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EXHIBIT 10.56
NEITHER THIS WARRANT NOR ANY OF THE SECURITIES ISSUABLE UPON
EXERCISE HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAW. NO
TRANSFER OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE OR OF THE
SECURITIES ISSUABLE UPON EXERCISE THEREOF SHALL BE VALID OR
EFFECTIVE UNLESS (A) SUCH TRANSFER IS MADE PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT AND IN COMPLIANCE WITH ANY
APPLICABLE STATE SECURITIES LAWS OR (B) THE HOLDER OF THE SECURITIES
PROPOSED TO BE TRANSFERRED SHALL HAVE DELIVERED TO THE COMPANY
EITHER A NO-ACTION LETTER FROM THE SECURITIES AND EXCHANGE
COMMISSION, TOGETHER WITH COMPARABLE LETTERS FROM ANY APPLICABLE
STATE SECURITIES AUTHORITIES, OR AN OPINION OF COUNSEL (WHO MAY BE
AN EMPLOYEE OF SUCH HOLDER) EXPERIENCED IN SECURITIES MATTERS TO THE
EFFECT THAT SUCH PROPOSED TRANSFER IS EXEMPT FROM THE REGISTRATION
REQUIREMENTS OF THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR
(C) SUCH TRANSFER IS PURSUANT TO RULE 144 OR RULE 144A UNDER THE ACT
AND SUCH HOLDER(S) SHALL HAVE DELIVERED TO THE COMPANY A CERTIFICATE
SETTING FORTH THE BASIS FOR APPLYING SUCH RULE TO THE PROPOSED
TRANSFER.
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WARRANT
to Purchase Common Stock of
CODE-ALARM, INC.
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Warrant No. A-1
Original Issue
Date: October 24, 1997
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TABLE OF CONTENTS
PAGE
1. DEFINITIONS 1
2. EXERCISE OF WARRANT
2.1. Manner of Exercise 8
2.2 Payment of Taxes 9
2.3. Fractional Shares 9
2.4. Continued Validity and Application. 10
3. TRANSFER, DIVISION AND COMBINATION
3.1 Transfer 10
3.2. Division and Combination 10
3.3. Expenses 11
3.4. Maintenance of Books 11
4. ANTIDILUTION PROVISIONS 11
4.1. Stock Dividends, Subdivisions and Combinations 11
4.2. Issuance of Additional Shares of Common Stock 11
4.3. Issuances of Stock Purchase Rights and Convertible Securities 12
4.4. Certain Other Distributions 14
4.5. Adjustment of Number of Shares Purchasable 15
4.6. Reorganization, Reclassification, Merger, Consolidation or
Disposition of Assets 15
4.7. Determination of Consideration 16
4.8. Other Dilutive Events 17
4.9. Other Provisions Applicable to Adjustments Under this Section 18
4.10. Challenge to Good Faith Determination 20
5. NO IMPAIRMENT 20
6. RESERVATION AND AUTHORIZATION OF COMMON STOCK; REGISTRATION WITH
OR APPROVAL OF ANY GOVERNMENTAL AUTHORITY 21
7. NOTICE OF CORPORATE ACTIONS; TAKING OF RECORD; TRANSFER BOOKS 21
7.1. Notices of Corporate Actions 21
7.2. Taking of Record 22
7.3 Closing of Transfer Books 22
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8. TRANSFER 22
8.1. Restrictions on Transfer 23
8.2. Restrictive Legends 23
8.3. Termination of Securities Law Restrictions 25
8.4. Listing on Securities Exchange 25
9. REGISTRATION RIGHTS AGREEMENT 25
10. LOSS OR MUTILATION 26
11. OFFICE OF THE COMPANY 26
12. FINANCIAL AND BUSINESS INFORMATION 26
13. MISCELLANEOUS 28
13.1. Nonwaiver 28
13.2. Notice Generally 28
13.3. Indemnification 28
13.4. Limitation of Liability 29
13.5. Remedies 29
13.6. Successors and Assigns 29
13.7. Amendment 29
13.8. Severability 29
13.9. Headings 30
13.10. Governing Law; Jurisdiction 30
ANNEXES:
ANNEX A - Subscription Form
ANNEX B - Assignment Form
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Warrant No. A-1
Original Issue
Date: October 24, 1997
WARRANT
CODE-ALARM, INC.
THIS IS TO CERTIFY THAT GENERAL ELECTRIC CAPITAL CORPORATION, or
registered assigns, is entitled, at any time prior to the Expiration Date (such
term, and certain other capitalized terms used herein being hereinafter
defined), to purchase from CODE-ALARM, INC., a Michigan corporation (the
"Company"), One Hundred Thirty-One Thousand Seven Hundred Eighteen (131,718)
shares of the Common Stock of the Company (subject to adjustment as provided
herein), at a purchase price of $1.8759559 per share (the initial "Exercise
Price", subject to adjustment as provided herein), all on the terms and
conditions and pursuant to the provisions hereinafter set forth.
1. DEFINITIONS
As used in this Warrant, the following terms have the respective meanings
set forth below:
"Affiliate" of any Person means a Person (a) which directly or indirectly
through one or more intermediaries controls, or is controlled by, or is under
common control with such Person, (b) which beneficially owns or holds more than
five percent (5.0%) of the outstanding shares of any class of voting stock of
such Person or (c) more than five percent (5.0%) of the outstanding shares of
any class of voting stock (or, in the case of a Person which is not a
corporation, more than five percent (5.0%) of the equity interest) of which is
beneficially owned or held by such Person. The term "control" as used with
respect to any Person means the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of such
Person, whether through the ownership of voting securities, by contract or
otherwise.
"After-Tax Basis" when referring to a payment that is required hereunder
(the "target amount"), shall mean a total payment (the "total amount") that,
after deduction of all federal, state and local taxes that are required to be
paid by the recipient in respect of the receipt or accrual of such total
amount, is equal to the target amount.
"Agreed Rate" shall mean the Index Rate (as defined in the Credit
Agreement dated as of the Original Issue Date among the Company, General
Electric Capital Corporation, as agent, and
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the other Credit Parties and Lenders named therein, as may be amended from time
to time) plus three and one-half percent (3.5%) per annum.
"Appraised Value" per share of Common Stock as of a date specified herein
shall mean the fair market value of such a share as of such date as determined
by an investment banking firm of nationally recognized standing selected by the
Majority Warrant Holders and reasonably acceptable to the Company. If the
investment banking firm selected by the Majority Warrant Holders is not
reasonably acceptable to the Company, and the Company and the Majority Warrant
Holders cannot agree on a mutually acceptable investment banking firm, then the
Company and the Majority Warrant Holders shall each choose one such investment
banking firm and the respective chosen firms shall jointly select a third
investment banking firm, which shall make the determination. The Company shall
pay the costs and fees of each such investment banking firm (including any such
investment banking firm selected by the Majority Warrant Holders), if the
Appraised Value is greater than the fair market value per share of Common Stock
as determined in good faith by the Board of Directors of the Company (as
contemplated in clause (B)(1) of "Fair Value" as set forth in Section 1
hereof), and the Majority Warrant Holders shall pay the costs and fees of each
such investment banking firm (including any such investment banking firm
selected by the Company), if the Appraised Value is less than such fair market
value per share of Common Stock as determined in good faith by the Board of
Directors of the Company. The decision of the investment banking firm making
such determination of Appraised Value shall be final and binding on the Company
and all affected holders of Warrants or Warrant Stock. Such Appraised Value
shall be determined as a pro rata portion of the value of the Company taken as
a whole, based on the higher of (A) the value of the entire Company as a going
concern and (B) the liquidation value of the entire Company.
"Business Day" shall mean any day that is not a Saturday or Sunday or a
day on which banks are required or permitted to be closed in the State of
Michigan.
"Commission" shall mean the Securities and Exchange Commission or any
other federal agency then administering the Securities Act and other federal
securities laws.
"Common Stock" shall mean (except where the context otherwise indicates)
the Common Stock, without par value, of the Company, as constituted on the
Original Issue Date, and any capital stock into which such Common Stock may
thereafter be changed, and shall also include (i) capital stock of the Company
of any other class (regardless of how denominated) issued to the holders of
shares of any Common Stock upon any reclassification thereof which is also not
preferred as to dividends or liquidation over any other class of stock of the
Company and
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which is not subject to redemption and (ii) shares of common stock of any
successor or acquiring corporation (as defined in Section 4.6 hereof) received
by or distributed to the holders of Common Stock of the Company in the
circumstances contemplated by Section 4.6 hereof.
"Company" means CODE-ALARM, INC., a Michigan corporation, and any
successor corporation.
"Company Default" means (a) the material breach of any warranty or the
material inaccuracy at the time when made of any representation made by the
Company herein or (b) the material failure by the Company to comply with any
covenant of the Company contained herein.
"Convertible Securities" shall mean evidences of indebtedness, shares of
stock or other securities that are convertible into or exchangeable for, with
or without payment of additional consideration in cash or property, shares of
Common Stock, either immediately or upon the occurrence of a specified date or
a specified event.
"Current Market Price" shall mean as of any specified date the average of
the daily market prices of the Common Stock of the Company for the shorter of
(x) the twenty (20) consecutive Business Days immediately preceding such date
or (y) the period commencing on the Business Day next following the first
public announcement of any event giving rise to an adjustment of the Exercise
Price pursuant to Section 4 below and ending on such date. The "daily market
price" for each such Business Day shall be: (i) if the Common Stock is then
listed on a national securities exchange or is listed on NASDAQ and is
designated as a National Market System security, the last sale price, regular
way, on such day on the principal stock exchange or market system on which such
Common Stock is then listed or admitted to trading, or, if no such sale takes
place on such day, the average of the closing bid and asked prices for the
Common Stock on such day as reported on such stock exchange or market system or
(ii) if the Common Stock is not then listed or admitted to trading on any
national securities exchange or designated as a National Market System security
on NASDAQ but is traded over-the-counter, the average of the closing bid and
asked prices for the Common Stock as reported on NASDAQ or the Electronic
Bulletin Board or in the National Daily Quotation Sheets, as applicable.
"Designated Office" shall have the meaning set forth in Section 11 hereof.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended,
or any similar federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect from time to time.
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"Exercise Notice" shall have the meaning set forth in Section 2.1 hereof.
"Exercise Period" shall mean the period during which this Warrant is
exercisable pursuant to Section 2.1 hereof.
"Exercise Price" shall mean, in respect of a share of Common Stock at any
date herein specified, the initial Exercise Price set forth in the preamble of
this Warrant as adjusted from time to time pursuant to Section 4 hereof.
"Expiration Date" shall mean the seventh anniversary of the Original Issue
Date.
"Fair Value" per share of Common Stock as of any specified date shall mean
(A) if the Common Stock is publicly traded on such date, the Current Market
Price per share or (B) if the Common Stock is not publicly traded on such date,
(1) the fair market value per share of Common Stock as determined in good faith
by the Board of Directors of the Company and set forth in a written notice to
each Holder or (2) if the Majority Warrant Holders object in writing to such
price as determined by the Board of Directors within thirty (30) days after
receiving notice of same, the Appraised Value per share as of such date.
"Fully Diluted Outstanding" shall mean, when used with reference to Common
Stock, at any date as of which the number of shares thereof is to be
determined, all shares of Common Stock Outstanding on such date and all shares
of Common Stock issuable in respect of (x) the Warrants outstanding on such
date, (y) any Convertible Securities outstanding on such date and (z) any other
Stock Purchase Rights outstanding on such date, in each case regardless of
whether or not the conversion, exchange, subscription or purchase rights
associated with such Convertible Securities or Stock Purchase Rights are
presently exercisable.
"GAAP" shall mean generally accepted accounting principles in the United
States of America as from time to time in effect.
"Holder" shall mean the Person in whose name the Warrant set forth herein
is registered on the books of the Company maintained for such purpose.
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"Lien" shall mean any mortgage or deed of trust, pledge, hypothecation,
assignment, deposit arrangement, lien, charge, claim, security interest,
easement or encumbrance, or preference, priority or other security agreement or
preferential arrangement of any kind or nature whatsoever (including, without
limitation, any lease or title retention agreement, any financing lease having
substantially the same economic effect as any of the foregoing, and the filing
of, or agreement to give, any financing statement perfecting a security
interest under the Uniform Commercial Code or comparable law of any
jurisdiction).
"Majority Warrant Holders" shall mean the holders of Warrants exercisable
for the purchase of more than fifty percent (50%) of the aggregate number of
shares of Warrant Stock then purchasable upon exercise of all Warrants.
"NASD" shall mean the National Association of Securities Dealers, Inc., or
any successor corporation thereto.
"NASDAQ" shall mean the NASD quotation system, or any successor reporting
system.
"Opinion of Counsel" means a written opinion of counsel (who may be an
employee of a Holder) experienced in Securities Act matters chosen by the
holder of this Warrant or Warrant Stock issued upon the exercise hereof and
reasonably acceptable to the Company.
"Original Issue Date" shall mean the date on which the Original Warrants
were issued, as set forth on the cover page of this Warrant.
"Original Warrants" shall mean the Warrants originally issued by the
Company on the Original Issue Date to General Electric Capital Corporation.
"Other Property" shall have the meaning set forth in Section 4.6 hereof.
"Outstanding" shall mean, when used with reference to Common Stock, at any
date as of which the number of shares thereof is to be determined, all issued
shares of Common Stock, except shares then owned or held by or for the account
of the Company or any Subsidiary thereof, and shall include all shares issuable
in respect of outstanding scrip or any certificates representing fractional
interests in shares of Common Stock.
"Pegasus Purchase Agreement" shall mean the Unit Purchase Agreement dated
as of the Original Issue Date among the Company, Pegasus Partners, L.P. and
Pegasus Related Partners, L.P.
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"Pegasus Warrants" shall mean, collectively, the Attached Warrants,
the Shortfall Warrants and any Litigation Warrants issued pursuant to the
Pegasus Purchase Agreement and the agreements, documents and instruments
referred to therein.
"Person" shall mean any individual, sole proprietorship, partnership,
limited liability company, joint venture, trust, incorporated organization,
association, corporation, institution, public benefit corporation, entity or
government (whether federal, state, county, city, municipal or otherwise,
including, without limitation, any instrumentality, division, agency, body or
department thereof).
"Registration Rights Agreement" shall mean the Registration Rights
Agreement dated as of the Original Issue Date among the Company, Pegasus
Partners, L.P., Pegasus Related Partners, L.P. and General Electric Capital
Corporation, as amended from time to time.
"Restricted Common Stock" shall mean shares of Common Stock which
are, or which upon their issuance on the exercise of this Warrant would be,
evidenced by a certificate bearing the restrictive legend set forth in Section
8.2(a) hereof.
"Securities Act" shall mean the Securities Act of 1933, as amended,
or any similar federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Share Withholding Option" has the meaning set forth in Section 2.1
hereof.
"Stock Purchase Rights" shall mean any options, warrants or other
securities or rights to subscribe to or exercisable for the purchase of shares
of Common Stock or Convertible Securities, whether or not immediately
exercisable.
"Subsequent Issuance" shall mean any sale or issuance by the Company
of Common Stock, Convertible Securities or Stock Purchase Rights after the
Original Issue Date other than:
(i) Any issuance of Warrant Stock upon exercise of the Warrants;
(ii) Any issuance of Pegasus Warrants other than Litigation
Warrants(including, without limitation, the issuance of additional
Attached Warrants in connection with the payment of any payment - in kind
dividend on the Company's Series A Preferred Stock) other than Litigation
Warrants and any issuance of Common Stock pursuant to the exercise of any
of the Pegasus Warrants (it being agreed that any Litigation Warrants
issued pursuant to the Pegasus Purchase Agreement will be deemed to
constitute a Subsequent
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Issuance, and will be deemed to have been issued without consideration for
the purposes of Section 4.3 hereof);
(iii) The issuance of up to 280,000 options to purchase shares of
Common Stock under the Company's 1987 Stock Option Plan, as amended prior
to the Original Issue Date (as such number shall be reduced by the number
of options issued under such plan prior to the Original Issue Date and
increased by any options issued under such plan that expire or become
unexercisable without being exercised and that become available for
reissuance under such plan), but only to the extent that any such option
is granted with an exercise price that is not less than the Exercise Price
in effect under this Warrant as of the date of issuance of such option;
(iv) The issuance of up to 1,317,178 options to purchase shares of
Common Stock under the Company's 1997 Stock Option Plan (as such number
shall be reduced by the number of any options issued under such plan prior
to the Original Issue Date and increased by any options issued under such
plan that expire or become unexercisable without being exercised and that
become available for reissuance under such plan), but only to the extent
that any such option is granted with an exercise price that is not less
than the Exercise Price in effect under this Warrant as of the date of
issuance of such option; and
(v) Any other issuance of Common Stock, Convertible Securities or
Stock Purchase Rights with respect to which the Majority Warrant Holders
shall have waived application of the provisions of Section 4 below.
"Subsidiary" means any corporation or association (a) more than 50%
(by number of votes) of the voting stock of which is at the time owned by the
Company or by one or more Subsidiaries or by the Company and one or more
Subsidiaries, or any other business entity in which the Company or one or more
Subsidiaries or the Company and one or more Subsidiaries own more than a 50%
interest either in the profits or capital of such business entity or (b) whose
net earnings, or portions thereof, are consolidated with the net earnings of
the Company and are recorded on the books of the Company for financial
reporting purposes in accordance with GAAP.
"Transfer" shall mean any disposition of any Warrant or Warrant Stock
or of any interest in either thereof, which would constitute a "sale" thereof
within the meaning of the Securities Act.
"Warrant Price" shall mean an amount equal to (i) the number of
shares of Common Stock being purchased upon exercise of
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this Warrant pursuant to Section 2.1 hereof, multiplied by (ii) the Exercise
Price as of the date of such exercise.
"Warrants" shall mean the Original Warrants and all warrants issued upon
transfer, division or combination of, or in substitution for, such Original
Warrants or any other such Warrant. All Warrants shall at all times be
identical as to terms and conditions and date, except as to the number of
shares of Common Stock for which they may be exercised.
"Warrant Stock" generally shall mean the shares of Common Stock issued,
issuable or both (as the context may require) upon the exercise of Warrants
until such time as such shares of Common Stock have either been (i) Transferred
in a public offering pursuant to a registration statement filed under the
Securities Act or (ii) Transferred in a transaction exempt from the
registration and prospectus delivery requirements of the Securities Act under
Section 4(1) thereof with all transfer restrictions and restrictive legends
with respect to such Common Stock being removed in connection with such
transaction.
2. EXERCISE OF WARRANT
2.1 Manner of Exercise. (a) From and after the Original Issue Date
and until 5:00 P.M., Detroit time, on the Expiration Date, the Holder may from
time to time exercise this Warrant, on any Business Day, for all or any part of
the number of shares of Common Stock purchasable hereunder (as determined
pursuant to Section 2.2 below). In order to exercise this Warrant, in whole or
in part, the Holder shall (i) deliver to the Company at the Designated Office a
written notice of the Holder's election to exercise this Warrant (an "Exercise
Notice"), which Exercise Notice shall be irrevocable and specify the number of
shares of Common Stock to be purchased, together with this Warrant and (ii) pay
to the Company the Warrant Price (the date on which both such delivery and
payment shall have first taken place being hereinafter sometimes referred to as
the "Exercise Date"). Such Exercise Notice shall be in the form of the
subscription form appearing at the end of this Warrant as Annex A, duly
executed by the Holder or its duly authorized agent or attorney.
(b) Upon receipt of such Exercise Notice, Warrant and payment, the
Company shall, as promptly as practicable, and in any event within five (5)
Business Days thereafter, execute (or cause to be executed) and deliver (or
cause to be delivered) to the Holder a certificate or certificates representing
the aggregate number of full shares of Common Stock issuable upon such
exercise, together with cash in lieu of any fraction of a share, as hereafter
provided. The stock certificate or certificates so delivered shall be, to the
extent possible, in such denomination or denominations as the exercising Holder
shall
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reasonably request in the Exercise Notice and shall be registered in the
name of the Holder or such other name as shall be designated in the Exercise
Notice (subject to compliance with the applicable provisions of Section 8).
This Warrant shall be deemed to have been exercised and such certificate or
certificates shall be deemed to have been issued, and the Holder or any other
Person so designated to be named therein shall be deemed to have become a
holder of record of such shares for all purposes, as of the Exercise Date.
(c) Payment of the Warrant Price shall be made at the option of the
Holder by one or more of the following methods: (i) by delivery of a certified
or official bank check in the amount of such Warrant Price, (ii) by instructing
the Company to withhold a number of shares of Warrant Stock then issuable upon
exercise of this Warrant with an aggregate Fair Value equal to such Warrant
Price (the "Share Withholding Option") or (iii) by surrendering to the Company
shares of Common Stock previously acquired by the Holder with an aggregate Fair
Value equal to such Warrant Price. In connection with any such surrender of
Common Stock, Holder shall deliver to Company duly executed stock power
endorsed in blank. In the event of any withholding of Warrant Stock or
surrender of Common Stock pursuant to clause (ii) or (iii) above where the
number of shares whose Fair Value is equal to the Warrant Price is not a whole
number, the number of shares withheld by or surrendered to the Company shall be
rounded up to the nearest whole share and the Company shall make a cash payment
to the Holder based on the incremental fraction of a share being so withheld by
or surrendered to the Company in an amount determined in accordance with
Section 2.3 hereof.
(d) If this Warrant shall have been exercised in part, the Company shall,
at the time of delivery of the certificate or certificates representing the
shares of Common Stock being issued, deliver to the Holder a new Warrant
evidencing the rights of the Holder to purchase the unpurchased shares of
Common Stock called for by this Warrant. Such new Warrant shall in all other
respects be identical with this Warrant.
2.2 Payment of Taxes. All shares of Common Stock issuable upon the
exercise of this Warrant pursuant to the terms hereof shall be validly issued,
fully paid and nonassessable, issued without violation of any preemptive rights
and free and clear of all Liens (other than any created by actions of the
Holder). The Company shall pay all taxes and other governmental charges that
may be imposed with respect to, the issue or delivery thereof, unless such tax
or charge is imposed by law upon the Holder, in which case such taxes or
charges shall be paid by the Holder and the Company shall reimburse the Holder
therefor (other than for any taxes on net income or capital gains or any
transfer taxes required to be paid by such Holder) on an After-Tax Basis.
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2.3 Fractional Shares. The Company shall not be required to issue a
fractional share of Common Stock upon exercise of any Warrant. As to any
fraction of a share that the Holder of one or more Warrants, the rights under
which are exercised in the same transaction, would otherwise be entitled to
purchase upon such exercise, the Company shall pay a cash adjustment in respect
of such final fraction in an amount equal to the same fraction of (i) the
Current Market Price of one share of Common Stock on the Exercise Date, if the
Common Stock is then publicly traded or (ii) the fair market value per share of
Common Stock as determined in good faith by the Board of Directors of the
Company, if the Common Stock is not then publicly traded.
2.4 Continued Validity and Application. (a) A holder of shares of
Warrant Stock issued upon the exercise of this Warrant, in whole or in part,
including any transferee of such shares (other than a transferee in whose hands
such shares no longer constitute Warrant Stock as defined herein), shall
continue, with respect to such shares, (i) to be entitled to all rights to
which it would have been entitled as the Holder under Sections 2.2 and 12, and
(ii) to be subject to all obligations that are applicable to such holder by the
terms of this Warrant. The Company shall, at the time of any exercise of this
Warrant or any transfer of Warrant Stock, upon the request of the holder of the
shares of Warrant Stock issued in connection with such exercise or transfer,
acknowledge in writing, in a form reasonably satisfactory to such holder, its
continuing obligation to afford to such holder such rights referred to in this
Section 2.4; provided, however, that if such holder shall fail to make any such
request, such failure shall not affect the continuing obligation of the Company
to afford to such holder all such rights.
3. TRANSFER, DIVISION AND COMBINATION
3.1 Transfer. Subject to compliance with Section 8 hereof, each transfer
of this Warrant and all rights hereunder, in whole or in part, shall be
registered on the books of the Company to be maintained for such purpose, upon
surrender of this Warrant at the Designated Office, together with a written
assignment of this Warrant in the form of Annex B hereto duly executed by the
Holder or its agent or attorney. Upon such surrender and delivery, the Company
shall, subject to Section 8, execute and deliver a new Warrant or Warrants in
the name of the assignee or assignees and in the denominations specified in
such instrument of assignment, and shall issue to the assignor a new Warrant
evidencing the portion of this Warrant not so assigned and this Warrant shall
promptly be canceled. A Warrant, if properly assigned in compliance with
Section 8, may be exercised by the new Holder for the purchase of shares of
Common Stock without having a new Warrant issued.
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3.2 Division and Combination. Subject to compliance with the
applicable provisions of this Warrant, this Warrant may be divided or combined
with other Warrants upon presentation hereof at the Designated Office, together
with a written notice specifying the names and denominations in which new
Warrants are to be issued, signed by the Holder or its agent or attorney.
Subject to compliance with the applicable provisions of this Warrant as to any
transfer which may be involved in such division or combination, the Company
shall execute and deliver a new Warrant or Warrants in exchange for the Warrant
or Warrants to be divided or combined in accordance with such notice.
3.3 Expense. The Company shall prepare, issue and deliver at its own
expense any new Warrant or Warrants required to be issued under this Section 3.
3.5 Maintenance of Books. The Company agrees to maintain, at the
Designated Office, books for the registration and transfer of the Warrants.
4. ANTIDILUTION PROVISIONS
The number of shares of Common Stock for which this Warrant is
exercisable and the Exercise Price shall be subject to adjustment from time to
time as set forth in this Section 4.
4.1 Stock DividendsIf at any time the Company shall:
(i) take a record of the holders of its Common Stock for the purpose
of entitling them to receive a dividend payable in, or other distribution
of, additional shares of Common Stock,
(ii) subdivide its outstanding shares of Common Stock into a larger
number of shares of such Common Stock, pursuant to a stock split or
otherwise, or
(iii) combine its outstanding shares of Common Stock into a smaller
number of shares of such Common Stock, pursuant to a reverse stock split
or otherwise,
then the Exercise Price shall be adjusted to equal the product of the Exercise
Price in effect immediately prior to such event multiplied by a fraction the
numerator of which is equal to the number of shares of Common Stock Outstanding
immediately prior to the adjustment and the denominator of which is equal to
the number of shares of Common Stock Outstanding immediately after such
adjustment.
4.2 Issuance of Additional Shares of Common Stock. If at any time
the Company shall issue or sell any shares of
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Common Stock in a Subsequent Issuance for a consideration per share that is
less than either (i) the Fair Value in effect immediately prior to such
issuance or sale and (ii) the Exercise Price in effect immediately prior to
such issuance or sale, then, forthwith upon such issuance or sale, the Exercise
Price shall be reduced to the lower of the prices calculated by:
(1) dividing (A) an amount equal to the sum of (x) the number of
shares of Common Stock Outstanding immediately prior to such Subsequent
Issuance multiplied by the then existing Exercise Price, plus (y) the
aggregate consideration (determined in accordance with the provisions of
Section 4.7 hereof), if any, received by the Company in connection with
such Subsequent Issuance, by (B) the total number of shares of Common
Stock Outstanding immediately after such Subsequent Issuance; and
(2) multiplying the then existing Exercise Price by a fraction, the
numerator of which shall be the quotient obtained by dividing (A) the sum
of (x) the number of shares of Common Stock Outstanding immediately prior
to such Subsequent Issuance multiplied by the Fair Value per share of
Common Stock immediately prior to such Subsequent Issuance plus (y) the
aggregate consideration (determined in accordance with the provisions of
Section 4.7 hereof), if any, received by the Company in connection with
such Subsequent Issuance divided by (B) the total number of shares of
Common Stock Outstanding immediately after such Subsequent Issuance, and
the denominator of which shall be the Fair Value per share of Common Stock
immediately prior to such Subsequent Issuance.
(b) The provisions of this Section 4.2 shall not apply to (i) any
issuance of Common Stock for which an adjustment is provided for under Section
4.1 or (ii) any issuance or sale of Common Stock pursuant to the exercise of
any Stock Purchase Rights or Convertible Securities to the extent that an
adjustment shall have been previously made hereunder in connection with the
issuance of such Stock Purchase Rights or Convertible Securities pursuant to
the provisions of Section 4.3 hereof.
4.3 Issuances of Stock Purchase Rights and Convertible Securities.
(a) In the event that the Company shall at any time issue, sell or grant
any Stock Purchase Rights to any Person in a Subsequent Issuance, then, for the
purpose of Section 4.2 above, the Company shall be deemed to have issued at
that time a number of shares of Common Stock equal to the maximum number of
shares of Common Stock that are or may become issuable upon exercise of such
Stock Purchase Rights (or upon exercise of any Convertible Securities issuable
upon exercise of such Stock Purchase Rights) for a consideration per share
equal to (i) the aggregate consideration per share (determined in accordance
with the provisions of Section 4.7 hereof) received by the Company in
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connection with the issuance, sale or grant of such Stock Purchase Rights plus
(ii) the minimum amount of such consideration per share receivable by the
Company in connection with the exercise of such Stock Purchase Rights (and the
exercise of any Convertible Securities issuable upon exercise of such Stock
Purchase Rights).
(b) In the event that the Company shall at any time issue or sell any
Convertible Securities to any Person in a Subsequent Issuance, then, for the
purposes of Section 4.2 above, the Company shall be deemed to have issued at
that time a number of shares of Common Stock equal to the maximum number of
shares of Common Stock that are or may become issuable upon the exercise of the
conversion or exchange rights associated with such Convertible Securities for a
consideration per share equal to (i) the aggregate consideration per share
(determined in accordance with the provisions of Section 4.7 hereof) received
by the Company in connection with the issuance or sale of such Convertible
Securities plus (ii) the minimum amount of such consideration per share
receivable by the Company in connection with the exercise of such conversion or
exchange rights.
(c) If, at any time after any adjustment of the Exercise Price shall
have been made hereunder as the result of any issuance, sale or grant of any
Stock Purchase Rights or Convertible Securities, the maximum number of shares
issuable upon exercise of such Stock Purchase Rights or of the rights of
conversion or exchange associated with such Convertible Securities shall
increase, or the minimum amount of consideration per share receivable in
connection with such exercise shall decrease, whether by operation of any
antidilution rights pertaining to such Stock Purchase Rights or Convertible
Securities, by agreement of the parties or otherwise, the Exercise Price then
in effect shall first be readjusted to eliminate the effects of the original
issuance, sale or grant of such Stock Purchase Rights or Convertible Securities
on such Exercise Price and then readjusted as if such Stock Purchase Rights or
Convertible Securities had been issued on the effective date of such increase
in number of shares or decrease in consideration, but only if the effect of
such two-step readjustment is to reduce the Exercise Price below the Exercise
Price in effect immediately prior to such increase or decrease.
(d) If, at any time after any adjustment of the Exercise Price shall
have been made hereunder as the result of any issuance, sale or grant of any
Stock Purchase Rights or Convertible Securities, any of such Stock Purchase
Rights or the rights of conversion or exchange associated with such Convertible
Securities shall expire by their terms or any of such Stock Purchase Rights or
Convertible Securities shall be repurchased by the Company or a Subsidiary
thereof for a consideration per underlying share of Common Stock not exceeding
the amount of such consideration received by the Company in connection with the
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issuance, sale or grant of such Stock Purchase Rights or Convertible
Securities, the Exercise Price then in effect shall forthwith be increased to
the Exercise Price that would have been in effect if such expiring Stock
Purchase Rights or rights of conversion or exchange or such repurchased Stock
Purchase Rights or Convertible Securities had never been issued. Similarly, if
at any time after any such adjustment of the Exercise Price shall have been
made pursuant to Section 4.2 (i) any additional consideration is received or
becomes receivable by the Company in connection with the issuance or exercise
of such Stock Purchase Rights or Convertible Securities or (ii) there is a
reduction in the conversion ratio applicable to such Convertible Securities so
that fewer shares of Common Stock will be issuable upon the conversion or
exchange thereof or there is a decrease in the number of shares of Common Stock
issuable upon exercise of such Stock Purchase Rights, the Exercise Price then
in effect shall be forthwith readjusted to the Exercise Price that would have
been in effect had such changes taken place at the time that such Stock
Purchase Rights or Convertible Securities were initially issued, granted or
sold. In no event shall any readjustment under this Section 4.3(d) affect the
validity of any shares of Warrant Stock issued upon any exercise of this
Warrant prior to such readjustment, nor shall any such readjustment have the
effect of increasing the Exercise Price above the Exercise Price that would
have been in effect if the related Stock Purchase Rights or Convertible
Securities had never been issued.
4.4 Certain Other Distributions. If at any time the Company shall
take a record of the holders of its Common Stock for the purpose of entitling
them to receive any dividend or other distribution of:
(a) cash;
(b) any evidences of its indebtedness, any shares of its capital
stock or any other securities or property of any nature whatsoever (other
than cash, shares of Common Stock, Convertible Securities or Stock
Purchase Rights); or
(c) any warrants or other rights to subscribe for or purchase any
evidences of its indebtedness, any shares of its capital stock or any
other securities or property of any nature whatsoever (other than cash,
shares of Common Stock, Convertible Securities or Stock Purchase Rights);
then the Exercise Price shall be adjusted to be equal to the Exercise Price in
effect immediately prior to such event multiplied by a fraction (A) the
numerator of which shall be the Current Market Price per share of Common Stock
per share of Common Stock as of the date of taking such record, minus the
amount allocable to one share of Common Stock of (x) any such cash so
distributable and (y) the fair value (as determined in good faith by the Board
of Directors of the Company, subject to
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the right of the Holders to object to such determination pursuant to Section
4.10 below) of any and all such evidences of indebtedness, shares of stock,
other securities or property or warrants or other subscription or purchase
rights so distributable and (B) the denominator of which shall be such Current
Market Price per share of Common Stock. A reclassification of the Common Stock
(other than a change in par value, or from par value to no par value, or from
no par value to par value) into shares of Common Stock and shares of any other
class of stock shall be deemed a distribution by the Company to the holders of
its Common Stock of such shares of such other class of stock within the meaning
of this Section 4.4 and, if the outstanding shares of Common Stock shall be
changed into a larger or smaller number of shares of Common Stock as a part of
such reclassification, such change shall be deemed a subdivision or
combination, as the case may be, of the outstanding shares of Common Stock
within the meaning of Section 4.1.
4.5 Adjustment of Number of Shares Purchaseable. Upon any adjustment of
the Exercise Price as provided in Section 4.1, 4.2, 4.3 or 4.4 hereof, the
Holder hereof shall thereafter be entitled to purchase upon the exercise of
this Warrant, at the Exercise Price resulting from such adjustment, the number
of shares of Common Stock (calculated to the nearest 1/100th of a share)
obtained by multiplying the Exercise Price in effect immediately prior to such
adjustment by the number of shares of Common Stock issuable on the exercise
hereof immediately prior to such adjustment and dividing the product thereof by
the Exercise Price resulting from such adjustment.
4.6 Reorgranization, Reclassification, Merger, Consolidation or
Disposition of Assets. In case the Company shall reorganize its capital,
reclassify its capital stock, consolidate or merge with or into another
corporation (where the Company is not the surviving corporation or where there
is any change whatsoever in, or distribution with respect to, the Outstanding
Common Stock of the Company), or sell, transfer or otherwise dispose of all or
substantially all of its property, assets or business to another corporation
and, pursuant to the terms of such reorganization, reclassification, merger,
consolidation or disposition of assets, (i) shares of common stock of the
successor or acquiring corporation or of the Company (if it is the surviving
corporation) or (ii) any cash, shares of stock or other securities or property
of any nature whatsoever (including warrants or other subscription or purchase
rights) in addition to or in lieu of common stock of the successor or acquiring
corporation ("Other Property") are to be received by or distributed to the
holders of Common Stock of the Company who are holders immediately prior to such
transaction, then the Holder of this Warrant shall have the right thereafter to
receive, upon exercise of this Warrant, the number of shares of common stock of
the successor or acquiring corporation or of the Company, if it is the surviving
corporation, and Other Property receivable upon or
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as a result of such reorganization, reclassification, merger, consolidation or
disposition of assets by a holder of the number of shares of Common Stock for
which this Warrant is exercisable immediately prior to such event. In such
event, the aggregate Exercise Price otherwise payable for the shares of Common
Stock issuable upon exercise of this Warrant shall be allocated among the
shares of common stock and Other Property receivable as a result of such
reorganization, reclassification, merger, consolidation or disposition of
assets in proportion to the respective fair market values of such shares of
common stock and Other Property as determined in good faith by the Board of
Directors of the Company. In case of any such reorganization,
reclassification, merger, consolidation or disposition of assets, the successor
or acquiring corporation (if other than the Company) shall expressly assume the
due and punctual observance and performance of each and every covenant and
condition of this Warrant to be performed and observed by the Company and all
the obligations and liabilities hereunder, subject to such modifications as may
be reasonably deemed appropriate (as determined by resolution of the Board of
Directors of the Company) in order to provide for adjustments of any shares of
the common stock of such successor or acquiring corporation for which this
Warrant thus becomes exercisable, which modifications shall be as equivalent as
practicable to the adjustments provided for in this Section 4. For purposes of
this Section 4.6, "common stock of the successor or acquiring corporation"
shall include stock of such corporation of any class that is not preferred as
to dividends or assets over any other class of stock of such corporation and
that is not subject to redemption and shall also include any evidences of
indebtedness, shares of stock or other securities that are convertible into or
exchangeable for any such stock, either immediately or upon the arrival of a
specified date or the happening of a specified event and any warrants or other
rights to subscribe for or purchase any such stock. The foregoing provisions
of this Section 4.6 shall similarly apply to successive reorganizations,
reclassification, mergers, consolidations or disposition of assets.
4.7 Determination of Consideration. For purposes of Sections 4.2 and 4.3
hereof, the consideration received and/or receivable by the Company in
connection with the issuance, sale, grant or exercise of additional shares of
Common Stock, Stock Purchase Rights or Convertible Securities, irrespective of
the accounting treatment of such consideration, shall be valued as follows:
(1) Cash Payment. In the case of cash, the net amount received by the
Company after deduction of any accrued interest or dividends, but including any
underwriting commissions or concessions paid or allowed by the Company.
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(2) Securities or Other Property. In the case of securities or
other property, the fair market value thereof as of the date
immediately preceding such issuance, sale, grant or exercise as
determined in good faith by the Board of Directors of the Company.
(3) Allocation Related to Common Stock. In the event shares of
Common Stock are issued or sold together with other securities or
other assets of the Company for a consideration which covers both,
the consideration received (computed as provided in (1) and (2)
above) shall be allocable to such shares of Common Stock as
determined in good faith by the Board of Directors of the Company.
(4) Allocation Related to Stock Purchase Rights and Convertible
Securities. In case any Stock Purchase Rights or Convertible
Securities shall be issued or sold together with other securities or
other assets of the Company, together comprising one integral
transaction in which no specific consideration is allocated to the
Stock Purchase Rights or Convertible Securities, the consideration
allocable to such Stock Purchase Rights or Convertible Securities
shall be determined in good faith by the Board of Directors of the
Company.
(5) Dividends in Securities. In case the Company shall declare
a dividend or make any other distribution upon any stock of the
Company payable in either case in Common Stock or Convertible
Securities, such Common Stock or Convertible Securities, as the case
may be, issuable in payment of such dividend or distribution shall
be deemed to have been issued or sold without consideration.
(6) Merger, Consolidation or Sale of Assets. In case any
shares of Common Stock, Stock Purchase Rights or Convertible
Securities shall be issued in connection with any merger or
consolidation in which the Company is the surviving corporation, the
amount of consideration therefor shall be deemed to be the fair
value of such portion of the assets and business of the
non-surviving corporation attributable to such Common Stock, Stock
Purchase Rights or Convertible Securities, as is determined in good
faith by the Company's Board of Directors.
4.8 Other Dilutive Events. In case any event shall occur as to which
the other provisions of this Section 4 are not strictly applicable but as to
which the failure to make any adjustment would not fairly protect the purchase
rights represented by this Warrant in accordance with the essential intent
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and principles hereof (including, without limitation, the issuance of
securities other than Common Stock which have the right to participate in
distributions to the holders of Common Stock, the granting of "phantom stock"
rights or "stock appreciation rights" or the repurchase of outstanding shares
of Common Stock, Convertible Securities or Stock Purchase Rights for a
purchase price exceeding the fair market value thereof), then, in each such
case, the Company shall make such adjustment, if any, as the Board of Directors
determines to be required to be made on a basis consistent with the essential
intent and principles established herein as a result of such event in order to
preserve the purchase rights represented by the Warrants and shall promptly
give each Holder of a Warrant written notice of such adjustment. If the
Majority Warrant Holders disagree with such adjustment and give the Company
written notice of such disagreement within thirty (30) days after receiving
notice of such adjustment, then such adjustment shall instead be determined by
an independent investment banking firm of nationally recognized standing
selected by the Majority Warrant Holders and reasonably acceptable to the
Company. If the investment banking firm selected by the Majority Warrant
Holders is not reasonably acceptable to the Company, and the Company and the
Majority Warrant Holders cannot agree on a mutually acceptable investment
banking firm, then the Company and the Majority Warrant Holders shall each
choose one such investment banking firm and the respective chosen firms shall
jointly select a third investment banking firm, which shall make the
determination. The decision of the investment banking firm making such
determination shall be final and binding on the Company and all affected
holders of Warrants or Warrant Stock. Promptly after receipt of the opinion of
such investment banking firm as to any such required adjustments, the Company
shall take any actions necessary to implement same. The Company shall pay the
costs and fees of each such investment banking firm (including any such
investment banking firm selected by the Majority Warrant Holders) in the event
that the investment banking firm making the determination determines that an
adjustment is required that is greater than the adjustment proposed by the
Board of Directors, and the Majority Warrant Holders shall pay such fees if
such investment banking firm determines that no such adjustment greater than
that proposed by the Board of Directors is required.
4.9 Other Provisions Applicable to Adjustments Under this Section.
The following provisions shall be applicable to the adjustments provided for
pursuant to this Section 4:
(a) When Adjustments To Be Made. The adjustments required by
this Section 4 shall be made whenever and as often as any specified
event requiring such an adjustment shall occur. For the purpose of
any such adjustment, any specified event shall be deemed to have
occurred at the close of business on the date of its occurrence.
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(b) Record Date. In case the Company shall take a record of the
holders of the Common Stock for the purpose of entitling them (i) to
receive a dividend or other distribution payable in Common Stock,
Convertible Securities or Stock Purchase Rights or (ii) to subscribe for
or purchase Common Stock, Convertible Securities or Stock Purchase Rights,
then all references in this Section 4 to the date of the issuance or sale
of such shares of Common Stock, Convertible Securities or Stock Purchase
Rights shall be deemed to be references to such record date.
(c) Fractional Interests. In computing adjustments under this
Section 4, fractional interests in Common Stock shall be taken into
account to the nearest 1/100th of a share.
(d) When Adjustment Not Required. 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 distribution to which the
provisions of Section 4.1 would apply, but 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 shall be required by reason of the taking
of such record and any such adjustment previously made in respect
thereof shall be rescinded and annulled.
(e) Maximum Exercise Price. Except as provided in Section 4.1 above,
at no time shall the Exercise Price per share of Common Stock exceed the
amount set forth in the first paragraph of the preamble of this Warrant.
(f) Certain Limitations. Notwithstanding anything herein to the
contrary, the Company agrees not to enter into any transaction that, by
reason of any adjustment under Section 4.1, 4.2, 4.3 or 4.4 above, would
cause the Exercise Price to be less than the par value of the Common
Stock, if any, unless the Company first reduces the par value of the
Common Stock to be less than the Exercise Price that would result from
such transaction.
(g) Notice of Adjustments. Whenever the number of shares of
Common Stock for which this Warrant is exercisable or the Exercise
Price shall be adjusted pursuant to this Section 4, the Company
shall forthwith prepare a certificate to be executed by the chief
financial officer of the Company setting forth, in reasonable
detail, the event requiring the adjustment and the method by which
such adjustment was calculated, specifying the number of shares of
Common Stock for which this Warrant is exercisable and (if such
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adjustment was made pursuant to Section 4.6) describing the number
and kind of any other shares of stock or Other Property for which
this Warrant is exercisable, and any related change in the Exercise
Price, after giving effect to such adjustment or change. The
Company shall promptly cause a signed copy of such certificate to be
delivered to each Holder in accordance with Section 13.2. The
Company shall keep at its principal office or at the Designated
Office, if different, copies of all such certificates and cause the
same to be available for inspection at said office during normal
business hours by any Holder or any prospective transferee of a
Warrant designated by a Holder thereof.
(h) Independent Application. Except as otherwise provided
herein, all subsections of this Section 4 are intended to operate
independently of one another (but without duplication). If an event
occurs that requires the application of more than one subsection,
all applicable subsections shall be given independent effect without
duplication.
4.10 Challenge to Good Faith Determination. Whenever the Board of
Directors of the Company shall be required to make a determination in good
faith of the fair value of any item under this Section 4, such determination
may be challenged in good faith by the Majority Warrant Holders within thirty
(30) days after receipt of written notice of such determination, and any
dispute shall be resolved by an investment banking firm of nationally
recognized standing selected by the Majority Warrant Holders and reasonably
acceptable to the Company (the fair value of the item as resolved by the
investment banking firm referred to herein as the "Determined Value"). If the
investment banking firm selected by the Majority Warrant Holders is not
reasonably acceptable to the Company, and the Company and the Majority Warrant
Holders cannot agree on a mutually acceptable investment banking firm, then the
Company and the Majority Warrant Holders shall each choose one such investment
banking firm and the respective chosen firms shall jointly select a third
investment banking firm, which shall make the Determined Value. The Company
shall pay the costs and fees of each such investment banking firm (including
any such investment banking firm selected by the Majority Warrant Holders), if
the Determined Value leads to a greater reduction in the Exercise Price than
the fair value as determined in good faith by the Board of Directors of the
Company, and the Majority Warrant Holders shall pay the costs and fees of each
such investment banking firm, if the Determined Value leads to an increase or
no change in such Exercise Price.
5. NO IMPAIRMENT
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The Company shall not by any action, including, without limitation,
amending its charter documents or through any reorganization, reclassification,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other similar voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of this Warrant, but will at all
times in good faith assist in the carrying out of all such terms and in the
taking of all such actions as may be necessary or appropriate to protect the
rights of the Holder against impairment. Without limiting the generality of
the foregoing, the Company shall take all such action as may be necessary or
appropriate in order that the Company may validly and legally issue fully paid
and nonassessable shares of Common Stock upon the exercise of this Warrant,
free and clear of all Liens, and shall use its best efforts to obtain all such
authorizations, exemptions or consents from any public regulatory body having
jurisdiction over it as may be necessary to enable the Company to perform its
obligations under this Warrant.
6. RESERVATION AND AUTHORIZATION OF COMMON STOCK, REGISTRATION WITH OR
APPROVAL OF ANY GOVERNMENTAL AUTHORITY
From and after the Original Issue Date, the Company shall at all times
reserve and keep available for issuance upon the exercise of the Warrants
131,718 shares of Common Stock. In addition, from and after the earlier of (i)
May 31, 1998 and (ii) the filing of an amendment to the Articles of
Incorporation of the Company increasing the Company's authorized Common Stock
to 20,000,000 shares, the Company shall reserve and keep available for issuance
upon the exercise of the Warrants such additional number of its authorized but
unissued shares of Common Stock as may be required from time to time to permit
the exercise in full of all outstanding Warrants. All shares of Common Stock
issuable pursuant to the terms hereof, when issued upon exercise of this
Warrant with payment therefor in accordance with the terms hereof, shall be
duly and validly issued and fully paid and nonassessable, not subject to
preemptive rights and shall be free and clear of all Liens. Before taking any
action that would result in an adjustment in the number of shares of Common
Stock for which this Warrant is exercisable or in the Exercise Price, the
Company shall obtain all such authorizations or exemptions thereof, or consents
thereto, as may be necessary from any public regulatory body or bodies having
jurisdiction over such action. If any shares of Common Stock required to be
reserved for issuance upon exercise of Warrants require registration or
qualification with any governmental authority under any federal or state law
(other than under the Securities Act or any state securities law) before such
shares may be so issued, the Company will in good faith and as expeditiously as
possible and at its expense endeavor to cause such shares to be duly
registered.
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7. NOTICE OF CORPORATE ACTIONS, TAKING OR RECORD, TRANSFER BOOKS
7.1 Notices of Corporate Actions. In the event of: (a) any taking by
the Company of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend or distribution, or any right to subscribe for, purchase or otherwise
acquire any shares of capital stock of any class or any other securities, (b)
any capital reorganization of the Company, any reclassification or
recapitalization of the capital stock of the Company or any consolidation or
merger involving the Company and any other Person or any transfer or other
disposition of all or substantially all the assets of the Company to another
Person or (c) any voluntary or involuntary dissolution, liquidation or
winding-up of the Company or (d) any amendment of the Certificate of
Incorporation of the Company, the Company shall mail to each Holder of a
Warrant in accordance with the provisions of Section 13.2 hereof a notice
specifying (i) the date or expected date on which any such record is to be
taken for the purpose of such dividend, distribution or right, and the amount
and character of such dividend, distribution or right and (ii) the date or
expected date on which any such reorganization, reclassification,
recapitalization, consolidation, merger, transfer, disposition, dissolution,
liquidation or winding-up is to take place, the time, if any such time is to be
fixed, as of which the holders of record of Common Stock shall be entitled to
exchange their shares of Common Stock for the securities or Other Property
deliverable upon such reorganization, reclassification, recapitalization,
consolidation, merger, transfer, disposition, dissolution, liquidation or
winding-up and a description in reasonable detail of the transaction. Such
notice shall be mailed to the extent practicable at least thirty (30), but not
more than ninety (90) days prior to the date therein specified. In the event
that the Company at any time sends any other notice to the holders of its
Common Stock, it shall concurrently send a copy of such notice to each Holder
of a Warrant.
In the case of all dividends or other distributions by the Company to
the holders of its Common Stock with respect to which any provision of any
Section hereof refers to the taking of a record of such holders, the Company
will in each such case take such a record and will take such record as of the
close of business on a Business Day.
The Company shall not at any time, except upon dissolution, liquidation
or winding up of the Company, close its stock transfer books or Warrant transfer
books so as to result in preventing or delaying the exercise or transfer of any
Warrant.
8. TRANSFER
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The Holder, by acceptance of this Warrant or any Restricted Common Stock
issued upon exercise hereof, agrees to be bound by the provisions of this
Section 8.
8.1 Restrictions on Transfer. (a) Neither this Warrant nor any
shares of Restricted Common Stock issued upon the exercise hereof shall be
Transferred other than pursuant to an effective registration statement under
the Securities Act or an exemption from the registration provisions thereof.
No Transfer of this Warrant or any such shares of Restricted Stock other than
pursuant to such an effective registration statement shall be valid or
effective unless (i) the holder of the securities proposed to be transferred
shall have delivered to the Company either a no-action letter from the
Commission, together with comparable letters from any applicable state
securities authorities, or an Opinion of Counsel to the effect that such
proposed Transfer is exempt from the registration requirements of the
Securities Act and any applicable state securities laws or (ii) such Transfer
is being made pursuant to Rule 144 or Rule 144A under the Securities Act and
such holder shall have delivered to the Company a certificate, in a form
reasonably acceptable to Company, setting forth the basis for applying such
Rule to the proposed Transfer. Each certificate, if any, evidencing such
shares of Restricted Common Stock issued upon any such Transfer, other than in
a public offering pursuant to an effective registration statement shall bear
the restrictive legend set forth in Section 8.2(a), and each Warrant issued
upon such Transfer shall bear the restrictive legend set forth in Section
8.2(b), unless the Holder delivers to the Company an Opinion of Counsel to the
effect that such legend is not required for the purposes of compliance with the
Securities Act. Holders of the Warrants or the Restricted Common Stock, as the
case may be, shall not be entitled to Transfer such Warrants or such Restricted
Common Stock except in accordance with this Section 8.1(a).
(b) Except with the prior written consent of the Company, neither this
Warrant nor any shares of Warrant Stock issuable upon exercise hereof may be
Transferred at any time to: (i) Directed Electronics, Inc. or any Affiliate or
successor thereof, (ii) Darrell Issa or (iii) any Person that to the knowledge
of the transferring Holder is a member of the immediate family of Darrell Issa.
8.2 Restrictive Legends. (a) Except as otherwise provided in this
Section 8, each certificate for Warrant Stock initially issued upon the
exercise of this Warrant, and each certificate for Warrant Stock issued to any
subsequent transferee of any such certificate, shall be stamped or otherwise
imprinted with two legends in substantially the following forms:
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"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY
STATE SECURITIES LAW. NO TRANSFER OF THE SHARES REPRESENTED BY THIS
CERTIFICATE SHALL BE VALID OR EFFECTIVE UNLESS (A) SUCH TRANSFER IS
MADE PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT
AND IN COMPLIANCE WITH ANY APPLICABLE STATE SECURITIES LAWS OR (B)
THE HOLDER OF THE SECURITIES PROPOSED TO BE TRANSFERRED SHALL HAVE
DELIVERED TO THE COMPANY EITHER A NO-ACTION LETTER FROM THE
SECURITIES AND EXCHANGE COMMISSION, TOGETHER WITH COMPARABLE LETTERS
FROM ANY APPLICABLE STATE SECURITIES AUTHORITIES, OR AN OPINION OF
COUNSEL (WHO MAY BE AN EMPLOYEE OF SUCH HOLDER) EXPERIENCED IN
SECURITIES MATTERS TO THE EFFECT THAT SUCH PROPOSED TRANSFER IS
EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE ACT AND ANY
APPLICABLE STATE SECURITIES LAWS OR (C) SUCH TRANSFER IS PURSUANT TO
RULE 144 OR RULE 144A UNDER THE ACT AND SUCH HOLDER(S) SHALL HAVE
DELIVERED TO THE COMPANY A CERTIFICATE SETTING FORTH THE BASIS FOR
APPLYING SUCH RULE TO THE PROPOSED TRANSFER."
"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE ENTITLED TO THE
BENEFIT OF AND ARE SUBJECT TO CERTAIN OBLIGATIONS SET FORTH IN THE
WARRANT PURSUANT TO THE EXERCISE OF WHICH SUCH SHARES WERE ISSUED.
AS WELL AS A REGISTRATION RIGHTS AGREEMENT AMONG THE COMPANY,
PEGASUS PARTNERS, L.P., PEGASUS RELATED PARTNERS, L.P. AND GENERAL
ELECTRIC CAPITAL CORPORATION DATED AS OF THE ORIGINAL ISSUE DATE.
COPIES OF SUCH WARRANT AND REGISTRATION RIGHTS AGREEMENT ARE
AVAILABLE AT THE EXECUTIVE OFFICES OF THE COMPANY."
(b) Except as otherwise provided in this Section 8, each Warrant
shall be stamped or otherwise imprinted with a legend in substantially the
following form:
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"NEITHER THIS WARRANT NOR ANY OF THE SECURITIES ISSUABLE UPON
EXERCISE HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAW. NO
TRANSFER OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE OR OF THE
SECURITIES ISSUABLE UPON EXERCISE THEREOF SHALL BE VALID OR
EFFECTIVE UNLESS (A) SUCH TRANSFER IS MADE PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT AND IN COMPLIANCE WITH ANY
APPLICABLE STATE SECURITIES LAWS OR (B) THE HOLDER OF THE SECURITIES
PROPOSED TO BE TRANSFERRED SHALL HAVE DELIVERED TO THE COMPANY
EITHER A NO-ACTION LETTER FROM THE SECURITIES AND EXCHANGE
COMMISSION, TOGETHER WITH COMPARABLE LETTERS FROM ANY APPLICABLE
STATE SECURITIES AUTHORITIES, OR AN OPINION OF COUNSEL (WHO MAY BE
AN EMPLOYEE OF SUCH HOLDER) EXPERIENCED IN SECURITIES MATTERS TO THE
EFFECT THAT SUCH PROPOSED TRANSFER IS EXEMPT FROM THE REGISTRATION
REQUIREMENTS OF THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR
(C) SUCH TRANSFER IS PURSUANT TO RULE 144 OR RULE 144A UNDER THE ACT
AND SUCH HOLDER(S) SHALL HAVE DELIVERED TO THE COMPANY A CERTIFICATE
SETTING FORTH THE BASIS FOR APPLYING SUCH RULE TO THE PROPOSED
TRANSFER."
8.3 Termination of Securities Law Restrictions. Notwithstanding
the foregoing provisions of Section 8, the restrictions imposed by Section 8.1
upon the transferability of the Warrants and the Restricted Common Stock and
the legend requirements of Section 8.2 shall terminate as to any particular
Warrant or shares of Restricted Common Stock when the Company shall have
received from the holder thereof an Opinion of Counsel to the effect that such
legend is not required in order to ensure compliance with the Securities Act.
Whenever the restrictions imposed by Sections 8.1 and 8.2 shall terminate as to
this Warrant, as hereinabove provided, the Holder hereof shall be entitled to
receive from the Company, at the expense of the Company, a new Warrant bearing
the following legend in place of the restrictive legend set forth hereon:
"THE RESTRICTIONS ON TRANSFERABILITY OF THE WITHIN WARRANT
CONTAINED IN SECTIONS 8.1 AND 8.2 HEREOF TERMINATED ON
______________, 19__, AND ARE OF NO FURTHER FORCE AND EFFECT."
All Warrants issued upon registration of transfer, division or combination of,
or in substitution for, any Warrant or Warrants entitled to bear such legend
shall have a similar legend endorsed thereon. Wherever the restrictions
imposed by this Section shall terminate as to any share of Restricted Common
Stock, as hereinabove provided, the holder thereof shall be entitled to receive
from the Company, at the Company's expense, a new certificate representing such
Common Stock not bearing the restrictive legend set forth in Section 8.2(a).
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8.4. Listing on Securities Exchange. If the Company shall list any
shares of Common Stock on any securities exchange or on NASDAQ, it shall at its
expense, to the extent permitted by the rules of such securities exchange or
NASDAQ, list thereon, maintain and, when necessary, increase such listing of,
all shares of Warrant Stock issued or, to the extent permissible under the
applicable securities exchange rules, issuable upon the exercise of this
Warrant.
9. REGISTRATION RIGHTS AGREEMENT
The Holder of this Warrant and holders of Warrant Stock are entitled to
the benefits of and are subject to certain obligations under the Registration
Rights Agreement. The Company shall keep a copy of the Registration Rights
Agreement at the Designated Office and shall furnish a copy thereof to the
Holder of this Warrant or any such holder of Warrant Stock upon request.
10. LOSS OR MUTILATION
Upon receipt by the Company from any Holder of evidence reasonably
satisfactory to it of the ownership of and the loss, theft, destruction or
mutilation of this Warrant and an indemnity reasonably satisfactory to it (it
being understood that the written indemnification agreement or affidavit of
loss of General Electric Capital Corporation shall be a sufficient indemnity)
and, in case of mutilation, upon surrender and cancellation hereof, the Company
will execute and deliver in lieu hereof a new Warrant of like tenor to such
Holder; provided, however, in the case of mutilation, no indemnity shall be
required if this Warrant in identifiable form is surrendered to the Company for
cancellation.
11. OFFICE OF THE COMPANY
As long as any of the Warrants remain outstanding, the Company shall
maintain an office or agency, which may be the principal executive offices of
the Company (the "Designated Office"), where the Warrants may be presented for
exercise, registration of transfer, division or combination as provided in this
Warrant. Such Designated Office shall initially be the office of the Company
at 950 Whitcomb, Madison Heights, Michigan 48071, Attn: President. The Company
may from time to time change the Designated Office to another office of the
Company or its agent within the United States by notice given to all registered
holders of Warrants at least ten (10) Business Days prior to the effective date
of such change.
12. FINANCIAL AND BUSINESS INFORMATION
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Until the Expiration Date, the Company shall deliver to each holder of
Warrants or of Warrant Stock one copy of each of the following items:
(i) as soon as available, and in any event within forty-five
(45) days after the end of each of the first three quarters of each
fiscal year, unaudited interim consolidated balance sheets of the
Company and its Subsidiaries as at the end of such quarter and the
related consolidated statements of income, cash flow, stockholders
equity and changes in financial position of the Company and its
Subsidiaries as at the end of and for such quarter, setting forth in
each case in comparative form the corresponding figures for and as
at the end of the corresponding quarter of the preceding fiscal
year, all in reasonable detail and certified by a principal
financial officer of the Company, as prepared in accordance with
GAAP consistently applied (subject to year end adjustments and the
absence of footnotes), and fairly presenting the consolidated
financial position and results of operations of the Company and its
Subsidiaries for such periods (it being agreed that the Company will
be deemed to have complied with its obligations under this
subsection (i) if the Company delivers to Holders the Company's
quarterly report on Form 10-Q promptly after filing thereof with the
Commission);
(ii) within ninety (90) days after the end of each fiscal year
of the Company, consolidated balance sheets of the Company and its
Subsidiaries as at the end of such year and the related consolidated
statements of income, stockholders' equity and changes in financial
position of the Company and its Subsidiaries for such fiscal year,
setting forth in each case in comparative form the consolidated
figures for the previous fiscal year, all in reasonable detail and
accompanied by a report thereon of independent public accountants of
recognized national standing selected by the Company, which report
shall state that such consolidated financial statements present
fairly the financial position of the Company and its Subsidiaries as
at the dates indicated and the results of their operations and
changes in their financial position for the periods indicated in
conformity with GAAP applied on a basis consistent with prior years
(except as otherwise specified in such report) and that the audit by
such accountants in connection with such consolidated financial
statements has been made in accordance with generally accepted
auditing standards (it being agreed that the Company will be deemed
to have complied with its obligations of this subsection
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(ii) if the Company delivers to Holders the Company's annual report on
Form 10-K promptly after filing thereof with the Commission);
(iii) promptly upon their becoming available, copies of all
financial statements, reports, notices and proxy statements sent or
made available by the Company to the holders of any class of its
securities generally or by any Subsidiary of the Company to the
holders of any class of its securities that are publicly traded; and
(iv) with reasonable promptness, such other information relating to
the Company and its Subsidiaries as the Holder may, from time to time,
reasonably request, provided that in the event the Company determines in
good faith that any such information is confidential or proprietary, such
Holder shall first execute an appropriate confidentiality agreement.
13. MISCELLANEOUS
13.1 Nonwaiver. No course of dealing or any delay or failure to
exercise any right hereunder on the part of the Company or the Holder shall
operate as a waiver of such right or otherwise prejudice the rights, powers or
remedies of such Person.
13.2 Notice Generally. Any notice, demand, request, consent,
approval, declaration, delivery or communication hereunder to be made pursuant
to the provisions of this Warrant shall be sufficiently given or made if in
writing and either delivered in person with receipt acknowledged or sent by
registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
(a) if to any Holder of this Warrant or holder of Warrant Stock
issued upon the exercise hereof, at its last known address appearing on
the books of the Company maintained for such purpose;
(b) if to the Company, at its Designated Office;
or at such other address as may be substituted by notice given as herein
provided. The giving of any notice required hereunder may be waived in writing
by the party entitled to receive such notice. Every notice, demand, request,
consent, approval, declaration, delivery or other communication hereunder shall
be deemed to have been duly given or served on the date on which personally
delivered, with receipt acknowledged, or three (3) Business Days after the same
shall have been deposited in the United States mail, or one (1) Business Day
after the same shall
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have been delivered to Federal Express or another overnight courier service.
13.3 Indemnification. If the Company fails to make, when due, any
payments provided for in this Warrant, the Company shall pay to the holder
hereof (a) interest at the Agreed Rate on any amounts due and owing to such
holder and (b) such further amounts as shall be sufficient to cover any costs
and expenses including, but not limited to, reasonable attorneys' fees and
expenses incurred by such holder in collecting any amounts due hereunder. The
Company shall indemnify, save and hold harmless the Holder hereof and the
holders of any Warrant Stock issued upon the exercise hereof from and against
any and all liability, loss, cost, damage, reasonable attorneys' and
accountants' fees and expenses, court costs and all other out-of-pocket
expenses incurred in connection with or arising from a Company Default. This
indemnification provision shall be in addition to the rights of such Holder or
holders to bring an action against the Company for breach of contract based on
such Company Default.
13.4 Limitation of Liability. No provision hereof, in the absence of
affirmative action by the Holder to purchase shares of Common Stock, and no
enumeration herein of the rights or privileges of the Holder hereof, shall give
rise to any liability of such Holder to pay the Exercise Price for any Warrant
Stock other than pursuant to an exercise of this Warrant or any liability as a
stockholder of the Company, whether such liability is asserted by the Company
or by creditors of the Company.
13.5 Remedies. Each holder of Warrants and/or Warrant Stock, in addition
to being entitled to exercise its rights granted by law, including recovery of
damages, shall be entitled to specific performance of its rights provided under
this Warrant. The Company agrees that monetary damages would not be adequate
compensation for any loss incurred by reason of a breach by it of the
provisions of this Warrant and hereby agrees, in an action for specific
performance, to waive the defense that a remedy at law would be adequate.
13.6 Successors and Assigns. Subject to the provisions of Sections 3.1,
8.1 and 8.2, this Warrant and the rights evidenced hereby shall inure to the
benefit of and be binding upon the successors of the Company and the permitted
successors and assigns of the Holder hereof. The provisions of this Warrant
are intended to be for the benefit of all Holders from time to time of this
Warrant and to the extent applicable, all holders of shares of Warrant Stock
issued upon the exercise hereof (including transferees), and shall be
enforceable by any such holder.
13.7 Amendment. This Warrant and all other Warrants may be modified or
amended or the provisions hereof waived with
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the written consent of the Company and the Majority Warrant Holders, provided
that no such Warrant may be modified or amended to reduce the number of shares
of Common Stock for which such Warrant is exercisable or to increase the price
at which such shares may be purchased upon exercise of such Warrant (before
giving effect to any adjustment as provided therein) without the written
consent of the holder thereof.
13.8 Severability. Wherever possible, each provision of this Warrant
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Warrant shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Warrant.
13.9 Headings. The headings used in this Warrant are for the convenience
of reference only and shall not, for any purpose, be deemed a part of this
Warrant.
13.10 GOVERNING LAW; JURISDICTION. IN ALL RESPECTS, INCLUDING ALL MATTERS
OF CONSTRUCTION, VALIDITY AND PERFORMANCE, THIS WARRANT AND THE OBLIGATIONS
ARISING HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF MICHIGAN. THE COMPANY HEREBY
CONSENTS AND AGREES THAT THE STATE OR FEDERAL COURTS LOCATED IN NEW YORK, NEW
YORK, SHALL HAVE, EXCEPT AS SET FORTH BELOW, EXCLUSIVE JURISDICTION TO HEAR AND
DETERMINE ANY CLAIMS OR DISPUTES BETWEEN THE COMPANY AND THE HOLDER OF THIS
WARRANT PERTAINING TO THIS WARRANT OR TO ANY MATTER ARISING OUT OF OR RELATING
TO THIS AGREEMENT, PROVIDED, THAT IT IS ACKNOWLEDGED THAT ANY APPEALS FROM
THOSE COURTS MAY HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE OF NEW YORK, NEW
YORK.
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed and its corporate seal to be impressed hereon and attested by its
Secretary or an Assistant Secretary.
CODE-ALARM, INC.
By: /s/ Rand Mueller
------------------------
Name: Rand Mueller
Title: President
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ANNEX A
SUBSCRIPTION FORM
[To be executed only upon exercise of Warrant]
The undersigned registered owner of this Warrant irrevocably exercises
this Warrant for the purchase of _____________ shares (the "Purchased Shares")
of Common Stock of CODE-ALARM, INC. (the "Company") and herewith makes payment
therefor, all at the price and on the terms and conditions specified in this
Warrant and requests that certificates for the shares of Common Stock hereby
purchased (and any securities or other property issuable upon such exercise) be
issued in the name of and delivered to _________________________ whose address
is _______________________________________________ and, if such shares of
Common Stock shall not include all of the shares of Common Stock issuable as
provided in this Warrant, that a new Warrant of like tenor and date for the
balance of the shares of Common Stock issuable hereunder be delivered to the
undersigned.
[IF THE WARRANT PRICE IS BEING PAID IN CASH, PLEASE ADD THE FOLLOWING:
In payment of the Warrant Price for the Purchased Shares, the
undersigned is enclosing herewith a certified or official bank check payable to
the order of the Company in the amount of $____________.]
[IF THE SHARE WITHHOLDING OPTION IS BEING EXERCISED, PLEASE ADD THE
FOLLOWING:
In payment of the Warrant Price for the Purchased Shares, pursuant to
Section 2.1(c) of this Warrant the undersigned hereby instructs the Company to
withhold a number of Purchased Shares with an aggregate Fair Value equal to
such Warrant Price.]
[IF THE WARRANT PRICE IS BEING PAID THROUGH THE DELIVERY OF PREVIOUSLY
OWNED SHARES, PLEASE ADD THE FOLLOWING:
In payment of the Warrant Price for the Purchased Shares, pursuant to
Section 2.1(c) of this Warrant, the undersigned is herewith surrendering to the
Company ___________ shares of Common Stock.]
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_______________________________
(Name of Registered Owner)
_______________________________
(Signature of Registered Owner)
_______________________________
(Street Address)
_______________________________
(City) (State) (Zip Code)
NOTICE: The signature on this subscription must correspond with the name as
written upon the face of the within Warrant in every particular, without
alteration or enlargement or any change whatsoever.
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ANNEX B
ASSIGNMENT FORM
FOR VALUE RECEIVED the undersigned registered owner of this Warrant hereby
sells, assigns and transfers unto the Assignee named below all of the rights of
the undersigned under this Warrant, with respect to the number of shares of
Common Stock set forth below:
No. of Shares of
Name and Address of Assignee Common Stock
- ---------------------------- ----------------
and does hereby irrevocably constitute and appoint ______________ _____________
attorney-in-fact to register such transfer onto the books of CODE-ALARM, INC.
maintained for the purpose, with full power of substitution in the premises.
Dated:___________________ Print Name:___________________
Signature:____________________
Witness:______________________
NOTICE: The signature on this assignment must correspond with the name as
written upon the face of the within Warrant in every particular,
without alteration or enlargement or any change whatsoever.
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