FORM OF
BRIDGE LOAN AGREEMENT
THIS BRIDGE LOAN AGREEMENT ("Agreement"), is made and entered effective
as of September 11, 1997, among LSC, Incorporated, a Minnesota corporation (the
"Company"), and each of the investors listed on Schedule I (collectively, the
"Investors").
A. The Company may need to borrow up to $500,000 to fund its
operations until such time as it can complete an equity financing raising gross
proceeds of at least $1,000,000 (the "Financing").
B. The Company currently anticipates that the Financing will
consist of a private placement of units, each unit consisting of one share of
Common Stock and a warrant to purchase one-half share of Common Stock (such unit
or any other shares or units of securities sold by the Company in the Financing
are referred to as a "Unit").
C. The Investors desire to loan the Company funds on the terms
and conditions set forth in this Agreement.
Accordingly, in consideration of the foregoing, the mutual promises set
forth herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. PURCHASE OF CONVERTIBLE PROMISSORY NOTES. Each Investor agrees
to Purchase from the Company a convertible promissory note in the form attached
hereto as Exhibit A (a "Note") in the amount set forth on Schedule I hereto.
Such purchase shall be made concurrently with the execution of this Agreement by
each Investor and the delivery of a check in the principal amount of the Note to
be purchased. Each Note shall bear interest from the date of payment by the
Investor of the principal amount thereof at the rate of 10% per year. The
Company shall be entitled to the funds loaned by each Investor immediately upon
receipt, whether or not the Company has received funds from any other Investor.
The Investors acknowledge that the Company may, in its sole discretion, issue
and sell more than $500,000 principal amount of Notes under this Agreement,
without notice to or consent from any Investor.
2. REPAYMENT. All outstanding principal and accrued interest on
the Notes shall be due and payable on the earlier of (a) thirty (30) days after
the initial closing of the Financing or (b) June 30, 1998. The Notes may be
prepaid in whole or in part without premium or penalty as provided in the Notes.
All prepayments shall be applied to the Notes pro rata on the basis of the
proportion that the original principal amount of each Note bears to the original
principal amount of all of the Notes, and shall be applied first to the payment
of any costs of collection, then to the payment of accrued interest and
thereafter to principal.
3. CONVERSION. Upon an initial closing of the Financing, all or
any portion of principal and accrued interest under each Note will be
convertible into Units of securities issued in the Financing, at the option
of the Investor holding such Note. The conversion price of each Note shall be
equal to 80% of the per Unit price of the securities issued in the Financing,
and the exercise price of any warrants included in a Unit issued to Investors
upon conversion of a Note
shall be 80% of exercise price of warrants included in a Unit issued to
purchasers of Units in the Financing. The Company shall provide written
notice to the Investors of the commencement of the Financing and the
anticipated initial closing date of the Financing a reasonable period of time
in advance of such date. If an Investor elects not to convert its Note into
Units of securities issued in the Financing, the Company will grant to such
Investor the warrants that such Investor would have received if such Investor
had elected to convert its Note. The Warrant shall be substantially in the
form attached hereto as Exhibit B or such other form of warrant as may be
issued to purchasers of securities in the Financing, provided that the terms
of such warrant shall be no less favorable to the Investors as the terms
contained in Exhibit B. The securities issuable upon conversion of the Notes
are referred to as the "Conversion Securities."
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to each of the Investors that this Agreement has been
duly authorized by all necessary corporate action on behalf of the Company, has
been duly executed and delivered by authorized officers of the Company, and is a
valid and binding agreement on the part of the Company. All corporate action
necessary to the authorization, issuance and delivery of the Notes and the
Conversion Securities has been taken on or prior to the date hereof.
5. REPRESENTATIONS AND WARRANTIES OF THE INVESTORS. Each of the
Investors severally represents and warrants to the Company as follows:
(a) The Notes and Conversion Securities are being
purchased for investment for such Investor's own account and not with
the view to, or for resale in connection with, any distribution or
public offering thereof. Each Investor understands that neither the
Notes nor the Conversion Securities has been registered under the
Securities Act of 1933, as amended (the "Securities Act"), or any state
securities laws by reason of their contemplated issuance in
transactions exempt from the registration requirements of the
Securities Act and applicable state securities laws and that the
reliance of the Company and others upon these exemptions is predicated
in part upon this representation by each Investor. Each Investor
further understands that the Notes and Conversion Securities may not be
transferred or resold without registration under the Securities Act and
any applicable state securities laws, or an exemption from the
requirements of the Securities Act and applicable state securities
laws.
(b) Each Investor's principal office or residence, as the
case may be, is located in the state set forth on Schedule I hereto.
Each Investor qualifies as an "accredited investor," as defined in Rule
501 of Regulation D under the Securities Act. Each Investor
acknowledges that the Company has made available to each such Investor
at a reasonable time prior to the execution of this Agreement the
opportunity to ask questions and receive answers concerning the
business, operations and financial condition of the Company and the
terms and conditions of the sale of securities contemplated by this
Agreement and to obtain any additional information (which the Company
possesses or can acquire without unreasonable effort or expense) as may
be necessary to verify the accuracy of information furnished to such
Investor. Each Investor acknowledges having received a copy of the
Company's Information Package, including Company's audited financial
statements for the years ended December 31, 1995 and 1996, unaudited
financial statements for the period from January 1, 1997 through July
31, 1997, a
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summary of the Company's business, a description of the Company's
product and recent press releases issued by the Company. Each Investor
is able to bear the loss of its entire investment in the Notes and
Conversion Securities without any material adverse affect on its
business, operations or prospects, and has such knowledge and
experience of financial and business matters that it is capable of
evaluating the merits and risks of the investment to be made by it
pursuant to this Agreement.
(c) This Agreement has been duly authorized by all
necessary action on the part of each Investor, has been duly executed
and delivered by such Investor and is a valid and binding agreement of
such Investor.
6. MISCELLANEOUS.
(a) This Agreement and the rights and obligations of the parties
hereunder shall not be assignable, in whole or in part, by any party without the
prior written consent of each other party, and neither this Agreement nor any
provision hereof may be amended, modified, waived or discharged without the
written consent of the party against whom enforcement of such amendment,
modification, waiver or discharge is sought.
(b) This Agreement, including the exhibits attached hereto,
constitutes the entire agreement of the parties relative to the subject matter
hereof and supersedes any and all other agreements and understanding, whether
written or oral, relative to the matters discussed herein.
(c) This Agreement shall be construed and enforced in accordance
with the laws of the State of Minnesota.
(d) This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one in the same instrument.
[Following Page is the Signature Page]
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IN WITNESS WHEREOF, the Company and the Investors have executed this
Agreement effective as of the date first written above.
LSC, INCORPORATED
By
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Its
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[INDIVIDUAL INVESTOR]
-------------------------------
[Signature]
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[Print Name]
[CORPORATE OR PARTNERSHIP
INVESTOR]
[Print Name of Entity]
By
-----------------------------
Its
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SCHEDULE I
Investor Name and Address Amount of Note
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EXHIBIT A
LSC, INCORPORATED
CONVERTIBLE PROMISSORY NOTE
$___________ ___________, 0000
Xxxxxxxxxxx, Xxxxxxxxx
LSC, Incorporated, a Minnesota corporation (the "Company"), for value
received, hereby promises to pay to ___________________________, or any person
to whom this Note is subsequently transferred and who becomes a registered
holder of this Note (the "Holder"), the principal sum of
____________________________________________________________ and no/100 Dollars
($__________) or so much of said principal sum as may be then outstanding, on
the earlier of (a) thirty (30) days after the initial closing of the Financing,
as defined below, or (b) June 30, 1998 and thereafter on demand, and to pay
interest on the unpaid principal balance hereof on such date at the rate of ten
percent (10.0%) per year. Interest shall begin to accrue on the date of issuance
set forth above and shall be calculated on a simple interest basis until all
principal is paid.
This Note is one of the notes described in, and is subject to the terms
and provisions of, the Bridge Loan Agreement, dated as of September 11, 1997,
among the Company and the investors named therein (the "Agreement"). The
provisions of the Agreement are incorporated herein by reference with the same
force and effect as if fully set forth herein.
This Note is subject to the following terms and conditions:
1. PAYMENT. Payment of the principal of and interest on this Note will be
made at the address of the Holder on the Company's books in such coin or
currency as is legal tender of the United States of America at the time of
payment. This Note may be prepaid in whole or in part at any time without the
consent of the Holder. All payments on this Note and all other notes subject to
the Agreement shall be applied to this Note and such other notes pro rata on the
basis of the proportion that the original principal amount of each note bears to
the original principal amount of all such notes, and in the case of this Note,
such prepayments shall be applied first to the payment of any costs of
collection that may be due hereunder, then to the payment of accrued interest,
and the balance shall be applied to principal.
2. CONVERSION
2.1 TERMS OF CONVERSION. Upon the initial closing of an equity
financing of the Company raising gross proceeds of at least $1,000,000 (the
"Financing"), all or any portion of principal and accrued interest under this
Note will be convertible into units of securities issued in the Financing, at
the option of the Holder. The conversion price of this Note shall be equal to
80% of the per Unit price of the securities issued in the Financing, and the
exercise price of any warrants included in a Unit issued to the Holder upon
conversion of this Note shall be 80% of exercise price of warrants included in a
Unit issued to purchasers of Units in the Financing. The Company shall provide
written notice to the Holder of the commencement of the Financing and the
anticipated initial closing date of the Financing a reasonable period of time in
advance of such date. The conversion price set forth above shall be subject to
adjustment in accordance with Section 2.3 hereof (such price or adjusted price
being referred to herein as the "Conversion Price"). The units of securities
issuable upon conversion of this Note are referred to hereinafter as the
"Conversion Securities." If this Note is converted in connection with the
Financing or any other financing of the Company, the Holder
shall be entitled with respect to any Conversion Securities so obtained to the
same rights, and shall accept the same obligations, as are accorded to and
accepted by the other investors in the Financing or any such other financing.
2.2 EFFECT OF CONVERSION. As promptly as practicable after the
surrender, as herein provided, of this Note for conversion, the Company shall
deliver to or upon the written order of the Holder certificates representing the
number of fully paid and nonassessable units of the Conversion Securities into
which this Note, or such part thereof, may be converted in accordance with the
provisions of this Article 2. Such conversion shall be deemed to have been made
on the date of the initial closing of the Financing, if converted in connection
with the Financing, or upon surrender of this Note to the Company at its
principal office during usual business hours, if not converted in connection
with the Financing. On such date that this Note shall have been surrendered for
conversion in case of optional conversion (such date, subject to change in
accordance with the following provisions of this paragraph, shall be hereinafter
referred to as the "Conversion Date"), so that the rights of the Holder as a
noteholder shall cease at such time and, subject to the following provisions of
this paragraph, the person or persons entitled to receive the Conversion
Securities shall be treated for all purposes as having become the record holder
or holders of such Conversion Securities at such time; provided, however, that
no such conversion or surrender on any date when the stock transfer books of the
Company are closed shall be effective to constitute the person or persons
entitled to receive such Conversion Securities as the record holder or holders
of such Conversion Securities on such date, but such surrender shall be
effective to constitute the person or persons entitled to receive such
Conversion Securities as the record holder or holders thereof for all purposes
at the close of business on the next succeeding day on which such stock transfer
books are open.
2.3 ADJUSTMENT OF CONVERSION PRICE. The Conversion Price shall be
subject to adjustment from time to time as follows:
(a) In case the Company shall declare a dividend or make a
distribution upon the Conversion Securities payable otherwise than out
of earnings or earned surplus (including dividends in Conversion
Securities or any obligations or any shares of stock of the Company
which are convertible into, or exchangeable for, Conversion Securities
(any of such obligations or shares of stock being hereinafter called
"Convertible Securities"), or in any rights or options to purchase any
Conversion Securities or Convertible Securities, then thereafter the
Holder, upon conversion, will be entitled to receive the number of
units of Conversion Securities into which this Note has been converted,
and, in addition and without payment therefor, the cash, stock or other
securities and other property which such Holder would have received by
way of dividends (otherwise than out of such earnings or surplus) if
continuously held since the Holder became the record holder of this
Note the Holder (i) had been the record holder of the number of units
of Conversion Securities which would have been received had this Note
been so converted on such record date and (ii) had retained all
dividends or distributions in stock or securities (including Conversion
Securities or Convertible Securities, or in any rights or options to
purchase any Conversion Securities or Convertible Securities) payable
in respect of such Conversion Securities or in respect of any stock or
securities paid as dividends or distributions and originating directly
or indirectly from such Conversion Securities. For the purposes of the
foregoing a dividend or distribution other than in cash shall be
considered payable out of earnings or earned surplus only to the extent
that such earnings or surplus are charged an amount equal to the fair
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market value of such dividend or distribution as determined by the
Board of Directors of the Company.
(b) In case the Company shall subdivide its outstanding
units of Conversion Securities into a greater number of units at any
time, the Conversion Price in effect immediately prior to such
subdivision shall be proportionately reduced, and conversely, in case
the outstanding units of Conversion Securities of the Company shall be
combined into a smaller number of units, the Conversion Price in effect
immediately prior to such combination shall be proportionately
increased.
(c) If any capital reorganization or reclassification of
the capital stock of the Company, or consolidation or merger of the
Company with another corporation, or the sale of all or substantially
all of its assets to another corporation shall be effected in such a
way that holders of Conversion Securities shall be entitled to receive
stock, securities or assets with respect to or in exchange for
Conversion Securities, then, as a condition of such reorganization,
reclassification, consolidation, merger or sale, lawful and adequate
provision shall be made whereby the Holder shall thereafter have the
right to receive upon the basis and upon the terms and conditions
specified herein and in lieu of the units of the Conversion Securities
of the Company immediately theretofore receivable upon the conversion
of this Note, such units of stock, securities or assets as may be
issued or payable with respect to or in exchange for a number of
outstanding units of such Conversion Securities equal to the number
theretofore receivable upon the conversion of this Note had such
reorganization, reclassification, consolidation, merger or sale not
taken place, and in any such case appropriate provision shall be made
with respect to the rights and interests of the Holder to the end that
the provisions hereof (including without limitation provisions for
adjustments of the Conversion Price and of the number of units
receivable upon the conversion of this Note) shall thereafter be
applicable, as nearly as may be in relation to any units of stock,
securities or assets thereafter receivable upon the conversion of this
Note. The Company shall not effect any such consolidation, merger or
sale, unless prior to the consummation thereof the successor
corporation (if other than the Company) resulting from such
consolidation or merger or the corporation purchasing such assets shall
assume by written instrument executed and mailed to the Holder, at the
last address appearing on the books of the Company, the obligation to
deliver to the Holder such units of stock, securities or assets as, in
accordance with the foregoing provisions, such Holder may be entitled
to receive. Notwithstanding the foregoing, the Holder shall at all
times following any such reorganization, reclassification,
consolidation, merger or sale have the right to demand and receive
payment in cash of the amount of all principal and accrued interest due
on any unconverted portion of this Note.
(d) In any case in which this Section 2.3 shall require
that an adjustment shall become effective immediately after a record
date for an event, and if the Holder should convert after such record
date and before the occurrence of such event, then the Company may
defer until the occurrence of such event (i) issuing the additional
units of Conversion Securities issuable upon such conversion by reason
of the adjustment required by such event over and above the units
issuable upon such conversion before giving effect to such adjustment
and (ii) paying to the Holder any amount of cash in lieu of a
fractional share pursuant to Section 2.8 hereof.
(e) All calculations under this Article 2 shall be made
to the nearest cent or to the nearest one-hundredth of a share, as the
case may be.
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(f) In case at any time:
(i) The Company shall declare any cash dividend
on its Conversion Securities;
(ii) The Company shall pay any dividend payable
in stock upon its Conversion Securities or make any
distribution (other than regular cash dividends) to the
holders of its Conversion Securities;
(iii) The Company shall offer for subscription pro
rata to the holders of its Conversion Securities any
additional shares of stock of any class or other rights;
(iv) There shall be any capital reorganization,
or reclassification of the capital stock of the Company, or
consolidation or merger of the Company with, or sales of all
or substantially all of its assets to, another corporation; or
(v) (v) There shall be a voluntary or
involuntary dissolution, liquidation or winding up of the
Company;
then, in any one or more of said cases, the Company shall give written
notice, by first-class mail, postage prepaid, addressed to the Holder at the
address of Holder as shown on the books of the Company, of the date on which (A)
the books of the Company shall close or a record shall be taken for such
dividend, distribution or subscription rights, or (B) such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up shall take place, as the case may be. Such notice shall also specify
the date as of which the holders of Conversion Securities of record shall
participate in such dividend, distribution or subscription rights, or shall be
entitled to exchange their Conversion Securities for securities or other
property deliverable upon such reorganization, reclassification, consolidation,
merger, sale, dissolution, liquidation, or winding up, as the case may be. Such
written notice shall be given at least twenty (20) days prior to the action in
question and not less than twenty (20) days prior to the record date or the date
on which the Company's transfer books are closed in respect thereto.
2.4 ADJUSTMENT OF NUMBER OF SHARES. Upon each adjustment in the
Conversion Price pursuant to any provision of this Article 2, the number of
units of Conversion Securities issuable hereunder shall be adjusted by dividing
the then unpaid principal amount hereof plus accrued interest by the per share
Conversion Price in effect immediately following such adjustment.
2.5 COVENANTS OF THE COMPANY. The Company covenants that it will
at all times reserve and keep available, free from preemptive rights, out of its
authorized Conversion Securities, solely for the purpose of issue upon
conversion of this Note as herein provided, such number of units of Conversion
Securities as shall then be issuable upon the conversion of this Note. The
Company covenants that all Conversion Securities which shall be so issuable
shall be duly and validly issued and fully paid and nonassessable.
2.6 CORPORATE ACTION. Before taking any action which would cause
an adjustment reducing the Conversion Price below the then stated or par
value of the Conversion Securities issuable upon conversion of this Note, the
Company will take any corporate action which may be necessary in order that
the Company may validly and legally issue fully paid and nonassessable
Conversion Securities at such adjusted Conversion Price.
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2.7 PAYMENT OF TRANSFER TAX. The issuance of certificates for
units of Conversion Securities upon the conversion of this Note shall be made
without charge to the Holder for any tax in respect of the issuance of such
certificates, and such certificates shall be issued in the name of, or in such
names as may be directed by, the Holder.
2.8 FRACTIONAL SHARES. The Company shall not be required to issue
fractional units of Conversion Securities or script upon conversion of this
Note. If any fractional interest in a units of Conversion Securities otherwise
would be deliverable upon the conversion of this Note, the Company instead shall
deliver an amount of cash equal to such fraction multiplied by the Conversion
Price then in effect.
2.9 SUBSCRIPTION RIGHTS. In case the Company shall issue rights,
warrants or options to all holders of Conversion Securities of the Company, as
such, entitling them to subscribe for or purchase units of Conversion
Securities, the Company shall at the same time issue to the Holder the kind and
amount of such rights, warrants or options so issued which the Holder would have
been entitled to receive upon such issuance had the then unpaid principal sum of
this Note been converted immediately prior to the record date fixed for
determining the holders of Conversion Securities entitled to receive such
rights, warrants or options.
3. CONSOLIDATION, MERGER, SALE OR CONVEYANCE
3.1 GENERALLY. Nothing contained in this Note will prevent any
consolidation or merger of the Company with or into any other corporation or
corporations or successive consolidations or mergers in which the Company or its
successor or successors is a party or parties, or will prevent any sale or
conveyance of the property of the Company as an entirety or substantially as an
entirety to any other corporation authorized to acquire and operate the same.
However, the Company hereby covenants and agrees that any such consolidation,
merger, sale or conveyance will be upon the condition that (a) immediately after
such consolidation, merger, sale or conveyance the corporation (whether the
Company or such other corporation) formed by or surviving any such consolidation
or merger, or to which such sale or conveyance will have been made, will not be
in default in the performance or observance of any of the terms, covenants and
conditions of this Note to be kept or performed by the Company; and (b) the
corporation (whether the Company or such other corporation) formed by or
surviving any such consolidation or merger, or to which such sale or conveyance
will have been made, will expressly assume the due and punctual payment of the
principal of and interest on this Note, according to the terms of this Note, and
the faithful performance and observance of all of the covenants, conditions, and
requirements of this Note to be performed by the Company by a supplemental
instrument executed and delivered to the Holder by such corporation.
3.2 RELEASE. In case of any such consolidation, merger, sale or
conveyance and upon the assumption by the successor corporation pursuant to
Section 3.1 above, such successor corporation will succeed to and be substituted
for the Company, with the same effect as if it had been named in this Note in
the Company's place, and the Company (including any intervening successor to the
Company which has become obligated under this Note) will be relieved of any
further obligation under this Note.
3.3 LIABILITY OF SUCCESSOR CORPORATION. All of the covenants,
stipulations, promises, and agreements contained in this Note by or on behalf of
the Company will bind its successors and assigns, whether so expressed or not.
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4. DEFAULT
4.1 EVENTS OF DEFAULT. An "Event of Default" shall be deemed to
occur upon the happening of any of the following: (i) the failure to pay when
due any amount of principal or interest payable hereunder, (ii) the filing
against the Company which is not dismissed within sixty (60) days thereafter, or
by the Company, of a petition in bankruptcy or for an arrangement or
reorganization, (iii) the making by the Company of a general assignment for the
benefit of creditors, (iv) the appointment of a receiver or trustee for the
Company, (v) the institution of liquidation or dissolution or reorganization
proceedings with respect to the Company, or (vi) the Company becoming unable or
admitting in writing an inability to pay its debts generally as they become due.
4.2 RIGHTS ON DEFAULT. If an Event of Default occurs and is
continuing, the Holder may declare the principal of this Note, together with any
accrued and unpaid interest, if not already due, to be due and payable
immediately, by written notice to the Company. Upon any such declaration, such
principal and interest will become due and payable immediately, anything
contained in this Note to the contrary notwithstanding.
4.3 ENFORCEMENT. If the Holder declares the principal of this
Note, together with all accrued and unpaid interest on this Note, due and
payable immediately, the Holder may proceed, subject, however, to all the terms
and conditions hereof, to protect and enforce its rights by an action at law,
suit in equity, or other appropriate proceeding.
5. MISCELLANEOUS
5.1 RESTRICTION ON TRANSFER. By accepting this Note, the Holder
agrees that the transfer of this Note will be subject to the restriction that no
such transfer will be effected until the Holder has first obtained a written
opinion of counsel, satisfactory to the Company, that the proposed transfer, if
consummated, may be lawfully made without registration under the Securities Act
and any applicable state securities law.
5.2 HEADINGS. The headings in this Note are inserted for
convenience only and will not affect the meaning or interpretation of all or any
part of this Note.
5.3 GOVERNING LAW. This Note will be deemed to be a contract made
under the laws of the State of Minnesota, and for all purposes will be construed
in accordance with the laws of the State of Minnesota.
5.4 EXPENSES OF COLLECTION. In the event of any default by the
Company in its obligations hereunder, the Company shall reimburse the Holder on
demand the amount of its costs and expenses in enforcing its rights hereunder,
including reasonable attorneys fees.
5.5 PAYMENT DATE. In case the date of maturity of this Note is not
a business day, then payment of principal and interest to the Holder need not be
made on such date, but may be made on the next succeeding business day with the
same force and effect as if made on the date of maturity or the date fixed for
prepayment and no interest will accrue for the period after such date.
5.6 CONSTRUCTION. Wherever possible, each provision of this Note
will be interpreted in such a manner as to be effective and valid under
applicable law, but if any provision of this Note is prohibited by or invalid
under applicable law, such provision will be ineffective only to the extent of
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such prohibition or invalidity without invalidating the remainder of such
provision or the remaining provisions of this Note.
5.7 AMENDMENTS. This Note may not be and will not be deemed or
construed to have been modified, amended, rescinded, canceled, or waived in
whole or in part, except by written instruments signed by the Company and the
Holder.
IN WITNESS WHEREOF, the Company has caused this Note to be duly
executed as of the day and year first set forth above.
LSC, INCORPORATED
By
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Its
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THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR STATE
SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, OFFERED, PLEDGED OR
OTHERWISE DISTRIBUTED FOR VALUE UNLESS THERE IS AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH ACT AND SUCH LAWS COVERING SUCH SECURITIES OR THE COMPANY
RECEIVES AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY STATING THAT SUCH SALE,
TRANSFER, ASSIGNMENT, OFFER, PLEDGE OR OTHER DISTRIBUTION FOR VALUE IS EXEMPT
FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT AND SUCH
LAWS.
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EXHIBIT B
WARRANT FOR PURCHASE OF SHARES OF
COMMON STOCK OF
LSC, INCORPORATED
_____________, 1997
For value received, ___________________, or its registered assigns (the
"Holder"), is entitled to purchase from LSC, Incorporated., a Minnesota
corporation (the "Company"), at any time on or before ___________________ fully
paid and nonassessable shares of the Company's Common Stock, $.01 par value
(such class of stock being hereinafter referred to as the "Common Stock" and
such Common Stock as may be acquired upon exercise hereof being hereinafter
referred to as the "Warrant Stock"), at the price of $_____ per share ("Warrant
Exercise Price").
This Warrant is described in, and is subject to the terms and
provisions of, the Bridge Loan Agreement, dated as of September 11, 1997, among
the Company and the investors named therein (the "Agreement"). The provisions of
the Agreement are incorporated herein by reference with the same force and
effect as if fully set forth herein.
This Warrant is subject to the following provisions, terms and
conditions:
1. The rights represented by this Warrant may be exercised by the
Holder, in whole or in part (but not as to a fractional share of Common Stock),
by written notice of exercise delivered to the Company accompanied by the
surrender of this Warrant (properly endorsed if required) at the principal
office of the Company and upon payment to it, by cash, certified check or bank
draft, of the warrant exercise price for such shares. In addition, the Holder
may elect to pay the full purchase price by receiving a number of shares of
Common Stock computed using the following formula:
X = Y(A-B)
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A
Where: X = the number of shares of Common Stock to be issued to
the Holder.
Y = the number of shares of Common Stock as to which this
Warrant is being exercised.
A = the Fair Market Value of one share of Common Stock.
B = Warrant Exercise Price.
"Fair Market Value" means, with respect to the Company's Common Stock,
as of any date:
(a) if the Common Stock is listed or admitted to unlisted
trading privileges on any national securities exchange or is not so
listed or admitted but transactions in the Common Stock are reported on
the Nasdaq National Market, the reported closing price of the Common
Stock on such exchange or by the Nasdaq National Market as of such date
(or, if no shares were traded on such day, as of the next preceding day
on which there was such a trade); or
(b) if the Common Stock is not so listed or admitted to
unlisted trading privileges or reported on the Nasdaq National Market,
and bid and asked prices therefor in the over-the-counter market are
reported by Nasdaq or National Quotation Bureau, Inc. (or any
comparable reporting service), the mean of the closing bid and asked
prices as of such date, as so reported by Nasdaq or, if not so reported
thereon, as reported by National Quotation Bureau, Inc. (or such
comparable reporting service); or
(c) if the Common Stock is not so listed or admitted to
unlisted trading privileges, or reported on the Nasdaq National Market,
and such bid and asked prices are not so reported by Nasdaq or National
Quotation Bureau, Inc. (or any comparable reporting service), such
price as the Company's Board of Directors determines in good faith in
the exercise of its reasonable discretion.
The Company agrees that the Warrant Stock so purchased shall be and are
deemed to be issued as of the close of business on the date on which this
Warrant shall have been surrendered and payment made for such Warrant Stock as
aforesaid. Certificates for the shares of Warrant Stock so purchased shall be
delivered to the Holder within 15 days after the rights represented by this
Warrant shall have been so exercised, and, unless this Warrant has expired, a
new Warrant representing the number of Warrant Stock, if any, with respect to
which this Warrant has not been exercised shall also be delivered to the Holder
within such time. Notwithstanding the foregoing, however, the Company shall not
be required to deliver any certificates for the Warrant Stock, except in
accordance with the provisions and subject to the limitations of Section 5
below.
2. The Company covenants and agrees that all shares of Warrant
Stock that may be issued upon the exercise of this Warrant will, upon issuance,
be duly authorized and issued, fully paid and nonassessable and free from all
taxes, liens and charges with respect to the issuance thereof. The Company
further covenants and agrees that until expiration of this Warrant, the Company
will at all times have authorized, and reserved for the purpose of issuance or
transfer upon exercise of this Warrant, a sufficient number of shares of Common
Stock to provide for the exercise of this Warrant.
3. The foregoing provisions are, however, subject to the
following:
(a) The Warrant Exercise Price shall be subject to
adjustment from time to time as hereinafter provided. Upon each
adjustment of the Warrant Exercise Price, the holder of this Warrant
shall thereafter be entitled to purchase, at the Warrant Exercise Price
resulting from such adjustment, the number of shares obtained by
multiplying the Warrant Exercise Price in effect immediately prior to
such adjustment by the number of shares purchasable pursuant hereto
immediately prior to such adjustment and dividing the product thereof
by the Warrant Exercise Price resulting from such adjustment.
(b) Except as provided in this Section 3, if and whenever
the Company shall issue or sell any shares of its Common Stock for a
consideration per share less than the
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Warrant Exercise Price in effect at the time of such issuance or sale,
then, forthwith upon such issue or sale, the Warrant Exercise Price
shall be reduced to such lesser price.
(c) Notwithstanding any other provision of this Section
3, the Warrant Exercise Price shall not be adjusted in the case of
issuance by the Company of (i) shares of Common Stock issued upon
exercise or conversion of any warrants, options, convertible securities
or other rights to acquire shares of Common Stock outstanding on the
date hereof, (ii) options to purchase shares of Common Stock (including
shares of Common Stock issued upon the exercise thereof) granted or to
be granted pursuant to the Company's existing stock option plan, as
such plan is in effect on the date hereof or as may be amended by the
Board of Directors, (iii) shares of Common Stock or options or other
rights to purchase shares of Common Stock (including shares of Common
Stock issued upon the exercise thereof) issued under employee benefit
plans that the Company may adopt in the future including, but not
limited to, stock purchase plans, profit sharing plans, stock option
plans and stock incentive plans, (iv) shares of Common Stock issued
upon exercise of warrants issued under the Agreement, or (v) shares of
Common Stock issued upon conversion of convertible promissory notes
issued under the Agreement.
(d) No adjustment of the Warrant Exercise Price, however,
shall be made in an amount less than 1.0% of the Warrant Exercise Price
in effect on the date of such adjustment, but any such lesser
adjustment shall be carried forward and shall be made at the time and
together with the next subsequent adjustment which, together with any
such adjustment so carried forward, shall be an amount equal to or
greater than 1.0% of the Warrant Exercise Price then in effect.
(e) For the purposes of this Section 3, the following
provisions (i) to (iv), inclusive, shall also be applicable:
(i) In case at any time the Company shall grant
(whether directly or by assumption in a merger or otherwise)
any rights to subscribe for or to purchase, or any options for
the purchase of, (a) Common Stock or (b) any obligations or
any shares of stock or other securities of the Company which
are convertible into, or exchangeable for, Common Stock (any
of such obligations or shares of stock or other securities
being hereinafter called "Convertible Securities") whether or
not such rights or options or the right to convert or exchange
any such Convertible Securities are immediately exercisable,
and the price per share for which Common Stock is issuable
upon the exercise of such rights or options or upon conversion
or exchange of such Convertible Securities (determined by
dividing (x) the total amount, if any, received or receivable
by the Company as consideration for the granting of such
rights or options, plus the minimum aggregate amount of
additional consideration payable to the Company upon the
exercise of such rights or options, plus, in the case of such
Convertible Securities, the minimum aggregate amount of
additional consideration, if any, payable upon the issue of
such Convertible Securities and upon the conversion or
exchange thereof, by (y) the total maximum number of shares of
Common Stock issuable upon the exercise of such rights or
options or upon the conversion or exchange of all such
Convertible Securities issuable upon the exercise of such
rights or
3
options) shall be less than the Warrant Exercise Price in
effect immediately prior to the time of the granting of such
rights or options, then the total maximum number of shares of
Common Stock issuable upon the exercise of such rights or
options or upon conversion or exchange of the total maximum
amount of such Convertible Securities issuable upon the
exercise of such rights or options shall (as of the date of
granting of such rights or options) be deemed to have been
issued for such price per share. Except as provided in Section
3(h) below, no further adjustments of the Warrant Exercise
Price shall be made upon the actual issue of such Common Stock
or of such Convertible Securities upon exercise of such rights
or options or upon the actual issue of such Common Stock upon
conversion or exchange of such Convertible Securities.
(ii) In case the Company shall issue or sell
(whether directly or by assumption in a merger or otherwise)
any Convertible Securities, 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 (determined by dividing (x)
the total amount received or receivable by the Company as
consideration for the issue or sale of such Convertible
Securities, plus the minimum aggregate amount of additional
consideration, if any, payable to the Company upon the
conversion or exchange thereof, by (y) the total maximum
number of shares of Common Stock issuable upon the conversion
or exchange of all such Convertible Securities) shall be less
than the Warrant Exercise Price in effect immediately prior to
the time of such issue or sale, then the total maximum number
of shares of Common Stock issuable upon conversion or exchange
of all such Convertible Securities shall (as of the date of
the issue or sale of such Convertible Securities) be deemed to
be outstanding and to have been issued for such price per
share, provided that (a) except as provided in Section 3(h)
below, no further adjustments of the Warrant Exercise Price
shall be made upon the actual issue of such Common Stock upon
conversion or exchange of such Convertible Securities, and (b)
if any such issue or sale of such Convertible Securities is
made upon exercise of any rights to subscribe for or to
purchase or any option to purchase any such Convertible
Securities for which adjustments of the Warrant Exercise Price
have been or are to be made pursuant to other provisions of
this Section 3, no further adjustment of the Warrant Exercise
Price shall be made by reason of such issue or sale.
(iii) In case any shares of Common Stock or
Convertible Securities or any rights or options to purchase
any such Common Stock or Convertible Securities shall be
issued or sold for cash, the consideration received therefor
shall be deemed to be the amount received by the Company
therefor, without deducting therefrom any expenses incurred or
any underwriting commissions or concessions paid or allowed by
the Company in connection therewith. In case any shares of
Common Stock or Convertible Securities or any rights or
options to purchase any such Common Stock or Convertible
Securities shall be issued or sold for a consideration other
than cash, the amount of the consideration other than cash
received by the Company shall be deemed to be the fair value
of such consideration as determined by the Board of Directors
of the Company, without
4
deducting therefrom any expenses incurred or any underwriting
commissions or concessions paid or allowed by the Company in
connection therewith. In case any shares of Common Stock or
Convertible Securities or any rights or options to purchase
such Common Stock or Convertible Securities shall be issued in
connection with any merger or consolidation in which the
Company is the surviving corporation, the amount of
consideration therefor shall be deemed to be the fair value as
determined by the Board of Directors of the Company of such
portion of the assets and business of the non-surviving
corporation or corporations as such Board shall determine to
be attributable to such Common Stock, Convertible Securities,
rights or options, as the case may be. In the event of any
consolidation or merger of the Company in which the Company is
not the surviving corporation or in the event of any sale of
all or substantially all of the assets of the Company for
stock or other securities of any other corporation, the
Company shall be deemed to have issued a number of shares of
its Common Stock for stock or securities 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 such stock or securities of the other
corporation, and if any such calculation results in adjustment
of the Warrant Exercise Price, the determination of the number
of shares of Common Stock issuable upon conversion immediately
prior to such merger, conversion or sale, for purposes of
Section 3(i) below, shall be made after giving effect to such
adjustment of the Warrant Exercise Price.
(iv) In case the Company shall take a record of
the holders of its Common Stock for the purpose of entitling
them (a) to receive a dividend or other distribution payable
in Common Stock or in Convertible Securities, or in any rights
or options to purchase any Common Stock or Convertible
Securities, or (b) to subscribe for or purchase Common Stock
or Convertible Securities, then the date of such record shall
be deemed to be the date of the issue or sale of the shares of
Common Stock deemed to have been issued or sold upon the
declaration of such dividend or the making of such other
distribution or the date of the granting of such rights of
subscription or purchase, as the case may be.
(f) In case the Company shall (i) declare a dividend upon
the Common Stock payable in Common Stock (other than a dividend
declared to effect a subdivision of the outstanding shares of Common
Stock, as described in Section 3(g) below) or Convertible Securities,
or in any rights or options to purchase any Common Stock or Convertible
Securities, or (ii) declare any other dividend or make any other
distribution upon the Common Stock payable otherwise than out of
earnings or earned surplus, then thereafter the Holder upon the
conversion hereof will be entitled to receive the number of shares of
Common Stock issuable upon exercise of this Warrant, and, in addition
and without payment therefor, each dividend described in clause (i)
above and each dividend or distribution described in clause (ii) above
which such holder would have received by way of dividends or
distributions if continuously since the Holder became the record holder
of this Warrant the Holder (x) had been the record holder of the number
of shares of Common Stock then received, and (y) had retained all
dividends or distributions in stock or securities (including Common
Stock or Convertible Securities, or in any rights or
5
options to purchase any Common Stock or Convertible Securities) payable
in respect of such Common Stock or in respect of any stock or
securities paid as dividends or distributions and originating directly
or indirectly from such Common Stock. For the purposes of the foregoing
a dividend or distribution other than in cash shall be considered
payable out of earnings or earned surplus only to the extent that such
earnings or surplus are charged an amount equal to the fair value of
such dividend or distribution as determined by the Board of Directors
of the Company.
(g) In case the Company shall at any time subdivide its
outstanding shares of Common Stock into a greater number of shares, the
Warrant Exercise Price in effect immediately prior to such subdivision
shall be proportionately reduced, and conversely, in case the
outstanding shares of Common Stock of the Company shall be combined
into a smaller number of shares, the Warrant Exercise Price in effect
immediately prior to such combination shall be proportionately
increased.
(h) If (i) the purchase price provided for in any right
or option referred to in clause (i) of Section 3(e), or (ii) the
additional consideration, if any, payable upon the conversion or
exchange of Convertible Securities referred to in clause (i) or clause
(ii) of Section 3(e), or (iii) the rate at which any Convertible
Securities referred to in clause (i) or clause (ii) of Section 3(e) are
convertible into or exchangeable for Common Stock, shall change at any
time (other than under or by reason of provisions designed to protect
against dilution), the Warrant Exercise Price then in effect hereunder
shall forthwith be increased or decreased to such Warrant Exercise
Price as would have obtained had the adjustments made upon the issuance
of such rights, options or Convertible Securities been made upon the
basis of (a) the issuance of the number of shares of Common Stock
theretofore actually delivered upon the exercise of such options or
rights or upon the conversion or exchange of such Convertible
Securities, and the total consideration received therefor, and (b) the
issuance at the time of such change of any such options, rights, or
Convertible Securities then still outstanding for the consideration, if
any, received by the Company therefor and to be received on the basis
of such changed price; and on the expiration of any such option or
right or the termination of any such right to convert or exchange such
Convertible Securities, the Warrant Exercise Price then in effect
hereunder shall forthwith be increased to such Warrant Exercise Price
as would have obtained had the adjustments made upon the issuance of
such rights or options or Convertible Securities been made upon the
basis of the issuance of the shares of Common Stock theretofore
actually delivered (and the total consideration received therefor) upon
the exercise of such rights or options or upon the conversion or
exchange of such Convertible Securities. If the purchase price provided
for in any right or option referred to in clause (i) of Section 3(e),
or the rate at which any Convertible Securities referred to in clause
(i) or clause (ii) of Section 3(e) are convertible into or exchangeable
for Common Stock, shall decrease at any time under or by reason of
provisions with respect thereto designed to protect against dilution,
then in case of the delivery of Common Stock upon the exercise of any
such right or option or upon conversion or exchange of any such
Convertible Security, the Warrant Exercise Price then in effect
hereunder shall forthwith be decreased to such Warrant Exercise Price
as would have obtained had the adjustments made upon the issuance of
such right, option or Convertible Security been made upon the
6
basis of the issuance of (and the total consideration received for) the
shares of Common Stock delivered as aforesaid.
(i) If any capital reorganization or reclassification of
the capital stock of the Company, or consolidation or merger of the
Company with another corporation, or the sale of all or substantially
all of its assets to another corporation shall be effected in such a
way that holders of Common Stock shall be entitled to receive stock,
securities or assets with respect to or in exchange for Common Stock,
then, as a condition of such reorganization, reclassification,
consolidation, merger or sale, lawful and adequate provision shall be
made whereby the Holder of this Warrant shall thereafter have the right
to receive upon the basis and upon the terms and conditions specified
herein and in lieu of the shares of the Common Stock of the Company
immediately theretofore receivable upon the exercise of this Warrant,
such shares of stock, securities or assets as may be issued or payable
with respect to or in exchange for a number of outstanding shares of
such Common Stock equal to the number of shares of such stock
immediately theretofore receivable upon the exercise of this Warrant
had such reorganization, reclassification, consolidation, merger or
sale not taken place, plus all dividends unpaid and accumulated or
accrued thereon to the date of such reorganization, reclassification,
consolidation, merger or sale, and in any such case appropriate
provision shall be made with respect to the rights and interests of the
Holder of this Warrant to the end that the provisions hereof (including
without limitation provisions for adjustments of the Warrant Exercise
Price and of the number of shares receivable upon the exercise of the
this Warrant) shall thereafter be applicable, as nearly as may be in
relation to any shares of stock, securities or assets thereafter
receivable upon the exercise of this Warrant. The Company shall not
effect any such consolidation, merger or sale, unless prior to the
consummation thereof the successor corporation (if other than the
Company) resulting from such consolidation or merger or the corporation
purchasing such assets shall assume by written instrument executed and
mailed to the Holder of this Warrant, at the last addresses of such
holders appearing on the books of the Company, the obligation to
deliver to the Holder such shares of stock, securities or assets as, in
accordance with the foregoing provisions, the Holder may be entitled to
receive.
(j) Upon any adjustment of the Warrant Exercise Price,
then and in each case the Company shall give written notice thereof, by
first-class mail, postage prepaid, addressed to the Holder of this
Warrant, which shall state the Warrant Exercise Price resulting from
such adjustment and the increase or decrease, if any, in the number of
shares receivable at such price upon the exercise of this Warrant,
setting forth in reasonable detail the method of calculation and the
facts upon which such calculation is based, and which notice shall be
certified by a nationally recognized firm of independent auditors
(which may be the Company's independent auditors).
(e) (k) In case at any time:
(i) the Company shall declare any cash dividend
on its Common Stock;
7
(ii) the Company shall pay any dividend payable
in stock upon its Common Stock or make any distribution (other
than regular cash dividends) to the holders of its Common
Stock;
(iii) the Company shall offer for subscription pro
rata to the holders of its Common Stock any additional shares
of stock of any class or other rights;
(iv) there shall be any capital reorganization,
or reclassification of the capital stock of the Company, or
consolidation or merger of the Company with, or sales of all
or substantially all of its assets to, another corporation; or
(v) there shall be a voluntary or involuntary
dissolution, liquidation or winding up of the Company;
then, in any one or more of said cases, the Company shall give written
notice, by first-class mail, postage prepaid, addressed to the Holder
at the addresses of such holders as shown on the books of the Company,
of the date on which (a) the books of the Company shall close or a
record shall be taken for such dividend, distribution or subscription
rights, or (b) such reorganization, reclassification, consolidation,
merger, sale, dissolution, liquidation or winding up shall take place,
as the case may be. Such notice shall also 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 Common Stock for securities or other property
deliverable upon such reorganization, reclassification, consolidation,
merger, sale, dissolution, liquidation, or winding up, as the case may
be. Such written notice shall be given at least twenty (20) days prior
to the action in question and not less than twenty (20) days prior to
the record date or the date on which the Company's transfer books are
closed in respect thereto.
(l) If any event occurs as to which in the opinion of the
Board of Directors of the Company the other provisions of this Section
3 are not strictly applicable or if strictly applicable would not
fairly protect the rights of the Holder in accordance with the
essential intent and principles of such provisions, then the Board of
Directors shall make an adjustment in the application of such
provisions, in accordance with such essential intent and principles, so
as to protect such rights as aforesaid.
(m) As used in this Section 3 the term "Common Stock"
shall mean and include the Company's presently authorized Common Stock
and shall also include any capital stock of any class of the Company
hereafter authorized which shall not be limited to a fixed sum or
percentage in respect of the rights of the holders thereof to
participate in dividends or in the distribution of assets upon the
voluntary or involuntary liquidation, dissolution or winding up of the
Company; provided that the shares receivable pursuant to exercise of
this Warrant shall include shares designated as Common Stock of the
Company as of the date of issuance of this Warrant, or, in case of any
reclassification of the outstanding shares thereof, the stock,
securities or assets provided for in Section 3(i) above.
8
(n) No fractional shares of Common Stock shall be issued
upon conversion pursuant to this Section 3, but, instead of any
fraction of a share which would otherwise be issuable, the Company
shall pay a cash adjustment in respect of such fraction in an amount
equal to the same fraction of the Fair Market Value, as defined in
Section 1, of one share of Common Stock as of the close of business on
the day of conversion.
4. This Warrant shall not entitle the Holder to any voting rights
or other rights as a shareholder of the Company.
5. The Holder, by acceptance hereof, represents and warrants that
(a) it is acquiring this Warrant for its own account for investment purposes
only and not with a view to its resale or distribution and (b) it has no present
intention to resell or otherwise dispose of all or any part of this Warrant.
Other than pursuant to registration under federal and state securities laws or
an exemption from such registration, the availability of which the Company shall
determine in its sole discretion, (y) the Company will not accept the exercise
of this Warrant or issue certificates for shares of Warrant Stock and (z)
neither this Warrant nor any shares of Warrant Stock may be sold, pledged,
assigned or otherwise disposed of (whether voluntarily or involuntarily). The
Company may condition such issuance or sale, pledge, assignment or other
disposition on the receipt from the party to whom this Warrant is to be so
transferred or to whom Warrant Stock is to be issued or so transferred of any
representations and agreements requested by the Company in order to permit such
issuance or transfer to be made pursuant to exemptions from registration under
federal and applicable state securities laws. Each certificate representing the
Warrant (or any part thereof) and any shares of Warrant Stock shall be stamped
with appropriate legends setting forth these restrictions on transferability.
The Holder, by acceptance hereof, agrees to give written notice to the Company
before exercising or transferring this Warrant or transferring any shares of
Warrant Stock of the Holder's intention to do so, describing briefly the manner
of any proposed exercise or transfer. Within thirty (30) days after receiving
such written notice, the Company shall notify the Holder as to whether such
exercise or transfer may be effected.
6. This Warrant shall be transferable only on the books of the
Company by the Holder in person, or by duly authorized attorney, on surrender of
the Warrant, properly assigned.
7. Neither this Warrant nor any term hereof may be changed,
waived, discharged or terminated orally but only by an instrument in writing
signed by the party against which enforcement of the change, waiver, discharge
or termination is sought.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its duly authorized officer and to be dated as of the date set forth above.
LSC, INCORPORATED
By
--------------------------
Its
-------------------------
9
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933 OR APPLICABLE STATE SECURITIES LAWS. THESE SECURITIES HAVE BEEN
ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE, SOLD, PLEDGED, ASSIGNED
OR OTHERWISE DISPOSED OF, AND NO TRANSFER OF THE SECURITIES WILL BE MADE BY THE
COMPANY OR ITS TRANSFER AGENT, IN THE ABSENCE OF SUCH REGISTRATION OR AN OPINION
OF COUNSEL ACCEPTABLE TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
10
