WARRANT AGREEMENT
Xxx Xxxxxx & Company
Commonwealth Associates
c/o Xxx Xxxxxx & Company
000 Xxxxxxxxxx Xxxxxx, Xxxxx 0000
Xxx Xxxxxxxxx, Xxxxxxxxxx 00000
Ladies and Gentlemen:
Bonded Motors, Inc., a California corporation (the "Company"), hereby
agrees, on the terms and subject to the conditions of this Warrant Agreement
(the "Agreement"), to sell and deliver to Xxx Xxxxxx & Company and
Commonwealth Associates (together, the "Purchasers"), individually and not as
Representatives of the underwriters referred to in the "Underwriting
Agreement" (defined below), warrants to purchase 75,000 shares of the "Common
Stock" (defined below) (5% five percent) of the aggregate number of shares
(excluding "Option Shares" (defined in the Underwriting Agreement) of the
Common Stock sold to the underwriters pursuant to the Underwriting
Agreement), of which warrants to purchase ___ shares of the Common Stock will
be sold to Xxx Xxxxxx & Company and warrants to purchase ___ shares of the
Common Stock will be sold to Commonwealth Associates. The Purchasers agree,
on the terms and subject to the conditions of this Agreement, to purchase
such warrants from the Company.
Each of the warrants will be exercisable by the "Holder" thereof
(defined below), as to all or any lesser number of shares of the Common Stock
covered by the Holder's warrants, at the "Exercise Price" per share (defined
below), at any time and from time to time beginning at 9:00 a.m., San
Francisco time, on the day that begins one year after the Closing Time
(defined below) and ending at 5:00 p.m., San Francisco time, on the day that
is five years after the Closing Time. The warrants will be evidenced by
instruments in the form of Exhibit A hereto (those instruments and all
instruments issued after the date hereof in replacement thereof are referred
to below as the "Warrants").
The purchase price of the Warrants is $0.01 (one cent) for each share
of Common Stock purchasable on exercise of the Warrants. The delivery of the
Warrants and payment of the purchase price of the Warrants are to be made on
the "Closing Date" (defined in the Underwriting Agreement), at the offices of
Xxx Xxxxxx & Company at 000 Xxxxxxxxxx Xxxxxx, Xxxxx 0000, Xxx Xxxxxxxxx,
Xxxxxxxxxx, or such other time and place as may be agreed upon between the
Company and the Purchasers (the date of such purchase of the Warrants is
referred to in this Agreement as the "Closing Time").
1. DEFINITIONS. As used in this Agreement, the following terms,
unless the context otherwise clearly requires, have for all purposes the
following respective meanings, and capitalized terms used herein without
definition have the meanings ascribed to them in the Underwriting Agreement:
(a) The term "Common Stock" means the Common Stock, no par value, of
the Company, and all other shares of any class or classes (however
designated) of the common equity of the Company, now or hereafter authorized,
the holders of which by operation of law
shall have the right, without limitation as to amount, either to all or to a
part of the balance of current dividends and liquidating dividends and
distributions after the payment of dividends and distributions on any shares
entitled to preference and the holders of which ordinarily, in the absence of
contingency, are entitled to vote for the election of the directors of the
Company (even though the right so to vote has been suspended by the
occurrence of such a contingency), other than those directors of the Company
(constituting a portion of the Board of Directors) who, pursuant to the
Articles of Incorporation or other charter documents of the Company, are then
to be elected by a designated class or series of the capital stock of the
Company.
(b) "Common Stock Outstanding" means the aggregate of all Common Stock
outstanding plus all Common Stock issuable upon exercise of all outstanding
Options and conversion of all outstanding Convertible Securities.
(c) "Convertible Securities" means any indebtedness, shares of stock
or other rights granted by the Company (other than Options) convertible into
or exchangeable for Common Stock.
(d) The term "Exercise Price" means the per share purchase price of
the Warrant Shares subject to this Warrant Agreement. The Exercise Price
shall initially be $ per share (120% of the initial per share price to
the public of the shares of Common Stock sold pursuant to the Underwriting
Agreement), subject to adjustment as provided in Section 6 below.
(e) The term "Holder", when used with respect to the Warrants or the
Warrant Shares, means the person registered on the books and records of the
Company as being the holder of record of the Warrants or the Warrant Shares,
as the case may be, and, so long as the Purchasers hold of record any
Warrants or Warrant Shares, they must be included in the definition of
"Holder," and any action to be taken or approval to be given by the Holders,
unless otherwise provided in this Agreement, will require the action by, or
approval of, the Holder or Holders of at least that number of Warrants and
Warrant Shares which in the aggregate constitute a majority of all Warrant
Shares issued or issuable under this Agreement.
(f) "Options" means any warrants, options or, without limitation,
other rights granted by the Company to purchase Common Stock or Convertible
Securities.
(g) The term "Other Securities" means any stock (other than Common
Stock) and other securities of the Company or any other person (corporate or
otherwise) which the Holders of the Warrants at any time are entitled to
receive, or have received, upon the exercise of the Warrants, in lieu of or
in addition to Common Stock, or which at any time shall be issuable or shall
have been issued in exchange for or in replacement of Common Stock or Other
Securities, whether pursuant to Section 6 below or otherwise.
(h) The term "Prospectus" refers the prospectus which is part of the
Company's Registration Statement on Form SB-2 in the form first filed with
the Securities and Exchange Commission (the "Commission") pursuant to Rule
424(b) of the applicable rules and regulations (the "Rules and Regulations")
of the Commission under the Securities Act of 1933, as amended (or successor
law, as amended) (the " Securities Act").
(i) The term "Registration Statement" refers the Company's
Registration Statement on Form SB-2 (No. 333-______), as amended, when it
first became effective under the Securities Act.
(j) The term "Warrant Shares" means the shares of Common Stock (or
Other Securities) issued or issuable upon the exercise, in whole or in part,
of any of the Warrants.
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2.1 REPRESENTATIONS AND WARRANTIES. The Company represents and
warrants to the Purchasers as follows:
(a) CORPORATE ACTION. The Company has all requisite power and
authority, and has taken all necessary action, to enter into and perform all
of its obligations under this Agreement, to issue and deliver the Warrants
and to authorize and reserve for issuance, and upon payment from time to time
of the Exercise Price in accordance with the terms of this Agreement, to
issue and deliver the Warrant Shares; and this Agreement has been duly
authorized, executed and delivered by the Company and constitutes the legal,
valid and binding agreement of the Company, enforceable against the Company
in accordance with its terms, except (i) as such enforceability may be
subject to or limited by bankruptcy, insolvency, reorganization, moratorium
and other similar laws or equitable principles now or hereafter in effect
relating to or affecting creditors' rights generally (collectively,
"Equitable Defenses") and (ii) insofar as the indemnification and
contribution provisions hereof may be limited under federal and state
securities laws and the public policies underlying such laws.
(b) OUTSTANDING COMMON STOCK. The outstanding shares of Common Stock
have been duly and validly authorized and issued and are fully paid and
non-assessable and free of preemptive rights. The Warrant Shares (i) are
duly authorized under the Company's Articles of Incorporation, (ii) have been
duly and validly authorized to be issued and adequately reserved by the Board
of Directors of the Company, (iii) will, when issued and delivered to the
Holders pursuant to this Agreement, be duly and validly issued, fully paid
and non-assessable and free and clear of all liens, charges, encumbrances or
rights of others except for those which may be created by the Holder, and
(iv) and have been approved for inclusion, when issued, in the Nasdaq
National Market ("NASDAQ"). The holders of outstanding shares of capital
stock of the Company are not entitled to any preemptive or similar rights to
subscribe for or purchase Warrant Shares or other shares of capital stock of
the Company and, except as otherwise set forth or incorporated by reference
in the Prospectus, there are no outstanding rights, warrants or options to
acquire, or instruments convertible into or exchangeable for, or agreements
or understandings with respect to the sale or issuance of, any shares of
capital stock of the Company.
(c) NO VIOLATION. None of the execution or delivery of this
Agreement, the consummation of the transactions contemplated by this
Agreement or compliance with the terms and provisions of this Agreement will
(i) conflict with or constitute a breach of, or a default (or default with
notice, the passage of time or otherwise) under any bond, debenture, note or
other evidence of indebtedness or any indenture, mortgage, deed of trust or
any other agreement or instrument to which the Company is a party or by which
it is bound or to which any of its property or assets is subject, (ii) result
in the imposition of a lien on any properties of the Company or an
acceleration of indebtedness of the Company or (iii) result in a violation of
any law, administrative regulation or order of any court or governmental
agency or authority applicable to the Company or to any of their respective
properties or assets. No consent, approval, authorization or other order of
any regulatory body, administrative agency or other governmental body is
required for the valid issuance and sale of the Warrant Shares to the
Purchasers or the other transactions contemplated by this Agreement, except
for registration under the federal securities laws and for permits and
similar authorizations required under state blue sky laws or similar laws.
(d) UNDERWRITING AGREEMENT. All representations and warranties made
by the Company in Section 1 of the Underwriting Agreement, dated __________,
1998, by and among the Company, Xxxxx Xxxxxx and Xxxxx Xxxxxx (the "Selling
Shareholders") and VKCO and Commonwealth, as Representatives of the several
underwriters named therein (the "Underwriting Agreement"), are and will be at
and as of the Closing Time true and correct and
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are hereby incorporated by reference into this Agreement as if such
representations and warranties were set forth in full herein.
2.2 REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS. The Purchasers
represent and warrant to the Company that they have all requisite corporate
power and corporate authority, and have taken all necessary corporate action,
to enter into and perform all of their obligations under this Agreement and
that this Agreement has been duly authorized, executed and delivered by them
and constitutes their legal, valid and binding agreement, enforceable against
them in accordance with its terms, except (i) as such enforceability may be
subject to or limited by Equitable Defenses and (ii) insofar as the
indemnification and contribution provisions hereof may be limited under
federal and state securities laws and the public policies underlying such
laws.
3. COMPLIANCE WITH THE SECURITIES ACT.
(a) TRANSFERABILITY OF WARRANTS. The Purchasers agree that the
Warrants may not be transferred, sold, assigned or hypothecated except: (i)
to their successors in a merger or consolidation or other business
combination; (ii) to purchasers of all or substantially all of their assets;
(iii) to any officers or partners of the Purchasers; (iv) by operation of
law; or (v) as permitted below in this Section 3. The Purchasers further
agree that the Company has no obligation to effect any transfer of the
Warrants for one year after the date of this Agreement, unless the
transferee, purchaser, assignee or pledgee, as the case may be, has executed
an agreement obligating the transferee to comply with all terms and
conditions of this Warrant Agreement applicable to the transferor.
(b) TRANSFERABILITY OF WARRANT SHARES.
(i) Except as otherwise provided in this Section 3(b), each
certificate for Warrant Shares initially issued upon the exercise of any
Warrants shall be stamped or otherwise imprinted with a legend in
substantially the following form:
"The Shares represented by this certificate are subject to
the conditions specified in a Warrant Agreement, dated
____________, 1998, between Bonded Motors, Inc., Xxx Xxxxxx &
Company and Commonwealth Associates. Except to the extent
permitted by the Warrant Agreement, no transfer, sale, pledge,
hypothecation, encumbrance or other disposition of the shares
represented by this certificate shall be valid or effective until
registered under the Securities Act of 1933, as amended (or, if
applicable, a successor law thereto) or the Company has been
advised by an opinion of counsel that such shares will be
transferred in a transaction exempt from such registration and
until any applicable conditions contained in the Warrant
Agreement have been fulfilled. A copy of the Warrant Agreement
is on file at the offices of Bonded Motors, Inc. The holder of
this certificate, by acceptance of this certificate, agrees to be
bound by the provisions of the Warrant Agreement."
(ii) Prior to any transfer, sale, pledge, assignment, hypothecation
or other disposition (each, a "Transfer") of any Warrant Shares, the Holder
of such Warrant Shares must (a) give three business days prior written notice
(a "Transfer Notice") to the Company of such Holder's intention to effect the
Transfer, generally describing the manner and circumstances of the proposed
Transfer, and (b) obtain from counsel to such Holder an opinion reasonably
satisfactory to the Company that the proposed Transfer of such Warrant Shares
may be effected without registration under the Securities Act. Each
certificate evidencing such Warrant Shares
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issued upon such Transfer shall bear the restrictive legend set forth in
Section 3 (b)(i), unless in the opinion of counsel to such Holder reasonably
satisfactory to the Company that such legend is not required in order to
ensure compliance with the Securities Act.
(iii) Notwithstanding the foregoing provisions of this Section
3(b), the restrictions imposed by subsections (i) and (ii) of this Section
upon the transferability of the Warrant Shares and the legend requirements of
Section 3(b)(i) will terminate as to any particular Warrant Shares (A) when
and so long as the transfer, sale, pledge, hypothecation, encumbrance or
other disposition thereof is registered under the Securities Act or (B) when
the Holder or Holders of any Warrants or Warrant Shares has delivered to the
Company the written opinion of counsel to such Holder or Holders, which shall
be reasonably satisfactory to the Company, stating that such legend is not
required in order to ensure compliance with the Securities Act. Whenever the
restrictions imposed by this Section terminate as to any Warrant Shares, as
provided above, the Holder thereof shall be entitled to receive from the
Company, at the Company's expense, a new certificate representing such
Warrant Shares not bearing the restrictive legend set forth in Section
3(b)(i).
(c) DEMAND REGISTRATION. At any time after the day that begins one
year after the effective date of the Registration Statement and on or before
the end of the day that is five years after the effective date of the
Registration Statement, upon written, or telegraphic or telephonic notice
followed as soon as practicable by written confirmation thereof, from any
Holder or Holders (the "Requesting Holders") of that number of Warrants
and/or Warrant Shares which in the aggregate shall constitute a majority of
all Warrant Shares issued or issuable under this Agreement (excluding Warrant
Shares which have been previously sold, transferred or otherwise disposed of
in a registered public offering, pursuant to Rule 144 under the Securities
Act, as such rule may be amended from time to time, or pursuant to Regulation
S under the Securities Act, as such Regulation may be amended from time to
time, or which in the opinion of both counsel to the Company and counsel to
the Requesting Holders may otherwise then be publicly sold without
registration under the Securities Act), that such Holder or Holders request
the registration under the Securities Act of any of the Warrant Shares, the
Company must (i) immediately give notice to the other Holders and afford them
the opportunity to participate in the registration statement and (ii) as
promptly as possible after the receipt of such notice from the Requesting
Holders, but in any event within 45 days of the receipt of such notice, and
solely at its cost and expense, file a registration statement with respect to
the offering and sale or other disposition of the Warrant Shares with respect
to which it shall have received such notice. Such registration statement
may, if the Company satisfies the applicable requirements, be made on Form
S-3. If a registration requested pursuant to this Section 3(c) is an
underwritten registration, the Company and other holders of securities of the
Company may include securities in such registration without the written
consent of the Holders of the Warrant Shares for which registration has been
requested pursuant to this Section 3(c) if, but only if, the managing
underwriters of such registration advise the participating Holders of Warrant
Shares in writing that in their opinion such inclusion will not materially
affect the successful marketing of the Warrant Shares. The Holders will not
be deemed to have effected a demand registration pursuant to this Section
3(c) unless and until the registration statement is declared effective. The
Company will be obligated to file only one registration statement pursuant to
this Section 3(c) which becomes effective, whether or not the registration
statement at the time it becomes effective covers all or a portion of the
Warrant Shares.
(d) PIGGYBACK REGISTRATION. If, at any time during the period
commencing on the day that begins one year from the Closing Time and ending
at the end of the day that is six years after the Closing Time, the Company
proposes to register any shares of Common stock or Other Securities (but
excluding any shares or securities being registered pursuant to Form S-8 or
Form S-4 or any successor form to either of them), the Company must (i) give
each Holder written notice, or telecopy and telephonic notice followed as
soon as practicable by written
5
confirmation thereof, of such proposed registration at least 20 business days
prior to the filing of such registration statement and (ii) upon written
notice, or telegraphic or telephonic notice followed as soon as practicable
by written confirmation thereof, given to the Company by any Holder within 15
days after the giving of such written confirmation or written notice by the
Company, the Company shall include or cause to be included in any such
registration statement all or such portion of the Warrant Shares as such
Holder may request; PROVIDED, HOWEVER, that the Company may at any time
withdraw or cease proceeding with any such registration if it shall at the
same time withdraw or cease proceeding with the registration of the Common
Stock or Other Securities originally proposed to be registered; and,
PROVIDED, FURTHER, that in connection with any registered public offering
involving an underwriting, the managing underwriter(s) may (if in its
reasonable opinion marketing factors so require) limit the number of
securities (including any Warrants or Warrant Shares) included in such
offering (other than securities of the Company). In the event of any such
limitation, the total number of Warrant Shares to be offered for the account
of the Holders participating in the registration shall be reduced pro rata in
proportion to the respective number of shares requested to be included
therein to the extent necessary to reduce the total number of shares proposed
to be registered to the number of shares recommended by the managing
underwriter; PROVIDED, HOWEVER, that if the amount or kind of securities to
be offered for the accounts of Holders is reduced in accordance with this
sentence, the Company will not be permitted to include securities of any
persons (other than the Company) unless the Holders are permitted to
participate on a pro rata basis with other selling securityholders.
(e) COMPANY'S OBLIGATIONS IN REGISTRATION. If any Holder timely
elects to participate in an offering by including Warrant Shares in a
registration statement pursuant to Section 3(c) or (d) above, the Company
must use its best efforts to effect such registration to permit the sale of
Warrant Shares in accordance with the intended method or methods of
disposition thereof and, without limitation, pursuant thereto the Company
must:
(i) notify the Holders as to the filing of the registration
statement and of all amendments or supplements thereto filed prior to the
effective date thereof;
(ii) use its best efforts to cause any registration statement filed
under the Securities Act pursuant to Section 3(c) or (d) above to become
effective at the earliest possible date after the filing thereof and to comply
with all applicable rules and regulations of the Commission in connection
therewith; PROVIDED, that before filing a registration statement or prospectus
or any amendments or supplements thereto, including documents which would be
incorporated or deemed to be incorporated by reference in the registration
statement after the initial filing of any registration statement, the Company
will furnish to the Holders, their respective counsel and the underwriters, if
any, to be engaged in connection with the offering and sale (for purposes of
this Section 3 (e) and Section 3(f), the "Underwriters"), copies of all such
documents proposed to be filed, which documents will be subject to the review of
the Holders, their respective counsel and the Underwriters, and the Company will
not file any registration statement, or amendment thereto, or any prospectus or
any supplement thereto relating in whole or in part to the Holders' Warrant
Shares (including such documents incorporated or deemed to be incorporated by
reference) to which the Holders or the Underwriters, if any, shall reasonably
object;
(iii) notify the Holders immediately, and confirm the notice in
writing, (1) when the registration statement or any post-effective amendment
thereto becomes effective, (2) when a prospectus or prospectus supplement or
post-effective amendment has been filed, (3) of any request by the Commission
for amendments, supplements or additional information related to a
registration statement or prospectus or otherwise, (4) of the issuance by the
Commission of any stop order or of the initiation, or the threatening, of any
proceedings for that purpose known to the Company, (5) of the receipt by the
Company of any notification with respect to the suspension of qualification
of the Warrant Shares for sale in any jurisdiction or of the initiation,
6
or the threatening, of any proceedings for that purpose known to the Company,
(6) of the receipt of any comments from the Commission or any state
regulatory authority, (7) of the happening of any event which requires the
making of any changes in a registration statement or the related prospectus
or any prospectus supplement so that such documents will not contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading and (8) of the determination of the Company that a post-effective
amendment to a registration statement is necessary or appropriate;
(iv) make every reasonable effort to obtain the withdrawal of any
order suspending the effectiveness of a registration statement, or the
lifting of any suspension of the qualification (or exemption from
qualification) of any of the Warrant Shares for sale in any jurisdiction, at
the earliest possible moment;
(v) if reasonably requested by the Underwriters, if any, or the
Holders, immediately incorporate in a prospectus supplement or post-effective
amendment such information as the Holders and the Underwriters, if any, agree
should be included therein relating to the sale and distribution of the
Warrant Shares, including, without limitation, information with respect to
the number of Warrant Shares being sold to such Underwriters, the purchase
price being paid therefor by such Underwriters and with respect to any other
terms of the underwritten offering of the Warrant Shares to be sold in such
offering; make all required filings of such prospectus supplement or
post-effective amendment as soon as notified of the matters to be
incorporated in such prospectus supplement or post-effective amendment; and
supplement or amend any registration statement if reasonably requested by the
Holders or any Underwriter of Warrant Shares covered by such registration
statement;
(vi) furnish to each of the Holders whose Warrant Shares have
been included therein, their respective counsel and each Underwriter, if any,
without charge, at least one manually executed copy of any registration
statement (including all amendments thereto) and any post-effective amendment
thereto, including financial statements and schedules, all documents
incorporated therein by reference and all exhibits (including those
incorporated by reference);
(vii) during the time when a prospectus is required to be
delivered under the Securities Act in connection with the distribution of the
Warrant Shares, comply so far as it is able with all requirements imposed
upon it by the Securities Act, as now and hereafter amended, and by the Rules
and Regulations promulgated by the Commission thereunder, as from time to
time in force, so far as necessary to permit the continuance of sales of or
dealings in the Warrant Shares. If at any time when a prospectus relating to
the Warrant Shares is required to be delivered under the Securities Act any
event shall have occurred as a result of which, in the opinion of counsel for
the Company or counsel for the Holders, the prospectus relating to the
Warrant Shares as then amended or supplemented includes an untrue statement
of a material fact or omits to state any material fact required to be stated
therein or necessary to make the statements therein not misleading, or if it
is necessary at any time to amend such prospectus to comply with the
Securities Act, the Company will use its best efforts promptly to prepare and
file with the Commission an appropriate amendment or supplement in form and
substance reasonably satisfactory to the Holders;
(viii) make generally available to its security holders as soon as
practicable, but not later than 15 months following the effective date (and
each other deemed effective date) of such registration statement, an earnings
statement or statements of the Company and any subsidiaries it may then have
covering a period of at least 12 months beginning after the effective date of
the registration statement (but in no event commencing later than 90 days
after such date), which shall satisfy the provisions of Section 11(a) of the
Securities Act and Rule 158 promulgated thereunder;
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(ix) prepare and promptly file with the Commission such
amendments and post-effective amendments to each registration statement as
may be necessary to keep such registration statement continuously effective
for a period of nine months; cause the related prospectus to be supplemented
by any required prospectus supplement and, as so supplemented, to be timely
filed pursuant to Rule 424 under the Securities Act; and comply with the
provisions of the Securities Act with respect to the disposition of all
Warrant Shares covered by such registration statement during the applicable
period in accordance with the intended methods of disposition as set forth in
such registration statement or supplement to such prospectus; and in these
regards the Company will not be deemed to have used its best efforts to keep
a registration statement effective during the applicable period if it takes
any action that would result in any Holder whose Warrant Shares have been
included therein not being able to sell such Warrant Shares at any time
during such period or for more than 30 days, whether or not consecutive, in
such period;
(x) deliver to each of the Holders, their respective counsel and
the Underwriters, if any, without charge, as many copies of the prospectus or
prospectuses (including each preliminary prospectus) and any amendment or
supplement thereto as such persons may reasonably request; and the Company
consents to the use of any such prospectus or any amendment or supplement
thereto by the Holders and each of the Underwriters, if any, in connection
with the offering and sale of the Warrant Shares covered by such prospectus
or any amendment or supplement thereto;
(xi) prior to any public offering of Warrant Shares, register or
qualify or cooperate with the Holders, the Underwriters, if any, and their
respective counsel in connection with the registration or qualification (or
exemption from such registration or qualification) of such Warrant Shares for
offer and sale under the securities or blue sky laws of such jurisdictions as
the Holders or any Underwriter reasonably requests in writing; keep each such
registration or qualification (or exemption therefrom) effective during the
period the applicable registration statement is required to be kept effective
and do any and all other acts or things necessary or advisable to enable the
disposition in such jurisdictions of the Warrant Shares covered by the
applicable registration statement; PROVIDED, that the Company will not be
required to qualify generally to do business in any jurisdiction where it is
not then so qualified or to take any action which would subject it to general
service of process in any such jurisdiction where it is not then so subject;
(xii) cooperate with the Holders and the Underwriters, if any, to
facilitate the timely preparation and delivery of certificates representing
Warrant Shares to be sold, which certificates will not bear any restrictive
legends; and enable such Warrant Shares to be in such denominations and
registered in such names as the Underwriters request at least two business
days prior to any sale of Warrant Shares to the Underwriters;
(xiii) use its best efforts to cause the Warrant Shares covered by
the applicable registration statement to be registered with or approved by
such other governmental agencies or authorities as may be necessary to enable
the Holders and the Underwriters, if any, to consummate the disposition of
such Warrant Shares;
(xiv) enter into such agreements in form and substance reasonably
acceptable to the Company and its counsel (including an underwriting
agreement) and take all such other actions in connection therewith as may be
necessary to expedite or facilitate the disposition of such Warrant Shares
and, in such connection, whether or not an underwriting agreement is entered
into and whether or not the registration is an underwritten registration:
(1) make such representations and warranties to the Holders with respect to
the business of the Company and any subsidiaries it may then have, the
registration statement, the prospectus (and, if applicable, prospectus
supplement) and documents, if any, incorporated or deemed to be incorporated
by
8
reference in the registration statement (and, if applicable, prospectus
supplement), in each case in such form, substance and scope as are reasonably
requested by the Holders and confirm the same if and when requested; (2)
obtain opinions of counsel to the Company and updates thereof addressed to
the Holders with respect to the matters referred to in the preceding clause
(1) in such form, scope and substance as are reasonably requested by the
Holders; (3) in the case of an underwritten offering, enter into an
underwriting agreement in form, scope and substance as is customary in
underwritten offerings and obtain (a) opinions of counsel to the Company and
updates thereof (which counsel and opinions (in form, scope and substance)
shall be reasonably satisfactory to the Underwriters), addressed to the
Underwriters and covering the matters customarily covered in opinions
requested by underwriters in underwritten offerings and such other matters as
may be reasonably requested by the Underwriters, and (b) obtain opinions of
counsel to the Company and updates thereof (which counsel and opinions (in
form, scope and substance) shall be reasonably satisfactory to the Holders)
addressed to the Holders covering matters reasonably requested by the Holders
(whether or not such matters are different from, or in addition to, the
matters described in subclause (a) of this section 3(e)(xiv)(3); (4) obtain
"comfort" letters and updates thereof from the independent certified public
accountants of the Company (and, if necessary, any other independent
certified public accountants of any subsidiary of the Company or of any
business acquired by the Company for which financial statements and financial
data is or is required to be included in the registration statement),
addressed to the Holders and each of the Underwriters, if any, such letters
to be in customary form and covering matters of the type customarily covered
in "comfort" letters to underwriters in connection with underwritten
offerings; (5) if an underwriting agreement is entered into, it will set
forth in full the indemnification and contribution provisions and procedures
of Section 3(f) hereof (or such other indemnification and contribution
provisions as shall be acceptable to the Holders and the Underwriters of such
underwritten offering) with respect to all parties to be indemnified pursuant
to Section 3(f); and (6) the Company must deliver such documents and
certificates as are requested by the Holders and the Underwriters, if any, to
evidence the continued truth and correctness of the representations and
warranties made pursuant to clause (1) of this Section 3(e)(iv) above and to
evidence compliance with any customary conditions contained in the
underwriting agreement or other agreement entered into by the Company. Each
of the above shall be done at each closing under such underwriting or similar
agreement or as and to the extent required thereunder;
(xv) make available for inspection by a representative of the
Holders or any Underwriter participating in any disposition pursuant to such
registration statement and any attorney or accountant retained by the Holders
or such Underwriter, all financial and other records, pertinent corporate
documents and properties of the Company and its subsidiaries and cause the
officers, directors and employees of and independent accountants and
attorneys for the Company and its subsidiaries personally to meet with and to
supply all information reasonably requested by any such representative,
Underwriter, attorney or accountant in connection with any registration of
Warrant Shares; provided, that any records, information or documents that are
designated by the Company in writing as confidential shall be kept
confidential by such persons unless (i) disclosure of such records,
information or documents is required by court or administrative order, (ii)
disclosure of such records, information or document is, in the opinion of
counsel to the Holders or to any Underwriter, required pursuant to the
requirements of the Securities Act or (iii) such records, information or
documents are otherwise publicly available;
(xvi) pay all costs and expenses incident to the performance of
the Company's obligations under Sections 3(c) and (d) above and under this
Section 3(e) (collectively "Registration Expenses"), including without
limitation the fees and disbursements and cost/charges of the Company's
auditors, legal counsel, any special legal counsel and of legal counsel
(including, if applicable, counsel to the Underwriters) responsible for
qualifying the Warrant Shares under securities or blue sky laws of any
jurisdiction, all filing fees and printing expenses, all expenses in
connection with the transfer and delivery of the Warrant Shares all
9
expenses in connection with the qualification or registration of the Warrant
Shares under applicable securities or blue sky laws of such jurisdictions as
are designated by the Holders (or obtaining exemptions from such
qualification or registration under state securities or blue sky laws) and,
if applicable, the fee of the National Association of Securities Dealers,
Inc. in connection with its review; PROVIDED, that in no event shall
Registration Expenses include any underwriting discounts, commissions or fees
or the fees of counsel retained by the Holders or, except with respect to
such securities or blue sky matters in any jurisdictions, Underwriters in
connection with the sale of Warrant Shares pursuant to Section 3(c) or 3(d)
above; and
(xvii) in connection with the filing of a registration statement
pursuant to Section 3(c) or (d) above, use its best efforts to obtain
indemnification of the Holders by the Underwriter to the same extent said
Underwriter provides indemnification to the Company.
As used in this Section 3(e), the term "Holders" refers only to those
Holders who have timely elected to sell Warrants Shares in an offering.
(f) INDEMNIFICATION.
(i) The Company agrees to indemnify and hold harmless the
Purchasers, the Holders and any underwriter (as defined in the Securities
Act) for the Purchasers and the Holders, and each person, if any, who
controls (within the meaning of Section 15 of the Securities Act) any
Purchaser, any of the Holders or such underwriter against any losses, claims,
damages, liabilities (or actions in respect thereof) and all expenses
(including, but not limited to, all expenses incurred in investigating, or
defending against any litigation, commenced or threatened, or any claim),
joint or several, to which any Purchasers, any Holders or such underwriter,
or such controlling person, becomes subject, under the Securities Act, the
Securities Exchange Act of 1934, as amended (or successor law, as amended)
(the "Exchange Act"), or other federal or state statute, law or regulation,
at common law or otherwise, specifically including but not limited to losses,
claims, damages or liabilities (or actions in respect thereof) or expenses
related to negligence on the part of any such indemnified party, insofar as
any such loss, claim, damage, liability or expense (or actions in respect
thereof) (1) arises out of or is based upon any breach of any representation,
warranty or covenant of the Company in this Agreement or upon any untrue
statement or alleged untrue statement of any material fact contained in (A)
Section 2 of this Agreement, (B) any registration statement covering the
Warrant Shares as originally filed or in any amendment thereof, in the
prospectus contained therein or in an amendment or supplement thereto or (C)
in any application or other document, or any amendment or supplement thereto
(in this Section collectively called "application") executed by or on behalf
of the Company or based upon written information furnished by or on behalf of
the Company filed in any jurisdiction in order to qualify or register the
Warrant Shares under the securities or blue sky laws thereof (or to obtain
exemptions from such qualifications or registration requirements) or filed
with the Commission or any securities association or securities exchange, or
(2) arises out of or is based upon the omission or alleged omission to state
in any of the documents described in subclauses (1)(A), (B) or (C) above a
material fact required to be stated therein or necessary to make the
statements therein not misleading, and agrees to reimburse each such
indemnified person, as incurred, for any legal or other expenses incurred by
them in connection with investigation or defending any such loss, claim,
damage, liability or action; PROVIDED, HOWEVER, that the Company will not be
obligated to indemnify in any such case to the extent that any such loss,
claim, damage, liability or expense arises out of or is based upon any untrue
statement or alleged untrue statement or omission or alleged omission made
therein in reliance upon, and in conformity with, written information
furnished to the Company by the indemnified person, concerning itself,
specifically for use therein. The Company will not, without the prior
written consent of Xxx Xxxxxx & Company, settle or compromise or consent to
the entry of any judgment in any pending or threatened claim, action, suit or
proceeding in respect of which indemnification may be sought hereunder
(whether or not
10
such Xxx Xxxxxx & Company is a party to such claim, action, suit or
proceeding), unless such settlement, compromise or consent includes, without
payment by the Purchasers, an unconditional release of all indemnified
parties from all liability arising out of such claim, action, suit or
proceeding, satisfactory in form and substance to the Purchasers.
(ii) Any Holder that includes all or a part of such Holder's
Warrant Shares in a registration statement pursuant to Sections 3 (c) or (d)
above agrees to indemnify and hold harmless the Company and each of its
directors and officers who have signed any such registration statement, any
other Holder of Warrant Shares included in such registration statement and
any underwriter (as defined in the Securities Act) for the Company or the
Holders of Warrant Shares, and each person, if any, who controls (within the
meaning of Section 15 of the Securities Act) the Company or such underwriter
to the same extent as the indemnity by the Company in Section 3(f)(i), but
only with respect to any untrue statement or alleged untrue statement or
omission or alleged omission, if any, made in such registration statement, or
any amendment or supplement thereto, or in any application in reliance upon,
and in conformity with, written information furnished by the indemnifying
Holder, concerning the indemnifying Holder, to the Company or such
controlling person expressly for use in the registration statement, or any
amendment or supplement thereto, or any such application, as the case may be.
If any action shall be brought in respect of which indemnity may be sought
against any of the Holders, such Holder(s) shall have the rights and duties
given to the indemnifying party, and the persons so indemnified shall have
the rights and duties given to the indemnified party, by the provisions of
Section 3(f)(iii) below.
(iii) If any action is brought against a person in respect of
which indemnity may be sought hereunder against an indemnifying party, such
person shall promptly notify the indemnifying party in writing of the
institution of such action (but the failure to so notify shall not affect the
indemnification and other rights provided for herein except to the extent, if
any, that the indemnifying party is materially prejudiced by the failure to
so give or timely give such notice) and the indemnifying party shall assume
the defense of the action, including the employment of counsel satisfactory
to the indemnified person and payment as incurred of all fees and expenses
related thereto. The indemnified person will have the right to employ its
own counsel in any such case, but the fees and expenses of such counsel will
be at the expense of such indemnified person unless (1) the employment of
such counsel and the payment of fees and expenses thereof has been authorized
in writing by the indemnifying party in connection with the defense of the
action, (2) the indemnifying party has failed promptly after notice by such
indemnified person to assume the defense of such action or proceeding and to
employ counsel satisfactory to the indemnified person in any such action or
proceeding or (3) the named parties to any such action or proceeding
(including any impleaded parties) include both such indemnified person and
the indemnifying party, and such indemnified person have been advised by
counsel that there may be legal defenses or rights available to such
indemnified person which are different from or additional to those available
to the indemnifying party (in which case, if such indemnified person notifies
the indemnifying party in writing that it elects to employ separate counsel
at the expense of the indemnifying party, the indemnifying party will not
have the right to assume the defense of such action, it being understood,
however, that the indemnifying party will not, in connection with any one
such action or proceeding or separate but substantially similar or related
actions or proceedings in the same jurisdiction arising out of the same
general allegations or circumstances, be liable for the fees and expenses of
more than one separate firm of attorneys (together with appropriate local
counsel) at any time for such indemnified person. Anything in this paragraph
to the contrary notwithstanding, the indemnifying party will not be liable
for any settlement of any claim or action effected without its written
consent. The indemnity agreements contained in this Section shall remain in
full force and effect regardless of any investigation made by or on behalf of
any indemnified person and shall survive the sale of the Warrant Shares
pursuant to any registration statement or otherwise any termination of this
Agreement. The indemnifying party agrees promptly to notify
11
the indemnified party of the commencement of any litigation or proceedings
against the indemnifying party or any of its officers or directors in
connection with any registration statement referred to in Section 3(c) or (d)
above.
(iv) If the indemnification provided for in subsections (i), (ii)
and (iii) of this Section 3(f) from the indemnifying party is unavailable to
an indemnified party in respect of any losses, claims, damages, liabilities
or expenses referred to therein, then the indemnifying party, in lieu of
indemnifying such indemnified party, shall contribute to the amount paid or
payable by such indemnified party as a result of such losses, claims,
damages, liabilities or expenses in such proportion as is appropriate to
reflect not only the relative benefits received by the indemnified party and
the indemnifying party, but also the relative fault of the indemnifying party
and indemnified parties in connection with the actions which resulted in such
losses, claims, damages, liabilities or expenses, as well as any other
relevant equitable considerations. The relative fault of the indemnifying
party and indemnified parties will be determined by reference to, among other
things, whether any action in question, including any untrue or alleged
untrue statement of a material fact or omission or alleged omission to state
a material fact, has been made by, or relates to information supplied by, the
indemnifying party or indemnified parties, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
action. The amount paid or payable by a party as a result of the losses,
claims, damages, liabilities and expenses referred to above shall be deemed
to include, subject to the limitations set forth in subsection (iii) of this
Section 3(f), any legal or other fees or expenses incurred by such party in
connection with any investigation or proceeding. The parties agree that it
would not be just and equitable if contribution pursuant to this subsection
(iv) of this Section 3(f) were determined by pro rata allocation or by any
other method of allocation which does not take account of the equitable and
other considerations referred to in this paragraph. If the full amount of
the contribution specified in this subsection (iv) of this Section 3(f) is
not permitted by law, then such indemnified person shall be entitled to
contribution from the indemnifying party to the full extent permitted by law.
Notwithstanding the provisions of this Section 3(f)(iv), no Holder shall be
required to contribute any amount in excess of the amount by which the total
price at which the Warrant Shares of such Holder were sold to the public
exceeds the amount of any damages which such Holder has otherwise been
required to pay by reason of such untrue statement or omission. No party
found guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) will be entitled to contribution from any party
who was not found guilty of such fraudulent misrepresentation.
(v) Whenever any indemnifying or contributing party is requested
by the indemnified party or the party entitled to contribution to make a
payment pursuant to the forgoing provisions of this Section 3(f), such
payment must be made within five business days after the request and, if not
so paid, the amount due will thereafter bear interest at ten percent per
annum, compounded annually (but not in excess of the maximum amount permitted
by law).
4. EXERCISE OF WARRANTS.
(a) EXERCISE OF WARRANTS. The Warrants may be exercised from time to
time and in full or in part by the Holder thereof by surrender of the
Warrants, with the Election to Purchase attached thereto duly executed by
such Holder, to the Company at its offices at 0000 Xxxxx Xxxx Xxxxxx, Xxx
Xxxxxxx, Xxxxxxxxxx 00000, or at such other office or agency as the Company
may from time to time designate in writing to each Holder, accompanied by
payment, in cash or by cashier's check payable to the order of the Company or
as provided in Section 4(c), in the amount obtained by multiplying the number
of Warrant Shares designated by the Holder in the Election to Purchase by the
Exercise Price per share. Exercise of any Warrant shall constitute an
acknowledgment by the purchasing Holder that it will not dispose of the
Warrant Shares acquired upon such exercise except in compliance with Section
3(b) hereof and the Securities Act. Upon any partial exercise of the
Warrants, the Company at its expense will forthwith issue
12
and deliver to the purchasing Holder a new Warrant, in the name of such
Holder and for the number of Warrant Shares equal to the number of shares
called for by the surrendered Warrant (after giving effect to any adjustment
therein as provided in Section 6 below) minus the number of such Warrant
Shares (after giving effect to such adjustment) purchased by the Holder
pursuant to such exercise.
(b) COMPANY TO REAFFIRM OBLIGATIONS. On the date of any exercise of
any Warrants (except that if, on that date, the stock transfer books of the
Company are closed, in which case on the next succeeding date on which such
stock transfer books are open), the Holder exercising the same will be deemed
to have become, and thereafter will be considered, a holder of record of the
shares of Common Stock purchased upon such exercise for all purposes.
Holders of Warrants shall have no rights of share ownership until they
exercise their Warrants. The Company will, at the time of any exercise of
any Warrant, upon the request of the Holder thereof, acknowledge in writing
its continuing obligation to afford to that Holder any rights (including
without limitation any right to registration of the Warrant Shares issued
upon such exercise) to which the Holder continues to be entitled after such
exercise in accordance with the provisions of this Agreement; PROVIDED,
HOWEVER, that if the Holder of a Warrant fails to make any such request, such
failure shall not affect the continuing obligation of the Company to afford
those rights to the Holder.
(c) NET EXERCISE OF WARRANTS. Notwithstanding anything to the
contrary contained in this Section 4, any Holder may elect to exercise any
Warrant in whole or in part by receiving shares of Common Stock equal to the
value (determined below) of the Warrant (or any part hereof), upon surrender
of the Warrant (or any part thereof) at the office or agency described in
Section 4(a) above, together with notice of such election, specifying the
part of the Warrant so surrendered, in which event the Company shall issue
and deliver to the Holder a number of shares of Common Stock determined using
the following formula:
X = (Y) (A-B)
---------
A
where
X = the number of shares of Common Stock to be
issued to the Holder;
Y = the number of shares of Common Stock purchasable
under the Warrant, or portion of the Warrant,
surrendered;
A = the Current Market Price per share of the Common
Stock, determined pursuant to Section 6(d) of this
Agreement; and
B = the then current Exercise Price per share of Common
Stock.
5. DELIVERY OF STOCK CERTIFICATES, ETC., ON EXERCISE; NO FRACTIONAL
SHARES.
(a) STOCK CERTIFICATES, ETC. As soon as practicable after the exercise
of any Warrants and in any event within five business days thereafter, the
Company, at its expense (including the payment by it of any applicable issue
taxes), will cause to be issued in the name of and delivered to the
purchasing Holder a certificate or certificates for the number of fully paid
and nonassessable Warrant Shares to which such Holder shall be entitled upon
such exercise, together with any Other Securities and property (including
cash, where applicable) to which such Holder is entitled upon such exercise
pursuant to Section 6 of this Agreement or otherwise.
13
(b) NO FRACTIONAL SHARES. The Company will not issue a fractional share
of Common Stock upon exercise of a Warrant. Rather, if a fractional share would
otherwise be issued, the Company will instead issue a number of whole shares
equal to the next lowest number of whole shares and shall pay to the exercising
Holder an amount in cash equal to amount obtained by multiplying (x) the
fractional shares not issued by (y) the Current Market Price (as defined in
Section 6(d)) per share of the Common Stock on the last trading day prior to the
exercise date.
6. ANTI-DILUTION PROVISIONS. The Warrants are subject to the following
additional terms and conditions:
(a) ADJUSTMENT FOR CHANGE IN CAPITAL STOCK. If, after the date of this
Agreement, the Company:
(1) pays a dividend or makes a distribution on its Common Stock in shares
of its capital stock (including Common Stock);
(2) subdivides its outstanding shares of Common Stock into a greater
number of shares;
(3) combines its outstanding shares of Common Stock into smaller number of
shares; or
(4) issues by reclassification of its Common Stock any shares of its
capital stock or Other Securities (including without limitation any
such reclassification in connection with a consolidation or merger in
which the Company is the continuing entity);
then the Exercise Price in effect at the time of the record date of such
dividend, distribution, subdivision, combination or reclassification must be
adjusted so that the Exercise Price shall be equal to the price determined by
multiplying the Exercise Price in effect immediately prior to such event by a
fraction, (x) the numerator of which is the total number of outstanding shares
of Common Stock of the Company immediately prior to such event and (y) the
denominator of which is the total number of outstanding shares of Common Stock
of the Company immediately after such event and, as so adjusted or readjusted,
the Exercise Price will remain in effect until a further adjustment or
readjustment is required by this Section 6.
Whenever the Exercise Price payable upon exercise of each Warrant is
adjusted pursuant to this Section 6(a), the Warrant Shares shall simultaneously
be adjusted by multiplying the number of Warrant Shares issuable upon exercise
of each Warrant immediately prior to such event by the Exercise Price in effect
on the date thereof and dividing the product so obtained by the Exercise Price
as adjusted.
These adjustments referred to in the preceding paragraph will become
effective on (x) in the case of a dividend or distribution, the earlier of the
record date thereof or the distribution date thereof and (y) in the case of a
subdivision, combination or reclassification, the earlier of the record date
thereof or the effective date thereof.
(b) ADJUSTMENTS FOR OTHER DISTRIBUTIONS. If, after the date of this
Agreement, the holders of Common Stock generally have received or, on or after
the record date fixed for the determination of eligible stockholders, have
become entitled to receive (i) securities other than capital stock,
(ii) evidences of its indebtedness, (iii) assets (including cash dividends or
distributions), (iv) rights, options, warrants or convertible or exchangeable
securities (other than Convertible Securities or Options) containing the right
to subscribe for or purchase securities of the Company, then and in each such
case the Holder of each Warrant, upon the exercise thereof
14
as provided in Section 4 above, shall be entitled to receive, in addition to
the Warrant Shares otherwise receivable on such exercise, the amount of
securities, indebtedness, assets (including cash in the case referred to in
subdivision (iii) of this Section 6(b)) and such rights, options, warrants or
convertible or exchangeable securities which such Holder would hold on the
date of such exercise if on the date of this Agreement such Holder had been
the holder of record of the number of shares of Common Stock called for by
the Warrants held by such Holder and had thereafter, during the period from
the date of this Agreement to and including the date of such exercise,
retained such shares, giving effect to all adjustments called for during such
period by this Section 6.
(c) ADJUSTMENTS FOR SALE OR OTHER ISSUANCE OF COMMON STOCK.
(i) If at any time prior to the exercise of the Warrants in full,
the Company issues or sells any Common Stock without consideration or for
consideration per share less than the Current Market Price per share (as defined
in Section 6(d)) on the date of such issuance or sale and the opportunity to
purchase has been afforded to the holders of Common Stock generally, the
Exercise Price must be adjusted so that the Exercise Price equals the price
determined by multiplying the Exercise Price in effect immediately prior to the
date of such sale or issuance (which date in the event of distribution to
shareholders will be deemed to be the record date set by the Company to
determine shareholders entitled to participate in such distribution) by a
fraction, (x) the numerator of which will be (i) the number of shares of Common
Stock outstanding on the date of such sale or issuance, plus (ii) the number of
additional shares of Common Stock which the aggregate consideration received by
the Company upon such issuance or sale would purchase at such Current Market
Price per share of the Common Stock and (y) the denominator of which will be
(i) the number of shares of Common Stock outstanding on the date of such
issuance or sale, plus (ii) the number of additional shares of Common Stock
offered for purchase. Any adjustments required by this Section 6(c) must be
made immediately after such issuance or sale or record date, as the case may
be. Such adjustments shall be made successively whenever the event occurs.
(ii) For the purpose of making any adjustment in the Exercise
Price, or number of shares of Common Stock purchasable upon exercise of the
Warrants, as provided above and in Section 6(c)(vii) below, the consideration
received by the Company for any issue or sale of securities will:
(A) To the extent it consists of cash, be computed as the gross
amount of cash received by the Company before deduction of any underwriting or
similar commissions, compensation, discounts or concessions paid or allowed by
the Company in connection with such issue or sale and before deduction of any
other expenses payable in connection therewith.
(B) In case of the issuance (otherwise than upon conversion or
exchange of Convertible Securities) or sale of additional Common Stock, Options
or Convertible Securities for a consideration other than cash or a consideration
a part of which is other than cash, be the fair value of such consideration as
determined by the Board of Directors of the Company in the good faith exercise
of its business judgment, regardless of the accounting treatment thereof.
(iii) OPTIONS AND CONVERTIBLE SECURITIES. If the Company in any
manner issues or grants any Options or any Convertible Securities -- but only to
the extent (i) such Options are exercisable at less than the Current Market
Price at the date of issue of such Options or (ii) the amount paid for such
Convertible Securities per share plus any additional amount payable per share
upon conversion thereof is less than the Current Market Price per share at the
date of issue of the Convertible Securities -- and the Options are granted or
made available for purchase to the holders of Common Stock generally, the total
maximum number of shares of Common Stock
15
issuable upon the exercise of such Options or upon conversion or exchange of
the total maximum amount of such Convertible Securities at the time such
Convertible Securities first become convertible or exchangeable will (as of
the date of issue or grant of such Options or, in the case of the issue or
sale of Convertible Securities other than where they are issuable upon the
exercise of Options, as of the date of such issue or sale) be deemed to be
issued and to be outstanding for the purpose of this Section 6(c) and to have
been issued for the sum of the amount (if any) paid for such Options or
Convertible Securities and the amount (if any) payable upon the exercise of
such Options or upon conversion or exchange of such Convertible Securities at
the time such Convertible Securities first become convertible or
exchangeable; provided that, subject to the other provisions of this Section
6(c), no further adjustment of the Exercise Price will be made upon the
actual issuance of any such Common Stock or Convertible Securities or upon
the conversion or exchange of any such Convertible Securities.
(iv) CHANGE IN OPTION PRICE OR CONVERSION RATE. If the purchase
price provided for in any Option referred to in Section 6(c)(iii), or the rate
or price at which any Convertible Securities referred to in Section 6(c)(iii)
are convertible into or exchangeable for shares of Common Stock, changes at any
time (other than under or by reason of conventional provisions designed to
protect against dilution), the Exercise Price in effect at the time of such
event will be readjusted -- but only to the extent the change does not result in
either the per share Option exercise price or the amount per share payable for
such Convertible Securities plus the amount payable per share on the conversion
of such Convertible Securities to be greater than the lesser of the Current
Market Price per share at the time such Options or Convertible Securities were
issued, as referred to in Section 6(c)(iii), or the Current Market Price at the
effective date of such change -- to the Exercise Price that would have been in
effect at the time such Options or Convertible Securities then still outstanding
were initially granted, issued or sold, as if such changed purchase price,
additional consideration or conversion rate, as the case may be, was in effect
at such initial date of grant, issuance or sale, as the case may be. If the
purchase price provided for in any such Option, or the additional consideration
(if any) payable upon the conversion or exchange of any such Convertible
Securities, or the rate or price at which any such Convertible Securities are
convertible into or exchangeable for shares of Common Stock shall be changed at
any time under or by reason of conventional provisions designed to protect
against dilution, then in case of, but only to the extent of, the delivery of
shares of Common Stock upon the exercise of any such Option or upon conversion
or exchange of any such Convertible Security, the Exercise Price then in effect
hereunder will, upon issuance of such shares of Common Stock, be adjusted -- but
only to the extent such change does not result in either the per share Option
exercise price or the amount per share payable for such Convertible Securities
plus the amount payable per share on the conversion of such Convertible
Securities to be greater than the Current Market Price per share at the time
such Options or Convertible Securities were issued, as referred to in
Section 6(c)(iii) -- to such amount as would have obtained had such Option or
Convertible Security never been issued and had adjustments been made based only
upon the issuance of the shares of Common Stock for the consideration actually
received for such Option or Convertible Security and such Common Stock.
(v) EXPIRATION OF OPTION OR CONVERSION RIGHTS. In the event of
the termination or expiration of any right to purchase Common Stock under any
Option or of any right to convert or exchange Convertible Securities, the
Exercise Price will, upon such termination, be changed to the Exercise Price
that would have been in effect at the time of such expiration had such Option or
Convertible Security, to the extent outstanding immediately prior to such
expiration, never been issued, and the shares of Common Stock issuable
thereunder shall no longer be deemed to be Common Stock Outstanding. As used in
this Section 6.3(c)(v), the word "Expiration" includes a termination, without
payment of consideration by the Company, of a right to purchase, convert or
exchange.
16
(vi) EXCLUDED EVENTS. Notwithstanding anything in this Section 6
to the contrary, the Exercise Price will not be adjusted by virtue of (i) the
Warrants or the existence or exercise of any options of the Company outstanding
on the date hereof and disclosed in the Prospectus or (ii) the issuance or sale
of, or the grant of Options to purchase, Common Stock to employees, directors or
officers of the Company or its subsidiaries, if any, in each case who do not
beneficially own more than five percent of the Common Stock (assuming for this
purpose that all Options then held by the person, including new options then
being granted, but no other Option or Convertible Securities, have then been
exercised in full) or are not the children of such a five percent or greater
shareholder or the spouses of such children, pursuant to stock option plans
currently existing, or hereafter approved by the Board of Directors of the
Company, at a price which is less than the Current Market Price at the time of
such issuance or sale (all as determined in accordance with this Section 6(c)).
(vii) ADJUSTMENT IN NUMBER OF WARRANT SHARES. Whenever the Exercise
Price payable upon exercise of a Warrant is adjusted pursuant to this Section
6(c), the Warrant Shares issuable on exercise of the Warrant shall
simultaneously be adjusted by multiplying the number of the Warrant Shares
issuable upon exercise of the Warrant immediately prior to such event by the
Exercise Price in effect on the date thereof and dividing the product so
obtained by the Exercise Price, as adjusted.
(d) CURRENT MARKET PRICE. For the purpose of any computation under
Section 6, the "Current Market Price" per share of Common Stock at any date
shall be the average of the daily closing prices for the 15 consecutive trading
days commencing 20 trading days before such date. The closing price for each
day will be (i) the last reported sale price, regular way or, in case no such
reported sale takes place on such day, the average of the closing bid and asked
prices, regular way, for such day, in either case on the principal national
securities exchange on which the shares are listed or admitted to trading, or
(ii) if the shares are not listed or admitted to trading on any national
securities exchange, but are traded in the NASDAQ, or if the shares are
otherwise securities for which transaction reports are required to be made on a
real-time basis pursuant to an effective transaction reporting plan under Rule
11a3-1 of the Rules of the Commission under the Exchange Act, the last reported
sales price or (iii) if the shares are not listed or admitted to trade, and if
last sale data is not then available from NASDAQ, but they are traded in the
over-the-counter market, the average of the representative closing bid and asked
quotations for the Common Stock on NASDAQ or any comparable system, or if the
Common Stock is not listed on NASDAQ or a comparable system, the average of the
closing bid and asked prices as furnished by two members of the National
Association of Securities Dealers, Inc. selected from time to time by the
independent members of the Board of Directors of the Company for that purpose.
(e) MINIMUM ADJUSTMENT. No adjustment in the number of Warrant Shares
purchasable hereunder will be required unless the adjustment would require an
increase or decrease of at least one percent in the number of Warrant Shares
purchasable upon the exercise of each Warrant. No adjustment in the Exercise
Price payable hereunder will be required unless such adjustment would require an
increase or decrease in the Exercise Price of at least $.01 per share. Any
adjustments that by reason of this Section 6(e) are not required to be made must
be carried forward and taken into account in any subsequent adjustment and,
notwithstanding the foregoing, all adjustments so carried forward shall be made
at the time of, and in connection with, each exercise of any of the
Warrants. All calculations shall be made to the nearest one-thousandth of a
share, or cent, as the case may be.
(f) OTHER SECURITIES. If at any time, as a result of an adjustment made
pursuant to this Section 6, the Holders shall become entitled to purchase any
shares of capital stock or Other Securities of the Company other than shares of
Common Stock, thereafter the number of such Other Securities so purchasable upon
exercise of each Warrant and the Exercise Price for such
17
securities shall be subject to adjustment from time to time in a manner and
on terms as nearly equivalent as practicable to the provisions with respect
to the Warrant Shares contained in this Section 6, and the provisions of
Sections 3, 4, 5 and 7, inclusive, with respect to the Warrant Shares, shall
apply on like terms to any such Other Securities.
(g) CONSOLIDATIONS, MERGERS AND OTHER TRANSACTIONS. In case of any
consolidation of the Company with or merger of the Company into another
corporation or entity or in case of any sale or conveyance to another
corporation or entity of the property of the Company as an entirety or
substantially as an entirety, the Company or such successor or purchasing
corporation or entity, as the case may be, will execute a binding agreement
agreeing that each Holder will have the right thereafter upon payment of the
Exercise Price in effect immediately prior to such action to purchase upon
exercise of each Warrant the kind and amount of shares and other securities and
property which the Holder would have owned or have been entitled to receive
after the happening of such consolidation, merger, sale or conveyance had such
Warrant been exercised immediately prior thereto. The Company must not complete
any such consolidation, merger, sale or conveyance unless the agreement referred
to in the immediately preceeding sentence is executed and delivered, is binding
and the mailing thereof provided for in the immediately following sentence is
done at the time of such completion. The Company must mail by first class mail,
postage prepaid, to each Holder, notice of the execution of and a copy of such
agreement. Such agreement shall provide for adjustments, which must be as
nearly equivalent as is practicable to the adjustments provided for in this
Section 6 and for other protections and rights (including without limitation
registration rights) for the Holders as are as nearly equivalent as is practical
to those they have under this Warrant Agreement. The provisions of this Section
6 shall similarly apply to successive consolidations, mergers, sales or
conveyances. No Holder shall have any duty or responsibility to determine the
correctness of any provisions contained in any such agreement relating either to
the kind or amount of shares of stock or Other Securities or property receivable
upon exercise of Warrants or with respect to the method employed and provided
therein for any adjustments.
(h) NOTICE OF ADJUSTMENTS. Whenever the Exercise Price or the kind or
amount of securities purchasable under the Warrants is adjusted pursuant to any
of the provisions of this Warrant Agreement, the Company must forthwith
thereafter cause to be sent to the Purchasers and all other Holders a
certificate setting forth the adjustments in the Exercise Price and the number
of shares and, in addition, setting forth in detail the facts requiring such
adjustments. In addition, the Company at its expense must within 90 days
following the end of each of its fiscal years during the term of this Agreement
and promptly upon the reasonable request of the Holders of at least ten percent
of the Warrants in connection with the exercise from time to time of all or any
portion of any Warrants, cause independent public accountants of nationally
recognized standing selected by the Company to compute any such adjustment in
accordance with the terms of the Warrants and prepare and deliver to the Holders
a certificate setting forth such adjustment and showing in detail the facts upon
which the adjustment is based.
(i) NOTICE OF CERTAIN EVENTS. In the event of (i) any taking by the
Company of a record of the holders of any class of securities for the purpose of
determining the holders thereof who are entitled to receive any dividend or
other distribution, any right to subscribe for, purchase or otherwise acquire
any shares of stock of any class or any Other Securities or property or to
receive any other right, (ii) any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the Company or any
sale or conveyance of all or substantially all of the assets of the Company to,
or consolidation or merger of the Company with or into, any other corporation or
other entity or (iii) any voluntary or involuntary dissolution or liquidation of
the Company, then and in each such event the Company will mail or cause to be
mailed to each Holder and, in addition, on the same date as the earliest such
mailing, telecopied and mailed to the Purchasers, a notice specifying the date
upon which any such record date is to be taken for the purpose of such dividend,
distribution or right, stating the amount and
18
character of such dividend, distribution or right and the date on which any
such reorganization, reclassification, recapitalization, sale, conveyance,
consolidation, merger, dissolution, liquidation or winding-up is to take
place and the time, if any, as of which the holders of record of Common Stock
(or Other Securities) will be entitled to exchange their shares of Common
Stock (or Other Securities) for securities or other property deliverable upon
such reorganization, reclassification, recapitalization, sale, conveyance,
consolidation, merger, dissolution, liquidation or winding-up. In all
events, such notice must be mailed at least 15 business days prior to the
proposed record date therefor.
(j) OTHER EVENTS ALTERING EXERCISE PRICE. Upon the occurrence of any
event not specifically denominated in this Section 6 as altering the Exercise
Price and the amount of Common Stock purchasable upon the exercise of the
Warrants, if the reasonable exercise of the business judgment of the independent
members of the Board of Directors of the Company (or, if none, the Board of
Directors or the Company) requires, on equitable principles, one or more of the
alteration of the Exercise Price in a manner favorable to Holders or a
corresponding adjustment in a manner favorable to Holders to the number of
shares for which the Warrants are exercisable, the Exercise Price and such
number of shares shall be so equitably altered.
7. FURTHER COVENANTS OF THE COMPANY. The Company hereby agrees as
follows:
(a) RESERVATION OF STOCK. The Company must at all times reserve and keep
available, solely for issuance and delivery upon the exercise of the Warrants,
all Warrant Shares from time to time issuable upon the exercise of the Warrants.
(b) TITLE TO STOCK. All of the Warrant Shares delivered upon the
exercise of the Warrants and payment of the Exercise Price (including for this
purpose by a net exercise of Warrants as permitted by Section 4(c)) will be
validly issued, fully paid and nonassessable; each Holder of a Warrant will
receive good and marketable title to the Warrant Shares, free and clear of all
voting and other trust arrangements, liens, encumbrances, equities, preemptive
rights and, without limitation, claims of any type whatsoever; and the Company
will at or before the time of issuance, have paid all taxes, if any, in respect
of the issuance thereof.
(c) EXCHANGE OF WARRANTS. Subject to Section 3(a) hereof, upon surrender
for exchange of any Warrant to the Company, the Company at its expense will
promptly issue and deliver to the Holder thereof a new Warrant or Warrants of
like tenor, in the name of such Holder, calling in the aggregate for the number
of Warrant Shares called by the Warrants so surrendered.
(d) REPLACEMENT OF WARRANTS. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
Warrants and, in the case of any such loss, theft or destruction, upon delivery
of an indemnity agreement by the Warrant Holder reasonably satisfactory in form
and amount to the Company or, in the case of any such mutilation, upon surrender
by the Holder and cancellation of such Warrants, the Company at its expense will
execute and deliver, in lieu thereof, new Warrants of like tenor and amount.
(e) REPORTING BY THE COMPANY. The Company agrees that, during the term
of the Warrants, it will use its best efforts to keep current in the filing of
all forms and other materials which it may be required to file with the
appropriate regulatory authority pursuant to the Exchange Act and all other
forms and reports required to be filed with any regulatory authority having
jurisdiction over the Company. The Company will take such further action as any
Holder may reasonably request, all to the extent required from time to time to
enable such Holder to sell Warrant Shares without registration under the
Securities Act within the limitation of the exemptions provided by (a) Rule 144
under the Securities Act, as such Rule may be
19
amended from time to time, or (b) any similar rule or regulation hereafter
adopted by the Commission.
8. OTHER HOLDERS. The Warrants are issued upon the following terms, to
all of which each Holder or owner thereof by the taking thereof consents and
agrees: (a) any person who shall become a transferee, within the limitations on
transfer imposed by Section 3(a) hereof, of a Warrant properly endorsed, must
take such Warrant subject to the provisions of Sections 3(a) and 3(b) hereof and
thereupon will be authorized to represent that such transferee is the absolute
owner thereof and, subject to the restrictions contained in this Warrant
Agreement, will be empowered to transfer absolute title by endorsement and
delivery thereof to a permitted BONA FIDE purchaser for value; and (b) each
prior taker or owner waives and renounces all equities or rights in such Warrant
in favor of each such permitted BONA FIDE purchaser, and each such permitted
BONA FIDE purchaser will acquire absolute title thereto and to all rights
presented thereby; and (c) until such time as the respective Warrant is
transferred on the books of the Company, the Company may treat the registered
Holder thereof as the absolute owner thereof for all purposes, notwithstanding
any notice to the contrary.
9. GENERAL PROVISIONS. All notices, certificates and other
communications from or at the request of the Company to the Holder of any
Warrant or Warrant Share as such must be mailed by first class, registered or
certified mail, postage prepaid to the Holder, with a copy to each of Xxx Xxxxxx
& Company, 000 Xxxxxxxxxx Xxxxxx, Xxxxx 0000, Xxx Xxxxxxxxx, Xxxxxxxxxx 00000,
Attn.: President, and Commonwealth Associates, _________________, Attn:
___________, or to such other address for itself as either Purchaser has
furnished to the Company in writing. This Warrant Agreement and any of the
terms hereof may be changed, waived, discharged or terminated only by an
instrument in writing signed by the party against which enforcement of such
change, waiver, discharge or termination is sought. In addition and
notwithstanding the foregoing, the provisions of Section 3(c) and (d) and
Section 6 hereof cannot be changed, waived, discharged or terminated in a manner
adverse to the Holders without the written consent of one or more Holder or
Holders who collectively own, of record, that number of Warrants and Warrant
Shares which in the aggregate constitute two-thirds of all Warrant Shares issued
or issuable under this Agreement (excluding Warrant Shares which have been
previously sold, transferred or otherwise disposed of in a registered public
offering, pursuant to Rule 144 under the Securities Act, as such Rule may be
amended from time to time, or pursuant to Regulation S, as such regulation may
be amended from time to time). The headings in this Warrant Agreement are for
purposes of reference only and shall not limit or otherwise affect any of the
terms hereof. This Warrant Agreement, together with the forms of instruments
annexed hereto, supersedes all prior negotiations and all prior written and
prior and contemporaneous oral agreements, representations, warranties and
inducements and constitutes the full and complete agreement of the parties
hereto with respect to the subject matter hereof.
10. GOVERNING LAW. THIS WARRANT AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS, AND NOT THE LAW PERTAINING TO
CHOICE OR CONFLICT OF LAWS, OF THE STATE OF NEW YORK.
11. EXECUTION AND DELIVERY. This Agreement may be executed in two or
more counterparts, each of which shall constitute an original, but all of which
together shall constitute one and the same instrument, and may be delivered by
facsimile transmission of signature pages.
20
BONDED MOTORS, INC.
By:
--------------------------------------
Name:
Title:
The foregoing Agreement is hereby
confirmed and accepted as of the
date first above written
XXX XXXXXX & COMPANY
COMMONWEALTH ASSOCIATES
By: Xxx Xxxxxx & Company
By:
--------------------------------
Name:
Title:
21
EXHIBIT A
FORM OF WARRANT
THE WARRANTS REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE CONDITIONS
SPECIFIED IN A WARRANT AGREEMENT, DATED __________, 1998, BETWEEN BONDED MOTORS,
INC. (THE "COMPANY"), XXX XXXXXX & COMPANY AND COMMONWEALTH ASSOCIATES. EXCEPT
TO THE EXTENT PERMITTED BY THE WARRANT AGREEMENT, NO TRANSFER, SALE, PLEDGE,
HYPOTHECATION, ENCUMBRANCE OR OTHER DISPOSITION OF THESE WARRANTS OR THE SHARES
OF COMMON STOCK OF THE COMPANY ACQUIRED ON EXERCISE OF THESE WARRANTS WILL BE
VALID OR EFFECTIVE UNTIL REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(OR, IF APPLICABLE, A SUCCESSOR LAW THERETO) OR THE COMPANY HAS BEEN ADVISED BY
AN OPINION OF COUNSEL THAT THESE WARRANTS OR SUCH SHARES OF COMMON STOCK WILL BE
TRANSFERRED IN A TRANSACTION EXEMPT FROM SUCH REGISTRATION AND UNTIL ANY
APPLICABLE CONDITIONS CONTAINED IN THE WARRANT AGREEMENT HAVE BEEN FULFILLED. A
COPY OF THE WARRANT AGREEMENT IS ON FILE AT THE OFFICES OF THE COMPANY. THE
HOLDER OF THIS CERTIFICATE, BY ACCEPTANCE OF THIS CERTIFICATE, AGREES TO BE
BOUND BY THE PROVISIONS OF THE WARRANT AGREEMENT.
No._______
Warrant to Purchase up to ______ Shares of Common Stock
EXERCISABLE COMMENCING 9:00 A.M., SAN FRANCISCO TIME, ON ___________, 1999 AND
ENDING 5:00 P.M., WEST COAST TIME, ON _______________________ , 2003
BONDED MOTORS, INC.
COMMON STOCK PURCHASE WARRANT
This certifies that ___________________________, or registered assigns, is
the holder (the "Holder") of this Warrant to purchase, subject to adjustment,
the number of fully paid and nonassessable shares set forth above (the "Warrant
Shares") of Common Stock, no par value (the "Common Stock"), of Bonded Motors,
Inc., a California corporation (the "Company"), at the per share exercise price,
subject to adjustment (the "Exercise Price"), set forth in the Warrant
Agreement, dated __________, 1998 (the "Warrant Agreement"), between the
Company, Xxx Xxxxxx & Company and Commonwealth Associates, at any time prior to
the Expiration Date (defined below), by surrendering this Warrant, with the form
of subscription set forth hereon duly executed, to the Company at the Company's
offices at 0000 Xxxxx Xxxx Xxxxxx, Xxx Xxxxxxx, Xxxxxxxxxx 00000, or at such
other office or agency as the Company may designate and by paying in full, in
the manner provided in Section 4 of the Warrant Agreement, the Exercise Price
for the Warrant Shares then purchased. Payment of the Exercise Price may be
made in cash, cashier's check payable to the order of the Company or surrender
of a portion of this Warrant as provided in Section 4(c) of the Warrant
Agreement.
This Warrant may be exercised at any time and from time to time, in whole
or in part, at the option of the Holder, commencing 9:00 a.m., San Francisco
time, on _________, 1999 until 5:00 p.m., San Francisco time, on __________,
2003 (the "Expiration Date"). Upon the purchase of fewer than all of the
Warrant Shares, there must be issued to the Holder a new Warrant exercisable for
the number of Warrant Shares for which this Warrant has not been exercised or
surrendered as payment. Prior to the Expiration Date, the Holder is entitled to
exchange this Warrant, without charge, for another Warrant or Warrants
exercisable for the same aggregate number of Warrant Shares.
Prior to the Expiration Date, subject to any applicable laws restricting
transferability and to any restriction on transferability that may appears on
this Warrant or is contained in the Warrant Agreement, the Holder is entitled to
transfer this Warrant upon delivery thereof, duly endorsed by the Holder or by
his, her or its duly authorized attorney-in-fact or representative, or
accompanied by proper evidence of succession, assignment or authority to
transfer, with the form of assignment set forth hereon duly executed. Upon any
such transfer, a new Warrant or Warrants exercisable for the same aggregate
number of Warrant Shares will be issued by the Company, without charge, in
accordance with instructions in the form of assignment.
This Warrant is issued under and in accordance with the Warrant Agreement
and, except as otherwise provided in this Warrant, is subject to the terms and
provisions contained in the Warrant Agreement. Upon certain events provided for
in the Warrant Agreement, the Exercise Price and the number of shares of Common
Stock issuable upon the exercise of this Warrant are subject to adjustment. No
fractional shares will be issued upon the exercise of a Warrant. Instead, the
Company shall pay the value of such fractional share to the Holder in cash, as
provided in the Warrant Agreement.
THIS WARRANT WILL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
INTERNAL LAWS AND NOT THE LAW PERTAININGS TO CHOICE OR CONFLICT OF LAWS, OF THE
STATE OF NEW YORK.
The Company has caused this Warrant to be duly executed.
BONDED MOTORS, INC.
By:
------------------------------
Name:
Title:
Attest:
------------------------------
Name:
Title: Secretary
2
ELECTION TO PURCHASE
The undersigned hereby irrevocably elects to exercise this Warrant to
purchase ______________ shares of Common Stock, acknowledges that it will not
dispose of such shares except in compliance with Section 3(b) of the Warrant
Agreement and the Securities Act of 1933, as amended, and requests that
Certificates for such shares be issued and delivered as follows:
Issue to:
---------------------------------------------------
(Name)
---------------------------------------------------
(Address, including Zip Code)
---------------------------------------------------
(Social Security or Tax Identification Number)
Deliver to:
---------------------------------------------------
(Name)
---------------------------------------------------
(Address, including Zip Code)
In full payment of the aggregate purchase price with respect to the number
of shares being purchased upon exercise of this Warrant, the undersigned hereby
(check applicable payment method): (i) / / tenders payment of $_________ by
cashier's check payable to the order of Bonded Motors, Inc. or (ii) / /
surrenders to the Company Warrants to purchase ________ shares of Common
Stock. If the Warrant is exercised hereby (and, if applicable, surrendered to
purchase shares of Common Stock) so as to purchase fewer than all the shares of
Common Stock that may be purchased pursuant to this Warrant, the undersigned
requests that a new Warrant representing the number of full shares for which the
Warrant has not been exercised or surrendered be issued and delivered as set
forth below.
Name of Warrant holder or Assignee:
---------------------------------
(Please Print)
Address:
-----------------------------------------------------------------
-----------------------------------------------------------------
Signature Dated:
(Signature must conform in all respects to name of holder as specified on the
face of the Warrant)
3
ASSIGNMENT
For value received, the undersigned hereby sells, assigns and transfers to
the Assignee named below all of the rights of the undersigned represented by
the within Warrant, with respect to the number of shares of Common Stock set
forth below:
Number of
Name of Shares of Taxpayer Identification
Assignee Address Common Stock Number
----------------- -------------------- ------------ ------------------------
and does hereby irrevocably authorizes the Company to make such transfer on the
Warrant Register maintained at the principal office of the Company and, if
applicable, to issue to the undersigned a Warrant for the portion of such
Warrant not so sold, assigned or transferred.
Dated:
------------, ----- -------------------------------
Signature
(Signature must conform in all respects to name of the Holder as specified on
the face of the Warrant).
4
