WARRANT
TO PURCHASE SHARES OF COMMON STOCK
OF
RECOM MANAGED SYSTEMS
A DELAWARE CORPORATION
THIS WARRANT HAS BEEN, AND THE SHARES OF COMMON STOCK WHICH MAY BE
PURCHASED PURSUANT TO THE EXERCISE OF THIS WARRANT (THE "WARRANT
SHARES") WILL BE, ACQUIRED SOLELY FOR INVESTMENT AND NOT WITH A VIEW
TO, OR FOR RESALE IN CONNECTION WITH, ANY DISTRIBUTION THEREOF. NEITHER
THIS WARRANT OR THE WARRANT SHARES (TOGETHER, THE "SECURITIES") HAVE
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. THE SECURITIES MAY NOT
BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF
SUCH REGISTRATION OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY
AND ITS COUNSEL THAT SUCH DISPOSITION IS EXEMPT FROM THE REGISTRATION
AND PROSPECTUS DELIVERY REQUIREMENTS OF THE SECURITIES ACT AND OF ANY
APPLICABLE STATE SECURITIES LAWS. THIS WARRANT MUST BE SURRENDERED TO
THE COMPANY OR ITS TRANSFER AGENT AS A CONDITION PRECEDENT TO THE SALE,
PLEDGE OR OTHER TRANSFER OF ANY INTEREST IN ANY OF THE SHARES
REPRESENTED BY THIS WARRANT.
WARRANT NO.: W-{{NOTE}} {{DATE}}
[_______________], CALIFORNIA
THIS CERTIFIES THAT, for value received, {{Holder}} (the "Holder") is
entitled to subscribe for anD purchase from RECOM MANAGED SYSTEMS, INC., a
Delaware corporation (the "Company"), {{Shares}} shares of thE Company's Common
Stock (as adjusted pursuant to Section 2 hereof) (the "Warrant Shares") at the
purchase price of $[Price] per share (as adjusted pursuant to Section 2 hereof)
(the "Exercise Price"), upon the terms and subject to the conditions hereinafter
set forth:
EXERCISE RIGHTS.
(A) CASH EXERCISE. The purchase rights represented by this
Warrant may be exercised by the Holder at any time during the term
hereof, in whole or in part, by surrender of this Warrant and delivery
of a completed and duly executed Notice of Cash Exercise, in the form
attached as Exhibit A hereto, accompanied by payment to the Company of
an amount equal top the Exercise Price then in effect multiplied by the
number of Warrant Shares to be purchased by the Holder in connection
with such cash exercise of this Warrant, which amount may be paid, at
the election of the Holder, by wire transfer, delivery of a check
payable to the order of the Company or delivery of a promissory note
made by the Company for whole or partial cancellation, or any
combination of the foregoing, to the principal offices of the Company.
The exercise of this Warrant shall be deemed to have been effected on
the day on which the Holder surrenders this Warrant to the Company and
satisfies all of the requirements of this Section 1. Upon such
exercise, the Holder will be deemed a shareholder of record of those
Warrant Shares for which the Warrant has been exercised with all rights
of a shareholder (including, without limitation, all voting rights with
respect to such Warrant Shares and all rights to receive any dividends
with respect to such Warrant Shares). If this Warrant is to be
exercised in respect of less than all of the Warrant Shares covered
hereby, the Holder shall be entitled to receive a new warrant covering
the number of Warrant Shares in respect of which this Warrant shall not
have been exercised and for which it remains subject to exercise. Such
new warrant shall be in all other respects identical to this Warrant.
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(B) NET ISSUE EXERCISE.
(i) In lieu of exercising the purchase rights
represented by this Warrant on a cash basis pursuant to
Section 1(a) hereof, the Holder may elect to exercise such
rights represented by this Warrant at any time during the term
hereof, in whole or in part, on a net-issue basis by electing
to receive the number of Warrant Shares which are equal in
value to the value of this Warrant (or any portion thereof to
be canceled in connection with such net-issue exercise) at the
time of any such net-issue exercise, by delivery to the
principal offices of the Company this Warrant and a completed
and duly executed Notice of Net-Issue Exercise, in the form
attached as Exhibit B hereto, properly marked to indicate (A)
the number of Warrant Shares to be delivered to the Holder in
connection with such net-issue exercise, (B) the number of
Warrant Shares with respect to which the Warrant is being
surrendered in payment of the aggregate Exercise Price for the
Warrant Shares to be delivered to the Holder in connection
with such net-issue exercise, and (C) the number of Warrant
Shares which remain subject to the Warrant after such
net-issue exercise, if any (each as determined in accordance
with Section 1(b)(ii) hereof).
(ii) In the event that the Holder shall elect to
exercise the rights represented by this Warrant in whole or in
part on a net-issue basis pursuant to this Section 1(b), the
Company shall issue to the Holder the number of Warrant Shares
determined in accordance with the following formula:
X = Y (A-B)
-------
A
X = the number of Warrant Shares to be issued to
the Holder in connection with such net-issue
exercise.
Y = the number of Warrant Shares subject to this
Warrant.
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A = the Fair Market Value (as defined below) of one
share Common Stock on the date of exercise.
B = the Exercise Price in effect as of the date of
such net-issue exercise (as adjusted pursuant to
Section 2 hereof).
(C) FAIR MARKET VALUE. For purposes of this Section 1, the
"Fair Market Value" of the Common Stock shall have the following
meanings:
(i) If the Common Stock is not listed for trading on
a national securities exchange or admitted for trading on a
national market system, the then Fair Market Value of a share
of Common Stock shall be as determined in good faith by the
Board of Directors (the "Board of Directors") of the Company
as of the date of exercise pursuant to clause (b).
(ii) If the Common Stock is listed for
trading on a national securities exchange or admitted
for trading on a national market system, then the
Fair Market Value of Common Stock shall be deemed to
be the closing price quoted on the principal
securities exchange on which the Common Stock is
listed for trading, or if not so listed, the average
of the closing bid and asked prices for Common Stock
quoted on the national market system on which Common
Stock is admitted for trading, each as published in
the Western Edition of The Wall Street Journal, in
each case for the ten trading days prior to the date
of exercise pursuant to clause (b) of Fair Market
Value for Common Stock in accordance herewith.
(D) ADDITIONAL CONDITIONS TO EXERCISE OF WARRANT. Unless there
is a registration statement declared or ordered effective by the
Securities and Exchange Commission (the "Commission") under the
Securities Act which includes the Warrant Shares to be issued upon the
exercise of the rights represented by this Warrant, such rights may not
be exercised unless and until:
(i) the Company shall have received an Investment
Representation Statement, in the form attached as Exhibit C
hereto, certifying that, among other things, the Warrant
Shares to be issued upon the exercise of the rights
represented by this Warrant are being acquired for investment
and not with a view to any sale or distribution thereof; and
(ii) each certificate evidencing the Warrant Shares
to be issued upon the exercise of the rights represented by
this Warrant shall be stamped or imprinted with a legend
substantially in the following form:
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THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN
ACQUIRED FOR INVESTMENT AND NOT FOR DISTRIBUTION, AND
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT") OR ANY STATE
SECURITIES LAWS. SUCH SHARES MAY NOT BE SOLD, OFFERED
FOR SALE, PLEDGED OR HYPOTHECATED, OR OTHERWISE
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN
OPINION OF COUNSEL SATISFACTORY TO THE COMPANY AND
ITS COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED
UNDER THE SECURITIES ACT. COPIES OF THE AGREEMENTS
COVERING THE PURCHASE OF THESE SHARES AND RESTRICTING
THEIR TRANSFER MAY BE OBTAINED AT NO COST BY WRITTEN
REQUEST MADE BY THE HOLDER OF RECORD OF THIS
CERTIFICATE TO THE SECRETARY OF THE COMPANY AT THE
PRINCIPAL EXECUTIVE OFFICE OF THE COMPANY. THIS
CERTIFICATE MUST BE SURRENDERED TO THE COMPANY OR ITS
TRANSFER AGENT AS A CONDITION PRECEDENT TO THE SALE,
PLEDGE OR OTHER TRANSFER OF ANY INTEREST IN ANY OF
THE SHARES REPRESENTED BY THIS CERTIFICATE.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE
SUBJECT TO RESTRICTIONS ON TRANSFER CONTAINED IN AN
AGREEMENT BETWEEN THE COMPANY AND THE SHAREHOLDER, A
COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE
COMPANY.
(E) FRACTIONAL SHARES. Upon the exercise of the rights
represented by this Warrant, the Company shall not be obligated to
issue fractional shares of Common Stock, and in lieu thereof, the
Company shall pay to the Holder an amount in cash equal to the Fair
Market Value per share of Common Stock immediately prior to such
exercise multiplied by such fraction (rounded to the nearest cent).
(F) EXPIRATION OF WARRANT. This Warrant shall expire and shall
no longer be exercisable two years from the date of this Warrant.
(G) RECORD OWNERSHIP OF WARRANT SHARES. The Warrant Shares
shall be deemed to have been issued, and the person in whose name any
certificate representing Warrant Shares shall be issuable upon the
exercise of the rights represented by this Warrant (as indicated in the
appropriate Notice of Exercise) shall be deemed to have become the
holder of record of (and shall be treated for all purposes as the
record holder of) the Warrant Shares represented thereby, immediately
prior to the close of business on the date or dates upon which the
rights represented by this Warrant are exercised in accordance with the
terms hereof.
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(H) STOCK CERTIFICATES. In the event of any exercise of the
rights represented by this Warrant, certificates for the Warrant Shares
so purchased pursuant hereto shall be delivered to the Holder promptly
and, unless this Warrant has been fully exercised or has expired, a new
Warrant representing the Warrant Shares with respect to which this
Warrant shall not have been exercised shall also be issued to the
Holder within such time.
(I) ISSUE TAXES. The issuance of certificates for shares of
stock upon the exercise of the rights represented by this Warrant shall
be made without charge to the Holder for any issuance tax in respect
thereof; provided, however, that the Company shall not be required to
pay any tax which may be payable in respect of any transfer involved in
the issuance and delivery of any certificate in a name other than that
of the Holder of the Warrant.
(J) CONDITIONAL EXERCISE. The Holder of this Warrant shall
have the right to submit a notice of exercise of this Warrant
conditional upon the an acquisition of the Company. If such transaction
upon which such exercise is conditioned is not consummated, such notice
of exercise shall be deemed of no further force or effect. For the
purposes hereof, the Fair Market Value for the purposes of Section 1(b)
hereto shall be the value of the consideration payable or issuable to
the holders of the Company's Common Stock.
(K) STOCK FULLY PAID; RESERVATION OF SHARES. All Warrant
Shares that may be issued upon the exercise of the rights represented
by this Warrant, upon issuance, will be duly and validly issued, will
be fully paid and nonassessable, will not violate any preemptive rights
or rights of first refusal, will be free from restrictions on transfer
other than restrictions on transfer imposed by applicable federal and
state securities laws, will be issued in compliance with all applicable
federal and state securities laws, and will have the rights,
preferences and privileges described in the Company's Certificate of
Incorporation, as amended; and the Warrant Shares will be free of any
liens or encumbrances, other than any liens or encumbrances created by
or imposed upon the Holder through no action of the Company. During the
period within which the rights represented by the Warrant may be
exercised, the Company will at all times have authorized and reserved
for the purpose of issuance upon exercise of the purchase rights
evidenced by this Warrant, a sufficient number of shares of Common
Stock to provide for the exercise of the right represented by this
Warrant.
2. ADJUSTMENT RIGHTS.
(A) RIGHT TO ADJUSTMENT. The number of Warrant Shares
purchasable upon the exercise of the rights represented by this
Warrant, and the Exercise Price therefor, shall be subject to
adjustment from time to time upon the occurrence of certain events, as
follows:
(I) MERGER. If at any time there shall be a merger or
consolidation of the Company with or into another corporation
when the Company is not the surviving corporation, then, as a
part of such merger or consolidation, lawful provision shall
be made so that the holder of this Warrant shall thereafter be
entitled to receive upon exercise of this Warrant, during the
period specified herein and upon payment of the aggregate
Exercise Price then in effect, the number of shares of stock
or other securities or property of the successor corporation
resulting from such merger or consolidation, to which a holder
of the stock deliverable upon exercise of this Warrant would
have been entitled in such merger or consolidation if this
Warrant had been exercised immediately before such merger or
consolidation. In any such case, appropriate adjustment shall
be made in the application of the provisions of this Warrant
with respect to the rights and interests of the Holder after
the merger or consolidation.
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(II) STOCK SPLITS, DIVIDENDS, COMBINATIONS AND
CONSOLIDATIONS. In the event of a stock split, stock dividend
or subdivision of or in respect of the outstanding shares of
Common Stock, the number of Warrant Shares issuable upon the
exercise of the rights represented by this Warrant immediately
prior to such stock split, stock dividend or subdivision shall
be proportionately increased and the Exercise Price then in
effect shall be proportionately decreased, effective at the
close of business on the date of such stock split, stock
dividend or subdivision, as the case may be. In the event of a
reverse stock split, consolidation, combination or other
similar event of or in respect of the outstanding shares of
Common Stock, the number of Warrant Shares issuable upon the
exercise of the rights represented by this Warrant immediately
prior to such reverse stock split, consolidation, combination
or other similar event shall be proportionately decreased and
the Exercise Price shall be proportionately increased,
effective at the close of business on the date of such reverse
stock split, consolidation, combination or other similar
event, as the case may be.
(B) ADJUSTMENT NOTICES. Upon any adjustment of the Exercise
Price, and any increase or decrease in the number of Warrant Shares
subject to this Warrant, in accordance with this Section 2, the
Company, within 30 days thereafter, shall give written notice thereof
to the Holder at the address of such Holder as shown on the books of
the Company, which notice shall state the Exercise Price as adjusted
and, if applicable, the increased or decreased number of Warrant Shares
subject to this Warrant, setting forth in reasonable detail the method
of calculation of each such adjustment.
3. TRANSFER OF WARRANT.
(A) CONDITIONS. This Warrant and the rights represented hereby
are not transferable, except in accordance with the conditions set
forth in this Section 3. In order to effect any transfer of all or a
portion of this Warrant, the Holder hereof shall deliver to the Company
a completed and duly executed Notice of Transfer, in the form attached
as Exhibit D hereto. Once the Warrant is exercised, the Warrant Shares
shall be transferable in accordance with the Investor Rights Agreement.
(B) ADDITIONAL CONDITIONS TO TRANSFER OF WARRANT. Unless there
is a registration statement declared or ordered effective by the
Commission under the Securities Act which includes this Warrant, this
Warrant may not be transferred unless and until:
(i) the Company receives an Investment Representation
Statement, in the form attached as Exhibit E hereto,
certifying that, among other things, this Warrant is being
acquired for investment and not with a view to any sale or
distribution thereof; and
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(ii) the Company receives a written notice from the
Holder which describes the manner and circumstances of the
proposed transfer accompanied by a written opinion of Xxxxxx's
legal counsel, in form and substance reasonably satisfactory
to the Company, stating that such transfer is exempt from the
registration and prospectus delivery requirements of the
Securities Act and all applicable state securities laws or
with a Commission "no-action" letter stating that future
transfers of such securities by the transferor or the
contemplated transferee would be exempt from registration
under the Securities Act or such securities may be transferred
in accordance with Rule 144(k). Upon receipt of the foregoing,
the Company shall, or shall instruct its transfer agent to,
promptly, and without expense to the Holder issue new
securities in the name of the Holder not bearing the legends
required under Section 1(d)(ii). In addition, new securities
shall be issued without such legend if such legends may be
properly removed under the terms of Rule 144(k).
4. NO SHAREHOLDER RIGHTS. The Holder of this Warrant
(and any transferee hereof) shall not be entitled to vote on
matters submitted for the approval or consent of the
shareholders of the Company or to receive dividends declared
on or in respect of shares of Common Stock, or otherwise be
deemed to be the holder of Common Stock or any other capital
stock or other securities of the Company which may at any time
be issuable upon the exercise of the rights represented hereby
for any purpose, nor shall anything contained herein be
construed to confer upon the Holder (or any transferee hereof)
any of the rights of a shareholder of the Company or any right
to vote for the election of directors or upon any matter
submitted for the approval or consent of the shareholders, or
to give or withhold consent to any corporate action (whether
upon any recapitalization, issuance of stock, reclassification
of stock, merger or consolidation, conveyance, or otherwise)
or to receive notice of meetings, or to receive dividends or
subscription rights or otherwise until this Warrant shall have
been exercised as provided herein. No provision of this
Warrant, in the absence of the actual exercise of such Warrant
or any part thereof into Common Stock issuable upon such
exercise, shall give rise to any liability on the part of such
Holder as a shareholder of the Company, whether such liability
shall be asserted by the Company or by creditors of the
Company.
5. MISCELLANEOUS.
(A) GOVERNING LAW. This Warrant will be construed in
accordance with, and governed in all respects by, the laws of the State
of California, as applied to agreements entered into, and to be
performed entirely in such state, between residents of such state.
(B) DISPUTE RESOLUTION.
(I) NEGOTIATION. In the event of any dispute,
controversy or claim arising out of or relating to this
Warrant, representatives of the parties will meet in a
location chosen by the party initiating the negotiation not
later than ten business days after written notice from one
party to the other of such dispute and will enter into good
faith negotiations aimed at resolving the dispute. If they are
unable to resolve the dispute in a mutually satisfactory
manner within 30 business days from the date of such notice,
the matter may be submitted by either party to arbitration as
provided for in Section 5(b)(ii), below.
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(II) ARBITRATION.
(a) Any dispute, controversy or claim
between or among any of the parties hereto arising
out of or relating to this Warrant or the breach,
termination or invalidity thereof, including any
dispute as to whether any dispute is subject to
arbitration, which has not been resolved after good
faith negotiations pursuant to subsection 5(b)(i)
hereof will be settled by binding arbitration
administered by the American Arbitration Association
in accordance with its then current Commercial
Arbitration Rules except as provided herein.
(b) Any arbitration will be conducted in a
location in the metropolitan area of the party
responding to the action by a three person
arbitration panel. The three person arbitration panel
will consist of one party arbitrator selected by the
Company, one party arbitrator selected by the Holder,
each of whom will be named within ten business days
of the demand for arbitration, and one neutral
arbitrator selected by the first two arbitrators. If
the two party appointed arbitrators cannot agree on
the neutral arbitrator within ten business days of
the selection of the last party appointed arbitrator,
the American Arbitration Association will appoint the
neutral arbitrator, who will act as chairperson. In
the event of a vacancy with respect to an arbitrator,
the vacancy will be filled within ten business days
of notice of the vacancy in the same manner and
subject to the same requirements as are provided for
in the original appointment to that position. If the
vacancy is not filled within ten business days, the
American Arbitration Association will make the
appointment.
It is the intent of the parties to avoid the
appearance of impropriety due to bias or partiality
on the part of the neutral arbitrator. Accordingly,
prior to his or her appointment, such neutral
arbitrator will disclose to the parties and the other
members of the tribunal, any financial, fiduciary,
kinship or other relationship between the neutral
arbitrator and any party or its counsel. Any party
will have the right to challenge in writing the
appointment of the neutral arbitrator on the basis of
and within five days of such disclosure. In the event
of a challenge, the American Arbitration Association
will uphold or dismiss the challenge and its decision
will be conclusive.
(c) The law applicable to the validity of
the arbitration clause, the conduct of the
arbitration, including the resort to a court for
interim relief, enforcement of the award or any other
question of arbitration law or procedure will be the
United States' Federal Arbitration Act, 9 X.X.X.xx. 1
et seq. The parties shall be entitled to engage in
reasonable discovery including requests for the
production of all relevant documents and a reasonable
number of depositions. The arbitration panel shall
have the sole discretion to determine the
reasonableness of any requested document production
or deposition. It is the intent of the parties that a
substantive hearing be held as soon as practicable
after the appointment of the neutral arbitrator or
the rejection of a challenge thereto, whichever
occurs later. The presentation of evidence will be
governed by the federal Rules of Evidence. A
stenographic record of all witness testimony will be
made.
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(d) Any award, including any interim award,
made will be made by a majority of the arbitrators
applying the substantive law of California and will
(i) be in writing and state the arbitration panel's
findings of fact and conclusions of law, (ii) be made
promptly, and in any event within 60 days after the
conclusion of the arbitration hearing; and (iii) be
binding against the parties involved and may be
entered for enforcement in any court of competent
jurisdiction.
(e) Fifty percent of the costs of any
arbitration proceeding (e.g., arbitrators, court
reporter and room rental fees) will be borne by the
Company with the remaining 50% to paid by the other
party to the dispute. However, each party will pay
its own expense, including attorneys' and other
professionals' fees and disbursements.
(f) The arbitration provision set forth in
this Section 5(b)(ii) will be a complete defense to
any suit, action or proceeding instituted in any
court with respect to any matter arbitrable under
this Warrant, except that judicial intervention may
be sought in accordance with Section 5(b)(iii)
hereof.
(III) NO WAIVERS; INTERIM RELIEF. The parties
mutually acknowledge that an award of damages may be
inadequate to remedy any breach hereof and that injunctive
relief may be required. Therefore, (i) a party may request a
court of competent jurisdiction to provide interim injunctive
relief in aid of arbitration or to prevent a violation of this
Warrant pending arbitration, and any such request will not be
deemed a waiver or breach of the obligations to arbitrate set
forth herein and (ii) the arbitrators may order equitable
relief where they deem it appropriate and the parties agree
that any interim relief ordered by the arbitrators may be
immediately and specifically enforced by a court otherwise
having jurisdiction over the parties.
(C) SUCCESSORS AND ASSIGNS. Subject to the restrictions on
transfer described in Section 3, the rights and obligations of the
Company and Holder of this Warrant shall be binding upon and benefit
the successors, assigns, heirs, administrators and transferees of the
parties.
(D) WAIVER AND AMENDMENT. Any provision of this Warrant may be
amended, waived or modified upon the written consent of the Company and
the Holder.
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(E) NOTICES. All notices and other communications required or
permitted hereunder will be in writing and will be sent by telecopier
or mailed by first-class mail, postage prepaid, or delivered either by
hand or by messenger, addressed (a) if to the Holder, at the address
indicated on the Company's books, or at such other address and
telecopier number as Holder will have furnished to the Company in
writing, or (b) if to the Company, at 0000 Xxxxxx Xxxxxx Xxxx., Xxxxx
000, Xxxxxxxxxx 00000 Attn: Chief Financial Officer, or at such other
address and telecopier number as the Company will have furnished to the
Holder and each such other holder in writing.
Each such notice or other communication will for all purposes
of this Agreement be treated as effective or having been given when
delivered if delivered personally or by messenger, or, if sent by mail,
at the earlier of its receipt or 72 hours after the same has been
deposited in a regularly maintained receptacle for the deposit of the
United States mail addressed and mailed as aforesaid.
(F) SEVERABILITY. In case any provision of this Warrant will
be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions will not in any way be
affected or impaired thereby.
(G) LOST WARRANT. Upon receipt from the Holder of written
notice or other evidence reasonably satisfactory to the Company of the
loss, theft, destruction or mutilation of the Warrant and, in the case
of any such loss, theft or destruction, upon receipt of an unsecured
indemnity agreement and an affidavit of lost warrant, or in the case of
any such mutilation upon surrender and cancellation of the Warrant, the
Company, at the Company's expense, will make and deliver a new Warrant
in lieu of the lost, stolen, destroyed or mutilated Warrant carrying
the same rights and obligations as the original Warrant. The Company
will also pay the cost of all deliveries of the Warrant upon any
exchange thereof.
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IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its duly
authorized officer as of the date first written above.
RECOM MANAGED SYSTEMS, INC.
a Delaware corporation
By:
--------------------------------------
Xxxxxx X. Xxxx
President and Chief Executive Officer
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