accredited Investor. The Holder represents that it is an
"accredited investor" within the meaning of Securities and Exchange Commission
("SEC") Rule 501 of Regulation D, as presently in effect.
(d) Restrictions on Transfer. The Holder acknowledges that the
Warrant Shares must be held indefinitely unless subsequently registered under
the Act or the Company receives an opinion of counsel satisfactory to the
Company that such registration is not required. The Holder is aware that the
Securities may not be sold pursuant to Rule 144 promulgated under the Securities
Act unless all conditions of Rule 144 are satisfied. The Holder further
acknowledges and understands that the Company may not be satisfying the current
public information requirement of Rule 144 at the time the Holder wishes to sell
the Warrant Shares; and, if so, the Holder would be precluded from selling such
Warrant Shares under Rule 144 even if the one year minimum holding period has
been satisfied.
11. Modification and Waiver. Any term of this Warrant and all Warrants
issued pursuant to the Agreement may be amended and the observance of any term
of this Warrant and all Warrants issued pursuant to the Agreement may be waived
(either generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the holders of
Warrants representing at least a majority of the aggregate number of Warrant
Shares issuable upon exercise of all outstanding Warrants issued pursuant to the
Agreement. Any amendment or waiver effected in accordance with this paragraph
shall be binding upon the Company, the Holder and the holders of all Warrants
issued pursuant to the Agreement.
12. Notices. Except as may be otherwise provided herein, all notices,
requests, waivers and other communications made pursuant to this Warrant shall
be in writing and shall be conclusively deemed to have been duly given (a) when
hand delivered to the other party; (b) when sent by facsimile to the number set
forth below if sent between 8:00 a.m. and 5:00 p.m. recipient's local time on a
business day, or on the next business day if sent by facsimile to the number set
forth below if sent other than between 8:00 a.m. and 5:00 p.m. recipient's local
time on a business day; (c) three business days after deposit in the U.S. mail
with first class or
7
certified mail receipt requested postage prepaid and addressed to the other
party at the address set forth below; or (d) the next business day after deposit
with a national overnight delivery service, postage prepaid, addressed to the
parties as set forth below with next business day delivery guaranteed, provided
that the sending party receives a confirmation of delivery from the delivery
service provider. Each person making a communication hereunder by facsimile
shall promptly confirm by telephone to the person to whom such communication was
addressed each communication made by it by facsimile pursuant hereto but the
absence of such confirmation shall not affect the validity of any such
communication. A party may change or supplement the addresses given above, or
designate additional addresses, for purposes of this Section 9 by giving the
other party written notice of the new address in the manner set forth above. The
addresses for the parties are as follows:
For the Company:
Cylink Corporation
3131 Jay Street
Santa Clara, CA 95054
Fax: (408) 855-6106
For the Holder:
Orchard Gateway Investors, LLC
2262 North First Street
San Jose, CA 95131
Fax: (408) 922-0157
13. Successors and Assigns. The terms and provisions of this Warrant
shall inure to the benefit of, and be binding upon, the Company and the Holder
hereof and their respective successors and assigns.
14. Titles and Subtitles; Governing Law; Venue. The titles and
subtitles used in this Warrant are used for convenience only and are not to be
considered in construing or interpreting this Agreement. This Warrant is to be
construed in accordance with and governed by the internal laws of the State of
California without giving effect to any choice of law rule that would cause the
application of the laws of any jurisdiction other than the internal laws of the
State of California to the rights and duties of the Company and the Holder. All
disputes and controversies arising out of or in connection with this Warrant
shall be resolved exclusively by the state and federal courts located in Santa
Clara County in the State of California, and each of the Company and the Holder
hereto agrees to submit to the jurisdiction of said courts and agrees that venue
shall lie exclusively with such courts.
8
IN WITNESS WHEREOF, the Company and the initial Holder have caused this
Warrant to be duly executed by their officers, thereunto duly authorized as of
this 30th day of October, 2002.
CYLINK CORPORATION
By: ___________________________________
R. Christopher Chillingworth, CFO
HOLDER
Orchard Gateway Investors, LLC
By: /s/ Michael Biggar
-----------------------------------
Michael Biggar
Its: Managing Member
9
EXERCISE FORM
(To be signed only upon exercise of Warrant)
To: _____________________
The undersigned, the holder of a right to purchase shares of Common Stock
of CYLINK CORPORATION (the "Company") pursuant to that certain Warrant to
Purchase Shares of Cylink Corporation (the "Warrant"), dated as of____________,
2002, hereby irrevocably elects to exercise the purchase right represented by
such Warrant for, and to purchase thereunder, _______________________ (shares)
of Common Stock of the Company and herewith makes payment of ____________
Dollars ($___________) therefor by the following method:
(Check one of the following)
(check if applicable) The undersigned hereby elects to make
payment of ______________ Dollars
($___________) therefor in cash.
(check if applicable) The undersigned hereby elects to make
payment for the aggregate exercise price
of this exercise using the Net Issuance
method pursuant to Section 2 of the
Warrant.
The undersigned represents that it is acquiring such securities for its own
account for investment and not with a view to or for sale in connection with any
distribution thereof and in order to induce the issuance of such securities
makes to the Company, as of the date hereof, the representations and warranties
set forth in Section 10 of the Warrant.
DATED:
[name of Holder]
By: _______________________
Name: _____________________
Its:_______________________
10
WARRANT ASSIGNMENT FORM
FOR VALUE RECEIVED, the undersigned, ____________________________
("Assignor"), hereby sells, assigns and transfers unto
Name: ___________________________________________ ("Assignee")
(Please type or print in block letters)
Address: ___________________________________________
___________________________________________
___________________________________________
This Warrant and all rights evidenced thereby and does hereby irrevocably
constitute and appoint the Company and any of its officers, secretary, or
assistant secretaries, as attorneys-in-fact to transfer the same on the books of
the Company, with full power of substitution in the premises.
Date: ______________________ ______________________________________
Name of Holder:
Title:
In the presence of: ______________________________
Note: The signature of this Warrant Assignment must correspond to the name as it
appears on the face of this Warrant. Officers of corporations and those acting
in a fiduciary or other representative capacity should file proper evidence of
authority to assign the foregoing.
11
ACKNOWLEDGMENT
To: [name of Holder]
The undersigned hereby acknowledges that as of the date hereof,
___________________________________________ (_________________) shares of Common
Stock remain subject to the right of purchase in favor of [name of Holder]
pursuant to that certain Warrant to Purchase Common Stock of Cylink Corporation,
dated as of _________________, 2002.
DATED: __________________________
CYLINK CORPORATION
By: ______________________________
Name: ____________________________
Its: _____________________________
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