EXHIBIT 10.4
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON ITS EXERCISE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD, OFFERED FOR
SALE, PLEDGED OR HYPOTHECATED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF A
REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES UNDER SAID ACT
AND ALL OTHER APPLICABLE SECURITIES LAWS OR ANY OPINION OF COUNSEL SATISFACTORY
TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
No. W - 001 Warrant to Purchase up to 1,000,000
Shares of Common Stock
Date: July 10, 2000 (subject to adjustment)
WARRANT TO PURCHASE COMMON STOCK
OF
AVATAR SYSTEMS, INC.
Void after July 10, 2005
This certifies that, for value received, Cybertec Holdings, Plc, or
registered assigns ("Holder") is entitled, subject to the terms and conditions
set forth below, to purchase from Avatar Systems, Inc. (the "Company"), a Texas
corporation, 1,000,000 shares of Common Stock (or such other number of shares of
Common Stock as may be determined in accordance with Section 2 hereof), $1.00
par value, of the Company (the "Common Stock"), as constituted on the date
hereof (the "Original Issue Date"), upon surrender hereof, at the principal
office of the Company referred to below, with the subscription form attached
hereto duly executed, and simultaneous payment therefor in lawful money of the
United States or otherwise as hereinafter provided, at the Exercise Price as set
forth in Section 2 below. The number, character and Exercise Price of such
shares of Common Stock are subject to adjustment as provided below. The term
"Warrant" as used herein shall include this Warrant, which is one of a series of
warrants issued for the Common Stock of the Company, and any warrants delivered
in substitution or exchange therefor as provided herein.
This Warrant is issued in connection with the transactions described in
the Stock Purchase Agreement between Company and Cybertec Holdings, Plc
("Cybertec"), dated as of July 10, 2000 (the "Purchase Agreement"). Unless
otherwise defined herein, capitalized terms shall have the same meaning as in
the Purchase Agreement. Pursuant to the Purchase Agreement, Cybertec purchased
1,600,000 shares of the Common Stock of the Company and was issued this Warrant
to purchase an additional 1,000,000 shares of the Company's Common Stock. The
Holder of this Warrant is subject to certain restrictions set forth in the
Shareholders' Agreement dated July 10, 2000 between the Company, Cybertec,
Merchants Capital Holdings, Ltd., Xxxxxxx X. Xxxxxxx, Xxxxxx X. Xxxxxx, Xx., Xxx
Xxxxx and Xxxxx Xxxxx (the "Shareholders' Agreement"), and the Purchase
Agreement, and shall be entitled to certain rights and privileges set forth in
the Purchase Agreement. This Warrant is one of the Warrants referred to as the
"Warrants" in the Purchase Agreement.
Warrant To Purchase Common Stock - Page 1
1. Term of Warrant. Subject to the terms and conditions set forth
herein, this Warrant shall be exercisable, in whole or in part, during the term
("Term") commencing at 9:00 a.m., Dallas, Texas time, on the date hereof and
ending at 5:00 p.m., Dallas, Texas time, on July 10, 2005, and shall be void
thereafter. Xxxxxx X. Xxxxxx, Xx., Xxx Xxxxx and Xxxxx Xxxxx, directors and
shareholders of the Company, have provided their personal guarantee of certain
indebtedness of the Company owed to Bank One, N.A., Dallas, Texas. This Warrant
shall not be exercisable in whole or in part until all such personal guarantees
shall have been released by Bank One, N.A., Dallas, Texas or such indebtedness
subject to the personal guarantees shall have been fully paid.
2. Exercise Price and Number of Shares. The Exercise Price at which
this Warrant may be exercised shall be $1.00 per share of Common Stock. The
Exercise Price is subject to adjustment from time to time pursuant to Section 11
hereof.
3. Exercise of Warrant.
(a) Manner of Exercise. The purchase rights represented by
this Warrant are exercisable by the Holder in whole or in part, at any
time, or from time to time, during the term hereof as described in
Section 1 above, by the surrender of this Warrant and the Notice of
Exercise annexed hereto duly completed and executed on behalf of the
Holder, at the office of the Company (or such other office or agency of
the Company as it may designate by notice in writing to the Holder at
the address of the Holder appearing on the books of the Company), upon
payment (i) in cash or by check acceptable to the Company, (ii) by
cancellation by the Holder of indebtedness of the Company to the
Holder, or (iii) by a combination of (i) and (ii), in an amount equal
to the purchase price of the shares to be purchased. This Warrant may
not be exercised in whole or in part without compliance with all
applicable federal and state securities laws by the Holder (including
the delivery of investment representation letters and legal opinions
reasonably satisfactory to the Company, if such are requested by the
Company.)
(b) Time of Exercise. This Warrant shall be deemed to have
been exercised immediately prior to the close of business on the date
of its surrender for exercise as provided above, and the person
entitled to receive the shares of Common Stock issuable upon such
exercise shall be treated for all purposes as the holder of record of
such shares as of the close of business on such date. As promptly as
practicable on or after such date and in any event within 10 days
thereafter, the Company at its expense, will issue and deliver to the
person or persons entitled to receive the same a certificate or
certificates for the number of shares issuable upon such exercise. In
the event that this Warrant is exercised in part, the Company at its
expense, shall execute and deliver a new Warrant of like tenor
exercisable for the number of shares for which this Warrant may then be
exercised.
(c) Net Issue Exercise. Notwithstanding any provisions herein
to the contrary, if the Fair Market Value (as defined herein) of one
share of Common Stock is greater than the Exercise Price (at the date
of calculation as set forth below), in lieu of exercising this Warrant
for cash, the holder may elect to receive shares equal to the value (as
determined below) of this Warrant (or the portion thereof being
canceled) by surrender of this Warrant at the principal office of the
Company together with the properly endorsed Notice of Exercise and
notice of such election in which event the Company shall issue to the
Holder a number of shares of Common Stock computed using the following
formula:
Warrant To Purchase Common Stock - Page 2
Y (A-B)
-------
X = A
X = the number of shares of Common Stock to be
issued to the Holder
Y = the number of shares of Common Stock
purchasable under the Warrant or, if only a
portion of the Warrant is being exercised,
the number of shares subject to the Warrant
being exercised (at the date of such
calculation)
A = the fair market value of one share of the
Company's Common Stock (at the date of such
calculation)
B = Exercise Price (as adjusted to the date of
such calculation)
4. No Fractional Shares or Scrip. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this
Warrant. In lieu of any fractional share to which the Holder would otherwise be
entitled, the Company shall make a cash payment equal to the Exercise Price
multiplied by such fraction.
5. Replacement of Warrant. 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
affidavit of loss and indemnity agreement reasonably satisfactory in form and
substance to the Company or, in the case of mutilation, on surrender and
cancellation of this Warrant, the Company at its expense shall execute and
deliver, in lieu of this Warrant, a new warrant of like tenor and amount.
6. Rights of Stockholders. Subject to Sections 9 and 11 of this
Warrant, the Holder shall not be entitled to vote or receive dividends or be
deemed the holder of Common Stock or any other securities of the Company that
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, as such, any
of the rights of a stockholder of the Company or any right to vote for the
election of directors or upon any matter submitted to stockholders at any
meeting thereof, or to give or withhold consent to any corporate action (whether
upon any recapitalization, issuance of stock, reclassification of stock, change
of par value, or change of stock to no par value, consolidation, merger,
conveyance, or otherwise) or to receive notice of meetings, or to receive
dividends or subscription rights or otherwise until the Warrant shall have been
exercised as provided herein.
Warrant To Purchase Common Stock - Page 3
7. Transfer of Warrant.
(a) Warrant Register. The Company will maintain a register
(the "Warrant Register") containing the names and addresses of the
Holder or Holders. Any Holder of this Warrant or any portion thereof
may change his address as shown on the Warrant Register by written
notice to the Company requesting such change. Any notice or written
communication required or permitted to be given to the Holder may be
delivered or given by mail to such Holder as shown on the Warrant
Register and at the address shown on the Warrant Register. Until this
Warrant is transferred on the Warrant Register of the Company, the
Company may treat the Holder as shown on the Warrant Register as the
absolute owner of this Warrant for all purposes, notwithstanding any
notice to the contrary.
(b) Warrant Agent. The Company may, by written notice to the
Holder, appoint an agent for the purpose of maintaining the Warrant
Register referred to in Section 7(a) above, issuing the Common Stock or
other securities then issuable upon the exercise of this Warrant,
exchanging this Warrant, replacing this Warrant, or any or all of the
foregoing. Thereafter, any such registration, issuance, exchange, or
replacement, as the case may be, shall be made at the office of such
agent.
(c) Transferability and Nonnegotiability of Warrant. This
Warrant may not be transferred or assigned in whole or in part without
compliance with all applicable federal and state securities laws by the
transferor and the transferee (including the delivery of investment
representation letters and legal opinions reasonably satisfactory to
the Company, if such are requested by the Company). Subject to the
provisions of this Warrant with respect to compliance with the
Securities Act of 1933, as amended (the "Act"), title to this Warrant
may be transferred by endorsement (by the Holder executing the
Assignment Form annexed hereto) and delivery in the same manner as a
negotiable instrument transferable by endorsement and delivery.
(d) Exchange of Warrant Upon a Transfer. On surrender of this
Warrant for exchange, properly endorsed on the Assignment Form and
subject to the provisions of this Warrant with respect to compliance
with the Act and with the limitations on assignments and transfers
contained in this Section 7, 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 shares
issuable upon exercise hereof.
8. Reservation of Stock. The Company covenants that during the term
this Warrant is exercisable, the Company will reserve from its authorized and
unissued Common Stock a sufficient number of shares to provide for the issuance
of Common Stock upon the exercise of this Warrant and, from time to time, will
take all steps necessary to amend its Articles of Incorporation (the "Articles")
to provide sufficient reserves of shares of Common Stock issuable upon exercise
of the Warrant. The Company agrees that its issuance of this Warrant shall
constitute full authority to its officers who are charged with the duty of
executing stock certificates to execute and issue the necessary certificates for
shares of Common Stock upon the exercise of this Warrant.
Warrant To Purchase Common Stock - Page 4
9. Notices of Certain Events.
(a) In case:
(i) the Company shall take a record of the holders of
its Common Stock (or other stock or securities at the time
receivable upon the exercise of this Warrant) for the purpose
of entitling them to receive any dividend or other
distribution, or any right to subscribe for or purchase any
shares of stock of any class or any other securities, or to
receive any other right, or
(ii) of any capital reorganization of the Company,
any reclassification of the capital stock of the Company, any
consolidation or merger of the Company with or into another
corporation, or any conveyance of all or substantially all of
the assets of the Company to another corporation, or
(iii) of any voluntary dissolution, liquidation or
winding-up of the Company, then, and in each such case, the
Company will mail or cause to be mailed to the Holder or
Holders a notice specifying, as the case may be, (A) the date
on which a record is to be taken for the purpose of such
dividend, distribution or right, and stating the amount and
character of such dividend, distribution or right, or (B) the
date on which such reorganization, reclassification,
consolidation, merger, conveyance, dissolution, liquidation or
winding-up is to take place, and the time, if any is to be
fixed, as of which the holders of record of Common Stock (or
such stock or securities at the time receivable upon the
exercise of this Warrant) shall be entitled to exchange their
shares of Common Stock (or such other stock or securities) for
securities or other property deliverable upon such
reorganization, reclassification, consolidation, merger,
conveyance, dissolution, liquidation or winding-up. Such
notice shall be given at least 15 days prior to the date
therein specified.
(b) All such notices, advices and communications shall be
deemed to have been received (i) when delivered personally, (ii) three
business days after being mailed by first class mail, postage prepaid,
or (iii) one business day after being sent by a reputable overnight
delivery service, postage or deliver charges prepaid. Notices, advices
and communications may also be given by prepaid telegram or facsimile
and shall be effective on the date transmitted if confirmed.
10. Amendments and Waivers.
(a) Manner of Amendment. Any term of this Warrant may be
amended or waived upon the written consent of the Company, Cybertec and
the Holder and further provided that the number of shares of Common
Stock subject to the Warrant and the Exercise Price may not be amended,
and the right to exercise this Warrant may not be waived, without the
written consent of Cybertec and the Holder of this Warrant (it being
agreed that an amendment to or waiver under any of the provisions of
Section 11 of this Warrant shall not be considered an amendment of the
number of shares subject to the Warrant or the Exercise Price).
Warrant To Purchase Common Stock - Page 5
(b) No Continuing Waiver. No waivers of, or exceptions to, any
term, condition or provision of this Warrant, in any one or more
instances, shall be deemed to be, or construed as, further or
continuing waiver of any such term, condition or provision.
11. Adjustments. The Exercise Price and the number of shares
purchasable hereunder are subject to adjustment from time to time as follows:
(a) Merger, Sale of Assets, etc. If at any time while this
Warrant, or any portion thereof, is outstanding and unexpired there
shall be (i) a reorganization (other than a combination,
reclassification, exchange or subdivision of shares otherwise provided
for herein), (ii) a merger or consolidation of the Company 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 (iii) a sale or transfer of the Company's properties and
assets as, or substantially as, an entirety to any other person, this
Warrant shall thereafter represent the right to acquire the number of
shares of stock or other securities which the Holder of this Warrant
would have owned immediately after the consummation of such
reorganization, merger, consolidation, sale or transfer, if the Holder
of this Warrant had exercised this Warrant immediately before the
effective date of the reorganization, merger, consolidation, sale or
transfer.
(b) Reclassification, etc. If the Company, at any time while
this Warrant, or any portion thereof, remains outstanding and unexpired
by reclassification of securities or otherwise, shall change 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, all subject to further adjustment as
provided in this Section 11.
(c) Split, Subdivision or Combination of Shares. If the
Company at any time while this Warrant, or any portion thereof, remains
outstanding and unexpired shall split, subdivide or combine the
securities as to which purchase rights under this Warrant exist, into a
different number of securities of the same class, the Exercise Price
for such securities shall be proportionately decreased in the case of a
split or subdivision or proportionately increased in the case of a
combination.
(d) Adjustments for Dividends in Stock or Other Securities. If
while this Warrant, or any portion hereof, remains outstanding and
unexpired the holders of the securities as to which purchase rights
under this Warrant exist at the time 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 or other securities of the Company
by way of dividend, then and in each case, this Warrant shall represent
the right to acquire, in addition to the number of shares of the
security receivable upon exercise of this Warrant, and without payment
of any additional consideration therefor, the amount of such other or
additional stock or other securities of the Company that such holder
would hold on the date of such exercise had it been the holder of
record of the security receivable upon exercise of this Warrant 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 available to it as aforesaid during such
period, giving effect to all adjustments called for during such period
by the provisions of this Section 11.
Warrant To Purchase Common Stock - Page 6
(e) Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment pursuant to this Section 11, the Company at
its expense shall promptly compute such adjustment or readjustment in
accordance with the terms hereof and furnish to each Holder of this
Warrant a certificate setting forth, in reasonable detail, the event
requiring the adjustment or readjustment, the amount of such adjustment
or readjustment, the method by which such adjustment or readjustment
was calculated, the Exercise Price at the time in effect, and the
number of shares and the amount, if any, of other property that at the
time would be received upon the exercise of the Warrant. The Company
shall upon the written request, at any time, of any such Holder,
furnish or cause to be furnished to such Holder a like certificate.
(f) Adjustment in Number of Shares. Upon each adjustment of
the Exercise Price pursuant to this Section 11, this Warrant shall
thereafter evidence the right to receive upon payment of the adjusted
Exercise Price that number of shares of Common Stock (calculated to the
nearest hundredth) obtained from the following formula:
X = Y x A
-
B
X = the adjusted number of shares of Common
Stock issuable upon exercise of the Warrant
by payment of the adjusted Exercise Price.
Y = the number of shares of Common Stock
previously issuable upon the exercise of the
Warrant by payment of the Exercise Price
prior to adjustment.
A = the Exercise Price prior to adjustment.
B = the adjusted Exercise Price.
12. Governing Law. This Warrant shall be governed by and construed
under the laws of the State of Texas without giving effect to conflict of law
principles. Any legal action, suit or proceeding arising out of or relating to
this Agreement may be instituted in any state or federal court of competent
jurisdiction in the State of Texas, and each party waives any objection which
such party may now or hereafter have to the laying of the venue in the County of
Dallas of any such action, suit or proceeding, and irrevocably submits to the
jurisdiction of any such court.
Warrant To Purchase Common Stock - Page 7
13. Definitions.
(a) "Affiliate" shall mean with respect to a Person, any other
Person which directly or indirectly through one or more intermediaries
controls, is controlled by, or is under common control with such
Person.
(b) "Fair Market Value" means (i) if the Common Stock is not
registered under the Securities Exchange Act of 1934, as amended (the
"Exchange Act") the fair value of the Common Stock determined jointly
by the Company and the Holders of the Warrants; provided that if such
parties are unable to reach agreement within twenty (20) Business Days,
such fair value shall be determined by an independent qualified
appraiser selected by the Holders (subject to the approval of the
Company, such approval not to be withheld or delayed unreasonably by
the Company); the determination of such fair value by the appraiser
shall be final and binding on the Company and the Holders of the
Warrants, and the fees and expenses of such appraiser shall be divided
evenly between the Holders on the one hand and the Company on the other
hand, and shall be without regard to any discounts for minority
ownership or for lack of liquidity or marketability; (ii) if the Common
Stock is registered under the Exchange Act, the average of the daily
market prices for each business day during the period commencing 30
business days before such date and ending on the date one day prior to
such date or, if the security has been registered under the Exchange
Act for less than 30 consecutive business days before such date, then
the average of the daily market prices for all of the business days
before such date for which daily market prices are available. If the
market price is not determinable for at least 15 business days in such
period, the Fair Market Value of the security shall be determined as if
the security was not registered under the Exchange Act.
(c) "Person" includes without limitation any natural person,
joint venture, corporation, partnership, limited liability company,
trust, estate, association, government or governmental entity
(including, but not limited to, any subdivision, branch or agency
thereof) or any other entity.
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
by its officers thereunto duly authorized as of the date first above written,
intending to be legally bound hereby.
AVATAR SYSTEMS, INC.
By: /s/ Xxxxxx X. Xxxxxx, Xx.
---------------------------------
Xxxxxx X. Xxxxxx, Xx., President
Warrant To Purchase Common Stock - Page 8
NOTICE OF EXERCISE
To: AVATAR SYSTEMS, INC.
The undersigned hereby elects to purchase shares of Common Stock of
Avatar Systems, Inc. pursuant to the terms of the attached Warrant, and tenders
herewith payment of the purchase price for such shares in full.
Please issue a certificate or certificates representing said shares of
Common Stock in the name of the undersigned or in such other name as is
specified below:
---------------------------------------
(Name)
---------------------------------------
(Name)
Please issue a new Warrant for the unexercised portion of the attached
Warrant in the name of the undersigned or in such other name as is specified
below:
---------------------------------------
(Name)
---------------------------------------
(Name)
---------------------------------------
(Date)
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 the within Warrant, with respect to the number
of shares of Common Stock set forth below:
Name of Assignee Address No. of Shares
---------------- ------- -------------
and does hereby irrevocably constitute and appoint
Attorney_____________________ _____________________________ to make such
transfer on the books of Avatar Systems, Inc. maintained for the purpose, with
full power of substitution in the premises.
The undersigned also represents that, by assignment hereof, the
Assignee acknowledges that this Warrant and the shares of stock to be issued
upon exercise hereof or conversion thereof are being acquired for investment and
that the Assignee will not offer, sell or otherwise dispose of this Warrant or
any shares of stock to be issued upon exercise hereof or conversion thereof
except under circumstances which will not result in a violation of the
Securities Act of 1933, as amended, or any state securities laws. Further, the
Assignee has acknowledged that upon exercise of this Warrant, the Assignee
shall, if requested by the Company, confirm in writing, in a form satisfactory
to the Company, that the shares of stock so purchased are being acquired for
investment and not with a view toward distribution or resale.
---------------------------------------
Signature of Holder
Dated
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