Warrant to Purchase
5,263,158 shares of Common Stock
Void after May 31, 1998
S.W. LAM, INC.
COMMON STOCK PURCHASE WARRANT
THIS CERTIFIES THAT, for value received, Phenomenal Limited, a corporation
organized under the laws of the British Virgin Islands ("Holder"), or registered
assigns, is entitled to purchase Five Million Two Hundred Sixty Three Thousand
One Hundred Fifty Eight (5,263,158), fully paid and nonassessable shares of
Common Stock ("Warrant Shares") of S.W. Lam, Inc., a corporation organized under
the laws of the State of Nevada, at a price of U.S. Two Dollars Nineteen Cents
(US$2.19) or ('Exercise Price"), subject to adjustments and all other terms and
conditions set forth in this Warrant.
1. Definitions. As used herein, the following terms, unless the context
otherwise requires, shall have the following meanings:
(a) "Common Shares" shall mean shares of the Company's presently or
subsequently authorized Common Stock (as described in the Articles of
Incorporation and Bylaws of the Company), and any stock into which such
Common Stock may hereafter be exchanged.
(b) "Company" shall mean S.W. Lam, Inc., a corporation organized under
the laws of the State of Nevada, and any corporation which shall succeed to
or assume the obligations of S.W. Lam, Inc. under this Warrant.
(c) "Date of Grant" shall mean May (___) 1997.
(d) "Exercise Date" shall mean the effective date of the delivery of
the Notice of Exercise pursuant to Sections 4 and 8 below.
(e) "Holder" shall mean any person who shall at the time be the
registered holder of Warrant.
(f) "Securities Act" shall mean the Securities Act of 1933, or any
similar federal statute, and the rules and regulations of the Securities
and Exchange Commission (or any other federal agency then administering the
Securities Act) under the legislation, all as they may be in effect at the
time.
1
2. Issuance of Warrant and Private Offering.
(a) Consideration. This Warrant is issued in consideration of and as
an inducement for Holder to grant a loan of US$10 million with conversion
features to Quality Prince Ltd., a wholly owned subsidiary of the Company.
(b) Private Offering. (i) The sale and purchase of the Warrant
hereunder is exempt from the registration and prospectus delivery
requirements of the Securities Act. The Company has not sold any warrants
to anyone other than the Holder, and no other shares of the company has
been issued and sold by the Company within the six-month period immediately
prior to the date hereof. The Company agrees that it, or anyone acting on
its behalf, will neither offer any warrant so as to bring the issuance and
sale thereof within the provisions of Section 5 of the Securities Act, nor
offer any similar securities for issuance or sale to, or solicit any offer
to acquire any of the same from, or otherwise approach or negotiate with
respect thereto with, anyone if the sale of any warrant and any such
purposes of the Securities Act, including, without limitation, Regulation D
thereunder. In the case of the offer and sale of the Preferred Stock, no
form of general solicitation or general advertising was used by the
Company, including, but not limited to, advertisements, articles, notices
or other communications published in any newspaper, magazine or similar
medium or broadcast over television or radio, or any seminar or meeting
whose attendees were invited by any general solicitation or general
advertising.
3. Term. The purchase right represented by this Warrant is exercisable only
during the period commencing upon the Date of Grant and ending on the earlier of
(i) May 31, 1998 or (ii) the closing of a consolidation or merger of the Company
(other than with its wholly-owned subsidiary) with or into, or the transfer of
all or substantially all of the Company's assets to, another corporation (unless
the owners of the capital stock of the Company, prior to such transaction,
continue to own a majority of the capital stock of the surviving corporation).
4. Method of Exercise and Payment.
(a) Method of Exercise. Subject to Section 3 hereof and compliance
with all applicable securities laws, the purchase right represented by this
Warrant may be exercised, whole or in part and from time to time, by the
Holder in accordance with the exercise schedule attached hereto as Exhibit
B by (i) surrender of this Warrant and delivery of the Notice of Exercise
(the form of which is attached hereto as Exhibit A), duly executed, at the
principal office of the Company and (ii) payment to the Company of an
amount equal to the product of the then applicable Exercise Price
multiplied by the number of Common Shares then being purchased pursuant to
one of the payment methods permitted under Section 4(b) below.
(b) Method of Payment. Payment shall be made either (1) by check drawn
on a bank in good standing and for United States funds made payable to the
Company, or (2) by wire transfer of United States funds for the account of
the Company. Notwithstanding any provisions herein to the contrary, in lieu
of exercising this Warrant as set forth in the preceding sentence, the
Holder may elect to receive shares equal to the value (as determined below)
of this Warrant by surrender of this Warrant and delivery of the Notice of
Exercise (the form of which is attached hereto as Exhibit A), duly
executed, at the principal office of the Company, in which event the
Company shall issue to the Holder a number of shares of Common Shares
computed using the following formula:
2
X = Y(A-B)
-----
A
Where X = the number of shares of Common Shares to be issued to the Holder,
Y = the number of shares of Common Shares under this Warrant which are
being exercised,
A = the fair market value of one share of the Company's Common Shares
(at the date of such calculation), and
B = the Exercise Price (as adjusted to the date of such calculation).
For purposes of the above calculation, fair market value of one share
of Common Shares shall be determined by the mutual agreement of the
Company's Board of Directors and Holder; provided, however, that where
there exists a public market for the Company's Common Shares at the time of
such exercise, fair market value shall mean the average over the preceding
twenty (20) trading days (or such fewer number of days as such public
market has existed) of the mean of the high closing bid and asked prices on
the over-the-counter market as reported by Nasdaq, or if then traded on a
national securities exchange or the Nasdaq National Market, the average
over the preceding twenty (20) trading days (or such fewer number of days
as the Common Shares have been so traded) of the mean of the high and low
prices on the principal national securities exchange or the National Market
on which it is so traded. Notwithstanding the foregoing, in the event the
Warrant is exercised in connection with the Company's initial public
offering of Common Stock, the fair market value per share shall be the per
share offering price to the public of the Company's initial public
offering.
(c) Delivery of Certificate. In the event of any exercise of the
purchase right represented by this Warrant, certificates for the Common
Shares so purchased shall be delivered to the Holder within thirty (30)
days of delivery of the Notice of Exercise and, unless this Warrant has
been fully exercised or has expired, a new warrant representing the portion
of the Common Shares with respect to which this Warrant shall not then have
been exercised shall also be issued to the Holder within such (30) day
period.
(d) No Fractional Shares. No fractional shares shall be issued in
connection with any exercise hereunder, but in lieu of such fractional
shares the Company shall make a cash payment therefor upon the basis of the
fair market value per Share as of the date of exercise.
5. Adjustment of Exercise Price and Number of Shares. The number of
securities issuable upon the exercise of this Warrant and the Exercise Price
shall be subject to adjustment from time to time upon the occurrence of certain
events, as follows:
(a) Adjustment for Dividends in Stock . In case at any time or from
time to time on or after the date hereof the holders of the Common Shares
of the Company shall have received or, on or after the record date fixed
for the determination of eligible stockholders, shall have become entitled
to receive, without payment therefor, other or additional stock of the
Company by way of dividend then, and in each case, the Holder of this
Warrant shall, upon the exercise hereof, be entitled to receive, in
addition to the number of Common Shares receivable thereupon, and without
payment of any additional consideration therefor, the amount of such other
or additional stock of the Company which such Holder would hold on the date
of such exercise had it been the holder of record of such Common Shares on
the date hereof and had thereafter, during the period from the date hereof
to and including the date of such exercise, retained such shares and/or all
other additional stock receivable by it as aforesaid during such period,
giving effect to all adjustments called for during such period by
Subsections (b) and (d) of this Section 5.
3
(b) Reorganization, Reclassification or Recapitalization of the
Company. In case of (1) a capital reorganization, reclassification or
recapitalization of the Company's capital stock (other than in the cases
referred to in of Section 5(c) hereof), (2) the Company's consolidation or
merger with or into another corporation in which the Company is not the
surviving entity, or a reverse triangular merger in which the Company is
the surviving entity but the shares of the Company's capital stock
outstanding immediately prior to the merger are converted, by virtue of the
merger, into other property, whether in the form of securities, cash or
otherwise, or (3) the sale or transfer of the Company's property as an
entirety or substantially as an entirety, then, as part of such
reorganization, reclassification, recapitalization, merger, consolidation,
sale or transfer, lawful provision shall be made so that there shall
thereafter be deliverable upon the exercise of this Warrant or any portion
thereof (in lieu of or in addition to the number of Common Shares
theretofore deliverable, as appropriate), and without payment of any
additional consideration, the number of shares of stock or other securities
or property to which the holder of the number of Common Shares which would
otherwise have been deliverable upon the exercise of this Warrant or any
portion thereof at the time of such reorganization, reclassification,
recapitalization, consolidation, merger, sale or transfer would have been
entitled to receive in such reorganization, reclassification,
recapitalization, consolidation, merger, sale or transfer. Section 5(b)
shall apply to successive reorganizations, reclassifications,
recapitalizations, consolidations, mergers, sales and transfers and to the
stock or securities of any other corporation that are at the time
receivable upon the exercise of this Warrant. If the per-share
consideration payable to the Holder for shares of Common Shares in
connection with any transaction described in this Section 5(b) is in a form
other than cash or marketable securities, then the value of such
consideration shall be determined in good faith by the Company's Board of
Directors.
(c) Reclassifications. If the Company changes any of the securities as
to which purchase rights under this Warrant exist into the same or a
different number of securities of any other class or classes, this Warrant
shall thereafter represent the right to acquire such number and kind of
securities as would have been issuable as the result of such change with
respect to the securities that were subject to the purchase rights under
this Warrant immediately prior to such reclassification or other change and
the Exercise Price therefor shall be appropriately adjusted.
(d) Stock Splits and Reverse Stock Splits. If, at any time on or after
the date hereof, the Company shall subdivide its outstanding Common Shares
into a greater number of shares, the Exercise Price in effect immediately
prior to such subdivision shall thereby be proportionately reduced and the
number of shares receivable upon exercise of this Warrant shall thereby be
proportionately increased; and, conversely, if at any time on or after the
date hereof the outstanding number of Common Shares shall be combined into
a smaller number of shares, the Exercise Price in effect immediately prior
to such combination shall thereby be proportionately increased and the
number of shares receivable upon exercise of the Warrant shall be
proportionately decreased.
4
(e) Adjustment of Exercise Price. If, during the period commencing on
the date that this Warrant becomes exercisable and terminating on May 31,
1998, the Company issues any Common Shares (as defined in the Articles of
Incorporation and Bylaws) for no consideration or for a consideration per
share less than the in effect immediately prior to the time of such
issuance, then the Exercise Price shall be reduced to the per share price
at which the said Common Shares were issued and sold.
(f) Liquidation; Dissolution. If the Company shall dissolve, liquidate
or wind up its affairs, the Holder shall have the right, but not the
obligation, to exercise this Warrant effective as of the date of such
dissolution, liquidation or winding up. If any such dissolution,
liquidation or winding up results in any cash distribution to the Holder in
excess of the aggregate Exercise Price for the Common Shares for which this
Warrant is exercised, then the Holder may, at its option, exercise this
Warrant without making payment of such aggregate Exercise Price and, in
such case, the Company shall, upon distribution to the Holder, consider
such aggregate Exercise Price to have been paid in full, and in making such
settlement to the Holder, shall deduct an amount equal to such aggregate
Exercise Price from the amount payable to the Holder.
(g) No Impairment. The Company shall not, by amendment of the
Company's Articles of Incorporation or Bylaws or through any
reorganization, recapitalization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other voluntary
action, avoid or seek to avoid the observance or performance of any of the
terms to be observed or performed hereunder by the Company, but shall at
all times in good faith assist in the carrying out of all the provisions of
Section 5 and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the Holder against
impairment.
(h) Application. Except as otherwise provided herein, all sections of
this Section 5 are intended to operate independently of one another. If an
event occurs that requires the application of more than one section, all
applicable sections shall be given independent effect.
6. Notices of Record Date, Etc. 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
other distribution (the "Distribution"), (b) any capital reorganization or
reclassification of the stated capital of the Company or any consolidation or
merger of the Company with any other corporation or corporations (other than a
wholly-owned subsidiary), or the sale or distribution of all or substantially
all of the Company's property and assets (the "Reorganization Event"), or (c)
any proposed filing of a registration statement under the Act in connection with
a primary public offering of the Company's Common Stock (the "Registration
Event"), the Company will mail or cause to be mailed to the Holder a notice
specifying (i) the date of any such Distribution stating the amount and
character of such Distribution, (ii) the date on which any such Reorganization
Event or Registration Event is expected to become effective, and (iii) the time,
if any, that is to be fixed as to when the holders of record of the Company's
securities shall be entitled to exchange their shares of the Company's
securities for securities or other property deliverable upon such Reorganization
Event. Such notice shall be mailed at least thirty (30) days prior to the date
therein specified.
5
7. Rights of Shareholders. No Holder shall be entitled to vote or receive
dividends or be deemed the holder of Common Shares or any other securities of
the Company which may at any time be issuable on the exercise of this Warrant
for any purpose, nor shall anything contained herein be construed to confer upon
the Holder, as such, any of the rights of a shareholder of the Company or any
right to vote for the election of directors or upon any matter submitted to
shareholders at any meeting thereof, or to give or withhold consent to any
corporate action (whether upon any recapitalization, issuance of stock,
reclassification of stock, consolidation, merger, transfer of assets or
otherwise) or to receive notice of meetings, or to receive dividends or
subscription rights or otherwise until this Warrant shall have been exercised
and the Common Shares issuable upon exercise hereof shall have become
deliverable, as provided herein.
8. Replacement of Warrants. On receipt of evidence reasonably satisfactory
to the Company of the loss, theft, destruction or mutilation of this Warrant
and, in the case of loss, theft or destruction, on delivery of an indemnity
agreement reasonably satisfactory in form and amount to the Company or, in the
case of mutilation, on surrender and cancellation of Warrant, the Company at its
expense shall execute and deliver, in lieu of this Warrant, a new warrant or
like tenor.
9. Exchange of Warrant. Subject to the other provisions of this Warrant, on
surrender of Warrant for exchange, properly endorsed and subject to the
provisions of this Warrant with respect to compliance with applicable securities
laws, the Company at its expense shall issue to or on the order of the Holder a
new warrant or warrants of like tenor, in the name of the Holder or as the
Holder (on payment by the Holder of any applicable transfer taxes) may direct,
for the number of Common Shares issuable upon exercise thereof.
10. Notices. All notices and other communications required or permitted
hereunder shall be in writing and shall be delivered personally, mailed by
certified or registered mail, postage prepaid, return receipt requested, as
delivered by facsimile (sent to 852-2877-6612 for the Holder, and sent to
852-2362-3034, for the Company) or delivered by courier or overnight delivery,
addressed (a) if to Holder, at Suite 3322, 33rd Floor, Two Pacific Place, 88
Queensway, Hong Kong or at such other address as such Holder shall have
furnished to the Company in writing, (b) if to the Company, at Units 25-32,
2/F., Block B, Focal industrial Centre, 21 Man Lok Street, Hunghom, Kowloon,
Hong Kong, or at such other address as the Company shall have furnished to the
Holder in writing. Notices that are mailed shall be deemed received upon
personal delivery or confirmation of facsimile receipt or, if earlier, three (3)
days after deposit in the mail.
11. Waiver. This Warrant and any term hereof may be changed, waived,
discharged or terminated only by an instrument in writing signed by the party
against which enforcement of such change, waiver, discharge or termination is
sought.
6
12. Governing Law. This Warrant shall be governed by and construed in
accordance with the laws of the State of Nevada, without regard to its conflict
of law principles.
13. Attorneys' Fees. If any action at law or in equity (including
arbitration) is necessary to enforce or interpret the terms of this Agreement,
the prevailing party shall be entitled to reasonable attorneys' fees, costs and
necessary disbursements in addition to any other relief to which such party may
be entitled as determined by such court, equity or arbitration proceeding.
Dated: May , 1997
---------
S.W. Lam, Inc.
By:
-----------------------------
Sai Wing Lam, President
-----------------------------
Chan Yam Fai, Jane, Secretary
HOLDER:
- -----------------------------
Phenomenal Limited
By:
--------------------------
Wong Kwong Chi, Director
Address:
Suite 3322, 33rd Floor,
Two Pacific Place,
88 Queensway,
Hong Kong.
7
EXHIBIT A
NOTICE OF EXERCISE
TO: S.W. Lam, Inc.:
1. The undersigned Holder of the attached original, executed Common Stock
Purchase Warrant hereby elects to exercise its purchase right under such Warrant
with respect to Common Shares, as defined in the Warrant, of S.W. Lam, Inc..
2. The undersigned Holder elects to pay the aggregate Exercise Price for
such Common Shares (the "Exercise Shares") in the following manner:
[ ] by the enclosed check drawn on a bank and for United States funds
made payable to the Company in the amount of $ ; or
[ ] by wire transfer of United States funds to the account of the
Company in the amount of $ , which transfer has been made before or
simultaneously with the delivery of Notice pursuant to the
instructions of the Company.
[ ] noncash exercise in accordance with Section 4(b) of the Warrant.
3. Please issue a stock certificate or certificates representing the
appropriate number of Common Shares in the name of the undersigned or in such
other names as is specified below;
Name:
-----------------------------
Address:
-----------------------------
-----------------------------
HOLDER:
---------------------------
By:
------------------------
Title:
------------------------
Date:
--------------------
EXHIBIT B
EXERCISE SCHEDULE
100% of the Common Shares is exercisable as of the Date of Grant.