1
Exhibit 10.2
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. NO SALE OR
DISPOSITION MAY BE EFFECTED WITHOUT (i) AN EFFECTIVE
REGISTRATION STATEMENT RELATED THERETO, (ii) AN OPINION OF
COUNSEL FOR THE HOLDER, REASONABLY SATISFACTORY TO THE
COMPANY, THAT SUCH REGISTRATION IS NOT REQUIRED, (iii) RECEIPT
OF A NO-ACTION LETTER(S) FROM THE APPROPRIATE GOVERNMENTAL
AUTHORITY(IES), OR (iv) OTHERWISE COMPLYING WITH THE
PROVISIONS OF SECTION 7 OF THIS WARRANT.
THE TESSERACT GROUP, INC.
WARRANT TO PURCHASE 250,000 SHARES
OF COMMON STOCK (this "WARRANT")
Warrant No. 2
THE TESSERACT GROUP, INC., a Minnesota corporation (the
"COMPANY"), hereby certifies that, for value received, PIONEER VENTURE FUND,
L.L.C., a Delaware limited liability company ("PIONEER"), or registered assigns,
is the registered holder of a warrant (the "WARRANT") to subscribe for and
purchase 250,000 shares of the fully paid and nonassessable Common Stock (as
adjusted pursuant to Section 4 hereof, the "WARRANT SHARES") of the Company, at
the price of $3.00 per share (such price and such other price as shall result,
from time to time, from the adjustments specified in Section 4 hereof is herein
referred to as the "WARRANT PRICE"), subject to the provisions and upon the
terms and conditions hereinafter set forth. As used herein, (a) the term "COMMON
STOCK" shall mean the Company's presently authorized Common Stock, par value
$.01 per share, and any stock into or for which such Common Stock may hereafter
be converted or exchanged in a transaction described in paragraph (c) of Section
4.2, (b) the term "DATE OF GRANT" shall mean October 14, 1999, and (c) the term
"OTHER WARRANTS" shall mean any warrant issued upon transfer or partial exercise
of this Warrant. The term "WARRANT" as used herein shall be deemed to include
Other Warrants unless the context hereof or thereof clearly requires otherwise.
1. Term. The purchase right represented by this Warrant is
exercisable, in whole or in part, at any time and from time to time from the
Date of Grant through and including the close of business on September 30, 2004
(the "EXPIRATION DATE").
2. Method of Exercise; Payment; Issuance of New Warrant.
Subject to Section 1 hereof, the purchase right represented by this Warrant may
be exercised by the holder hereof, in whole or in part and from time to time, by
the surrender of this Warrant (with the notice of exercise
2
form attached hereto as Exhibit A duly executed) at the principal office of the
Company, along with (i) the delivery of cash, or a certified or official bank
check in the amount of such Warrant Price, (ii) by an instruction to the Company
to withhold a number of Warrant Shares then issuable upon exercise of the
particular Warrant pursuant to Section 10.2 below (the "Net Exercise Option"),
(iii) the surrender to the Company of Notes (as defined in Section 22) in
principal amount plus accrued interest equal to the applicable Warrant Price, or
(iv) the surrender to the Company of shares of Common Stock previously acquired
by the Holder with an aggregate Fair Market Value (as defined in Section 4(h))
equal to such Warrant Price, or any combination of foregoing. In the event of
any withholding of Warrant Shares or surrender of Common Stock pursuant to
clause (ii) or (iv) above where the number of shares whose Fair Market 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 down to the nearest whole
share. The person or persons in whose name(s) any certificate(s) representing
shares of Common Stock shall be issuable upon exercise of this Warrant shall be
deemed to have become the holder(s) of record of, and shall be treated for all
purposes as the record holder(s) of, the shares represented thereby (and such
shares shall be deemed to have been issued) immediately prior to the close of
business on the date or dates upon which this Warrant is exercised. In the event
of any exercise of the rights represented by this Warrant, certificates for the
shares of stock so purchased shall be delivered to the holder hereof as soon as
possible and in any event within thirty (30) days after such exercise and,
unless this Warrant has been fully exercised (including without limitation,
exercise pursuant to Section 2(b) below), a new Warrant representing the portion
of the Warrant Shares, if any, with respect to which this Warrant shall not then
have been exercised shall also be issued to the holder hereof as soon as
possible and in any event within such thirty (30)-day period.
3. Stock Fully Paid; Reservation of Shares. All Warrant Shares
that may be issued upon the exercise of the rights represented by this Warrant
will, upon issuance pursuant to the terms and conditions herein, be fully paid
and nonassessable, and free from all taxes (other than any taxes determined with
respect to, or based upon, the income of the person to whom such shares are
issued), liens and charges (other than liens or charges created by actions of
the holder of this Warrant or the person to whom such shares are issued), and
preemptive rights with respect to the issue thereof. The Company shall pay all
transfer taxes, if any, attributable to the issuance of the Warrant Shares upon
the exercise of this Warrant. During the period within which the rights
represented by this Warrant may be exercised, the Company will at all times have
authorized, and reserved for the purpose of the issue upon exercise of the
purchase rights evidenced by this Warrant, a sufficient number of shares of its
Common Stock to provide for the exercise of the rights represented by this
Warrant.
4. Adjustment of Warrant Price and Number of Shares. The
number and kind of securities purchasable upon the exercise of this Warrant and
the Warrant Price shall be subject to adjustment from time to time upon the
occurrence of certain events, as follows:
a. Reclassification or Merger. In case of any
reclassification, change or conversion of securities of the class issuable upon
exercise of this Warrant (other than a change in par value, or from par value to
no par value, or from no par value to par value, or as a result of a subdivision
or combination), or in case of any merger of the Company with or into another
2
3
corporation (other than a merger with another corporation in which the Company
is the acquiring and the surviving corporation and which does not result in any
reclassification or change of outstanding securities issuable upon exercise of
this Warrant), or in case of any sale of all or substantially all of the assets
of the Company, the Company, or such successor or purchasing corporation, as the
case may be, shall duly execute and deliver to the holder of this Warrant a new
Warrant (in form and substance satisfactory to the holder of this Warrant), so
that the holder of this Warrant shall have the right to receive, at a total
purchase price not to exceed that payable upon the exercise of the unexercised
portion of this Warrant, and in lieu of the shares of Common Stock theretofore
issuable upon exercise of this Warrant, the kind and amount of shares of stock,
other securities, money and property receivable upon such reclassification,
change or merger by a holder of the number of shares of Common Stock then
purchasable under this Warrant. Such new Warrant shall provide for adjustments
that shall be as nearly equivalent as may be practicable to the adjustments
provided for in this Section 4. The provisions of this subparagraph (a) shall
similarly apply to successive reclassifications, changes, mergers and transfers.
b. Subdivision or Combination of Shares. If the
Company at any time while this Warrant remains outstanding and unexpired shall
subdivide or combine its outstanding shares of Common Stock, the Warrant Price
shall be proportionately decreased in the case of a subdivision or increased in
the case of a combination, effective at the close of business on the date the
subdivision or combination becomes effective.
c. Stock Dividends. If the Company at any time while
this Warrant is outstanding and unexpired shall pay a dividend with respect to
Common Stock payable in Common Stock, then the Warrant Price shall be adjusted,
from and after the date of determination of stockholders entitled to receive
such dividend or distribution, to that price determined by multiplying the
Warrant Price in effect immediately prior to such date of determination by a
fraction (i) the numerator of which shall be the total number of shares of
Common Stock outstanding immediately prior to such dividend, and (ii) the
denominator of which shall be the total number of shares of Common Stock
outstanding immediately after such dividend. In the event such dividend is not
so paid, the Warrant Price shall again be adjusted to the Warrant Price that
would then be in effect if the holders of Common Stock to receive such dividend
had not been so determined, but such subsequent adjustment shall not affect the
number of Warrant Shares issued upon any exercise of the Warrant prior to the
date such subsequent adjustment was made.
d. Rights Offerings. In case the Company shall, at
any time after the Date of Grant, issue rights, options or warrants to the
holders of equity securities of the Company, entitling them to subscribe for or
purchase shares of Common Stock (or securities convertible or exchangeable into
Common Stock) at a price per share of Common Stock (or having a conversion or
exchange price per share of Common Stock if a security convertible or
exchangeable into Common Stock) less than the Fair Market Value per share of
Common Stock on the record date for such issuance (or the date of issuance, if
there is no record date), the Warrant Price to be in effect on and after such
record date (or issuance date, as the case may be) shall be determined by
multiplying the Warrant Price in effect immediately prior to such record date
(or issuance date, as the case may be) by a fraction (i) the numerator of which
shall be the number of shares of Common
3
4
Stock outstanding on such record date (or issuance date, as the case may be)
plus the number of shares of Common Stock which the aggregate offering price of
the total number of shares of such Common Stock so to be offered (or the
aggregate initial exchange or conversion price of the exchangeable or
convertible securities so to be offered) would purchase at such Fair Market
Value on such record date (or issuance date, as the case may be) and (ii) the
denominator of which shall be the number of shares of Common Stock outstanding
on such record date (or issuance date, as the case may be) plus the number of
additional shares of Common Stock to be offered for subscription or purchase (or
into which the convertible securities to be offered are initially exchangeable
or convertible). In case such purchase or subscription price may be paid in part
or in whole in a form other than cash, the fair value of such consideration
shall be determined by the Board of Directors of the Company in good faith as
set forth in a duly adopted board resolution certified by the Company's
Secretary or Assistant Secretary. Such adjustment shall be made successively
whenever such an issuance occurs; and in the event that such rights, options,
warrants, or convertible or exchangeable securities are not so issued or expire
or cease to be convertible or exchangeable before they are exercised, converted,
or exchanged (as the case may be), then the Warrant Price shall again be
adjusted to be the Warrant Price that would then be in effect if such issuance
had not occurred, but such subsequent adjustment shall not affect the number of
Warrant Shares issued upon any exercise of this Warrant prior to the date such
subsequent adjustment is made.
e. Special Distributions. In case the Company shall
fix a record date for the making of a distribution to all holders of shares of
Common Stock (including any such distribution made in connection with a
consolidation or merger in which the Company is the surviving corporation) or
evidences of indebtedness or assets (other than dividends and distributions
referred to in subparagraphs (d) and (e) above and other than cash dividends) or
of subscription rights, options, warrants, or exchangeable or convertible
securities containing the right to subscribe for or purchase shares of any class
of equity securities of the Company (excluding those referred to in subparagraph
(f) above), the Warrant Price to be in effect on and after such record date
shall be adjusted by multiplying the Warrant Price in effect immediately prior
to such record date by a fraction (i) the numerator of which shall be the Fair
Market Value per share of Common Stock on such record date, less the fair value
(as determined by the Board of Directors of the Company in good faith as set
forth in a duly adopted board resolution certified by the Company's Secretary or
Assistant Secretary) of the portion of the assets or evidences of indebtedness
so to be distributed or of such subscription rights, options, warrants, or
exchangeable or convertible securities applicable to one (1) share of the Common
Stock outstanding as of such record date, and (ii) the denominator of which
shall be such Fair Market Value per share of Common Stock. Such adjustment shall
be made successively whenever such a record date is fixed; and in the event that
such distribution is not so made, the Warrant Price shall again be adjusted to
be the Warrant Price which would then be in effect if such record date had not
been fixed, but such subsequent adjustment shall not affect the number of
Warrant Shares issued upon any exercise of this Warrant prior to the date such
subsequent adjustment was made.
4
5
f. Other Issuances of Securities. In case the Company
or any subsidiary shall, at any time after the Date of Grant, issue shares of
Common Stock, or rights, options, warrants or convertible or exchangeable
securities containing the right to subscribe for or purchase shares of Common
Stock (excluding (i) shares, rights, options, warrants, or convertible or
exchangeable securities or issued in any of the transactions described in
subparagraphs (a), (b), (c), (d) or (e) above, (ii) shares issued upon the
exercise of such rights, options or warrants or upon conversion or exchange of
such convertible or exchangeable securities, and (iii) this Warrant and any
shares issued upon exercise thereof), at a price per share of Common Stock
(determined in the case of such rights, options, warrants, or convertible or
exchangeable securities by dividing (x) the total amount receivable by the
Company in consideration of the sale and issuance of such rights, options,
warrants, or convertible or exchangeable securities, plus the total minimum
consideration payable to the Company upon exercise, conversion, or exchange
thereof by (y) the total maximum number of shares of Common Stock covered by
such rights, options, warrants, or convertible or exchangeable securities) lower
than the Fair Market Value per share of Common Stock on the date the Company
fixes the offering price of such shares, rights, options, warrants, or
convertible or exchangeable securities, then the Warrant Price shall be adjusted
so that it shall equal the price determined by multiplying the Warrant Price in
effect immediately prior thereto by a fraction (i) the numerator of which shall
be the sum of (A) the number of shares of Common Stock outstanding immediately
prior to such sale and issuance plus (B) the number of shares of Common Stock
which the aggregate consideration received (determined as provided below) for
such sale or issuance would purchase at such Fair Market Value per share, and
(ii) the denominator of which shall be the total number of shares of Common
Stock outstanding immediately after such sale and issuance. Such adjustment
shall be made successively whenever such an issuance is made. For the purposes
of such adjustment, the maximum number of shares of Common Stock which the
holder of any such rights, options, warrants or convertible or exchangeable
securities shall be entitled to subscribe for or purchase shall be deemed to be
issued and outstanding as of the date of such sale and issuance and the
consideration received by the Company therefor shall be deemed to be the
consideration received by the Company for such rights, options, warrants, or
convertible or exchangeable securities, plus the minimum consideration or
premium stated in such rights, options, warrants, or convertible or exchangeable
securities to be paid for the shares of Common Stock covered thereby. In case
the Company shall sell and issue shares of Common Stock, or rights, options,
warrants, or convertible or exchangeable securities containing the right to
subscribe for or purchase shares of Common Stock for a consideration consisting,
in whole or in part, of property other than cash or its equivalent, then in
determining the price per share of Common Stock and the consideration received
by the Company for purposes of the first sentence of this subparagraph (h), the
Board of Directors of the Company shall determine, in good faith, the fair value
of said property, and such determination shall be described in a duly adopted
board resolution certified by the Company's Secretary or Assistant Secretary. In
case the Company shall sell and issue rights, options, warrants, or convertible
or exchangeable securities containing the right to subscribe for or purchase
shares of Common Stock together with one (1) or more other securities as a part
of a unit at a price per unit, then in determining the price per share of Common
Stock and the consideration received by the Company for purposes of the first
sentence of this subparagraph (h), the Board of Directors of the Company shall
determine, in good faith, which determination shall be described in a duly
adopted board resolution certified by the Company's Secretary or Assistant
Secretary, the fair value of the rights,
5
6
options, warrants, or convertible or exchangeable securities then being sold as
part of such unit. Such adjustment shall be made successively whenever such an
issuance occurs, and in the event that such rights, options, warrants, or
convertible or exchangeable securities expire or cease to be convertible or
exchangeable before they are exercised, converted, or exchanged (as the case may
be), then the Warrant Price shall again be adjusted to the Warrant Price that
would then be in effect if such sale and issuance had not occurred, but such
subsequent adjustment shall not affect the number of Warrant Shares issued upon
any exercise of the Warrant prior to the date such subsequent adjustment is
made.
g. Adjustment of Number of Shares. Upon each
adjustment in the Warrant Price, the number of Warrant Shares purchasable
hereunder shall be adjusted, to the nearest whole share, to the product obtained
by multiplying the number of Warrant Shares purchasable immediately prior to
such adjustment in the Warrant Price by a fraction, the numerator of which shall
be the Warrant Price immediately prior to such adjustment and the denominator of
which shall be the Warrant Price immediately thereafter.
h. Determination of Fair Market Value. For purposes
of this Section 4, "FAIR MARKET VALUE" of a share of Common Stock as of a
particular date (the "DETERMINATION DATE") shall mean (i) if shares of Common
Stock are traded on a national securities exchange (an "EXCHANGE"), the weighted
average of the closing prices of a share of the Common Stock of the Company on
the last five (5) trading days prior to the Determination Date reported on such
Exchange as reported in The Wall Street Journal (weighted with respect to the
trading volume with respect to each such day), (ii) if shares of Common Stock
are not traded on an Exchange but trade in the over-the-counter market and such
shares are quoted on the National Association of Securities Dealers Automated
Quotations System ("NASDAQ"), (A) the average of the last sale prices reported
on NASDAQ or (B) if such shares are an issue for which last sale prices are not
reported on NASDAQ, the average of the closing bid and ask prices, in each case
on the last five (5) trading days (or if the relevant price or quotation did not
exist on any of such days, the relevant price or quotation on the next preceding
business day on which there was such a price or quotation) prior to the
Determination Date as reported in The Wall Street Journal, or (iii) if no price
can be determined on the basis of the above methods of valuation, then the
judgment of valuation shall be determined in good faith by the Board of
Directors of the Company, which determination shall be described in a duly
adopted board resolution certified by the Company's Secretary or Assistant
Secretary. If the Board of Directors of the Company is unable to determine any
Valuation (as defined below), or if the holders of at least fifty-one percent
(51%) of all of the Warrant Shares then issuable hereunder (collectively, the
"REQUESTING HOLDERS") disagree with the Board's determination of any Valuation
by written notice delivered to the Company within five (5) business days after
the determination thereof by the Board of Directors of the Company is
communicated to holders of the Warrants affected thereby, which notice specifies
a majority-in-interest of the Requesting Holders' determination of such
Valuation, then the Company and a majority-in-interest of the Requesting Holders
shall select a mutually acceptable investment banking firm of national
reputation which has not had a material relationship with the Company or any
officer of the Company within the preceding two (2) years, which shall determine
such Valuation. Such investment banking firm's determination of such Valuation
shall be final, binding and conclusive on the Company and the
6
7
holders of all of the Warrants issued hereunder and then outstanding. If the
Board of Directors of the Company was unable to determine such Valuation, all
costs and fees of such investment banking firm shall be borne by the Company. If
the Requesting Holders disagreed with the Board's determination of such
Valuation, the party whose determination of such Valuation differed from the
Valuation determined by such investment banking firm by the greatest amount
shall bear all costs and fees of such investment banking firm. For purposes of
this Section 4(h), the term "VALUATION" shall mean the determination, to be made
initially by the Board of Directors of the Company, of the Fair Market Value per
share of Common Stock pursuant to clause (iii) above.
i. If, at any time after any adjustment of the
Warrant Price shall have been made hereunder as the result of any issuance, sale
or grant of any rights, options, warrants or convertible or exchangeable
securities, any of such rights, options or warrants or the rights of conversion
or exchange associated with such convertible or exchangeable securities shall
expire by their terms or any of such rights, options, warrants or convertible or
exchangeable 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
issuance, sale or grant of such rights, options, warrants or convertible or
exchangeable securities, the Warrant Price then in effect shall forthwith be
increased to the Warrant Price that would have been in effect if such expiring
right, option or warrant or rights of conversion or exchange or such repurchased
rights, options, warrants or convertible or exchangeable securities had never
been issued. Similarly, if at any time after any such adjustment of the Warrant
Price shall have been made pursuant to subparagraph (e) above (i) any additional
aggregate consideration is received or becomes receivable by the Company in
connection with the issuance of exercise of such rights, options, warrants or
convertible or exchangeable securities or (ii) there is a reduction in the
conversion or exchange ratio applicable to such convertible or exchangeable
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 rights, options or warrants, the
Warrant Price then in effect shall be forthwith readjusted to the Warrant Price
that would have been in effect had such changes taken place at the time that
such rights, options, warrants or convertible or exchangeable securities were
initially issued, granted or sold. In no event shall any readjustment under this
subparagraph (i) affect the validity of any Warrant Shares issued upon any
exercise of this Warrant prior to such readjustment.
5. Notice of Adjustments. Whenever the Warrant Price or the
number of Warrant Shares purchasable hereunder shall be adjusted pursuant to
Section 4 hereof, the Company shall deliver to the holder of this Warrant a
certificate signed by its chief financial officer setting forth, in reasonable
detail, the event requiring the adjustment, the amount of the adjustment, the
method by which such adjustment was calculated, and the Warrant Price and the
number of Warrant Shares purchasable hereunder after giving effect to such
adjustment.
6. Fractional Shares. No fractional shares of Common Stock
will be issued in connection with any exercise hereunder, but in lieu of such
fractional shares the Company shall make a cash payment therefor based on the
Fair Market Value of a share of Common Stock on the date of exercise.
7
8
7. Compliance with Securities Act; Disposition of Warrant or
Warrant Shares.
a. Compliance with Securities Act. The holder of this
Warrant, by acceptance hereof, agrees that this Warrant and the shares of Common
Stock to be issued upon exercise hereof are being acquired for investment and
that such holder will not offer, sell or otherwise dispose of this Warrant, or
any shares of Common Stock to be issued upon exercise hereof except under
circumstances which will not result in a violation of the Securities Act of
1933, as amended (the "ACT"). Upon exercise of this Warrant, the holder hereof
shall confirm in writing, by executing the form attached as Schedule 1 to
Exhibit A hereto, that the shares of Common Stock so purchased are being
acquired for investment and not with a view toward distribution or resale. This
Warrant and all shares of Common Stock issued upon exercise of this Warrant
(unless registered under the Act) shall be stamped or imprinted with a legend in
substantially the following form:
"THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
SECURITIES LAWS. NO SALE OR DISPOSITION MAY BE EFFECTED
WITHOUT (i) AN EFFECTIVE REGISTRATION STATEMENT RELATED
THERETO, (ii) AN OPINION OF COUNSEL FOR THE HOLDER, REASONABLY
SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION IS NOT
REQUIRED, (iii) RECEIPT OF A NO-ACTION LETTER(S) FROM THE
APPROPRIATE GOVERNMENTAL AUTHORITY(IES), OR (iv) OTHERWISE
COMPLYING WITH THE PROVISIONS OF SECTION 7 OF THE WARRANT
UNDER WHICH THESE SECURITIES WERE ISSUED DIRECTLY OR
INDIRECTLY."
In addition, in connection with the issuance of this Warrant,
the holder specifically represents to the Company by acceptance of this Warrant
as follows:
i. The holder is aware of the Company's
business affairs and financial condition, and has acquired information about the
Company sufficient to reach an informed and knowledgeable decision to acquire
this Warrant. The holder is acquiring this Warrant for its own account for
investment purposes only and not with a view to, or for the resale in connection
with, any "distribution" thereof for purposes of the Act.
ii. The holder understands that this Warrant
and the Warrant Shares have not been registered under the Act in reliance upon a
specific exemption therefrom, which exemption depends upon, among other things,
the bona fide nature of the holder's investment intent as expressed herein. In
this connection, the holder understands that, in the view of the Securities and
Exchange Commission (the "SEC"), the statutory basis for such exemption may be
unavailable if the holder's representation was predicated solely upon a present
intention to hold the Warrant and the Warrant Shares for the minimum capital
gains period specified under applicable tax laws, for a deferred sale, for or
until an increase or decrease in the market price of the Warrant and the Warrant
Shares, or for a period of one (1) year or any other fixed period in the future.
8
9
iii. The holder further understands that
this Warrant and the Warrant Shares must be held indefinitely unless
subsequently registered under the Act and any applicable state securities laws,
or unless exemptions from registration are otherwise available.
iv. The holder is aware of the provisions of
Rule 144 and 144A, promulgated under the Act, which, in substance, permit
limited public resale of "restricted securities" acquired, directly or
indirectly, from the issuer thereof (or from an affiliate of such issuer), in a
non-public offering subject to the satisfaction of certain conditions, if
applicable, including, among other things: the availability of certain public
information about the Company, the resale occurring not less than one (1) year
after the party has purchased and paid for the securities to be sold; the sale
being made through a broker in an unsolicited "broker's transaction" or in
transactions directly with a market maker (as said term is defined under the
Securities Exchange Act of 1934, as amended) and the amount of securities being
sold during any three-month period not exceeding the specified limitations
stated therein.
v. The holder further understands that at
the time it wishes to sell this Warrant and the Warrant Shares there may be no
public market upon which to make such a sale, and that, even if such a public
market then exists, the Company may not be satisfying the current public
information requirements of Rule 144 and 144A, and that, in such event, the
holder may be precluded from selling this Warrant and the Warrant Shares under
Rule 144 and 144A even if the one (1)-year minimum holding period had been
satisfied.
vi. The holder further understands that in
the event all of the requirements of Rule 144 and 144A are not satisfied,
registration under the Act, compliance with Regulation A, or some other
registration exemption will be required; and that, notwithstanding the fact that
Rule 144 and 144A is not exclusive, the Staff of the SEC has expressed its
opinion that persons proposing to sell private placement securities other than
in a registered offering and otherwise than pursuant to Rule 144 and 144A will
have a substantial burden of proof in establishing that an exemption from
registration is available for such offers or sales, and that such persons and
their respective brokers who participate in such transactions do so at their own
risk.
b. Disposition of Warrant or Warrant Shares. With
respect to any offer, sale or other disposition of this Warrant, or any Warrant
Shares acquired pursuant to the exercise of this Warrant prior to registration
of such Warrant or Warrant Shares, the holder hereof and each subsequent holder
of this Warrant agrees to give written notice to the Company prior thereto,
describing briefly the manner thereof, together with a written opinion of such
holder's counsel, if reasonably requested by the Company, to the effect that
such offer, sale or other disposition may be effected without registration or
qualification (under the Act as then in effect or any federal or state law then
in effect) of this Warrant or such Warrant Shares and indicating whether or not
under the Act certificates for this Warrant or such Warrant Shares to be sold or
otherwise disposed of require any restrictive legend as to applicable
restrictions on transferability in order to ensure compliance with applicable
law. Promptly upon receiving such written notice and reasonably satisfactory
opinion, if so requested, the Company, as promptly as practicable, shall notify
such holder that such holder may sell or otherwise dispose of this Warrant or
such Warrant Shares, all in accordance with the terms of the notice delivered to
the Company. If a determination has been made pursuant to this
9
10
subsection (b) that the opinion of counsel for the holder is not reasonably
satisfactory to the Company, the Company shall so notify the holder promptly
after such determination has been made and neither this Warrant nor any Warrant
shall be sold or otherwise disposed of until such disagreement has been
resolved. The foregoing notwithstanding, this Warrant or such Warrant Shares
may, as to such federal laws, be offered, sold or otherwise disposed of in
accordance with Rule 144 and 144A under the Act, provided that the Company shall
have been furnished with such information as the Company may reasonably request
to provide a reasonable assurance that the provisions of Rule 144 and 144A have
been satisfied. Each certificate representing this Warrant or the Warrant Shares
thus transferred (except a transfer pursuant to Rule 144) shall bear a legend as
to the applicable restrictions on transferability in order to ensure compliance
with such laws, unless in the aforesaid opinion of counsel for the holder, such
legend is not required in order to ensure compliance with such laws. The Company
may issue stop transfer instructions to its transfer agent or, if acting as its
own transfer agent, the Company may stop transfer on its corporate books, in
connection with such restrictions.
8. Rights as Stockholders; Information. No holder of this
Warrant, as such, shall be entitled to vote or receive dividends or be deemed
the holder of Common Stock or any other securities of the Company which may at
any time be issuable on the exercise hereof for any purpose, nor shall anything
contained herein be construed to confer upon the holder of this Warrant, as
such, any of the rights of a stockholder of the Company or any right to vote for
the election of the directors or upon any matter submitted to stockholders at
any meeting thereof, or to receive notice of meetings, or to receive dividends
or subscription rights or otherwise until this Warrant shall have been exercised
and the Warrant Shares purchasable upon the exercise hereof shall have become
deliverable, as provided herein. The foregoing notwithstanding, the Company will
transmit to the holder of this Warrant such information, documents and reports
as are generally distributed to the holders of any class or series of the
securities of the Company concurrently with the distribution thereof to the
stockholders.
9. Registration Rights.
The shares of Common Stock issued or issuable upon
exercise of the Warrant are subject to registration and other rights granted to
the Holders pursuant to that certain Registration Rights Agreement dated as of
March 31, 1999.
10. Additional Rights.
10.1 Mergers. In the event that the Company
undertakes to (i) sell, lease, exchange, convey or otherwise dispose of all or
substantially all of its property or business, or (ii) merge into or consolidate
with any other corporation (other than a wholly-owned subsidiary of the
Company), or effect any transaction (including a merger or other reorganization)
or series of related transactions, in which more than 50% of the voting power of
the Company is disposed of, the Company will use its best efforts to provide at
least thirty (30) days notice of the terms and conditions of the proposed
transaction.
10.2 Right to Convert Warrant into Common Stock; Net
Issuance.
10
11
a. Right to Convert. In addition to and without
limiting the rights of the holder under the terms of this Warrant, the holder
shall have the right to convert this Warrant or any portion thereof (the
"CONVERSION RIGHT") into shares of Common Stock as provided in this Section 10.2
at any time or from time to time during the term of this Warrant. Upon exercise
of the Conversion Right with respect to a particular number of shares subject to
this Warrant (the "CONVERTED WARRANT SHARES"), the Company shall deliver to the
holder (without payment by the holder of any exercise price or any cash or other
consideration) that number of shares of fully paid and nonassessable Common
Stock equal to the quotient obtained by dividing (i) the value of this Warrant
(or the specified portion hereof) on the Conversion Date (as defined in
subsection (b) hereof), which value shall be equal to (A) the aggregate Fair
Market Value of the Converted Warrant Shares issuable upon exercise of this
Warrant (or the specified portion hereof) on the Conversion Date less (B) the
aggregate Warrant Price of the Converted Warrant Shares immediately prior to the
exercise of the Conversion Right by (ii) the Fair Market Value of one (1) share
of Common Stock on the Conversion Date.
Expressed as a formula, such conversion shall be computed as
follows:
X= A - B
--------
Y
Where: X = the number of shares of Common Stock that
may be issued to holder
Y = the Fair Market Value (FMV) of one (1)
share of Common Stock
A = the aggregate FMV (i.e., FMV x Converted
Warrant Shares)
B = the aggregate Warrant Price (i.e., Converted
Warrant Shares x Warrant Price)
No fractional shares shall be issuable upon exercise of the
Conversion Right, and, if the number of shares to be issued determined in
accordance with the foregoing formula is other than a whole number, the Company
shall pay to the holder an amount in cash equal to the Fair Market Value of the
resulting fractional share on the Conversion Date. For purposes of Section 9 of
this Warrant, shares issued pursuant to the Conversion Right shall be treated as
if they were issued upon the exercise of this Warrant.
b. Method of Exercise. The Conversion Right may be
exercised by the holder by the surrender of this Warrant at the principal office
of the Company together with a written statement specifying that the holder
thereby intends to exercise the Conversion Right and indicating the number of
shares subject to this Warrant which are being surrendered (referred to in
subsection (a) hereof as the Converted Warrant Shares) in exercise of the
Conversion Right. Such conversion shall be effective upon receipt by the Company
of this Warrant together with the aforesaid written statement, or on such later
date as is specified therein (the "CONVERSION DATE"). Certificates for the
shares issuable upon exercise of the Conversion Right and, if applicable, a new
warrant evidencing the balance of the shares remaining subject to this Warrant,
shall be issued as of the Conversion Date and shall be delivered to the holder
within thirty (30) days following the Conversion Date.
11
12
11. Representations and Warranties. The Company represents and
warrants to the holder of this Warrant as follows:
a. This Warrant has been duly authorized and executed
by the Company and is a valid and binding obligation of the Company enforceable
in accordance with its terms, subject to laws of general application relating to
bankruptcy, insolvency and the relief of debtors;
b. The Warrant Shares have been duly authorized and
reserved for issuance by the Company and, when issued in accordance with the
terms hereof, will be validly issued, fully paid and nonassessable;
c. The rights, preferences, privileges and
restrictions granted to or imposed upon the Common Stock and the holders thereof
are as set forth in the certificate of incorporation of the Company, as amended
to the Date of Grant (as so amended, the "CHARTER"), a true and complete copy of
which has been delivered to the original holder of this Warrant;
d. The execution and delivery of this Warrant are
not, and the issuance of the Warrant Shares upon exercise of this Warrant in
accordance with the terms hereof will not be, inconsistent with the Charter or
by-laws of the Company, do not and will not contravene, in any material respect,
any governmental rule or regulation, judgment or order applicable to the
Company, and do not and will not conflict with or contravene any provision of,
or constitute a default under, any indenture, mortgage, contract or other
instrument of which the Company is a party or by which it is bound or require
the consent or approval of, the giving of notice to, the registration or filing
with or the taking of any action in respect of or by, any Federal, state or
local government authority or agency or other person, except for the filing of
notices pursuant to federal and state securities laws, which filings will be
effected by the time required thereby and except for such conflicts and
contraventions as will not, individually or in the aggregate, have or reasonably
be expected to have, a material adverse effect on the Warrant Shares so issued
or the Company's ability to perform its obligations hereunder;
e. There are no actions, suits, audits,
investigations or proceedings pending or, to the knowledge of the Company,
threatened against the Company in any court or before any governmental
commission, board or authority which, if adversely determined, will have a
material adverse effect on the ability of the Company to perform its obligations
under this Warrant;
f. The authorized capital stock of the Company
consists of the following:
(i) 25,000,000 shares of Common Stock, par
value $.01 per share, of which approximately 9,580,331 shares of Common Stock
were issued and outstanding as of the close of business on the date immediately
prior to the Date of Grant. All such outstanding shares have been validly issued
and are fully paid, nonassessable shares free of preemptive rights;
(ii) 5,000,000 shares of Preferred Stock, of
which 200,000 have been designated as Series A Junior Participating Preferred
Shares, and none of which were issued and outstanding as of the close of
business on the date immediately prior to the Date of Grant; and
12
13
g. Other than options to purchase 1,729,506 shares of
Common Stock and warrants to purchase 450,742 shares of Common Stock, there are
no subscriptions, rights, options, warrants, or calls relating to any shares of
the Company's capital stock, including any right of conversion or exchange under
any outstanding security or other instrument; and
h. The Company is not subject to any obligation
(contingent or otherwise) to repurchase or otherwise acquire or retire any
shares of its capital stock or any security convertible into or exchangeable for
any of its capital stock.
12. Modification and Waiver. This Warrant and any provision
hereof may be changed, waived, discharged or terminated only by an instrument in
writing signed by the party against which enforcement of the same is sought,
except that the provisions of Section 9 hereof may be amended with the consent
of the Company and the holders of Registrable Securities constituting a majority
of the Registrable Securities then outstanding. For purposes of Section 9 and
this Section 12, "REGISTRABLE SECURITIES THEN OUTSTANDING" shall mean, with
respect to a specified determination date, the Registrable Securities owned
(beneficially or of record) by all Securityholders on such date.
13. Notices. Unless otherwise specifically provided herein,
all communications under this Warrant shall be in writing and shall be deemed to
have been duly given (i) on the date of service if served personally on the
party to whom notice is to be given, (ii) on the day of transmission if sent by
facsimile transmission to the number given below, and telephonic confirmation of
receipt is obtained promptly after completion of transmission, (iii) on the day
after delivery to Federal Express or similar overnight courier, or (iv) on the
fifth day after mailing, if mailed to the party to whom notice is to be given,
by first class mail, registered or certified, postage prepaid, and properly
addressed, return receipt requested, to each such holder at its address as shown
on the books of the Company or to the Company at the address indicated therefor
on the signature page of this Warrant. Any party hereto may change its address
for purposes of this Section 13 by giving the other party written notice of the
new address in the manner set forth herein.
14. Binding Effect on Successors. This Warrant shall be
binding upon any corporation succeeding the Company by merger, consolidation or
acquisition of all or substantially all of the Company's assets, and all of the
obligations of the Company relating to the Common Stock issuable upon the
exercise or conversion of this Warrant shall survive the exercise, conversion
and termination of this Warrant and all of the covenants and agreements of the
Company shall inure to the benefit of the successors and assigns of the holder
hereof. The Company will, at the time of the exercise or conversion of this
Warrant, in whole or in part, upon request of the holder hereof but at the
Company's expense, acknowledge in writing its continuing obligation to the
holder hereof in respect of any rights to which the holder hereof shall continue
to be entitled after such exercise or conversion in accordance with this
Warrant; provided, that the failure of the holder hereof to make any such
request shall not affect the continuing obligation of the Company to the holder
hereof in respect of such rights.
15. Lost Warrants or Stock Certificates. The Company covenants
to the holder hereof that, upon receipt of evidence reasonably satisfactory to
the Company of the loss, theft, destruction or mutilation of this Warrant or
any stock certificate and, in the case of any loss, theft
13
14
or destruction, upon receipt of an executed lost securities bond or indemnity
reasonably satisfactory to the Company, or in the case of any such mutilation
upon surrender and cancellation of such Warrant or stock certificate, the
Company will make and deliver a new Warrant or stock certificate, of like tenor,
in lieu of the lost, stolen, destroyed or mutilated Warrant or stock
certificate.
16. Descriptive Headings. The descriptive headings of the
several paragraphs of this Warrant are inserted for convenience only and do not
constitute a part of this Warrant.
17. Governing Law. This Warrant shall be construed and
enforced in accordance with, and the rights of the parties shall be governed by,
the laws of the State of Minnesota, without giving effect to conflict of law
principles..
18. Survival of Representations, Warranties and Agreements.
All representations and warranties of the Company and the holder hereof
contained herein shall survive the Date of Grant, the exercise or conversion of
this Warrant (or any part hereof) and the termination or expiration of rights
hereunder. All agreements of the Company and the holder hereof contained herein
shall survive indefinitely until, by their respective terms, they are no longer
operative.
19. Remedies. In case any one (1) or more of the covenants and
agreements contained in this Warrant shall have been breached, the holders
hereof (in the case of a breach by the Company), or the Company (in the case of
a breach by a holder), may proceed to protect and enforce their or its rights
either by suit in equity and/or by action at law, including, but not limited to,
an action for damages as a result of any such breach and/or an action for
specific performance of any such covenant or agreement contained in this
Warrant.
20. Acceptance. Receipt of this Warrant by the holder hereof
shall constitute acceptance of and agreement to the foregoing terms and
conditions.
21. No Impairment of Rights. The Company will not, by
amendment of its Charter or through any other means, avoid or seek to avoid the
observance or performance of any of the terms of this Warrant, but will at all
times in good faith assist in the carrying out of all such terms and in the
taking of all such action as may be necessary or appropriate in order to protect
the rights of the holder of this Warrant against impairment.
[Signature page follows.]
14
15
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
on its behalf by one of its officers thereunto duly authorized.
THE TESSERACT GROUP,
a Minnesota corporation
By: /s/ Xxxx X. Xxxxx
------------------------------------
Name:
Title:
Address: 0000 Xxxxx 00xx Xxxxxx
Xxxxxxxxxx, XX 00000
Dated: as of October 14, 1999
15
16
EXHIBIT A
NOTICE OF EXERCISE
To: THE TESSERACT GROUP, INC.
1. The undersigned hereby elects to purchase _____ shares of
Common Stock of THE TESSERACT GROUP, INC. pursuant to the terms of the attached
Warrant, and tenders herewith payment of the purchase price of such shares in
full.
2. Please issue a certificate or certificates representing
said shares in the name of the undersigned or in such other name or names as are
specified below:
-------------------------------
(Name)
-------------------------------
-------------------------------
(Address)
3. The undersigned represents that the aforesaid shares are
being acquired for the account of the undersigned for investment and not with a
view to, or for resale in connection with, the distribution thereof and that the
undersigned has no present intention of distributing or reselling such shares.
In support thereof, the undersigned has executed an Investment Representation
Statement attached hereto as Schedule 1.
----------------------------------------
(Signature)
---------------------
(Date)
16
17
Schedule 1
INVESTMENT REPRESENTATION STATEMENT
Purchaser:
Company: THE TESSERACT GROUP, INC.
Security: Common Stock
Amount:
Date:
In connection with the purchase of the above-listed securities
(the "SECURITIES"), the undersigned (the "PURCHASER") represents to the Company
as follows:
(a) The Purchaser is aware of the Company's business affairs
and financial condition, and has acquired sufficient information about the
Company to reach an informed and knowledgeable decision to acquire the
Securities. The Purchaser is purchasing the Securities for its own account for
investment purposes only and not with a view to, or for the resale in connection
with, any "distribution" thereof for purposes of the Securities Act of 1933, as
amended (the "ACT").
(b) The Purchaser understands that the Securities have not
been registered under the Act in reliance upon a specific exemption therefrom,
which exemption depends upon, among other things, the bona fide nature of the
Purchaser's investment intent as expressed herein. In this connection, the
Purchaser understands that, in the view of the Securities and Exchange
Commission ("SEC"), the statutory basis for such exemption may be unavailable if
the Purchaser's representation was predicated solely upon a present intention to
hold these Securities for the minimum capital gains period specified under
applicable tax laws, for a deferred sale, for or until an increase or decrease
in the market price of the Securities, or for a period of one year or any other
fixed period in the future.
(c) The Purchaser further understands that the Securities must
be held indefinitely unless subsequently registered under the Act or unless an
exemption from registration is otherwise available. In addition, the Purchaser
understands that the certificate evidencing the Securities will be imprinted
with the legend referred to in the Warrant under which the Securities are being
purchased.
17
18
(d) The Purchaser is aware of the provisions of Rule 144 and
144A, promulgated under the Act, which, in substance, permit limited public
resale of "restricted securities" acquired, directly or indirectly, from the
issuer thereof (or from an affiliate of such issuer), in a non-public offering
subject to the satisfaction of certain conditions, if applicable, including,
among other things: The availability of certain public information about the
Company, the resale occurring not less than one (1) year after the party has
purchased and paid for the securities to be sold; the sale being made through a
broker in an unsolicited "broker's transaction" or in transactions directly with
a market maker (as said term is defined under the Securities Exchange Act of
1934, as amended) and the amount of securities being sold during any three-month
period not exceeding the specified limitations stated therein.
(e) The Purchaser further understands that at the time it
wishes to sell the Securities there may be no public market upon which to make
such a sale, and that, even if such a public market then exists, the Company may
not be satisfying the current public information requirements of Rule 144 and
144A, and that, in such event, the Purchaser may be precluded from selling the
Securities under Rule 144 and 144A even if the one-year minimum holding period
had been satisfied.
(f) The Purchaser further understands that in the event all of
the requirements of Rule 144 and 144A are not satisfied, registration under the
Act, compliance with Regulation A, or some other registration exemption will be
required; and that, notwithstanding the fact that Rule 144 is not exclusive, the
Staff of the SEC has expressed its opinion that persons proposing to sell
private placement securities other than in a registered offering and otherwise
than pursuant to Rule 144 will have a substantial burden or proof in
establishing that an exemption from registration is available for such offers or
sales, and that such persons and their respective brokers who participate in
such transactions do so at their own risk.
Purchaser:
------------------------------
Date:
-----------------------------------
18
