Exhibit 3.5
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE HEREOF HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT") OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED
OR OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER THE SECURITIES ACT AND UNDER
APPLICABLE STATE SECURITIES LAWS OR THE ISSUER SHALL HAVE RECEIVED AN OPINION OF
COUNSEL REASONABLY SATISFACTORY TO THE ISSUER THAT REGISTRATION OF SUCH
SECURITIES UNDER THE SECURITIES ACT AND UNDER THE PROVISIONS OF APPLICABLE STATE
SECURITIES LAWS IS NOT REQUIRED.
SERIES B WARRANT TO PURCHASE
SHARES OF COMMON STOCK
OF
FREEHAND SYSTEMS INTERNATIONAL, INC.
Expires September 26, 2011
No.: W-B-06-01 Number of Shares: 2,000,000
Date of Issuance: September 26, 2006
FOR VALUE RECEIVED, the undersigned, FreeHand Systems International,
Inc., a Delaware corporation (together with its successors and assigns, the
"Issuer"), hereby certifies that Vision Opportunity Master Fund, Ltd. or its
registered assigns is entitled to subscribe for and purchase, during the Term
(as hereinafter defined), up to Two Million (2,000,000) shares (subject to
adjustment as hereinafter provided) of the duly authorized, validly issued,
fully paid and non-assessable Common Stock of the Issuer, at an exercise price
per share equal to the Warrant Price then in effect, subject, however, to the
provisions and upon the terms and conditions hereinafter set forth. Capitalized
terms used in this Warrant and not otherwise defined herein shall have the
respective meanings specified in Section 9 hereof.
1. Term. The term of this Warrant shall commence on September 26,
2006 and shall expire at 6:00 p.m., eastern time, on September 26, 2011 (such
period being the "Term").
2. Method of Exercise; Payment; Issuance of New Warrant; Transfer
and Exchange.
(a) Time of Exercise. The purchase rights represented by this
Warrant may be exercised in whole or in part during the Term.
-1-
(b) Method of Exercise. The Holder hereof may exercise this
Warrant, in whole or in part, by the surrender of this Warrant (with the
exercise form attached hereto duly executed) at the principal office of the
Issuer, and by the payment to the Issuer of an amount of consideration therefor
equal to the Warrant Price in effect on the date of such exercise multiplied by
the number of shares of Warrant Stock with respect to which this Warrant is then
being exercised, payable at such Holder's election (i) by certified or official
bank check or by wire transfer to an account designated by the Issuer, (ii) by
"cashless exercise" in accordance with the provisions of subsection (c) of this
Section 2, but only when a registration statement under the Securities Act
providing for the resale of the Warrant Stock is not then in effect, or (iii) by
a combination of the foregoing methods of payment selected by the Holder of this
Warrant.
(c) Cashless Exercise. Notwithstanding any provisions herein to
the contrary and commencing one (1) year following the Original Issue Date if
(i) the Per Share Market Value of one share of Common Stock is greater than the
Warrant Price (at the date of calculation as set forth below) and (ii) a
registration statement under the Securities Act providing for the resale of the
Warrant Stock is not then in effect by the date such registration statement is
required to be effective pursuant to the Registration Rights Agreement (as
defined in the Purchase Agreement) or not effective at any time during the
Effectiveness Period (as defined in the Registration Rights Agreement) in
accordance with the terms of the Registration Rights Agreement, unless the
registration statement is not effective as a result of the Issuer exercising its
rights under Section 3(n) of the Registration Rights Agreement, in lieu of
exercising this Warrant by payment of cash, the Holder may exercise this Warrant
by a cashless exercise and shall receive the number of shares of Common Stock
equal to an amount (as determined below) by surrender of this Warrant at the
principal office of the Issuer together with the properly endorsed Notice of
Exercise in which event the Issuer shall issue to the Holder a number of shares
of Common Stock computed using the following formula:
X = Y - (A)(Y)
------
B
Where X = the number of shares of Common Stock to be issued to
the Holder.
Y = the number of shares of Common Stock purchasable
upon exercise of all of the Warrant or, if only a
portion of the Warrant is being exercised, the
portion of the Warrant being exercised.
A = the Warrant Price.
B = the Per Share Market Value of one share of Common
Stock.
(d) Issuance of Stock Certificates. In the event of any exercise
of this Warrant in accordance with and subject to the terms and conditions
hereof, certificates for the shares of Warrant Stock so purchased shall be dated
the date of such exercise and delivered to the Holder hereof within a reasonable
time, not exceeding three (3) Trading Days after such exercise (the "Delivery
Date") or, at the request of the Holder (provided that a registration statement
under the Securities Act providing for the resale of the Warrant Stock is then
in effect), issued and delivered to the Depository Trust Company ("DTC") account
on the Holder's behalf via the Deposit Withdrawal Agent Commission System
-2-
("DWAC") within a reasonable time, not exceeding three (3) Trading Days after
such exercise, and the Holder hereof shall be deemed for all purposes to be the
holder of the shares of Warrant Stock so purchased as of the date of such
exercise. Notwithstanding the foregoing to the contrary, the Issuer or its
transfer agent shall only be obligated to issue and deliver the shares to the
DTC on a holder's behalf via DWAC if such exercise is in connection with a sale
and the Issuer and its transfer agent are participating in DTC through the DWAC
system. The Holder shall deliver this original Warrant, or an indemnification
undertaking with respect to such Warrant in the case of its loss, theft or
destruction, at such time that this Warrant is fully exercised. With respect to
partial exercises of this Warrant, the Issuer shall keep written records for the
Holder of the number of shares of Warrant Stock exercised as of each date of
exercise.
(e) Compensation for Buy-In on Failure to Timely Deliver
Certificates Upon Exercise. In addition to any other rights available to the
Holder, if the Issuer fails to cause its transfer agent to transmit to the
Holder a certificate or certificates representing the Warrant Stock pursuant to
an exercise on or before the Delivery Date, and if after such date the Holder is
required by its broker to purchase (in an open market transaction or otherwise)
shares of Common Stock to deliver in satisfaction of a sale by the Holder of the
Warrant Stock which the Holder anticipated receiving upon such exercise (a
"Buy-In"), then the Issuer shall (1) pay in cash to the Holder the amount by
which (x) the Holder's total purchase price (including brokerage commissions, if
any) for the shares of Common Stock so purchased exceeds (y) the amount obtained
by multiplying (A) the number of shares of Warrant Stock that the Issuer was
required to deliver to the Holder in connection with the exercise at issue times
(B) the price at which the sell order giving rise to such purchase obligation
was executed, and (2) at the option of the Holder, either reinstate the portion
of the Warrant and equivalent number of shares of Warrant Stock for which such
exercise was not honored or deliver to the Holder the number of shares of Common
Stock that would have been issued had the Issuer timely complied with its
exercise and delivery obligations hereunder. For example, if the Holder
purchases Common Stock having a total purchase price of $11,000 to cover a
Buy-In with respect to an attempted exercise of shares of Common Stock with an
aggregate sale price giving rise to such purchase obligation of $10,000, under
clause (1) of the immediately preceding sentence the Issuer shall be required to
pay the Holder $1,000. The Holder shall provide the Issuer written notice
indicating the amounts payable to the Holder in respect of the Buy-In, together
with applicable confirmations and other evidence reasonably requested by the
Issuer. Nothing herein shall limit a Holder's right to pursue any other remedies
available to it hereunder, at law or in equity including, without limitation, a
decree of specific performance and/or injunctive relief with respect to the
Issuer's failure to timely deliver certificates representing shares of Common
Stock upon exercise of this Warrant as required pursuant to the terms hereof.
(f) Transferability of Warrant. Subject to Section 2(h) hereof,
this Warrant may be transferred by a Holder, in whole or in part, without the
consent of the Issuer. If transferred pursuant to this paragraph, this Warrant
may be transferred on the books of the Issuer by the Holder hereof in person or
by duly authorized attorney, upon surrender of this Warrant at the principal
office of the Issuer, properly endorsed (by the Holder executing an assignment
in the form attached hereto) and upon payment of any necessary transfer tax or
other governmental charge imposed upon such transfer. This Warrant is
exchangeable at the principal office of the Issuer for Warrants to purchase the
same aggregate number of shares of Warrant Stock, each new Warrant to represent
-3-
the right to purchase such number of shares of Warrant Stock as the Holder
hereof shall designate at the time of such exchange. All Warrants issued on
transfers or exchanges shall be dated the Original Issue Date and shall be
identical with this Warrant except as to the number of shares of Warrant Stock
issuable pursuant thereto.
(g) Continuing Rights of Holder. The Issuer will, at the time of
or at any time after each exercise of this Warrant, upon the request of the
Holder hereof, acknowledge in writing the extent, if any, of its continuing
obligation to afford to such Holder all rights to which such Holder shall
continue to be entitled after such exercise in accordance with the terms of this
Warrant, provided that if any such Holder shall fail to make any such request,
the failure shall not affect the continuing obligation of the Issuer to afford
such rights to such Holder.
(h) Compliance with Securities Laws.
-------------------------------
(i) The Holder of this Warrant, by acceptance hereof,
acknowledges that this Warrant and the shares of Warrant Stock to be
issued upon exercise hereof are being acquired solely for the Holder's
own account and not as a nominee for any other party, and for
investment, and that the Holder will not offer, sell or otherwise
dispose of this Warrant or any shares of Warrant Stock to be issued
upon exercise hereof except pursuant to an effective registration
statement, or an exemption from registration, under the Securities Act
and any applicable state securities laws.
(ii) Except as provided in paragraph (iii) below, this
Warrant and all certificates representing shares of Warrant Stock
issued upon exercise hereof shall be stamped or imprinted with a legend
in substantially the following form:
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON
EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR ANY STATE
SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE
DISPOSED OF UNLESS REGISTERED UNDER THE SECURITIES ACT AND
UNDER APPLICABLE STATE SECURITIES LAWS OR THE ISSUER SHALL
HAVE RECEIVED AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO
THE ISSUER THAT REGISTRATION OF SUCH SECURITIES UNDER THE
SECURITIES ACT AND UNDER THE PROVISIONS OF APPLICABLE STATE
SECURITIES LAWS IS NOT REQUIRED.
(iii) The Issuer agrees to reissue this Warrant or
certificates representing any of the Warrant Stock, without the legend
set forth above if at such time, prior to making any transfer of any
such securities, the Holder shall give written notice to the Issuer
describing the manner and terms of such transfer. Such proposed
transfer will not be effected until: (a) either (i) the Issuer has
received an opinion of counsel reasonably satisfactory to the Issuer,
to the effect that the registration of such securities under the
-4-
Securities Act is not required in connection with such proposed
transfer, (ii) a registration statement under the Securities Act
covering such proposed disposition has been filed by the Issuer with
the Securities and Exchange Commission and has become effective under
the Securities Act, (iii) the Issuer has received other evidence
reasonably satisfactory to the Issuer that such registration and
qualification under the Securities Act and state securities laws are
not required, or (iv) the Holder provides the Issuer with reasonable
assurances that such security can be sold pursuant to Rule 144 under
the Securities Act; and (b) either (i) the Issuer has received an
opinion of counsel reasonably satisfactory to the Issuer, to the effect
that registration or qualification under the securities or "blue sky"
laws of any state is not required in connection with such proposed
disposition, or (ii) compliance with applicable state securities or
"blue sky" laws has been effected or a valid exemption exists with
respect thereto. The Issuer will respond to any such notice from a
holder within three (3) Trading Days. In the case of any proposed
transfer under this Section 2(h), the Issuer will use reasonable
efforts to comply with any such applicable state securities or "blue
sky" laws, but shall in no event be required, (x) to qualify to do
business in any state where it is not then qualified, (y) to take any
action that would subject it to tax or to the general service of
process in any state where it is not then subject, or (z) to comply
with state securities or "blue sky" laws of any state for which
registration by coordination is unavailable to the Issuer. The
restrictions on transfer contained in this Section 2(h) shall be in
addition to, and not by way of limitation of, any other restrictions on
transfer contained in any other section of this Warrant. Whenever a
certificate representing the Warrant Stock is required to be issued to
a the Holder without a legend, in lieu of delivering physical
certificates representing the Warrant Stock, the Issuer shall cause its
transfer agent to electronically transmit the Warrant Stock to the
Holder by crediting the account of the Holder's Prime Broker with DTC
through its DWAC system (to the extent not inconsistent with any
provisions of this Warrant or the Purchase Agreement).
(i) Accredited Investor Status. In no event may the Holder
exercise this Warrant in whole or in part unless the Holder is an "accredited
investor" as defined in Regulation D under the Securities Act.
3. Stock Fully Paid; Reservation and Listing of Shares;
Covenants.
(a) Stock Fully Paid. The Issuer represents, warrants, covenants
and agrees that all shares of Warrant Stock which may be issued upon the
exercise of this Warrant or otherwise hereunder will, when issued in accordance
with the terms of this Warrant, be duly authorized, validly issued, fully paid
and non-assessable and free from all taxes, liens and charges created by or
through the Issuer. The Issuer further covenants and agrees that during the
period within which this Warrant may be exercised, the Issuer will at all times
have authorized and reserved for the purpose of the issuance upon exercise of
this Warrant a number of authorized but unissued shares of Common Stock equal to
at least one hundred fifty (150%) of the number of shares of Common Stock
issuable upon exercise of this Warrant without regard to any limitations on
exercise.
(b) Reservation. If any shares of Common Stock required to be
reserved for issuance upon exercise of this Warrant or as otherwise provided
hereunder require registration or qualification with any Governmental Authority
-5-
under any federal or state law before such shares may be so issued, the Issuer
will in good faith use its best efforts as expeditiously as possible at its
expense to cause such shares to be duly registered or qualified. If the Issuer
shall list any shares of Common Stock on any securities exchange or market it
will, at its expense, list thereon, and maintain and increase when necessary
such listing, of, all shares of Warrant Stock from time to time issued upon
exercise of this Warrant or as otherwise provided hereunder (provided that such
Warrant Stock has been registered pursuant to a registration statement under the
Securities Act then in effect), and, to the extent permissible under the
applicable securities exchange rules, all unissued shares of Warrant Stock which
are at any time issuable hereunder, so long as any shares of Common Stock shall
be so listed. The Issuer will also so list on each securities exchange or
market, and will maintain such listing of, any other securities which the Holder
of this Warrant shall be entitled to receive upon the exercise of this Warrant
if at the time any securities of the same class shall be listed on such
securities exchange or market by the Issuer.
(c) Covenants. The Issuer shall not by any action including,
without limitation, amending the Certificate of Incorporation or the by-laws of
the Issuer, or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other action, avoid or
seek to avoid the observance or performance of any of the terms of this Warrant,
but will at all times in good faith assist in the carrying out of all such terms
and in the taking of all such actions as may be necessary or appropriate to
protect the rights of the Holder hereof against dilution (to the extent
specifically provided herein) or impairment. Without limiting the generality of
the foregoing, the Issuer will (i) not permit the par value, if any, of its
Common Stock to exceed the then effective Warrant Price, (ii) not amend or
modify any provision of the Certificate of Incorporation or by-laws of the
Issuer in any manner that would adversely affect the rights of the Holders of
the Warrants, (iii) take all such action as may be reasonably necessary in order
that the Issuer may validly and legally issue fully paid and nonassessable
shares of Common Stock, free and clear of any liens, claims, encumbrances and
restrictions (other than as provided herein) upon the exercise of this Warrant,
and (iv) use its best efforts to obtain all such authorizations, exemptions or
consents from any public regulatory body having jurisdiction thereof as may be
reasonably necessary to enable the Issuer to perform its obligations under this
Warrant.
(d) Loss, Theft, Destruction of Warrants. Upon receipt of evidence
satisfactory to the Issuer of the ownership of and the loss, theft, destruction
or mutilation of any Warrant and, in the case of any such loss, theft or
destruction, upon receipt of indemnity or security satisfactory to the Issuer
or, in the case of any such mutilation, upon surrender and cancellation of such
Warrant, the Issuer will make and deliver, in lieu of such lost, stolen,
destroyed or mutilated Warrant, a new Warrant of like tenor and representing the
right to purchase the same number of shares of Common Stock.
(e) Payment of Taxes. The Issuer will pay any documentary stamp
taxes attributable to the initial issuance of the Warrant Stock issuable upon
exercise of this Warrant; provided, however, that the Issuer shall not be
required to pay any tax or taxes which may be payable in respect of any transfer
involved in the issuance or delivery of any certificates representing Warrant
Stock in a name other than that of the Holder in respect to which such shares
are issued.
-6-
4. Adjustment of Warrant Price and Number of Shares Issuable Upon
Exercise. The Warrant Price and the number of shares of Warrant Stock that may
be purchased upon exercise of this Warrant shall be subject to adjustment from
time to time as set forth in this Section 4. The Issuer shall give the Holder
notice of any event described below which requires an adjustment pursuant to
this Section 4 in accordance with the notice provisions set forth in Section 5.
(a) Recapitalization, Reorganization, Reclassification,
Consolidation, Merger or Sale.
(i) In case the Issuer after the Original Issue Date
shall do any of the following (each, a "Triggering Event"): (a)
consolidate or merge with or into any other Person and the Issuer shall
not be the continuing or surviving corporation of such consolidation or
merger, or (b) permit any other Person to consolidate with or merge
into the Issuer and the Issuer shall be the continuing or surviving
Person but, in connection with such consolidation or merger, any
Capital Stock of the Issuer shall be changed into or exchanged for
Securities of any other Person or cash or any other property, or (c)
transfer all or substantially all of its properties or assets to any
other Person, or (d) effect a capital reorganization or
reclassification of its Capital Stock, then, and in the case of each
such Triggering Event, proper provision shall be made to the Warrant
Price and the number of shares of Warrant Stock that may be purchased
upon exercise of this Warrant so that, upon the basis and the terms and
in the manner provided in this Warrant, the Holder of this Warrant
shall be entitled upon the exercise hereof at any time after the
consummation of such Triggering Event, to the extent this Warrant is
not exercised prior to such Triggering Event, to receive at the Warrant
Price as adjusted to take into account the consummation of such
Triggering Event, in lieu of the Common Stock issuable upon such
exercise of this Warrant prior to such Triggering Event, the
Securities, cash and property to which such Holder would have been
entitled upon the consummation of such Triggering Event if such Holder
had exercised the rights represented by this Warrant immediately prior
thereto (including the right of a shareholder to elect the type of
consideration it will receive upon a Triggering Event), subject to
adjustments (subsequent to such corporate action) as nearly equivalent
as possible to the adjustments provided for elsewhere in this Section
4, and the Warrant Price shall be adjusted to equal the product of (A)
the closing price of the common stock of the continuing or surviving
corporation as a result of such Triggering Event as of the date
immediately preceding the date of the consummation of such Triggering
Event multiplied by (B) the quotient of (i) the Warrant Price divided
by (ii) the Per Share Market Value of the Common Stock as of the date
immediately preceding the Original Issue Date; provided, however, the
Holder at its option may elect to receive an amount in cash equal to
the value of this Warrant calculated in accordance with the
Black-Scholes formula. Immediately upon the occurrence of a Triggering
Event, the Issuer shall notify the Holder in writing of such Triggering
Event and provide the calculations in determining the number of shares
of Warrant Stock issuable upon exercise of the new warrant and the
adjusted Warrant Price. Upon the Holder's request, the continuing or
surviving corporation as a result of such Triggering Event shall issue
to the Holder a new warrant of like tenor evidencing the right to
purchase the adjusted number of shares of Warrant Stock and the
adjusted Warrant Price pursuant to the terms and provisions of this
Section 4(a)(i). Notwithstanding the foregoing to the contrary, this
Section 4(a)(i) shall only apply if the surviving entity pursuant to
any such Triggering Event is a company that has a class of equity
-7-
securities registered pursuant to the Securities Exchange Act of 1934,
as amended, and its common stock is listed or quoted on a national
securities exchange, national automated quotation system or the OTC
Bulletin Board. In the event that the surviving entity pursuant to any
such Triggering Event is not a public company that is registered
pursuant to the Securities Exchange Act of 1934, as amended, or its
common stock is not listed or quoted on a national securities exchange,
national automated quotation system or the OTC Bulletin Board, then the
Holder shall have the right to demand that the Issuer pay to the Holder
an amount in cash equal to the value of this Warrant calculated in
accordance with the Black-Scholes formula.
(ii) In the event that the Holder has elected not to
exercise this Warrant prior to the consummation of a Triggering Event
and has also elected not to receive an amount in cash equal to the
value of this Warrant calculated in accordance with the Black-Scholes
formula pursuant to the provisions of Section 4(a)(i) above, so long as
the surviving entity pursuant to any Triggering Event is a company that
has a class of equity securities registered pursuant to the Securities
Exchange Act of 1934, as amended, and its common stock is listed or
quoted on a national securities exchange, national automated quotation
system or the OTC Bulletin Board, the surviving entity and/or each
Person (other than the Issuer) which may be required to deliver any
Securities, cash or property upon the exercise of this Warrant as
provided herein shall assume, by written instrument delivered to, and
reasonably satisfactory to, the Holder of this Warrant, (A) the
obligations of the Issuer under this Warrant (and if the Issuer shall
survive the consummation of such Triggering Event, such assumption
shall be in addition to, and shall not release the Issuer from, any
continuing obligations of the Issuer under this Warrant) and (B) the
obligation to deliver to such Holder such Securities, cash or property
as, in accordance with the foregoing provisions of this subsection (a),
such Holder shall be entitled to receive, and the surviving entity
and/or each such Person shall have similarly delivered to such Holder
an opinion of counsel for the surviving entity and/or each such Person,
which counsel shall be reasonably satisfactory to such Holder, or in
the alternative, a written acknowledgement executed by the President or
Chief Financial Officer of the Issuer, stating that this Warrant shall
thereafter continue in full force and effect and the terms hereof
(including, without limitation, all of the provisions of this
subsection (a)) shall be applicable to the Securities, cash or property
which the surviving entity and/or each such Person may be required to
deliver upon any exercise of this Warrant or the exercise of any rights
pursuant hereto.
(b) Stock Dividends, Subdivisions and Combinations. If at any time
the Issuer shall:
(i) make or issue or set a record date for the holders of
the Common Stock for the purpose of entitling them to receive a
dividend payable in, or other distribution of, shares of Common Stock,
(ii) subdivide its outstanding shares of Common Stock into
a larger number of shares of Common Stock, or
(iii) combine its outstanding shares of Common Stock into a
smaller number of shares of Common Stock,
-8-
then (1) the number of shares of Common Stock for which this Warrant is
exercisable immediately after the occurrence of any such event shall be adjusted
to equal the number of shares of Common Stock which a record holder of the same
number of shares of Common Stock for which this Warrant is exercisable
immediately prior to the occurrence of such event would own or be entitled to
receive after the happening of such event, and (2) the Warrant Price then in
effect shall be adjusted to equal (A) the Warrant Price then in effect
multiplied by the number of shares of Common Stock for which this Warrant is
exercisable immediately prior to the adjustment divided by (B) the number of
shares of Common Stock for which this Warrant is exercisable immediately after
such adjustment.
(c) Certain Other Distributions. If at any time the Issuer shall
make or issue or set a record date for the holders of the Common Stock for the
purpose of entitling them to receive any dividend or other distribution of:
(i) cash (other than a cash dividend payable out of
earnings or earned surplus legally available for the payment of
dividends under the laws of the jurisdiction of incorporation of the
Issuer),
(ii) any evidences of its indebtedness, any shares of
stock of any class or any other securities or property of any nature
whatsoever (other than cash, Common Stock Equivalents or Additional
Shares of Common Stock), or
(iii) any warrants or other rights to subscribe for or
purchase any evidences of its indebtedness, any shares of stock of any
class or any other securities or property of any nature whatsoever
(other than cash, Common Stock Equivalents or Additional Shares of
Common Stock),
then (1) the number of shares of Common Stock for which this Warrant is
exercisable shall be adjusted to equal the product of the number of shares of
Common Stock for which this Warrant is exercisable immediately prior to such
adjustment multiplied by a fraction (A) the numerator of which shall be the Per
Share Market Value of Common Stock at the date of taking such record and (B) the
denominator of which shall be such Per Share Market Value minus the amount
allocable to one share of Common Stock of any such cash so distributable and of
the fair value (as determined in good faith by the Board of Directors of the
Issuer and supported by an opinion from an investment banking firm mutually
agreed upon by the Issuer and the Holder) of any and all such evidences of
indebtedness, shares of stock, other securities or property or warrants or other
subscription or purchase rights so distributable, and (2) the Warrant Price then
in effect shall be adjusted to equal (A) the Warrant Price then in effect
multiplied by the number of shares of Common Stock for which this Warrant is
exercisable immediately prior to the adjustment divided by (B) the number of
shares of Common Stock for which this Warrant is exercisable immediately after
such adjustment. A reclassification of the Common Stock (other than a change in
par value, or from par value to no par value or from no par value to par value)
into shares of Common Stock and shares of any other class of stock shall be
deemed a distribution by the Issuer to the holders of its Common Stock of such
shares of such other class of stock within the meaning of this Section 4(c) and,
if the outstanding shares of Common Stock shall be changed into a larger or
-9-
smaller number of shares of Common Stock as a part of such reclassification,
such change shall be deemed a subdivision or combination, as the case may be, of
the outstanding shares of Common Stock within the meaning of Section 4(b).
(d) Issuance of Additional Shares of Common Stock. In the event
the Issuer shall at any time within two (2) years following the Original
Issuance Date issue any Additional Shares of Common Stock (otherwise than as
provided in the foregoing subsections (b) through (c) of this Section 4), at a
price per share less than the Warrant Price then in effect or without
consideration, then the Warrant Price upon each such issuance shall be adjusted
to the price equal to the consideration per share paid for such Additional
Shares of Common Stock.
(e) Issuance of Common Stock Equivalents. In the event the Issuer
shall at any time within two (2) years following the Original Issuance Date take
a record of the holders of its Common Stock for the purpose of entitling them to
receive a distribution of, or shall in any manner (whether directly or by
assumption in a merger in which the Issuer is the surviving corporation) issue
or sell, any Common Stock Equivalents, whether or not the rights to exchange or
convert thereunder are immediately exercisable, and the price per share for
which Common Stock is issuable upon such conversion or exchange shall be less
than the Warrant Price in effect immediately prior to the time of such issue or
sale, or if, after any such issuance of Common Stock Equivalents, the price per
share for which Additional Shares of Common Stock may be issuable thereafter is
amended or adjusted, and such price as so amended shall be less than the Warrant
Price in effect at the time of such amendment or adjustment, then the Warrant
Price then in effect shall be adjusted as provided in Section 4(d). No further
adjustments of the number of shares of Common Stock for which this Warrant is
exercisable and the Warrant Price then in effect shall be made upon the actual
issue of such Common Stock upon conversion or exchange of such Common Stock
Equivalents.
(f) Other Provisions applicable to Adjustments under this Section.
The following provisions shall be applicable to the making of adjustments of the
number of shares of Common Stock for which this Warrant is exercisable and the
Warrant Price then in effect provided for in this Section 4:
(i) Computation of Consideration. To the extent that any
Additional Shares of Common Stock or any Common Stock Equivalents (or
any warrants or other rights therefor) shall be issued for cash
consideration, the consideration received by the Issuer therefor shall
be the amount of the cash received by the Issuer therefor, or, if such
Additional Shares of Common Stock or Common Stock Equivalents are
offered by the Issuer for subscription, the subscription price, or, if
such Additional Shares of Common Stock or Common Stock Equivalents are
sold to underwriters or dealers for public offering without a
subscription offering, the initial public offering price (in any such
case subtracting any amounts paid or receivable for accrued interest or
accrued dividends and without taking into account any compensation,
discounts or expenses paid or incurred by the Issuer for and in the
underwriting of, or otherwise in connection with, the issuance
thereof). In connection with any merger or consolidation in which the
Issuer is the surviving corporation (other than any consolidation or
merger in which the previously outstanding shares of Common Stock of
the Issuer shall be changed to or exchanged for the stock or other
securities of another corporation), the amount of consideration
therefore shall be, deemed to be the fair value, as determined
reasonably and in good faith by the Board, of such portion of the
-10-
assets and business of the nonsurviving corporation as the Board may
determine to be attributable to such shares of Common Stock or Common
Stock Equivalents, as the case may be. The consideration for any
Additional Shares of Common Stock issuable pursuant to any warrants or
other rights to subscribe for or purchase the same shall be the
consideration received by the Issuer for issuing such warrants or other
rights plus the additional consideration payable to the Issuer upon
exercise of such warrants or other rights. The consideration for any
Additional Shares of Common Stock issuable pursuant to the terms of any
Common Stock Equivalents shall be the consideration received by the
Issuer for issuing warrants or other rights to subscribe for or
purchase such Common Stock Equivalents, plus the consideration paid or
payable to the Issuer in respect of the subscription for or purchase of
such Common Stock Equivalents, plus the additional consideration, if
any, payable to the Issuer upon the exercise of the right of conversion
or exchange in such Common Stock Equivalents. In the event of any
consolidation or merger of the Issuer in which the Issuer is not the
surviving corporation or in which the previously outstanding shares of
Common Stock of the Issuer shall be changed into or exchanged for the
stock or other securities of another corporation, or in the event of
any sale of all or substantially all of the assets of the Issuer for
stock or other securities of any corporation, the Issuer shall be
deemed to have issued a number of shares of its Common Stock for stock
or securities or other property of the other corporation computed on
the basis of the actual exchange ratio on which the transaction was
predicated, and for a consideration equal to the fair market value on
the date of such transaction of all such stock or securities or other
property of the other corporation. In the event any consideration
received by the Issuer for any securities consists of property other
than cash, the fair market value thereof at the time of issuance or as
otherwise applicable shall be as determined in good faith by the Board.
In the event Common Stock is issued with other shares or securities or
other assets of the Issuer for consideration which covers both, the
consideration computed as provided in this Section 4(f)(i) shall be
allocated among such securities and assets as determined in good faith
by the Board.
(ii) When Adjustments to Be Made. The adjustments required
by this Section 4 shall be made whenever and as often as any specified
event requiring an adjustment shall occur, except that any adjustment
of the number of shares of Common Stock for which this Warrant is
exercisable that would otherwise be required may be postponed (except
in the case of a subdivision or combination of shares of the Common
Stock, as provided for in Section 4(b)) up to, but not beyond the date
of exercise if such adjustment either by itself or with other
adjustments not previously made adds or subtracts less than one percent
(1%) of the shares of Common Stock for which this Warrant is
exercisable immediately prior to the making of such adjustment. Any
adjustment representing a change of less than such minimum amount
(except as aforesaid) which is postponed shall be carried forward and
made as soon as such adjustment, together with other adjustments
required by this Section 4 and not previously made, would result in a
minimum adjustment or on the date of exercise. For the purpose of any
adjustment, any specified event shall be deemed to have occurred at the
close of business on the date of its occurrence.
(iii) Fractional Interests. In computing adjustments under
this Section 4, fractional interests in Common Stock shall be taken
into account to the nearest one one-hundredth (1/100th) of a share.
-11-
(iv) When Adjustment Not Required. If the Issuer shall
take a record of the holders of its Common Stock for the purpose of
entitling them to receive a dividend or distribution or subscription or
purchase rights and shall, thereafter and before the distribution to
stockholders thereof, legally abandon its plan to pay or deliver such
dividend, distribution, subscription or purchase rights, then
thereafter no adjustment shall be required by reason of the taking of
such record and any such adjustment previously made in respect thereof
shall be rescinded and annulled.
(g) Form of Warrant after Adjustments. The form of this Warrant
need not be changed because of any adjustments in the Warrant Price or the
number and kind of Securities purchasable upon the exercise of this Warrant.
(h) Escrow of Warrant Stock. If after any property becomes
distributable pursuant to this Section 4 by reason of the taking of any record
of the holders of Common Stock, but prior to the occurrence of the event for
which such record is taken, and the Holder exercises this Warrant, any shares of
Common Stock issuable upon exercise by reason of such adjustment shall be deemed
the last shares of Common Stock for which this Warrant is exercised
(notwithstanding any other provision to the contrary herein) and such shares or
other property shall be held in escrow for the Holder by the Issuer to be issued
to the Holder upon and to the extent that the event actually takes place, upon
payment of the current Warrant Price. Notwithstanding any other provision to the
contrary herein, if the event for which such record was taken fails to occur or
is rescinded, then such escrowed shares shall be cancelled by the Issuer and
escrowed property returned.
5. Notice of Adjustments. Whenever the Warrant Price or Warrant
Share Number shall be adjusted pursuant to Section 4 hereof (for purposes of
this Section 5, each an "adjustment"), the Issuer shall cause its Chief
Financial Officer to prepare and execute a certificate setting forth, in
reasonable detail, the event requiring the adjustment, the amount of the
adjustment, the method by which such adjustment was calculated (including a
description of the basis on which the Board made any determination hereunder),
and the Warrant Price and Warrant Share Number after giving effect to such
adjustment, and shall cause copies of such certificate to be delivered to the
Holder of this Warrant promptly after each adjustment. Any dispute between the
Issuer and the Holder of this Warrant with respect to the matters set forth in
such certificate may at the option of the Holder of this Warrant be submitted to
a national or regional accounting firm reasonably acceptable to the Issuer and
the Holder, provided that the Issuer shall have ten (10) days after receipt of
notice from such Holder of its selection of such firm to object thereto, in
which case such Holder shall select another such firm and the Issuer shall have
no such right of objection. The firm selected by the Holder of this Warrant as
provided in the preceding sentence shall be instructed to deliver a written
opinion as to such matters to the Issuer and such Holder within thirty (30) days
after submission to it of such dispute. Such opinion shall be final and binding
on the parties hereto. The costs and expenses of the initial accounting firm
shall be paid equally by the Issuer and the Holder and, in the case of an
objection by the Issuer, the costs and expenses of the subsequent accounting
firm shall be paid in full by the Issuer.
-12-
6. Fractional Shares. No fractional shares of Warrant Stock will
be issued in connection with any exercise hereof, but in lieu of such fractional
shares, the Issuer shall round the number of shares to be issued upon exercise
up to the nearest whole number of shares.
7. Ownership Cap and Exercise Restriction. Notwithstanding
anything to the contrary set forth in this Warrant, at no time may a Holder of
this Warrant exercise this Warrant if the number of shares of Common Stock to be
issued pursuant to such exercise would exceed, when aggregated with all other
shares of Common Stock owned by such Holder at such time, the number of shares
of Common Stock which would result in such Holder beneficially owning (as
determined in accordance with Section 13(d) of the Exchange Act and the rules
thereunder) in excess of 9.9% of the then issued and outstanding shares of
Common Stock; provided, however, that upon a holder of this Warrant providing
the Issuer with sixty-one (61) days notice (pursuant to Section 13 hereof) (the
"Waiver Notice") that such Holder would like to waive this Section 7 with regard
to any or all shares of Common Stock issuable upon exercise of this Warrant,
this Section 7 will be of no force or effect with regard to all or a portion of
the Warrant referenced in the Waiver Notice; provided, further, that this
provision shall be of no further force or effect during the sixty-one (61) days
immediately preceding the expiration of the term of this Warrant.
8. Issuer's Redemption Option. If (A) the Per Share Market Value
of the Common Stock for any twenty (20) consecutive Trading Days equals or
exceeds $3.00 per share (as may be adjusted for any stock splits or combinations
of the Common Stock) and (B) the trading volume of the Common Stock for each
Trading Day of such twenty (20) Trading Day period equals or exceeds 50,000
shares of Common Stock, the Issuer may, at any time thereafter upon twenty (20)
Trading Days prior written notice (the "Issuer Redemption Notice") to the
Holder, redeem the unexercised portion of this Warrant in cash at a price equal
to the number of shares of Warrant Stock with respect to the unexercised portion
of this Warrant multiplied by $0.001 (the "Issuer Redemption Price"); provided,
that, in connection with any redemption by the Issuer under this Section 8, (A)
the registration statement (the `Registration Statement") filed by the Issuer
with the Securities and Exchange Commission providing for the resale of the
Warrant Stock and the shares of Common Stock issued pursuant to the Purchase
Agreement is then in effect and has been effective, without lapse or suspension
of any kind, for a period of sixty (60) consecutive calendar days, (B) trading
in the Common Stock shall not have been suspended by the Securities and Exchange
Commission or the OTC Bulletin Board (or other exchange or market on which the
Common Stock is trading), (C) the Issuer is in material compliance with the
terms and conditions of this Warrant and the other Transaction Documents (as
defined in the Purchase Agreement) and (D) the Issuer is not in possession of
any material non-public information; provided, further, that the Registration
Statement is in effect from the date of delivery of the Issuer Redemption Notice
until the date which is the later of (1) the date the Holder exercises the
Warrant pursuant to the Issuer Redemption Notice and (2) the twentieth (20th)
Trading Day after the Holder receives the Issuer Redemption Notice (the "Early
Termination Date"). The rights and privileges granted pursuant to this Warrant
with respect to the shares of Warrant Stock subject to the Issuer Redemption
Notice (the "Redeemed Warrant Shares") shall expire on the Early Termination
Date if this Warrant is not exercised with respect to such Redeemed Warrant
Shares prior to such Early Termination Date. The Issuer's Redemption Notice
shall state the date of redemption which date shall be the twenty-first (21st)
Trading Day after the Issuer has delivered the Issuer's Redemption Notice (the
"Issuer's Redemption Date"), the Issuer's Redemption Price and the number of
shares to be redeemed by the Issuer. The Issuer shall not send a Issuer's
-13-
Redemption Notice unless it has good and clear funds for a minimum of the amount
it intends to redeem in a bank account controlled by the Issuer. The Issuer
shall deliver the Issuer's Redemption Price to the Holder on the Issuer's
Redemption Date. Not later than five (5) days after receipt of the Issuer
Redemption Price, Holder shall return to the Issuer for cancellation the
original Warrant to be redeemed. If the Issuer fails to pay the Issuer's
Redemption Price by the Issuer's Redemption Date, the redemption will be
declared null and void. Notwithstanding anything in the foregoing to the
contrary, if the Holder may not exercise this Warrant as a result of the
restriction contained in Section 7 hereof, the Issuer Redemption Notice shall be
deemed null and void and shall not be deemed effective until the date that the
Holder may exercise this Warrant in accordance with Section 7 hereof.
9. Definitions. For the purposes of this Warrant, the following
terms have the following meanings:
"Additional Shares of Common Stock" means all shares of Common
Stock issued by the Issuer after the Original Issue Date, and all
shares of Other Common, if any, issued by the Issuer after the Original
Issue Date, except: (i) securities issued (other than for cash) in
connection with a merger, acquisition, or consolidation, (ii)
securities issued pursuant to the conversion or exercise of convertible
or exercisable securities issued or outstanding on or prior to the date
of the Purchase Agreement or issued pursuant to the Purchase Agreement
(so long as the conversion or exercise price in such securities are not
amended to lower such price and/or adversely affect the Holders), (iii)
the Warrant Stock, (iv) securities issued in connection with bona fide
strategic license agreements or other partnering arrangements so long
as such issuances are not for the purpose of raising capital, (v)
Common Stock issued or the issuance or grants of options to purchase
Common Stock pursuant to the Issuer's stock option plans and employee
stock purchase plans outstanding as they exist on the date of the
Purchase Agreement, and (vi) any warrants issued to the placement agent
and its designees for the transactions contemplated by the Purchase
Agreement.
"Board" shall mean the Board of Directors of the Issuer.
"Capital Stock" means and includes (i) any and all shares,
interests, participations or other equivalents of or interests in
(however designated) corporate stock, including, without limitation,
shares of preferred or preference stock, (ii) all partnership interests
(whether general or limited) in any Person which is a partnership,
(iii) all membership interests or limited liability company interests
in any limited liability company, and (iv) all equity or ownership
interests in any Person of any other type.
"Certificate of Incorporation" means the Certificate of
Incorporation of the Issuer as in effect on the Original Issue Date,
and as hereafter from time to time amended, modified, supplemented or
restated in accordance with the terms hereof and thereof and pursuant
to applicable law.
"Common Stock" means the Common Stock, $0.0001 par value per
share, of the Issuer and any other Capital Stock into which such stock
may hereafter be changed.
-14-
"Common Stock Equivalent" means any Convertible Security or
warrant, option or other right to subscribe for or purchase any
Additional Shares of Common Stock or any Convertible Security.
"Convertible Securities" means evidences of Indebtedness,
shares of Capital Stock or other Securities which are or may be at any
time convertible into or exchangeable for Additional Shares of Common
Stock. The term "Convertible Security" means one of the Convertible
Securities.
"Governmental Authority" means any governmental, regulatory or
self-regulatory entity, department, body, official, authority,
commission, board, agency or instrumentality, whether federal, state or
local, and whether domestic or foreign.
"Holders" mean the Persons who shall from time to time own any
Warrant. The term "Holder" means one of the Holders.
"Independent Appraiser" means a nationally recognized or major
regional investment banking firm or firm of independent certified
public accountants of recognized standing (which may be the firm that
regularly examines the financial statements of the Issuer) that is
regularly engaged in the business of appraising the Capital Stock or
assets of corporations or other entities as going concerns, and which
is not affiliated with either the Issuer or the Holder of any Warrant.
"Issuer" means FreeHand Systems International, Inc., a
Delaware corporation, and its successors.
"Majority Holders" means at any time the Holders of Warrants
exercisable for a majority of the shares of Warrant Stock issuable
under the Warrants at the time outstanding.
"Original Issue Date" means September 26, 2006.
"OTC Bulletin Board" means the over-the-counter electronic
bulletin board.
"Other Common" means any other Capital Stock of the Issuer of
any class which shall be authorized at any time after the date of this
Warrant (other than Common Stock) and which shall have the right to
participate in the distribution of earnings and assets of the Issuer
without limitation as to amount.
"Outstanding Common Stock" means, at any given time, the
aggregate amount of outstanding shares of Common Stock, assuming full
exercise, conversion or exchange (as applicable) of all options,
warrants and other Securities which are convertible into or exercisable
or exchangeable for, and any right to subscribe for, shares of Common
Stock that are outstanding at such time.
"Person" means an individual, corporation, limited liability
company, partnership, joint stock company, trust, unincorporated
-15-
organization, joint venture, Governmental Authority or other entity of
whatever nature.
"Per Share Market Value" means on any particular date (a) the
last closing bid price per share of the Common Stock on such date on
the OTC Bulletin Board or another registered national stock exchange on
which the Common Stock is then listed, or if there is no such price on
such date, then the closing bid price on such exchange or quotation
system on the date nearest preceding such date, or (b) if the Common
Stock is not listed then on the OTC Bulletin Board or any registered
national stock exchange, the last closing bid price for a share of
Common Stock in the over-the-counter market, as reported by the OTC
Bulletin Board or in the National Quotation Bureau Incorporated or
similar organization or agency succeeding to its functions of reporting
prices) at the close of business on such date, or (c) if the Common
Stock is not then reported by the OTC Bulletin Board or the National
Quotation Bureau Incorporated (or similar organization or agency
succeeding to its functions of reporting prices), then the "Pink Sheet"
quotes for the applicable Trading Days preceding such date of
determination, or (d) if the Common Stock is not then publicly traded
the fair market value of a share of Common Stock as determined by an
Independent Appraiser selected in good faith by the Majority Holders;
provided, however, that the Issuer, after receipt of the determination
by such Independent Appraiser, shall have the right to select an
additional Independent Appraiser, in which case, the fair market value
shall be equal to the average of the determinations by each such
Independent Appraiser; and provided, further that all determinations of
the Per Share Market Value shall be appropriately adjusted for any
stock dividends, stock splits or other similar transactions during such
period. The determination of fair market value by an Independent
Appraiser shall be based upon the fair market value of the Issuer
determined on a going concern basis as between a willing buyer and a
willing seller and taking into account all relevant factors
determinative of value, and shall be final and binding on all parties.
In determining the fair market value of any shares of Common Stock, no
consideration shall be given to any restrictions on transfer of the
Common Stock imposed by agreement or by federal or state securities
laws, or to the existence or absence of, or any limitations on, voting
rights.
"Purchase Agreement" means the Common Stock and Warrant
Purchase Agreement dated as of September 26, 2006, among the Issuer and
the Purchasers.
"Purchasers" means the purchasers of the Common Stock and the
Warrants issued by the Issuer pursuant to the Purchase Agreement.
"Securities" means any debt or equity securities of the
Issuer, whether now or hereafter authorized, any instrument convertible
into or exchangeable for Securities or a Security, and any option,
warrant or other right to purchase or acquire any Security. "Security"
means one of the Securities.
"Securities Act" means the Securities Act of 1933, as amended,
or any similar federal statute then in effect.
-16-
"Subsidiary" means any corporation at least 50% of whose
outstanding Voting Stock shall at the time be owned directly or
indirectly by the Issuer or by one or more of its Subsidiaries, or by
the Issuer and one or more of its Subsidiaries.
"Term" has the meaning specified in Section 1 hereof.
"Trading Day" means (a) a day on which the Common Stock is
traded on the OTC Bulletin Board, or (b) if the Common Stock is not
traded on the OTC Bulletin Board, a day on which the Common Stock is
quoted in the over-the-counter market as reported by the National
Quotation Bureau Incorporated (or any similar organization or agency
succeeding its functions of reporting prices); provided, however, that
in the event that the Common Stock is not listed or quoted as set forth
in (a) or (b) hereof, then Trading Day shall mean any day except
Saturday, Sunday and any day which shall be a legal holiday or a day on
which banking institutions in the State of New York are authorized or
required by law or other government action to close.
"Voting Stock" means, as applied to the Capital Stock of any
corporation, Capital Stock of any class or classes (however designated)
having ordinary voting power for the election of a majority of the
members of the Board of Directors (or other governing body) of such
corporation, other than Capital Stock having such power only by reason
of the happening of a contingency.
"Warrants" means the Warrants issued and sold pursuant to the
Purchase Agreement, including, without limitation, this Warrant, and
any other warrants of like tenor issued in substitution or exchange for
any thereof pursuant to the provisions of Section 2(c), 2(d) or 2(e)
hereof or of any of such other Warrants.
"Warrant Price" initially means $1.25, as such price may be
adjusted from time to time as shall result from the adjustments
specified in this Warrant, including Section 4 hereto.
"Warrant Share Number" means at any time the aggregate number
of shares of Warrant Stock which may at such time be purchased upon
exercise of this Warrant, after giving effect to all prior adjustments
and increases to such number made or required to be made under the
terms hereof.
"Warrant Stock" means Common Stock issuable upon exercise of
any Warrant or Warrants or otherwise issuable pursuant to any Warrant
or Warrants.
10. Other Notices. In case at any time:
(A) the Issuer shall make any distributions to
the holders of Common Stock; or
(B) the Issuer shall authorize the granting to
all holders of its Common Stock of rights to
subscribe for or purchase any shares of
Capital Stock of any class or other rights;
or
-17-
(C) there shall be any reclassification of the
Capital Stock of the Issuer; or
(D) there shall be any capital reorganization by
the Issuer; or
(E) there shall be any (i) consolidation or
merger involving the Issuer or (ii) sale,
transfer or other disposition of all or
substantially all of the Issuer's property,
assets or business (except a merger or other
reorganization in which the Issuer shall be
the surviving corporation and its shares of
Capital Stock shall continue to be
outstanding and unchanged and except a
consolidation, merger, sale, transfer or
other disposition involving a wholly-owned
Subsidiary); or
(F) there shall be a voluntary or involuntary
dissolution, liquidation or winding-up of
the Issuer or any partial liquidation of the
Issuer or distribution to holders of Common
Stock;
then, in each of such cases, the Issuer shall give written notice to the Holder
of the date on which (i) the books of the Issuer shall close or a record shall
be taken for such dividend, distribution or subscription rights or (ii) such
reorganization, reclassification, consolidation, merger, disposition,
dissolution, liquidation or winding-up, as the case may be, shall take place.
Such notice also shall specify the date as of which the holders of Common Stock
of record shall participate in such dividend, distribution or subscription
rights, or shall be entitled to exchange their certificates for Common Stock for
securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, disposition, dissolution, liquidation
or winding-up, as the case may be. Such notice shall be given at least twenty
(20) days prior to the action in question and not less than ten (10) days prior
to the record date or the date on which the Issuer's transfer books are closed
in respect thereto. This Warrant entitles the Holder to receive copies of all
financial and other information distributed or required to be distributed to the
holders of the Common Stock.
11. Amendment and Waiver. Any term, covenant, agreement or
condition in this Warrant may be amended, or compliance therewith may be waived
(either generally or in a particular instance and either retroactively or
prospectively), by a written instrument or written instruments executed by the
Issuer and the Majority Holders; provided, however, that no such amendment or
waiver shall reduce the Warrant Share Number, increase the Warrant Price,
shorten the period during which this Warrant may be exercised or modify any
provision of this Section 11 without the consent of the Holder of this Warrant.
No consideration shall be offered or paid to any person to amend or consent to a
waiver or modification of any provision of this Warrant unless the same
consideration is also offered to all holders of the Warrants.
12. Governing Law; Jurisdiction. This Warrant shall be governed by
and construed in accordance with the internal laws of the State of New York,
without giving effect to any of the conflicts of law principles which would
result in the application of the substantive law of another jurisdiction. This
-18-
Warrant shall not be interpreted or construed with any presumption against the
party causing this Warrant to be drafted. The Issuer and the Holder agree that
venue for any dispute arising under this Warrant will lie exclusively in the
state or federal courts located in New York County, New York, and the parties
irrevocably waive any right to raise forum non conveniens or any other argument
that New York is not the proper venue. The Issuer and the Holder irrevocably
consent to personal jurisdiction in the state and federal courts of the state of
New York. The Issuer and the Holder consent to process being served in any such
suit, action or proceeding by mailing a copy thereof to such party at the
address in effect for notices to it under this Warrant and agrees that such
service shall constitute good and sufficient service of process and notice
thereof. Nothing in this Section 12 shall affect or limit any right to serve
process in any other manner permitted by law. The Issuer and the Holder hereby
agree that the prevailing party in any suit, action or proceeding arising out of
or relating to this Warrant or the Purchase Agreement, shall be entitled to
reimbursement for reasonable legal fees from the non-prevailing party. The
parties hereby waive all rights to a trial by jury.
13. Notices. Any notice, demand, request, waiver or other
communication required or permitted to be given hereunder shall be in writing
and shall be effective (a) upon hand delivery by telecopy or facsimile at the
address or number designated below (if delivered on a business day during normal
business hours where such notice is to be received), or the first business day
following such delivery (if delivered other than on a business day during normal
business hours where such notice is to be received) or (b) on the second
business day following the date of mailing by express courier service, fully
prepaid, addressed to such address, or upon actual receipt of such mailing,
whichever shall first occur. The addresses for such communications shall be:
If to the Issuer: FreeHand Systems International, Inc.
00 Xxxxx Xxxxxx, Xxxxx 000
Xxx Xxxxx, Xxxxxxxxxx 00000
Attention: Xxx Xxxx, President and CEO
Tel. No.: (000) 000-0000
Fax No.: (000) 000-0000
with copies (which copies
shall not constitute notice)
to: Xxxxxx & Jaclin, LLP
000 Xxxxx 0 Xxxxx, Xxxxx 000
Xxxxxxxxx, Xxx Xxxxxx 00000
Attention: Xxxxxxx X. Xxxxxx, Esq.
Tel. No.: (000) 000-0000
Fax No.: (000) 000-0000
If to any Holder: At the address of such Holder
set forth on Exhibit A to this Agreement,
with copies to Holder's counsel as set forth
on Exhibit A or as specified in writing by
such Holder with copies to:
-19-
with copies (which copies
shall not constitute notice)
to: Xxxxxx Xxxxx Xxxxxxxx & Xxxxxxx LLP
0000 Xxxxxx xx xxx Xxxxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxxxxxxx X. Xxxxxxx
Tel. No.: (000) 000-0000
Fax No.: (000) 000-0000
Any party hereto may from time to time change its address for notices
by giving written notice of such changed address to the other party hereto.
14. Warrant Agent. The Issuer may, by written notice to each
Holder of this Warrant, appoint an agent having an office in New York, New York
for the purpose of issuing shares of Warrant Stock on the exercise of this
Warrant pursuant to subsection (b) of Section 2 hereof, exchanging this Warrant
pursuant to subsection (d) of Section 2 hereof or replacing this Warrant
pursuant to subsection (d) of Section 3 hereof, or any of the foregoing, and
thereafter any such issuance, exchange or replacement, as the case may be, shall
be made at such office by such agent.
15. Remedies. The Issuer stipulates that the remedies at law of
the Holder of this Warrant in the event of any default or threatened default by
the Issuer in the performance of or compliance with any of the terms of this
Warrant are not and will not be adequate and that, to the fullest extent
permitted by law, such terms may be specifically enforced by a decree for the
specific performance of any agreement contained herein or by an injunction
against a violation of any of the terms hereof or otherwise.
16. Successors and Assigns. This Warrant and the rights evidenced
hereby shall inure to the benefit of and be binding upon the successors and
assigns of the Issuer, the Holder hereof and (to the extent provided herein) the
Holders of Warrant Stock issued pursuant hereto, and shall be enforceable by any
such Holder or Holder of Warrant Stock.
17. Modification and Severability. If, in any action before any
court or agency legally empowered to enforce any provision contained herein, any
provision hereof is found to be unenforceable, then such provision shall be
deemed modified to the extent necessary to make it enforceable by such court or
agency. If any such provision is not enforceable as set forth in the preceding
sentence, the unenforceability of such provision shall not affect the other
provisions of this Warrant, but this Warrant shall be construed as if such
unenforceable provision had never been contained herein.
18. Headings. The headings of the Sections of this Warrant are for
convenience of reference only and shall not, for any purpose, be deemed a part
of this Warrant.
-20-
19. Registration Rights. The Holder of this Warrant is entitled to
the benefit of certain registration rights with respect to the shares of Warrant
Stock issuable upon the exercise of this Warrant pursuant to that certain
Registration Rights Agreement, of even date herewith, by and among the Company
and Persons listed on Schedule I thereto (the "Registration Rights Agreement")
and the registration rights with respect to the shares of Warrant Stock issuable
upon the exercise of this Warrant by any subsequent Holder may only be assigned
in accordance with the terms and provisions of the Registrations Rights
Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
-21-
IN WITNESS WHEREOF, the Issuer has executed this Series B Warrant as of
the day and year first above written.
FREEHAND SYSTEMS INTERNATIONAL, INC.
By: /s/ XXX XXXX
-------------------------------------
Name: Xxx Xxxx
Title: President and CEO
-22-
EXERCISE FORM
SERIES B WARRANT
FREEHAND SYSTEMS INTERNATIONAL, INC.
The undersigned _______________, pursuant to the provisions of the within
Warrant, hereby elects to purchase _____ shares of Common Stock of FreeHand
Systems International, Inc. covered by the within Warrant.
Dated: _________________ Signature ______________________________
Address ______________________________
______________________________
Number of shares of Common Stock beneficially owned or deemed beneficially owned
by the Holder on the date of Exercise:___________________
The undersigned is an "accredited investor" as defined in Regulation D under the
Securities Act of 1933, as amended.
The undersigned intends that payment of the Warrant Price shall be made as
(check one):
Cash Exercise _______
Cashless Exercise _______
If the Holder has elected a Cash Exercise, the Holder shall pay the sum of
$________ by certified or official bank check (or via wire transfer) to the
Issuer in accordance with the terms of the Warrant.
If the Holder has elected a Cashless Exercise, a certificate shall be issued to
the Holder for the number of shares equal to the whole number portion of the
product of the calculation set forth below, which is ___________. The Company
shall pay a cash adjustment in respect of the fractional portion of the product
of the calculation set forth below in an amount equal to the product of the
fractional portion of such product and the Per Share Market Value on the date of
exercise, which product is ____________.
X = Y - (A)(Y)
------
B
Where:
The number of Ordinary Shares to be issued to the Holder _________________("X").
The number of Ordinary Shares purchasable upon exercise of all of the Warrant
or, if only a portion of the Warrant is being exercised, the portion of the
Warrant being exercised ___________________________ ("Y").
-23-
The Warrant Price ______________ ("A").
The Per Share Market Value of one Ordinary Share _______________________ ("B").
ASSIGNMENT
FOR VALUE RECEIVED, _________________ hereby sells, assigns and transfers unto
__________________ the within Warrant and all rights evidenced thereby and does
irrevocably constitute and appoint _____________, attorney, to transfer the said
Warrant on the books of the within named corporation.
Dated: _________________ Signature ______________________________
Address ______________________________
______________________________
PARTIAL ASSIGNMENT
FOR VALUE RECEIVED, _________________ hereby sells, assigns and transfers unto
__________________ the right to purchase _________ shares of Warrant Stock
evidenced by the within Warrant together with all rights therein, and does
irrevocably constitute and appoint ___________________, attorney, to transfer
that part of the said Warrant on the books of the within named corporation.
Dated: _________________ Signature ______________________________
Address ______________________________
______________________________
FOR USE BY THE ISSUER ONLY:
This Warrant No. W-___ canceled (or transferred or exchanged) this _____ day of
___________, _____, shares of Common Stock issued therefor in the name of
_______________, Warrant No. W-_____ issued for ____ shares of Common Stock in
the name of _______________.
-24-
