THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. NO
SALE OR DISPOSITION MAY BE EFFECTED WITHOUT (i) AN EFFECTIVE
REGISTRATION STATEMENT RELATED THERETO, (ii) AN OPINION OF
COUNSEL FOR THE HOLDER, REASONABLY SATISFACTORY TO THE
COMPANY, THAT SUCH REGISTRATION IS NOT REQUIRED, (iii)
RECEIPT OF A NO-ACTION LETTER(S) FROM THE APPROPRIATE
GOVERNMENTAL AUTHORITY(IES), OR (iv) OTHERWISE COMPLYING
WITH THE PROVISIONS OF SECTION 7 OF THIS WARRANT.
THE TESSERACT GROUP, INC.
WARRANT TO PURCHASE 150,000 SHARES
OF COMMON STOCK (this "WARRANT")
Warrant No. 1
THE TESSERACT GROUP, INC., a Minnesota corporation (the "COMPANY"),
hereby certifies that, for value received, PIONEER VENTURE FUND, L.L.C., a
Delaware limited liability company ("PIONEER"), or registered assigns, is the
registered holder of a warrant (the "WARRANT") to subscribe for and purchase
150,000 shares of the fully paid and nonassessable Common Stock (as adjusted
pursuant to SECTION 4 hereof, the "WARRANT SHARES") of the Company, at the price
of $3.00 per share (such price and such other price as shall result, from time
to time, from the adjustments specified in SECTION 4 hereof is herein referred
to as the "WARRANT PRICE"), subject to the provisions and upon the terms and
conditions hereinafter set forth. As used herein, (a) the term "COMMON STOCK"
shall mean the Company's presently authorized Common Stock, par value $.01 per
share, and any stock into or for which such Common Stock may hereafter be
converted or exchanged in a transaction described in paragraph (c) of SECTION
4.2, (b) the term "DATE OF GRANT" shall mean March 31, 1999, and (c) the term
"OTHER WARRANTS" shall mean any warrant issued upon transfer or partial exercise
of this Warrant. The term "WARRANT" as used herein shall be deemed to include
Other Warrants unless the context hereof or thereof clearly requires otherwise.
1. TERM. The purchase right represented by this Warrant is
exercisable, in whole or in part, at any time and from time to time from the
Date of Grant through and including the close of business on March 31, 2004 (the
"EXPIRATION DATE").
2. METHOD OF EXERCISE; PAYMENT; ISSUANCE OF NEW WARRANT. Subject to
SECTION 1 hereof, the purchase right represented by this Warrant may be
exercised by the holder hereof, in whole or in part and from time to time, by
the surrender of this Warrant (with the notice of exercise form attached hereto
as EXHIBIT A duly executed) at the principal office of the Company, along with
(i) the delivery of cash, or a certified or official bank check in the amount of
such Warrant Price, (ii) by an instruction to the Company to withhold a number
of Warrant Shares then issuable upon exercise of the particular Warrant pursuant
to SECTION 10.2 below (the "Net Exercise Option"), (iii) the surrender to the
Company of Notes (as defined in SECTION 22) in principal amount plus accrued
interest equal to the applicable Warrant Price, or (iv) the surrender to the
Company of shares of Common Stock previously acquired by the Holder with an
aggregate Fair Market Value (as defined in SECTION 4(h)) equal to such Warrant
Price, or any combination of foregoing. In the event of any withholding of
Warrant Shares or surrender of Common Stock pursuant to clause (ii) or (iv)
above where the number of shares whose Fair Market Value is equal to the Warrant
Price is not a whole number, the number of shares withheld by or surrendered to
the Company shall be rounded down to the nearest whole share. The person or
persons in whose name(s) any certificate(s) representing shares of Common Stock
shall be issuable upon exercise of this Warrant shall be deemed to have become
the holder(s) of record of, and shall be treated for all purposes as the record
holder(s) of, the shares represented thereby (and such shares shall be deemed to
have been issued) immediately prior to the close of business on the date or
dates upon which this Warrant is exercised. In the event of any exercise of the
rights represented by this Warrant, certificates for the shares of stock so
purchased shall be delivered to the holder hereof as soon as possible and in any
event within thirty (30) days after such exercise and, unless this Warrant has
been fully exercised (including without limitation, exercise pursuant to SECTION
2(B) below), a new Warrant representing the portion of the Warrant Shares, if
any, with respect to which this Warrant shall not then have been exercised shall
also be issued to the holder hereof as soon as possible and in any event within
such thirty (30)-day period.
3. STOCK FULLY PAID; RESERVATION OF SHARES. All Warrant Shares that
may be issued upon the exercise of the rights represented by this Warrant will,
upon issuance pursuant to the terms and conditions herein, be fully paid and
nonassessable, and free from all taxes (other than any taxes determined with
respect to, or based upon, the income of the person to whom such shares are
issued), liens and charges (other than liens or charges created by actions of
the holder of this Warrant or the person to whom such shares are issued), and
preemptive rights with respect to the issue thereof. The Company shall pay all
transfer taxes, if any, attributable to the issuance of the Warrant Shares upon
the exercise of this Warrant. During the period within which the rights
represented by this Warrant may be exercised, the Company will at all times have
authorized, and reserved for the purpose of the issue upon exercise of the
purchase rights evidenced by this Warrant, a sufficient number of shares of its
Common Stock to provide for the exercise of the rights represented by this
Warrant.
4. ADJUSTMENT OF WARRANT PRICE AND NUMBER OF SHARES. The number and
kind of securities purchasable upon the exercise of this Warrant and the Warrant
Price shall be subject to adjustment from time to time upon the occurrence of
certain events, as follows:
a. RECLASSIFICATION OR MERGER. In case of any
reclassification, change or conversion of securities of the class issuable upon
exercise of this Warrant (other than a change in par value, or from par value to
no par value, or from no par value to par value, or as a result of a subdivision
or combination), or in case of any merger of the Company with or into another
2
corporation (other than a merger with another corporation in which the Company
is the acquiring and the surviving corporation and which does not result in any
reclassification or change of outstanding securities issuable upon exercise of
this Warrant), or in case of any sale of all or substantially all of the assets
of the Company, the Company, or such successor or purchasing corporation, as the
case may be, shall duly execute and deliver to the holder of this Warrant a new
Warrant (in form and substance satisfactory to the holder of this Warrant), so
that the holder of this Warrant shall have the right to receive, at a total
purchase price not to exceed that payable upon the exercise of the unexercised
portion of this Warrant, and in lieu of the shares of Common Stock theretofore
issuable upon exercise of this Warrant, the kind and amount of shares of stock,
other securities, money and property receivable upon such reclassification,
change or merger by a holder of the number of shares of Common Stock then
purchasable under this Warrant. Such new Warrant shall provide for adjustments
that shall be as nearly equivalent as may be practicable to the adjustments
provided for in this SECTION 4. The provisions of this subparagraph (a) shall
similarly apply to successive reclassifications, changes, mergers and transfers.
b. SUBDIVISION OR COMBINATION OF SHARES. If the Company at any
time while this Warrant remains outstanding and unexpired shall subdivide or
combine its outstanding shares of Common Stock, the Warrant Price shall be
proportionately decreased in the case of a subdivision or increased in the case
of a combination, effective at the close of business on the date the subdivision
or combination becomes effective.
c. STOCK DIVIDENDS. If the Company at any time while this
Warrant is outstanding and unexpired shall pay a dividend with respect to Common
Stock payable in Common Stock, then the Warrant Price shall be adjusted, from
and after the date of determination of stockholders entitled to receive such
dividend or distribution, to that price determined by multiplying the Warrant
Price in effect immediately prior to such date of determination by a fraction
(i) the numerator of which shall be the total number of shares of Common Stock
outstanding immediately prior to such dividend, and (ii) the denominator of
which shall be the total number of shares of Common Stock outstanding
immediately after such dividend. In the event such dividend is not so paid, the
Warrant Price shall again be adjusted to the Warrant Price that would then be in
effect if the holders of Common Stock to receive such dividend had not been so
determined, but such subsequent adjustment shall not affect the number of
Warrant Shares issued upon any exercise of the Warrant prior to the date such
subsequent adjustment was made.
d. RIGHTS OFFERINGS. In case the Company shall, at any time
after the Date of Grant, issue rights, options or warrants to the holders of
equity securities of the Company, entitling them to subscribe for or purchase
shares of Common Stock (or securities convertible or exchangeable into Common
Stock) at a price per share of Common Stock (or having a conversion or exchange
price per share of Common Stock if a security convertible or exchangeable into
Common Stock) less than the Fair Market Value per share of Common Stock on the
record date for such issuance (or the date of issuance, if there is no record
date), the Warrant Price to be in effect on and after such record date (or
issuance date, as the case may be) shall be determined by multiplying the
Warrant Price in effect immediately prior to such record date (or issuance date,
as the case may be) by a fraction (i) the numerator of which shall be the number
of shares of Common Stock outstanding on such record date (or issuance date, as
the case may be) plus the number of shares of Common Stock which the aggregate
offering price of the total number of shares of such Common Stock so to be
offered (or the aggregate initial exchange or conversion price of the
exchangeable or convertible securities so to be offered) would purchase at such
Fair Market Value on such record date (or issuance date, as the case may be) and
(ii) the denominator of which shall
3
be the number of shares of Common Stock outstanding on such record date (or
issuance date, as the case may be) plus the number of additional shares of
Common Stock to be offered for subscription or purchase (or into which the
convertible securities to be offered are initially exchangeable or convertible).
In case such purchase or subscription price may be paid in part or in whole in a
form other than cash, the fair value of such consideration shall be determined
by the Board of Directors of the Company in good faith as set forth in a duly
adopted board resolution certified by the Company's Secretary or Assistant
Secretary. Such adjustment shall be made successively whenever such an issuance
occurs; and in the event that such rights, options, warrants, or convertible or
exchangeable securities are not so issued or expire or cease to be convertible
or exchangeable before they are exercised, converted, or exchanged (as the case
may be), then the Warrant Price shall again be adjusted to be the Warrant Price
that would then be in effect if such issuance had not occurred, but such
subsequent adjustment shall not affect the number of Warrant Shares issued upon
any exercise of this Warrant prior to the date such subsequent adjustment is
made.
e. SPECIAL DISTRIBUTIONS. In case the Company shall fix a
record date for the making of a distribution to all holders of shares of Common
Stock (including any such distribution made in connection with a consolidation
or merger in which the Company is the surviving corporation) or evidences of
indebtedness or assets (other than dividends and distributions referred to in
subparagraphs (d) and (e) above and other than cash dividends) or of
subscription rights, options, warrants, or exchangeable or convertible
securities containing the right to subscribe for or purchase shares of any class
of equity securities of the Company (excluding those referred to in
subparagraph (f) above), the Warrant Price to be in effect on and after such
record date shall be adjusted by multiplying the Warrant Price in effect
immediately prior to such record date by a fraction (i) the numerator of which
shall be the Fair Market Value per share of Common Stock on such record date,
less the fair value (as determined by the Board of Directors of the Company in
good faith as set forth in a duly adopted board resolution certified by the
Company's Secretary or Assistant Secretary) of the portion of the assets or
evidences of indebtedness so to be distributed or of such subscription rights,
options, warrants, or exchangeable or convertible securities applicable to one
(1) share of the Common Stock outstanding as of such record date, and (ii) the
denominator of which shall be such Fair Market Value per share of Common Stock.
Such adjustment shall be made successively whenever such a record date is fixed;
and in the event that such distribution is not so made, the Warrant Price shall
again be adjusted to be the Warrant Price which would then be in effect if such
record date had not been fixed, but such subsequent adjustment shall not affect
the number of Warrant Shares issued upon any exercise of this Warrant prior to
the date such subsequent adjustment was made.
f. OTHER ISSUANCES OF SECURITIES. In case the Company or any
subsidiary shall, at any time after the Date of Grant, issue shares of Common
Stock, or rights, options, warrants or convertible or exchangeable securities
containing the right to subscribe for or purchase shares of Common Stock
(excluding (i) shares, rights, options, warrants, or convertible or exchangeable
securities or issued in any of the transactions described in subparagraphs (a),
(b), (c), (d) or (e) above, (ii) shares issued upon the exercise of such rights,
options or warrants or upon conversion or exchange of such convertible or
exchangeable securities, (iii) shares, rights or options issued to employees,
officers or directors of the Company pursuant to a plan approved by the board of
directors of the Company (and shares issued upon exercise of such rights or
options), and (iv) this Warrant and any shares issued upon exercise thereof), at
a price per share of Common Stock (determined in the case of such rights,
options, warrants, or convertible or exchangeable securities by dividing (x) the
total amount receivable by the Company in consideration of the sale and issuance
of such rights, options, warrants, or convertible or exchangeable securities,
plus the total minimum
4
consideration payable to the Company upon exercise, conversion, or exchange
thereof by (y) the total maximum number of shares of Common Stock covered by
such rights, options, warrants, or convertible or exchangeable securities) lower
than the Fair Market Value per share of Common Stock on the date the Company
fixes the offering price of such shares, rights, options, warrants, or
convertible or exchangeable securities, then the Warrant Price shall be adjusted
so that it shall equal the price determined by multiplying the Warrant Price in
effect immediately prior thereto by a fraction (i) the numerator of which shall
be the sum of (A) the number of shares of Common Stock outstanding immediately
prior to such sale and issuance plus (B) the number of shares of Common Stock
which the aggregate consideration received (determined as provided below) for
such sale or issuance would purchase at such Fair Market Value per share, and
(ii) the denominator of which shall be the total number of shares of Common
Stock outstanding immediately after such sale and issuance. Such adjustment
shall be made successively whenever such an issuance is made. For the purposes
of such adjustment, the maximum number of shares of Common Stock which the
holder of any such rights, options, warrants or convertible or exchangeable
securities shall be entitled to subscribe for or purchase shall be deemed to be
issued and outstanding as of the date of such sale and issuance and the
consideration received by the Company therefor shall be deemed to be the
consideration received by the Company for such rights, options, warrants, or
convertible or exchangeable securities, plus the minimum consideration or
premium stated in such rights, options, warrants, or convertible or exchangeable
securities to be paid for the shares of Common Stock covered thereby. In case
the Company shall sell and issue shares of Common Stock, or rights, options,
warrants, or convertible or exchangeable securities containing the right to
subscribe for or purchase shares of Common Stock for a consideration consisting,
in whole or in part, of property other than cash or its equivalent, then in
determining the price per share of Common Stock and the consideration received
by the Company for purposes of the first sentence of this subparagraph (h), the
Board of Directors of the Company shall determine, in good faith, the fair value
of said property, and such determination shall be described in a duly adopted
board resolution certified by the Company's Secretary or Assistant Secretary. In
case the Company shall sell and issue rights, options, warrants, or convertible
or exchangeable securities containing the right to subscribe for or purchase
shares of Common Stock together with one (1) or more other securities as a part
of a unit at a price per unit, then in determining the price per share of Common
Stock and the consideration received by the Company for purposes of the first
sentence of this subparagraph (h), the Board of Directors of the Company shall
determine, in good faith, which determination shall be described in a duly
adopted board resolution certified by the Company's Secretary or Assistant
Secretary, the fair value of the rights, options, warrants, or convertible or
exchangeable securities then being sold as part of such unit. Such adjustment
shall be made successively whenever such an issuance occurs, and in the event
that such rights, options, warrants, or convertible or exchangeable securities
expire or cease to be convertible or exchangeable before they are exercised,
converted, or exchanged (as the case may be), then the Warrant Price shall again
be adjusted to the Warrant Price that would then be in effect if such sale and
issuance had not occurred, but such subsequent adjustment shall not affect the
number of Warrant Shares issued upon any exercise of the Warrant prior to the
date such subsequent adjustment is made.
g. ADJUSTMENT OF NUMBER OF SHARES. Upon each adjustment in the
Warrant Price, the number of Warrant Shares purchasable hereunder shall be
adjusted, to the nearest whole share, to the product obtained by multiplying the
number of Warrant Shares purchasable immediately prior to such adjustment in the
Warrant Price by a fraction, the numerator of which shall be the Warrant Price
immediately prior to such adjustment and the denominator of which shall be the
Warrant Price immediately thereafter.
5
h. DETERMINATION OF FAIR MARKET VALUE. For purposes of this
SECTION 4, "FAIR MARKET VALUE" of a share of Common Stock as of a particular
date (the "DETERMINATION DATE") shall mean (i) if shares of Common Stock are
traded on a national securities exchange (an "EXCHANGE"), the weighted average
of the closing prices of a share of the Common Stock of the Company on the last
five (5) trading days prior to the Determination Date reported on such Exchange
as reported in THE WALL STREET JOURNAL (weighted with respect to the trading
volume with respect to each such day), (ii) if shares of Common Stock are not
traded on an Exchange but trade in the over-the-counter market and such shares
are quoted on the Nasdaq National Market ("NASDAQ"), (A) the average of the last
sale prices reported on NASDAQ or (B) if such shares are an issue for which last
sale prices are not reported on NASDAQ, the average of the closing bid and ask
prices, in each case on the last five (5) trading days (or if the relevant price
or quotation did not exist on any of such days, the relevant price or quotation
on the next preceding business day on which there was such a price or quotation)
prior to the Determination Date as reported in THE WALL STREET JOURNAL, or (iii)
if no price can be determined on the basis of the above methods of valuation,
then the judgment of valuation shall be determined in good faith by the Board of
Directors of the Company, which determination shall be described in a duly
adopted board resolution certified by the Company's Secretary or Assistant
Secretary. If the Board of Directors of the Company is unable to determine any
Valuation (as defined below), or if the holders of at least fifty-one percent
(51%) of all of the Warrant Shares then issuable hereunder (collectively, the
"REQUESTING HOLDERS") disagree with the Board's determination of any Valuation
by written notice delivered to the Company within five (5) business days after
the determination thereof by the Board of Directors of the Company is
communicated to holders of the Warrants affected thereby, which notice specifies
a majority-in-interest of the Requesting Holders' determination of such
Valuation, then the Company and a majority-in-interest of the Requesting Holders
shall select a mutually acceptable investment banking firm of national
reputation which has not had a material relationship with the Company or any
officer of the Company within the preceding two (2) years, which shall determine
such Valuation. Such investment banking firm's determination of such Valuation
shall be final, binding and conclusive on the Company and the holders of all of
the Warrants issued hereunder and then outstanding. If the Board of Directors
of the Company was unable to determine such Valuation, all costs and fees of
such investment banking firm shall be borne by the Company. If the Requesting
Holders disagreed with the Board's determination of such Valuation, the party
whose determination of such Valuation differed from the Valuation determined by
such investment banking firm by the greatest amount shall bear all costs and
fees of such investment banking firm. For purposes of this SECTION 4(h), the
term "VALUATION" shall mean the determination, to be made initially by the Board
of Directors of the Company, of the Fair Market Value per share of Common Stock
pursuant to clause (iii) above.
i. If, at any time after any adjustment of the Warrant Price
shall have been made hereunder as the result of any issuance, sale or grant of
any rights, options, warrants or convertible or exchangeable securities, any of
such rights, options or warrants or the rights of conversion or exchange
associated with such convertible or exchangeable securities shall expire by
their terms or any of such rights, options, warrants or convertible or
exchangeable securities shall be repurchased by the Company or a subsidiary
thereof for a consideration per underlying share of Common Stock not exceeding
the amount of such consideration received by the Company in connection with the
issuance, sale or grant of such rights, options, warrants or convertible or
exchangeable securities, the Warrant Price then in effect shall forthwith be
increased to the Warrant Price that would have been in effect if such expiring
right, option or warrant or rights of conversion or exchange or such repurchased
rights, options, warrants or convertible or exchangeable securities had never
been issued. Similarly, if at any time after any such adjustment of the Warrant
Price
6
shall have been made pursuant to subparagraph (e) above (i) any additional
aggregate consideration is received or becomes receivable by the Company in
connection with the issuance of exercise of such rights, options, warrants or
convertible or exchangeable securities or (ii) there is a reduction in the
conversion or exchange ratio applicable to such convertible or exchangeable
securities so that fewer shares of Common Stock will be issuable upon the
conversion or exchange thereof or there is a decrease in the number of shares of
Common Stock issuable upon exercise of such rights, options or warrants, the
Warrant Price then in effect shall be forthwith readjusted to the Warrant Price
that would have been in effect had such changes taken place at the time that
such rights, options, warrants or convertible or exchangeable securities were
initially issued, granted or sold. In no event shall any readjustment under
this subparagraph (i) affect the validity of any Warrant Shares issued upon any
exercise of this Warrant prior to such readjustment.
5. NOTICE OF ADJUSTMENTS. Whenever the Warrant Price or the number
of Warrant Shares purchasable hereunder shall be adjusted pursuant to SECTION 4
hereof, the Company shall deliver to the holder of this Warrant a certificate
signed by its chief financial officer setting forth, in reasonable detail, the
event requiring the adjustment, the amount of the adjustment, the method by
which such adjustment was calculated, and the Warrant Price and the number of
Warrant Shares purchasable hereunder after giving effect to such adjustment.
6. FRACTIONAL SHARES. No fractional shares of Common Stock will be
issued in connection with any exercise hereunder, but in lieu of such fractional
shares the Company shall make a cash payment therefor based on the Fair Market
Value of a share of Common Stock on the date of exercise.
7. COMPLIANCE WITH SECURITIES ACT; DISPOSITION OF WARRANT OR WARRANT
SHARES.
a. COMPLIANCE WITH SECURITIES ACT. The holder of this Warrant,
by acceptance hereof, agrees that this Warrant and the shares of Common Stock to
be issued upon exercise hereof are being acquired for investment and that such
holder will not offer, sell or otherwise dispose of this Warrant, or any shares
of Common Stock to be issued upon exercise hereof except under circumstances
which will not result in a violation of the Securities Act of 1933, as amended
(the "ACT"). Upon exercise of this Warrant, the holder hereof shall confirm in
writing, by executing the form attached as Schedule 1 to EXHIBIT A hereto, that
the shares of Common Stock so purchased are being acquired for investment and
not with a view toward distribution or resale. This Warrant and all shares of
Common Stock issued upon exercise of this Warrant (unless registered under the
Act) shall be stamped or imprinted with a legend in substantially the following
form:
7
"THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
SECURITIES LAWS. NO SALE OR DISPOSITION MAY BE EFFECTED
WITHOUT (i) AN EFFECTIVE REGISTRATION STATEMENT RELATED
THERETO, (ii) AN OPINION OF COUNSEL FOR THE HOLDER,
REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH
REGISTRATION IS NOT REQUIRED, (iii) RECEIPT OF A NO-ACTION
LETTER(S) FROM THE APPROPRIATE GOVERNMENTAL AUTHORITY(IES),
OR (iv) OTHERWISE COMPLYING WITH THE PROVISIONS OF SECTION 7
OF THE WARRANT UNDER WHICH THESE SECURITIES WERE ISSUED
DIRECTLY OR INDIRECTLY."
In addition, in connection with the issuance of this Warrant, the
holder specifically represents to the Company by acceptance of this Warrant as
follows:
i. The holder is aware of the Company's business affairs
and financial condition, and has acquired information about the Company
sufficient to reach an informed and knowledgeable decision to acquire this
Warrant. The holder is acquiring this Warrant for its own account for
investment purposes only and not with a view to, or for the resale in connection
with, any "distribution" thereof for purposes of the Act.
ii. The holder understands that this Warrant and the
Warrant Shares have not been registered under the Act in reliance upon a
specific exemption therefrom, which exemption depends upon, among other things,
the bona fide nature of the holder's investment intent as expressed herein. In
this connection, the holder understands that, in the view of the Securities and
Exchange Commission (the "SEC"), the statutory basis for such exemption may be
unavailable if the holder's representation was predicated solely upon a present
intention to hold the Warrant and the Warrant Shares for the minimum capital
gains period specified under applicable tax laws, for a deferred sale, for or
until an increase or decrease in the market price of the Warrant and the Warrant
Shares, or for a period of one (1) year or any other fixed period in the future.
iii. The holder further understands that this Warrant and
the Warrant Shares must be held indefinitely unless subsequently registered
under the Act and any applicable state securities laws, or unless exemptions
from registration are otherwise available.
iv. The holder is aware of the provisions of Rule 144 and
144A, promulgated under the Act, which, in substance, permit limited public
resale of "restricted securities" acquired, directly or indirectly, from the
issuer thereof (or from an affiliate of such issuer), in a non-public offering
subject to the satisfaction of certain conditions, if applicable, including,
among other things: the availability of certain public information about the
Company, the resale occurring not less than one (1) year after the party has
purchased and paid for the securities to be sold; the sale being made through a
broker in an unsolicited "broker's transaction" or in transactions directly with
a market maker (as said term is defined under the Securities Exchange Act of
1934, as amended) and the amount of securities being sold during any three-month
period not exceeding the specified limitations stated therein.
v. The holder further understands that at the time it
wishes to sell
8
this Warrant and the Warrant Shares there may be no public market upon which to
make such a sale, and that, even if such a public market then exists, the
Company may not be satisfying the current public information requirements of
Rule 144 and 144A, and that, in such event, the holder may be precluded from
selling this Warrant and the Warrant Shares under Rule 144 and 144A even if the
one (1)-year minimum holding period had been satisfied.
vi. The holder further understands that in the event all
of the requirements of Rule 144 and 144A are not satisfied, registration under
the Act, compliance with Regulation A, or some other registration exemption will
be required; and that, notwithstanding the fact that Rule 144 and 144A is not
exclusive, the Staff of the SEC has expressed its opinion that persons proposing
to sell private placement securities other than in a registered offering and
otherwise than pursuant to Rule 144 and 144A will have a substantial burden of
proof in establishing that an exemption from registration is available for such
offers or sales, and that such persons and their respective brokers who
participate in such transactions do so at their own risk.
b. DISPOSITION OF WARRANT OR WARRANT SHARES. With respect to
any offer, sale or other disposition of this Warrant, or any Warrant Shares
acquired pursuant to the exercise of this Warrant prior to registration of such
Warrant or Warrant Shares, the holder hereof and each subsequent holder of this
Warrant agrees to give written notice to the Company prior thereto, describing
briefly the manner thereof, together with a written opinion of such holder's
counsel, if reasonably requested by the Company, to the effect that such offer,
sale or other disposition may be effected without registration or qualification
(under the Act as then in effect or any federal or state law then in effect) of
this Warrant or such Warrant Shares and indicating whether or not under the Act
certificates for this Warrant or such Warrant Shares to be sold or otherwise
disposed of require any restrictive legend as to applicable restrictions on
transferability in order to ensure compliance with applicable law. Promptly
upon receiving such written notice and reasonably satisfactory opinion, if so
requested, the Company, as promptly as practicable, shall notify such holder
that such holder may sell or otherwise dispose of this Warrant or such Warrant
Shares, all in accordance with the terms of the notice delivered to the Company.
If a determination has been made pursuant to this subsection (b) that the
opinion of counsel for the holder is not reasonably satisfactory to the Company,
the Company shall so notify the holder promptly after such determination has
been made and neither this Warrant nor any Warrant shall be sold or otherwise
disposed of until such disagreement has been resolved. The foregoing
notwithstanding, this Warrant or such Warrant Shares may, as to such federal
laws, be offered, sold or otherwise disposed of in accordance with Rule 144 and
144A under the Act, provided that the Company shall have been furnished with
such information as the Company may reasonably request to provide a reasonable
assurance that the provisions of Rule 144 and 144A have been satisfied. Each
certificate representing this Warrant or the Warrant Shares thus transferred
(except a transfer pursuant to Rule 144) shall bear a legend as to the
applicable restrictions on transferability in order to ensure compliance with
such laws, unless in the aforesaid opinion of counsel for the holder, such
legend is not required in order to ensure compliance with such laws. The
Company may issue stop transfer instructions to its transfer agent or, if acting
as its own transfer agent, the Company may stop transfer on its corporate books,
in connection with such restrictions.
8. RIGHTS AS STOCKHOLDERS; INFORMATION. No holder of this Warrant,
as such, shall be entitled to vote or receive dividends or
be deemed the holder of Common Stock or any other
securities of the Company which may at any time be
issuable on the exercise hereof for any purpose, nor shall
anything contained herein be construed to confer upon the
9
holder of this Warrant, as such, any of the rights of a
stockholder of the Company or any right to vote for the
election of the directors or upon any matter submitted to
stockholders at any meeting thereof, or to receive notice
of meetings, or to receive dividends or subscription
rights or otherwise until this Warrant shall have been
exercised and the Warrant Shares purchasable upon the
exercise hereof shall have become deliverable, as provided
herein. The foregoing notwithstanding, the Company will
transmit to the holder of this Warrant such information,
documents and reports as are generally distributed to the
holders of any class or series of the securities of the
Company concurrently with the distribution thereof to the
stockholders.
9. REGISTRATION RIGHTS.
The shares of Common Stock issued or issuable upon exercise of
the Warrant are subject to registration and other rights granted to the Holders
pursuant to that certain Registration Rights Agreement dated as of March 31,
1999.
10. ADDITIONAL RIGHTS.
10.1 MERGERS. In the event that the Company undertakes to (i)
sell, lease, exchange, convey or otherwise dispose of all or substantially all
of its property or business, or (ii) merge into or consolidate with any other
corporation (other than a wholly-owned subsidiary of the Company), or effect any
transaction (including a merger or other reorganization) or series of related
transactions, in which more than 50% of the voting power of the Company is
disposed of, the Company will use its best efforts to provide at least thirty
(30) days notice of the terms and conditions of the proposed transaction.
10.2 RIGHT TO CONVERT WARRANT INTO COMMON STOCK; NET ISSUANCE.
a. RIGHT TO CONVERT. In addition to and without limiting the
rights of the holder under the terms of this Warrant, the holder shall have the
right to convert this Warrant or any portion thereof (the "CONVERSION RIGHT")
into shares of Common Stock as provided in this SECTION 10.2 at any time or from
time to time during the term of this Warrant. Upon exercise of the Conversion
Right with respect to a particular number of shares subject to this Warrant (the
"CONVERTED WARRANT SHARES"), the Company shall deliver to the holder (without
payment by the holder of any exercise price or any cash or other consideration)
that number of shares of fully paid and nonassessable Common Stock equal to the
quotient obtained by dividing (i) the value of this Warrant (or the specified
portion hereof) on the Conversion Date (as defined in subsection (b) hereof),
which value shall be equal to (A) the aggregate Fair Market Value of the
Converted Warrant Shares issuable upon exercise of this Warrant (or the
specified portion hereof) on the Conversion Date less (B) the aggregate Warrant
Price of the Converted Warrant Shares immediately prior to the exercise of the
Conversion Right by (ii) the Fair Market Value of one (1) share of Common Stock
on the Conversion Date.
Expressed as a formula, such conversion shall be computed as follows:
X = A - B
-------
10
Y
Where: X = the number of shares of Common Stock that may
be issued to holder
Y = the Fair Market Value (FMV) of one (1) share of
Common Stock
A = the aggregate FMV (I.E., FMV x Converted Warrant
Shares)
B = the aggregate Warrant Price (I.E., Converted Warrant
Shares x Warrant Price)
No fractional shares shall be issuable upon exercise of the Conversion
Right, and, if the number of shares to be issued determined in accordance with
the foregoing formula is other than a whole number, the Company shall pay to the
holder an amount in cash equal to the Fair Market Value of the resulting
fractional share on the Conversion Date.
b. METHOD OF EXERCISE. The Conversion Right may be exercised
by the holder by the surrender of this Warrant at the principal office of the
Company together with a written statement specifying that the holder thereby
intends to exercise the Conversion Right and indicating the number of shares
subject to this Warrant which are being surrendered (referred to in subsection
(a) hereof as the Converted Warrant Shares) in exercise of the Conversion Right.
Such conversion shall be effective upon receipt by the Company of this Warrant
together with the aforesaid written statement, or on such later date as is
specified therein (the "CONVERSION DATE"). Certificates for the shares issuable
upon exercise of the Conversion Right and, if applicable, a new warrant
evidencing the balance of the shares remaining subject to this Warrant, shall be
issued as of the Conversion Date and shall be delivered to the holder within
thirty (30) days following the Conversion Date.
11. REPRESENTATIONS AND WARRANTIES. The Company represents and
warrants to the holder of this Warrant as follows:
a. This Warrant has been duly authorized and executed by the
Company and is a valid and binding obligation of the Company enforceable in
accordance with its terms, subject to laws of general application relating to
bankruptcy, insolvency and the relief of debtors;
b. The Warrant Shares have been duly authorized and reserved
for issuance by the Company and, when issued in accordance with the terms
hereof, will be validly issued, fully paid and nonassessable;
c. The rights, preferences, privileges and restrictions granted
to or imposed upon the Common Stock and the holders thereof are as set forth in
the Restated Articles of Incorporation of the Company, as amended to the Date of
Grant (as so amended, the "CHARTER"), a true and complete copy of which has been
delivered to the original holder of this Warrant;
d. The execution and delivery of this Warrant are not, and the
issuance of the Warrant Shares upon exercise of this Warrant in accordance with
the terms hereof will not be, inconsistent with the Charter or by-laws of the
Company, do not and will not contravene, in any material respect, any
governmental rule or regulation, judgment or order applicable to the Company,
and do not and will not conflict with or contravene any provision of,
11
or constitute a default under, any indenture, mortgage, contract or other
instrument of which the Company is a party or by which it is bound or require
the consent or approval of, the giving of notice to, the registration or filing
with or the taking of any action in respect of or by, any Federal, state or
local government authority or agency or other person, except for the filing of
notices pursuant to federal and state securities laws, which filings will be
effected by the time required thereby and except for such conflicts and
contraventions as will not, individually or in the aggregate, have or reasonably
be expected to have, a material adverse effect on the Warrant Shares so issued
or the Company's ability to perform its obligations hereunder;
e. There are no actions, suits, audits, investigations or
proceedings pending or, to the knowledge of the Company, threatened against the
Company in any court or before any governmental commission, board or authority
which, if adversely determined, will have a material adverse effect on the
ability of the Company to perform its obligations under this Warrant;
f. The authorized capital stock of the Company consists of the
following:
(i) 25,000,000 shares of Common Stock, par value $.01 per
share, of which approximately 9,580,331 shares of Common Stock were issued and
outstanding as of the close of business on the date immediately prior to the
Date of Grant. All such outstanding shares have been validly issued and are
fully paid, nonassessable shares free of preemptive rights;
(ii) 5,000,000 shares of Preferred Stock, of which 200,000
have been designated as Series A Junior Participating Preferred Shares, and none
of which were issued and outstanding as of the close of business on the date
immediately prior to the Date of Grant; and
g. Other than options to purchase 1,729,506 shares of Common
Stock and warrants to purchase 300,742 shares of Common Stock, there are no
subscriptions, rights, options, warrants, or calls relating to any shares of the
Company's capital stock, including any right of conversion or exchange under any
outstanding security or other instrument; and
h. The Company is not subject to any obligation (contingent or
otherwise) to repurchase or otherwise acquire or retire any shares of its
capital stock or any security convertible into or exchangeable for any of its
capital stock.
12. MODIFICATION AND WAIVER. This Warrant and any provision hereof
may be changed, waived, discharged or terminated only by an instrument in
writing signed by the party against which enforcement of the same is sought,
except that the provisions of SECTION 9 hereof may be amended with the consent
of the Company and the holders of Registrable Securities constituting a majority
of the Registrable Securities then outstanding. For purposes of SECTION 9 and
this SECTION 12, "REGISTRABLE SECURITIES THEN OUTSTANDING" shall mean, with
respect to a specified determination date, the Registrable Securities owned
(beneficially or of record) by all Securityholders on such date.
13. NOTICES. Unless otherwise specifically provided herein, all
communications under this Warrant shall be in writing and shall be deemed to
have been duly
12
given (i) on the date of service if served personally on the party to whom
notice is to be given, (ii) on the day of transmission if sent by facsimile
transmission to the number given below, and telephonic confirmation of receipt
is obtained promptly after completion of transmission, (iii) on the day after
delivery to Federal Express or similar overnight courier, or (iv) on the fifth
day after mailing, if mailed to the party to whom notice is to be given, by
first class mail, registered or certified, postage prepaid, and properly
addressed, return receipt requested, to each such holder at its address as shown
on the books of the Company or to the Company at the address indicated therefor
on the signature page of this Warrant. Any party hereto may change its address
for purposes of this SECTION 13 by giving the other party written notice of the
new address in the manner set forth herein.
14. BINDING EFFECT ON SUCCESSORS. This Warrant shall be binding upon
any corporation succeeding the Company by merger, consolidation or acquisition
of all or substantially all of the Company's assets, and all of the obligations
of the Company relating to the Common Stock issuable upon the exercise or
conversion of this Warrant shall survive the exercise, conversion and
termination of this Warrant and all of the covenants and agreements of the
Company shall inure to the benefit of the successors and assigns of the holder
hereof. The Company will, at the time of the exercise or conversion of this
Warrant, in whole or in part, upon request of the holder hereof but at the
Company's expense, acknowledge in writing its continuing obligation to the
holder hereof in respect of any rights to which the holder hereof shall continue
to be entitled after such exercise or conversion in accordance with this
Warrant; PROVIDED, that the failure of the holder hereof to make any such
request shall not affect the continuing obligation of the Company to the holder
hereof in respect of such rights.
15. LOST WARRANTS OR STOCK CERTIFICATES. The Company covenants to
the holder hereof that, upon receipt of evidence reasonably satisfactory to the
Company of the loss, theft, destruction or mutilation of this Warrant or any
stock certificate and, in the case of any loss, theft or destruction, upon
receipt of an executed lost securities bond or indemnity reasonably satisfactory
to the Company, or in the case of any such mutilation upon surrender and
cancellation of such Warrant or stock certificate, the Company will make and
deliver a new Warrant or stock certificate, of like tenor, in lieu of the lost,
stolen, destroyed or mutilated Warrant or stock certificate.
16. DESCRIPTIVE HEADINGS. The descriptive headings of the several
paragraphs of this Warrant are inserted for convenience only and do not
constitute a part of this Warrant.
17. GOVERNING LAW. This Warrant shall be construed and enforced in
accordance with, and the rights of the parties shall be governed by, the laws of
the State of California, without giving effect to conflict of law principles..
18. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS. All
representations and warranties of the Company and the holder hereof contained
herein shall survive the Date of Grant, the exercise or conversion of this
Warrant (or any part hereof) and the termination or expiration of rights
hereunder. All agreements of the Company and the holder hereof contained herein
shall survive indefinitely until, by their respective terms, they are no longer
operative.
19. REMEDIES. In case any one (1) or more of the covenants and
agreements contained in this Warrant shall have been breached, the holders
hereof (in the case of a breach by
13
the Company), or the Company (in the case of a breach by a holder), may proceed
to protect and enforce their or its rights either by suit in equity and/or by
action at law, including, but not limited to, an action for damages as a result
of any such breach and/or an action for specific performance of any such
covenant or agreement contained in this Warrant.
20. ACCEPTANCE. Receipt of this Warrant by the holder hereof shall
constitute acceptance of and agreement to the foregoing terms and conditions.
21. NO IMPAIRMENT OF RIGHTS. The Company will not, by amendment of
its Charter or through any other means, avoid or seek to avoid the observance or
performance of any of the terms of this Warrant, but will at all times in good
faith assist in the carrying out of all such terms and in the taking of all such
action as may be necessary or appropriate in order to protect the rights of the
holder of this Warrant against impairment.
[Signature page follows.]
14
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed on
its behalf by one of its officers thereunto duly authorized.
THE TESSERACT GROUP,
a Minnesota corporation
By:
-------------------------------
Xxxx X. Xxxxx
Chief Executive Officer
Address: 0000 Xxxx 00xx Xxxxxx,
Xxxxx 0000
Xxxxxxxxxxx, XX 00000
Dated: as of March 31, 1999
S-1
EXHIBIT A
NOTICE OF EXERCISE
To: THE TESSERACT GROUP, INC.
1. The undersigned hereby elects to purchase shares of
Common Stock of THE TESSERACT GROUP, INC. pursuant to the terms of the attached
Warrant, and tenders herewith payment of the purchase price of such shares in
full.
2. Please issue a certificate or certificates representing said
shares in the name of the undersigned or in such other name or names as are
specified below:
-------------------------------
(Name)
-------------------------------
-------------------------------
(Address)
3. The undersigned represents that the aforesaid shares are being
acquired for the account of the undersigned for investment and not with a view
to, or for resale in connection with, the distribution thereof and that the
undersigned has no present intention of distributing or reselling such shares.
In support thereof, the undersigned has executed an Investment Representation
Statement attached hereto as Schedule 1.
----------------------------------
(Signature)
---------------------
(Date)
A-1
SCHEDULE 1
INVESTMENT REPRESENTATION STATEMENT
Purchaser:
Company: THE TESSERACT GROUP, INC.
Security: Common Stock
Amount:
Date:
In connection with the purchase of the above-listed securities (the
"SECURITIES"), the undersigned (the "PURCHASER") represents to the Company as
follows:
(a) The Purchaser is aware of the Company's business affairs and
financial condition, and has acquired sufficient information about the Company
to reach an informed and knowledgeable decision to acquire the Securities. The
Purchaser is purchasing the Securities for its own account for investment
purposes only and not with a view to, or for the resale in connection with, any
"distribution" thereof for purposes of the Securities Act of 1933, as amended
(the "ACT").
(b) The Purchaser understands that the Securities have not been
registered under the Act in reliance upon a specific exemption therefrom, which
exemption depends upon, among other things, the bona fide nature of the
Purchaser's investment intent as expressed herein. In this connection, the
Purchaser understands that, in the view of the Securities and Exchange
Commission ("SEC"), the statutory basis for such exemption may be unavailable if
the Purchaser's representation was predicated solely upon a present intention to
hold these Securities for the minimum capital gains period specified under
applicable tax laws, for a deferred sale, for or until an increase or decrease
in the market price of the Securities, or for a period of one year or any other
fixed period in the future.
(c) The Purchaser further understands that the Securities must be
held indefinitely unless subsequently registered under the Act or unless an
exemption from registration is otherwise available. In addition, the Purchaser
understands that the certificate evidencing the Securities will be imprinted
with the legend referred to in the Warrant under which the Securities are being
purchased.
(d) The Purchaser is aware of the provisions of Rule 144 and 144A,
promulgated under the Act, which, in substance, permit limited public resale of
"restricted securities" acquired, directly or indirectly, from the issuer
thereof (or from an affiliate of such issuer), in a non-public offering subject
to the satisfaction of certain conditions, if applicable, including, among other
things: The availability of certain public information about the Company, the
resale occurring not less than one (1) year after the party has purchased and
paid
A-2
for the securities to be sold; the sale being made through a broker in an
unsolicited "broker's transaction" or in transactions directly with a market
maker (as said term is defined under the Securities Exchange Act of 1934, as
amended) and the amount of securities being sold during any three-month period
not exceeding the specified limitations stated therein.
(e) The Purchaser further understands that at the time it wishes to
sell the Securities there may be no public market upon which to make such a
sale, and that, even if such a public market then exists, the Company may not be
satisfying the current public information requirements of Rule 144 and 144A, and
that, in such event, the Purchaser may be precluded from selling the Securities
under Rule 144 and 144A even if the one-year minimum holding period had been
satisfied.
(f) The Purchaser further understands that in the event all of the
requirements of Rule 144 and 144A are not satisfied, registration under the Act,
compliance with Regulation A, or some other registration exemption will be
required; and that, notwithstanding the fact that Rule 144 is not exclusive, the
Staff of the SEC has expressed its opinion that persons proposing to sell
private placement securities other than in a registered offering and otherwise
than pursuant to Rule 144 will have a substantial burden or proof in
establishing that an exemption from registration is available for such offers or
sales, and that such persons and their respective brokers who participate in
such transactions do so at their own risk.
Purchaser:
------------------------
Date:
-----------------------------
A-3
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. NO
SALE OR DISPOSITION MAY BE EFFECTED WITHOUT (i) AN
EFFECTIVE REGISTRATION STATEMENT RELATED THERETO, (ii) AN
OPINION OF COUNSEL FOR THE HOLDER, REASONABLY SATISFACTORY
TO THE COMPANY, THAT SUCH REGISTRATION IS NOT REQUIRED,
(iii) RECEIPT OF A NO-ACTION LETTER(S) FROM THE
APPROPRIATE GOVERNMENTAL AUTHORITY(IES), OR (iv) OTHERWISE
COMPLYING WITH THE PROVISIONS OF SECTION 7 OF THIS
WARRANT.
THE TESSERACT GROUP, INC.
WARRANT TO PURCHASE 250,000 SHARES
OF COMMON STOCK (this "WARRANT")
Warrant No. 2
THE TESSERACT GROUP, INC., a Minnesota corporation (the "COMPANY"),
hereby certifies that, for value received, PIONEER VENTURE FUND, L.L.C., a
Delaware limited liability company ("PIONEER"), or registered assigns, is the
registered holder of a warrant (the "WARRANT") to subscribe for and purchase
250,000 shares of the fully paid and nonassessable Common Stock (as adjusted
pursuant to SECTION 4 hereof, the "WARRANT SHARES") of the Company, at the price
of $3.00 per share (such price and such other price as shall result, from time
to time, from the adjustments specified in SECTION 4 hereof is herein referred
to as the "WARRANT PRICE"), subject to the provisions and upon the terms and
conditions hereinafter set forth. As used herein, (a) the term "COMMON STOCK"
shall mean the Company's presently authorized Common Stock, par value $.01 per
share, and any stock into or for which such Common Stock may hereafter be
converted or exchanged in a transaction described in paragraph (c) of SECTION
4.2, (b) the term "DATE OF GRANT" shall mean October __, 1999, and (c) the term
"OTHER WARRANTS" shall mean any warrant issued upon transfer or partial exercise
of this Warrant. The term "WARRANT" as used herein shall be deemed to include
Other Warrants unless the context hereof or thereof clearly requires otherwise.
1. TERM. The purchase right represented by this Warrant is
exercisable, in whole or in part, at any time and from time to time from the
Date of Grant through and including the close of business on September 30, 2004
(the "EXPIRATION DATE").
2. METHOD OF EXERCISE; PAYMENT; ISSUANCE OF NEW WARRANT. Subject to
SECTION 1 hereof, the purchase right represented by this Warrant may be
exercised by the holder hereof, in whole or in part and from time to time, by
the surrender of this Warrant (with the notice of exercise form attached hereto
as EXHIBIT A duly executed) at the principal office of the Company, along with
(i) the delivery of cash, or a certified or official bank check in the amount of
such Warrant Price, (ii) by an instruction to the Company to withhold a number
of Warrant Shares then issuable upon exercise of the particular Warrant pursuant
to SECTION 10.2 below (the "Net Exercise Option"), (iii) the surrender to the
Company of Notes (as defined in SECTION 22) in principal amount plus accrued
interest equal to the applicable Warrant Price, or (iv) the surrender to the
Company of shares of Common Stock previously acquired by the Holder with an
aggregate Fair Market Value (as defined in SECTION 4(h)) equal to such Warrant
Price, or any combination of foregoing. In the event of any withholding of
Warrant Shares or surrender of Common Stock pursuant to clause (ii) or (iv)
above where the number of shares whose Fair Market Value is equal to the Warrant
Price is not a whole number, the number of shares withheld by or surrendered to
the Company shall be rounded down to the nearest whole share. The person or
persons in whose name(s) any certificate(s) representing shares of Common Stock
shall be issuable upon exercise of this Warrant shall be deemed to have become
the holder(s) of record of, and shall be treated for all purposes as the record
holder(s) of, the shares represented thereby (and such shares shall be deemed to
have been issued) immediately prior to the close of business on the date or
dates upon which this Warrant is exercised. In the event of any exercise of the
rights represented by this Warrant, certificates for the shares of stock so
purchased shall be delivered to the holder hereof as soon as possible and in any
event within thirty (30) days after such exercise and, unless this Warrant has
been fully exercised (including without limitation, exercise pursuant to SECTION
2(b) below), a new Warrant representing the portion of the Warrant Shares, if
any, with respect to which this Warrant shall not then have been exercised shall
also be issued to the holder hereof as soon as possible and in any event within
such thirty (30)-day period.
3. STOCK FULLY PAID; RESERVATION OF SHARES. All Warrant Shares that
may be issued upon the exercise of the rights represented by this Warrant will,
upon issuance pursuant to the terms and conditions herein, be fully paid and
nonassessable, and free from all taxes (other than any taxes determined with
respect to, or based upon, the income of the person to whom such shares are
issued), liens and charges (other than liens or charges created by actions of
the holder of this Warrant or the person to whom such shares are issued), and
preemptive rights with respect to the issue thereof. The Company shall pay all
transfer taxes, if any, attributable to the issuance of the Warrant Shares upon
the exercise of this Warrant. During the period within which the rights
represented by this Warrant may be exercised, the Company will at all times have
authorized, and reserved for the purpose of the issue upon exercise of the
purchase rights evidenced by this Warrant, a sufficient number of shares of its
Common Stock to provide for the exercise of the rights represented by this
Warrant.
4. ADJUSTMENT OF WARRANT PRICE AND NUMBER OF SHARES. The number and
kind of securities purchasable upon the exercise of this Warrant and the Warrant
Price shall be subject to adjustment from time to time upon the occurrence of
certain events, as follows:
a. RECLASSIFICATION OR MERGER. In case of any reclassification,
change or conversion of securities of the class issuable upon exercise of this
Warrant (other than a change in par value, or from par value to no par value, or
from no par value to par value, or as a result of a subdivision or combination),
or in case of any merger of the Company with or into another
2
corporation (other than a merger with another corporation in which the Company
is the acquiring and the surviving corporation and which does not result in any
reclassification or change of outstanding securities issuable upon exercise of
this Warrant), or in case of any sale of all or substantially all of the assets
of the Company, the Company, or such successor or purchasing corporation, as the
case may be, shall duly execute and deliver to the holder of this Warrant a new
Warrant (in form and substance satisfactory to the holder of this Warrant), so
that the holder of this Warrant shall have the right to receive, at a total
purchase price not to exceed that payable upon the exercise of the unexercised
portion of this Warrant, and in lieu of the shares of Common Stock theretofore
issuable upon exercise of this Warrant, the kind and amount of shares of stock,
other securities, money and property receivable upon such reclassification,
change or merger by a holder of the number of shares of Common Stock then
purchasable under this Warrant. Such new Warrant shall provide for adjustments
that shall be as nearly equivalent as may be practicable to the adjustments
provided for in this SECTION 4. The provisions of this subparagraph (a) shall
similarly apply to successive reclassifications, changes, mergers and transfers.
b. SUBDIVISION OR COMBINATION OF SHARES. If the Company at any
time while this Warrant remains outstanding and unexpired shall subdivide or
combine its outstanding shares of Common Stock, the Warrant Price shall be
proportionately decreased in the case of a subdivision or increased in the case
of a combination, effective at the close of business on the date the subdivision
or combination becomes effective.
c. STOCK DIVIDENDS. If the Company at any time while this Warrant
is outstanding and unexpired shall pay a dividend with respect to Common Stock
payable in Common Stock, then the Warrant Price shall be adjusted, from and
after the date of determination of stockholders entitled to receive such
dividend or distribution, to that price determined by multiplying the Warrant
Price in effect immediately prior to such date of determination by a fraction
(i) the numerator of which shall be the total number of shares of Common Stock
outstanding immediately prior to such dividend, and (ii) the denominator of
which shall be the total number of shares of Common Stock outstanding
immediately after such dividend. In the event such dividend is not so paid, the
Warrant Price shall again be adjusted to the Warrant Price that would then be in
effect if the holders of Common Stock to receive such dividend had not been so
determined, but such subsequent adjustment shall not affect the number of
Warrant Shares issued upon any exercise of the Warrant prior to the date such
subsequent adjustment was made.
d. RIGHTS OFFERINGS. In case the Company shall, at any time after
the Date of Grant, issue rights, options or warrants to the holders of equity
securities of the Company, entitling them to subscribe for or purchase shares of
Common Stock (or securities convertible or exchangeable into Common Stock) at a
price per share of Common Stock (or having a conversion or exchange price per
share of Common Stock if a security convertible or exchangeable into Common
Stock) less than the Fair Market Value per share of Common Stock on the record
date for such issuance (or the date of issuance, if there is no record date),
the Warrant Price to be in effect on and after such record date (or issuance
date, as the case may be) shall be determined by multiplying the Warrant Price
in effect immediately prior to such record date (or issuance date, as the case
may be) by a fraction (i) the numerator of which shall be the number of shares
of Common Stock outstanding on such record date (or issuance date, as the case
may be) plus the number of shares of Common Stock which the aggregate offering
price of the total number of shares of such Common Stock so to be offered (or
the aggregate initial exchange or conversion price of the exchangeable or
convertible securities so to be offered) would purchase at such Fair Market
Value on such record date (or issuance date, as the case may be) and (ii) the
denominator of which shall
3
be the number of shares of Common Stock outstanding on such record date (or
issuance date, as the case may be) plus the number of additional shares of
Common Stock to be offered for subscription or purchase (or into which the
convertible securities to be offered are initially exchangeable or convertible).
In case such purchase or subscription price may be paid in part or in whole in a
form other than cash, the fair value of such consideration shall be determined
by the Board of Directors of the Company in good faith as set forth in a duly
adopted board resolution certified by the Company's Secretary or Assistant
Secretary. Such adjustmnt shall be made successively whenever such an issuance
occurs; and in the event that such rights, options, warrants, or convertible or
exchangeable securities are not so issued or expire or cease to be convertible
or exchangeable before they are exercised, converted, or exchanged (as the case
may be), then the Warrant Price shall again be adjusted to be the Warrant Price
that would then be in effect if such issuance had not occurred, but such
subsequent adjustment shall not affect the number of Warrant Shares issued upon
any exercise of this Warrant prior to the date such subsequent adjustment is
made.
e. SPECIAL DISTRIBUTIONS. In case the Company shall fix a record
date for the making of a distribution to all holders of shares of Common Stock
(including any such distribution made in connection with a consolidation or
merger in which the Company is the surviving corporation) or evidences of
indebtedness or assets (other than dividends and distributions referred to in
subparagraphs (d) and (e) above and other than cash dividends) or of
subscription rights, options, warrants, or exchangeable or convertible
securities containing the right to subscribe for or purchase shares of any class
of equity securities of the Company (excluding those referred to in subparagraph
(f) above), the Warrant Price to be in effect on and after such record date
shall be adjusted by multiplying the Warrant Price in effect immediately prior
to such record date by a fraction (i) the numerator of which shall be the Fair
Market Value per share of Common Stock on such record date, less the fair value
(as determined by the Board of Directors of the Company in good faith as set
forth in a duly adopted board resolution certified by the Company's Secretary or
Assistant Secretary) of the portion of the assets or evidences of indebtedness
so to be distributed or of such subscription rights, options, warrants, or
exchangeable or convertible securities applicable to one g as of such record
date, and (ii) the denominator of which shall be such Fair Market Value per
share of Common Stock. Such adjustment shall be made successively whenever such
a record date is fixed; and in the event that such distribution is not so made,
the Warrant Price shall again be adjusted to be the Warrant Price which would
then be in effect if such record date had not been fixed, but such subsequent
adjustment shall not affect the number of Warrant Shares issued upon any
exercise of this Warrant prior to the date such subsequent adjustment was made.
f. OTHER ISSUANCES OF SECURITIES. In case the Company or any
subsidiary shall, at any time after the Date of Grant, issue shares of Common
Stock, or rights, options, warrants or convertible or exchangeable securities
containing the right to subscribe for or purchase shares of Common Stock
(excluding (i) shares, rights, options, warrants, or convertible or exchangeable
securities or issued in any of the transactions described in subparagraphs (a),
(b), (c), (d) or (e) above, (ii) shares issued upon the exercise of such rights,
options or warrants or upon conversion or exchange of such convertible or
exchangeable securities, (iii) shares, rights or options issued to employees,
officers or directors of the Company pursuant to a plan approved by the board of
directors of the Company (and shares issued upon exercise of such rights or
options), and (iv) this Warrant and any shares issued upon exercise thereof), at
a price per share of Common Stock (determined in the case of such rights,
options, warrants, or convertible or exchangeable securities by dividing (x) the
total amount receivable by the Company in consideration of the sale and issuance
of such rights, options, warrants, or convertible or exchangeable securities,
plus the total minimum
4
consideration payable to the Company upon exercise, conversion, or exchange
thereof by (y) the total maximum number of shares of Common Stock covered by
such rights, options, warrants, or convertible or exchangeable securities) lower
than the Fair Market Value per share of Common Stock on the date the Company
fixes the offering price of such shares, rights, options, warrants, or
convertible or exchangeable securities, then the Warrant Price shall be adjusted
so that it shall equal the price determined by multiplying the Warrant Price in
effect immediately prior thereto by a fraction (i) the numerator of which shall
be the sum of (A) the number of shares of Common Stock outstanding immediately
prior to such sale and issuance plus (B) the number of shares of Common Stock
which the aggregate consideration received (determined as provided below) for
such sale or issuance would purchase at such Fair Market Value per share, and
(ii) the denominator of which shall be the total number of shares of Common
Stock outstanding immediately after such sale and issuance. Such adjustment
shall be made successively whenever such an issuance is made. For the purposes
of such adjustment, the maximum number of shares of Common Stock which the
holder of any such rights, opions, warrants or convertible or exchangeable
securities shall be entitled to subscribe for or purchase shall be deemed to be
issued and outstanding as of the date of such sale and issuance and the
consideration received by the Company therefor shall be deemed to be the
consideration received by the Company for such rights, options, warrants, or
convertible or exchangeable securities, plus the minimum consideration or
premium stated in such rights, options, warrants, or convertible or exchangeable
securities to be paid for the shares of Common Stock covered thereby. In case
the Company shall sell and issue shares of Common Stock, or rights, options,
warrants, or convertible or exchangeable securities containing the right to
subscribe for or purchase shares of Common Stock for a consideration consisting,
in whole or in part, of property other than cash or its equivalent, then in
determining the price per share of Common Stock and the consideration received
by the Company for purposes of the first sentence of this subparagraph (h), the
Board of Directors of the Company shall determine, in good faith, the fair value
of said property, and such determination shall be described in a duly adopted
board resolution certified by the Company's Secretary or Assistant Secretary. In
case the Company shall sell and issue rights, options, warrants, or convertible
or exchangeable securities containing the right to subscribe for or purchase
shares of Common Stock together with one (1) or more other securities as a part
of a unit at a price per unit, then in determining the price per share of Common
Stock and the consideration received by the Company for purposes of the first
sentence of this subparagraph (h), the Board of Directors of the Company shall
determine, in good faith, which determination shall be described in a duly
adopted board resolution certified by the Company's Secretary or Assistant
Secretary, the fair value of the rights, options, warrants, or convertible or
exchangeable securities then being sold as part of such unit. Such adjustment
shall be made successively whenever such an issuance occurs, and in the event
that such rights, options, warrants, or convertible or exchangeable securities
expire or cease to be convertible or exchangeable before they are exercised,
converted, or exchanged (as the case may be), then the Warrant Price shall again
be adjusted to the Warrant Price that would then be in effect if such sale and
issuance had not occurred, but such subsequent adjustment shall not affect the
number of Warrant Shares issued upon any exercise of the Warrant prior to the
date such subsequent adjustment is made.
g. ADJUSTMENT OF NUMBER OF SHARES. Upon each adjustment in the
Warrant Price, the number of Warrant Shares purchasable hereunder shall be
adjusted, to the nearest whole share, to the product obtained by multiplying the
number of Warrant Shares purchasable immediately prior to such adjustment in the
Warrant Price by a fraction, the numerator of which shall be the Warrant Price
immediately prior to such adjustment and the denominator of which shall be the
Warrant Price immediately thereafter.
5
h. DETERMINATION OF FAIR MARKET VALUE. For purposes of this
SECTION 4, "FAIR MARKET VALUE" of a share of Common Stock as of a particular
date (the "DETERMINATION DATE") shall mean (i) if shares of Common Stock are
traded on a national securities exchange (an "EXCHANGE"), the weighted average
of the closing prices of a share of the Common Stock of the Company on the last
five (5) trading days prior to the Determination Date reported on such Exchange
as reported in THE WALL STREET JOURNAL (weighted with respect to the trading
volume with respect to each such day), (ii) if shares of Common Stock are not
traded on an Exchange but trade in the over-the-counter market and such shares
are quoted on the Nasdaq National Market ("NASDAQ"), (A) the average of the last
sale prices reported on NASDAQ or (B) if such shares are an issue for which last
sale prices are not reported on NASDAQ, the average of the closing bid and ask
prices, in each case on the last five (5) trading days (or if the relevant price
or quotation did not exist on any of such days, the relevant price or quotation
on the next preceding business day on which there was such a price or quotation)
prior to the Determination Date as reported in THE WALL STREET JOURNAL, or (iii)
if no price can be determined on the basis of the above methods of valuation,
then the judgment of valuation shall be determined in good faith by the Board of
Directors of the Company, which determination shall be described in a duly
adopted board resolution certified by the Company's Secretary or Assistant
Secretary. If the Board of Directors of the Company is unable to determine any
Valuation (as defined below), or if the holders of at least fifty-one percent
(51%) of all of the Warrant Shares then issuable hereunder (collectively, the
"REQUESTING HOLDERS") disagree with the Board's determination of any Valuation
by written notice delivered to the Company within five (5) business days after
the determination thereof by the Board of Directors of the Company is
communicated to holders of the Warrants affected thereby, which notice specifies
a majority-in-interest of the Requesting Holders' determination of such
Valuation, then the Company and a majority-in-interest of the Requesting Holders
shall select a mutually acceptable investment banking firm of national
reputation which has not had a material relationship with the Company or any
officer of the Company within the preceding two (2) years, which shall determine
such Valuation. Such investment banking firm's determination of such Valuation
shall be final, binding and conclusive on the Company and the holders of all of
the Warrants issued hereunder and then outstanding. If the Board of Directors of
the Company was unable to determine such Valuation, all costs and fees of such
investment banking firm shall be borne by the Company. If the Requesting Holders
disagreed with the Board's determination of such Valuation, the party whose
determination of such Valuation differed from the Valuation determined by such
investment banking firm by the greatest amount shall bear all costs and fees of
such investment banking firm. For purposes of this SECTION 4(h), the term
"VALUATION" shall mean the determination, to be made initially by the Board of
Directors of the Company, of the Fair Market Value per share of Common Stock
pursuant to clause (iii) above.
i. If, at any time after any adjustment of the Warrant Price
shall have been made hereunder as the result of any issuance, sale or grant of
any rights, options, warrants or convertible or exchangeable securities, any of
such rights, options or warrants or the rights of conversion or exchange
associated with such convertible or exchangeable securities shall expire by
their terms or any of such rights, options, warrants or convertible or
exchangeable securities shall be repurchased by the Company or a subsidiary
thereof for a consideration per underlying share of Common Stock not exceeding
the amount of such consideration received by the Company in connection with the
issuance, sale or grant of such rights, options, warrants or convertible or
exchangeable securities, the Warrant Price then in effect shall forthwith be
increased to the Warrant Price that would have been in effect if such expiring
right, option or warrant or rights of conversion or exchange or such repurchased
rights, options, warrants or convertible or exchangeable securities had never
been issued. Similarly, if at any time after any such adjustment of the Warrant
Price shall
6
have been made pursuant to subparagraph (e) above (i) any additional aggregate
consideration is received or becomes receivable by the Company in connection
with the issuance of exercise of such rights, options, warrants or convertible
or exchangeable securities or (ii) there is a reduction in the conversion or
exchange ratio applicable to such convertible or exchangeable securities so that
fewer shares of Common Stock will be issuable upon the conversion or exchange
thereof or there is a decrease in the number of shares of Common Stock issuable
upon exercise of such rights, options or warrants, the Warrant Price then in
effect shall be forthwith readjusted to the Warrant Price that would have been
in effect had such changes taken place at the time that such rights, options,
warrants or convertible or exchangeable securities were initially issued,
granted or sold. In no event shal any readjustment under this subparagraph (i)
affect the validity of any Warrant Shares issued upon any exercise of this
Warrant prior to such readjustment.
5. NOTICE OF ADJUSTMENTS. Whenever the Warrant Price or the number of
Warrant Shares purchasable hereunder shall be adjusted pursuant to SECTION 4
hereof, the Company shall deliver to the holder of this Warrant a certificate
signed by its chief financial officer setting forth, in reasonable detail, the
event requiring the adjustment, the amount of the adjustment, the method by
which such adjustment was calculated, and the Warrant Price and the number of
Warrant Shares purchasable hereunder after giving effect to such adjustment.
6. FRACTIONAL SHARES. No fractional shares of Common Stock will be
issued in connection with any exercise hereunder, but in lieu of such fractional
shares the Company shall make a cash payment therefor based on the Fair Market
Value of a share of Common Stock on the date of exercise.
7. COMPLIANCE WITH SECURITIES ACT; DISPOSITION OF WARRANT OR WARRANT
SHARES.
a. COMPLIANCE WITH SECURITIES ACT. The holder of this Warrant, by
acceptance hereof, agrees that this Warrant and the shares of Common Stock to be
issued upon exercise hereof are being acquired for investment and that such
holder will not offer, sell or otherwise dispose of this Warrant, or any shares
of Common Stock to be issued upon exercise hereof except under circumstances
which will not result in a violation of the Securities Act of 1933, as amended
(the "ACT"). Upon exercise of this Warrant, the holder hereof shall confirm in
writing, by executing the form attached as Schedule 1 to EXHIBIT A hereto, that
the shares of Common Stock so purchased are being acquired for investment and
not with a view toward distribution or resale. This Warrant and all shares of
Common Stock issued upon exercise of this Warrant (unless registered under the
Act) shall be stamped or imprinted with a legend in substantially the following
form:
7
"THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
SECURITIES LAWS. NO SALE OR DISPOSITION MAY BE EFFECTED
WITHOUT (i) AN EFFECTIVE REGISTRATION STATEMENT RELATED
THERETO, (ii) AN OPINION OF COUNSEL FOR THE HOLDER,
REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH
REGISTRATION IS NOT REQUIRED, (iii) RECEIPT OF A NO-ACTION
LETTER(S) FROM THE APPROPRIATE GOVERNMENTAL
AUTHORITY(IES), OR (iv) OTHERWISE COMPLYING WITH THE
PROVISIONS OF SECTION 7 OF THE WARRANT UNDER WHICH THESE
SECURITIES WERE ISSUED DIRECTLY OR INDIRECTLY."
In addition, in connection with the issuance of this Warrant, the
holder specifically represents to the Company by acceptance of this Warrant as
follows:
i. The holder is aware of the Company's business affairs and
financial condition, and has acquired information about the Company sufficient
to reach an informed and knowledgeable decision to acquire this Warrant. The
holder is acquiring this Warrant for its own account for investment purposes
only and not with a view to, or for the resale in connection with, any
"distribution" thereof for purposes of the Act.
ii. The holder understands that this Warrant and the Warrant
Shares have not been registered under the Act in reliance upon a specific
exemption therefrom, which exemption depends upon, among other things, the bona
fide nature of the holder's investment intent as expressed herein. In this
connection, the holder understands that, in the view of the Securities and
Exchange Commission (the "SEC"), the statutory basis for such exemption may be
unavailable if the holder's representation was predicated solely upon a present
intention to hold the Warrant and the Warrant Shares for the minimum capital
gains period specified under applicable tax laws, for a deferred sale, for or
until an increase or decrease in the market price of the Warrant and the Warrant
Shares, or for a period of one (1) year or any other fixed period in the future.
iii. The holder further understands that this Warrant and
the Warrant Shares must be held indefinitely unless subsequently registered
under the Act and any applicable state securities laws, or unless exemptions
from registration are otherwise available.
iv. The holder is aware of the provisions of Rule 144 and
144A, promulgated under the Act, which, in substance, permit limited public
resale of "restricted securities" acquired, directly or indirectly, from the
issuer thereof (or from an affiliate of such issuer), in a non-public offering
subject to the satisfaction of certain conditions, if applicable, including,
among other things: the availability of certain public information about the
Company, the resale occurring not less than one (1) year after the party has
purchased and paid for the securities to be sold; the sale being made through a
broker in an unsolicited "broker's transaction" or in transactions directly with
a market maker (as said term is defined under the Securities Exchange Act of
1934, as amended) and the amount of securities being sold during any three-month
period not exceeding the specified limitations stated therein.
v. The holder further understands that at the time it wishes
to sell
8
this Warrant and the Warrant Shares there may be no public market upon
which to make such a sale, and that, even if such a public market then exists,
the Company may not be satisfying the current public information requirements of
Rule 144 and 144A, and that, in such event, the holder may be precluded from
selling this Warrant and the Warrant Shares under Rule 144 and 144A even if the
one (1)-year minimum holding period had been satisfied.
vi. The holder further understands that in the event all of
the requirements of Rule 144 and 144A are not satisfied, registration under the
Act, compliance with Regulation A, or some other registration exemption will be
required; and that, notwithstanding the fact that Rule 144 and 144A is not
exclusive, the Staff of the SEC has expressed its opinion that persons proposing
to sell private placement securities other than in a registered offering and
otherwise than pursuant to Rule 144 and 144A will have a substantial burden of
proof in establishing that an exemption from registration is available for such
offers or sales, and that such persons and their respective brokers who
participate in such transactions do so at their own risk.
b. DISPOSITION OF WARRANT OR WARRANT SHARES. With respect to
any offer, sale or other disposition of this Warrant, or any Warrant Shares
acquired pursuant to the exercise of this Warrant prior to registration of such
Warrant or Warrant Shares, the holder hereof and each subsequent holder of this
Warrant agrees to give written notice to the Company prior thereto, describing
briefly the manner thereof, together with a written opinion of such holder's
counsel, if reasonably requested by the Company, to the effect that such offer,
sale or other disposition may be effected without registration or qualification
(under the Act as then in effect or any federal or state law then in effect) of
this Warrant or such Warrant Shares and indicating whether or not under the Act
certificates for this Warrant or such Warrant Shares to be sold or otherwise
disposed of require any restrictive legend as to applicable restrictions on
transferability in order to ensure compliance with applicable law. Promptly upon
receiving such written notice and reasonably satisfactory opinion, if so
requested, the Company, as promptly as practicable, shall notify such holder
that such holder may sell or otherwise dispose of this Warrant or such Warrant
Shares, all in accordance with the terms of the notice delivered to the Company.
If a determination has been made pursuant to this subsection (b) that the
opinion of counsel for the holder is not reasonably satisfactory to the Company,
the Company shall so notify the holder promptly after such determination has
been made and neither this Warrant nor any Warrant shall be sold or otherwise
disposed of until such disagreement has been resolved. The foregoing
notwithstanding, this Warrant or such Warrant Shares may, as to such federal
laws, be offered, sold or otherwise disposed of in accordance with Rule 144 and
144A under the Act, provided that the Company shall have been furnished with
such information as the Company may reasonably request to provide a reasonable
assurance that the provisions of Rule 144 and 144A have been satisfied. Each
ertificate representing this Warrant or the Warrant Shares thus transferred
(except a transfer pursuant to Rule 144) shall bear a legend as to the
applicable restrictions on transferability in order to ensure compliance with
such laws, unless in the aforesaid opinion of counsel for the holder, such
legend is not required in order to ensure compliance with such laws. The Company
may issue stop transfer instructions to its transfer agent or, if acting as its
own transfer agent, the Company may stop transfer on its corporate books, in
connection with such restrictions.
8. RIGHTS AS STOCKHOLDERS; INFORMATION. No holder of this Warrant, as
such, shall be entitled to vote or receive dividends or be deemed the holder of
Common Stock or any other securities of the Company which may at any time be
issuable on the exercise hereof for any purpose, nor shall anything contained
herein be construed to confer upon the holder of this Warrant, as such, any of
the rights of a stockholder of the Company or any right to vote for the election
of the directors
9
or upon any matter submitted to stockholders at any meeting thereof, or to
receive notice of meetings, or to receive dividends or subscription rights or
otherwise until this Warrant shall have been exercised and the Warrant Shares
purchasable upon the exercise hereof shall have become deliverable, as provided
herein. The foregoing notwithstanding, the Company will transmit to the holder
of this Warrant such information, documents and reports as are generally
distributed to the holders of any class or series of the securities of the
Company concurrently with the distribution thereof to the stockholders.
9. REGISTRATION RIGHTS.
The shares of Common Stock issued or issuable upon exercise of
the Warrant are subject to registration and other rights granted to the Holders
pursuant to that certain Registration Rights Agreement dated as of March 31,
1999.
10. ADDITIONAL RIGHTS.
10.1 MERGERS. In the event that the Company undertakes to (i)
sell, lease, exchange, convey or otherwise dispose of all or substantially all
of its property or business, or (ii) merge into or consolidate with any other
corporation (other than a wholly-owned subsidiary of the Company), or effect any
transaction (including a merger or other reorganization) or series of related
transactions, in which more than 50% of the voting power of the Company is
disposed of, the Company will use its best efforts to provide at least thirty
(30) days notice of the terms and conditions of the proposed transaction.
10.2 RIGHT TO CONVERT WARRANT INTO COMMON STOCK; NET ISSUANCE.
a. RIGHT TO CONVERT. In addition to and without limiting the
rights of the holder under the terms of this Warrant, the holder shall have the
right to convert this Warrant or any portion thereof (the "CONVERSION RIGHT")
into shares of Common Stock as provided in this SECTION 10.2 at any time or from
time to time during the term of this Warrant. Upon exercise of the Conversion
Right with respect to a particular number of shares subject to this Warrant (the
"CONVERTED WARRANT SHARES"), the Company shall deliver to the holder (without
payment by the holder of any exercise price or any cash or other consideration)
that number of shares of fully paid and nonassessable Common Stock equal to the
quotient obtained by dividing (i) the value of this Warrant (or the specified
portion hereof) on the Conversion Date (as defined in subsection (b) hereof),
which value shall be equal to (A) the aggregate Fair Market Value of the
Converted Warrant Shares issuable upon exercise of this Warrant (or the
specified portion hereof) on the Conversion Date less (B) the aggregate Warrant
Price of the Converted Warrant Shares immediately prior to the exercise of the
Conversion Right by (ii) the Fair Market Value of one (1) share of Common Stock
on the Conversion Date.
Expressed as a formula, such conversion shall be computed as follows:
X= A - B
-----
Y
Where: X = the number of shares of Common Stock that may be issued
to holder
Y = the Fair Market Value (FMV) of one (1) share of Common Stock
10
A = the aggregate FMV (I.E., FMV x Converted Warrant Shares)
B = the aggregate Warrant Price (I.E., Converted Warrant Shares
x Warrant Price)
No fractional shares shall be issuable upon exercise of the Conversion
Right, and, if the number of shares to be issued determined in accordance with
the foregoing formula is other than a whole number, the Company shall pay to the
holder an amount in cash equal to the Fair Market Value of the resulting
fractional share on the Conversion Date.
b. METHOD OF EXERCISE. The Conversion Right may be exercised by
the holder by the surrender of this Warrant at the principal office of the
Company together with a written statement specifying that the holder thereby
intends to exercise the Conversion Right and indicating the number of shares
subject to this Warrant which are being surrendered (referred to in subsection
(a) hereof as the Converted Warrant Shares) in exercise of the Conversion Right.
Such conversion shall be effective upon receipt by the Company of this Warrant
together with the aforesaid written statement, or on such later date as is
specified therein (the "CONVERSION DATE"). Certificates for the shares issuable
upon exercise of the Conversion Right and, if applicable, a new warrant
evidencing the balance of the shares remaining subject to this Warrant, shall be
issued as of the Conversion Date and shall be delivered to the holder within
thirty (30) days following the Conversion Date.
11. REPRESENTATIONS AND WARRANTIES. The Company represents and
warrants to the holder of this Warrant as follows:
a. This Warrant has been duly authorized and executed by the
Company and is a valid and binding obligation of the Company enforceable in
accordance with its terms, subject to laws of general application relating to
bankruptcy, insolvency and the relief of debtors;
b. The Warrant Shares have been duly authorized and reserved for
issuance by the Company and, when issued in accordance with the terms hereof,
will be validly issued, fully paid and nonassessable;
c. The rights, preferences, privileges and restrictions granted
to or imposed upon the Common Stock and the holders thereof are as set forth in
the Restated Articles of Incorporation of the Company, as amended to the Date of
Grant (as so amended, the "CHARTER"), a true and complete copy of which has been
delivered to the original holder of this Warrant;
d. The execution and delivery of this Warrant are not, and the
issuance of the Warrant Shares upon exercise of this Warrant in accordance with
the terms hereof will not be, inconsistent with the Charter or by-laws of the
Company, do not and will not contravene, in any material respect, any
governmental rule or regulation, judgment or order applicable to the Company,
and do not and will not conflict with or contravene any provision of, or
constitute a default under, any indenture, mortgage, contract or other
instrument of which the Company is a party or by which it is bound or require
the consent or approval of, the giving of notice to, the registration or filing
with or the taking of any action in respect of or by, any
11
Federal, state or local government authority or agency or other person, except
for the filing of notices pursuant to federal and state securities laws, which
filings will be effected by the time required thereby and except for such
conflicts and contraventions as will not, individually or in the aggregate, have
or reasonably be expected to have, a material adverse effect on the Warrant
Shares so issued or the Company's ability to perform its obligations hereunder;
e. There are no actions, suits, audits, investigations or
proceedings pending or, to the knowledge of the Company, threatened against the
Company in any court or before any governmental commission, board or authority
which, if adversely determined, will have a material adverse effect on the
ability of the Company to perform its obligations under this Warrant;
f. The authorized capital stock of the Company consists of the
following:
(i) 25,000,000 shares of Common Stock, par value $.01 per
share, of which approximately 9,580,331 shares of Common Stock were issued and
outstanding as of the close of business on the date immediately prior to the
Date of Grant. All such outstanding shares have been validly issued and are
fully paid, nonassessable shares free of preemptive rights;
(ii) 5,000,000 shares of Preferred Stock, of which 200,000
have been designated as Series A Junior Participating Preferred Shares, and none
of which were issued and outstanding as of the close of business on the date
immediately prior to the Date of Grant; and
g. Other than options to purchase 1,804,171 shares of Common
Stock and warrants to purchase 450,742 shares of Common Stock, there are no
subscriptions, rights, options, warrants, or calls relating to any shares of the
Company's capital stock, including any right of conversion or exchange under any
outstanding security or other instrument; and
h. The Company is not subject to any obligation (contingent or
otherwise) to repurchase or otherwise acquire or retire any shares of its
capital stock or any security convertible into or exchangeable for any of its
capital stock.
12. MODIFICATION AND WAIVER. This Warrant and any provision hereof may
be changed, waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of the same is sought, except that
the provisions of SECTION 9 hereof may be amended with the consent of the
Company and the holders of Registrable Securities constituting a majority of the
Registrable Securities then outstanding. For purposes of SECTION 9 and
this SECTION 12, "REGISTRABLE SECURITIES THEN OUTSTANDING" shall mean, with
respect to a specified determination date, the Registrable Securities owned
(beneficially or of record) by all Securityholders on such date.
13. NOTICES. Unless otherwise specifically provided herein, all
communications under this Warrant shall be in writing and shall be deemed to
have been duly given (i) on the date of service if served personally on the
party to whom notice is to be given, (ii) on the day of transmission if sent by
facsimile transmission to the number given below, and
12
telephonic confirmation of receipt is obtained promptly after completion of
transmission, (iii) on the day after delivery to Federal Express or similar
overnight courier, or (iv) on the fifth day after mailing, if mailed to the
party to whom notice is to be given, by first class mail, registered or
certified, postage prepaid, and properly addressed, return receipt requested, to
each such holder at its address as shown on the books of the Company or to the
Company at the address indicated therefor on the signature page of this Warrant.
Any party hereto may change its address for purposes of this SECTION 13 by
giving the other party written notice of the new address in the manner set forth
herein.
14. BINDING EFFECT ON SUCCESSORS. This Warrant shall be binding upon
any corporation succeeding the Company by merger, consolidation or acquisition
of all or substantially all of the Company's assets, and all of the obligations
of the Company relating to the Common Stock issuable upon the exercise or
conversion of this Warrant shall survive the exercise, conversion and
termination of this Warrant and all of the covenants and agreements of the
Company shall inure to the benefit of the successors and assigns of the holder
hereof. The Company will, at the time of the exercise or conversion of this
Warrant, in whole or in part, upon request of the holder hereof but at the
Company's expense, acknowledge in writing its continuing obligation to the
holder hereof in respect of any rights to which the holder hereof shall continue
to be entitled after such exercise or conversion in accordance with this
Warrant; PROVIDED, that the failure of the holder hereof to make any such
request shall not affect the continuing obligation of the Company to the holder
hereof in respect of such rights.
15. LOST WARRANTS OR STOCK CERTIFICATES. The Company covenants to the
holder hereof that, upon receipt of evidence reasonably satisfactory to the
Company of the loss, theft, destruction or mutilation of this Warrant or any
stock certificate and, in the case of any loss, theft or destruction, upon
receipt of an executed lost securities bond or indemnity reasonably satisfactory
to the Company, or in the case of any such mutilation upon surrender and
cancellation of such Warrant or stock certificate, the Company will make and
deliver a new Warrant or stock certificate, of like tenor, in lieu of the lost,
stolen, destroyed or mutilated Warrant or stock certificate.
16. DESCRIPTIVE HEADINGS. The descriptive headings of the several
paragraphs of this Warrant are inserted for convenience only and do not
constitute a part of this Warrant.
17. GOVERNING LAW. This Warrant shall be construed and enforced in
accordance with, and the rights of the parties shall be governed by, the laws of
the State of California, without giving effect to conflict of law principles..
18. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS. All
representations and warranties of the Company and the holder hereof contained
herein shall survive the Date of Grant, the exercise or conversion of this
Warrant (or any part hereof) and the termination or expiration of rights
hereunder. All agreements of the Company and the holder hereof contained herein
shall survive indefinitely until, by their respective terms, they are no longer
operative.
19. REMEDIES. In case any one (1) or more of the covenants and
agreements contained in this Warrant shall have been breached, the holders
hereof (in the case of a breach by the Company), or the Company (in the case of
a breach by a holder), may proceed to protect and enforce their or its rights
either by suit in equity and/or by action at law, including, but not
13
limited to, an action for damages as a result of any such breach and/or an
action for specific performance of any such covenant or agreement contained in
this Warrant.
20. ACCEPTANCE. Receipt of this Warrant by the holder hereof shall
constitute acceptance of and agreement to the foregoing terms and conditions.
21. NO IMPAIRMENT OF RIGHTS. The Company will not, by amendment of its
Charter or through any other means, avoid or seek to avoid the observance or
performance of any of the terms of this Warrant, but will at all times in good
faith assist in the carrying out of all such terms and in the taking of all such
action as may be necessary or appropriate in order to protect the rights of the
holder of this Warrant against impairment.
[Signature page follows.]
14
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed on
its behalf by one of its officers thereunto duly authorized.
THE TESSERACT GROUP,
a Minnesota corporation
By:
-------------------------------
Xxxx X. Xxxxx
Chief Executive Officer
Address: 0000 X. 00xx Xxxxxx
Xxxxx 000
Xxxxxxxxxx, XX 00000
Dated: as of October __, 1999
S-1
EXHIBIT A
NOTICE OF EXERCISE
To: THE TESSERACT GROUP, INC.
1. The undersigned hereby elects to purchase shares of Common Stock of
THE TESSERACT GROUP, INC. pursuant to the terms of the attached Warrant, and
tenders herewith payment of the purchase price of such shares in full.
2. Please issue a certificate or certificates representing said shares
in the name of the undersigned or in such other name or names as are specified
below:
-------------------------------
(Name)
-------------------------------
-------------------------------
(Address)
3. The undersigned represents that the aforesaid shares are being
acquired for the account of the undersigned for investment and not with a view
to, or for resale in connection with, the distribution thereof and that the
undersigned has no present intention of distributing or reselling such shares.
In support thereof, the undersigned has executed an Investment Representation
Statement attached hereto as Schedule 1.
----------------------------------
(Signature)
---------------------
(Date)
A-1
SCHEDULE 1
INVESTMENT REPRESENTATION STATEMENT
Purchaser:
Company: THE TESSERACT GROUP, INC.
Security: Common Stock
Amount:
Date:
In connection with the purchase of the above-listed securities (the
"SECURITIES"), the undersigned (the "PURCHASER") represents to the Company as
follows:
(a) The Purchaser is aware of the Company's business affairs and
financial condition, and has acquired sufficient information about the Company
to reach an informed and knowledgeable decision to acquire the Securities. The
Purchaser is purchasing the Securities for its own account for investment
purposes only and not with a view to, or for the resale in connection with, any
"distribution" thereof for purposes of the Securities Act of 1933, as amended
(the "ACT").
(b) The Purchaser understands that the Securities have not been
registered under the Act in reliance upon a specific exemption therefrom, which
exemption depends upon, among other things, the bona fide nature of the
Purchaser's investment intent as expressed herein. In this connection, the
Purchaser understands that, in the view of the Securities and Exchange
Commission ("SEC"), the statutory basis for such exemption may be unavailable if
the Purchaser's representation was predicated solely upon a present intention to
hold these Securities for the minimum capital gains period specified under
applicable tax laws, for a deferred sale, for or until an increase or decrease
in the market price of the Securities, or for a period of one year or any other
fixed period in the future.
(c) The Purchaser further understands that the Securities must be held
indefinitely unless subsequently registered under the Act or unless an exemption
from registration is otherwise available. In addition, the Purchaser understands
that the certificate evidencing the Securities will be imprinted with the legend
referred to in the Warrant under which the Securities are being purchased.
(d) The Purchaser is aware of the provisions of Rule 144 and 144A,
promulgated under the Act, which, in substance, permit limited public resale of
"restricted securities" acquired, directly or indirectly, from the issuer
thereof (or from an affiliate of such issuer), in a non-public offering subject
to the satisfaction of certain conditions, if applicable, including, among other
things: The availability of certain public information about the Company, the
resale occurring not less than one (1) year after the party has purchased and
paid
A-2
for the securities to be sold; the sale being made through a broker in an
unsolicited "broker's transaction" or in transactions directly with a market
maker (as said term is defined under the Securities Exchange Act of 1934, as
amended) and the amount of securities being sold during any three-month period
not exceeding the specified limitations stated therein.
(e) The Purchaser further understands that at the time it wishes to
sell the Securities there may be no public market upon which to make such a
sale, and that, even if such a public market then exists, the Company may not be
satisfying the current public information requirements of Rule 144 and 144A, and
that, in such event, the Purchaser may be precluded from selling the Securities
under Rule 144 and 144A even if the one-year minimum holding period had been
satisfied.
(f) The Purchaser further understands that in the event all of the
requirements of Rule 144 and 144A are not satisfied, registration under the Act,
compliance with Regulation A, or some other registration exemption will be
required; and that, notwithstanding the fact that Rule 144 is not exclusive, the
Staff of the SEC has expressed its opinion that persons proposing to sell
private placement securities other than in a registered offering and otherwise
than pursuant to Rule 144 will have a substantial burden or proof in
establishing that an exemption from registration is available for such offers or
sales, and that such persons and their respective brokers who participate in
such transactions do so at their own risk.
Purchaser:
------------------------
Date:
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A-3
