EXHIBIT 5
THIS WARRANT AND THE SECURITIES ISSUABLE UPON THE EXERCISE HEREOF
(THESE "SECURITIES") HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE
SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A
REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES UNDER
SUCH ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN
EXEMPTION UNDER SUCH LAWS, TOGETHER WITH, IN CERTAIN CASES, AN OPINION
OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED. THE SECURITIES REPRESENTED BY THIS
CERTIFICATE ARE SUBJECT TO CERTAIN VOTING AGREEMENTS AS SET FORTH IN A
STOCKHOLDERS AGREEMENT, AS AMENDED FROM TIME TO TIME, BY AND AMONG THE
REGISTERED OWNER OF THIS CERTIFICATE, THE COMPANY AND CERTAIN OTHER
HOLDERS OF SECURITIES OF THE COMPANY, A COPY OF WHICH IS AVAILABLE FOR
INSPECTION AT THE OFFICES OF THE SECRETARY OF THE COMPANY.
XXX.XXX, INC.
WARRANT TO PURCHASE SHARES
OF COMMON STOCK
Date of Issuance: December 9, 2003 Certificate No. W-2
THIS CERTIFIES THAT, for value received, Deutsche Bank AG London and its
assigns are entitled to subscribe for and purchase 105,471,053 shares of duly
authorized, validly issued, fully paid and nonassessable Common Stock (as
adjusted pursuant to Section 4 hereof, the "Shares") of XXX.XXX, INC., a
Delaware corporation (the "Company"), at the price of $0.38 per share (such
price and such other price as shall result, from time to time, from the
adjustments specified in Section 4 hereof is herein referred to as the "Warrant
Price"), subject to the provisions and upon the terms and conditions hereinafter
set forth. As used herein the term "Date of Grant" shall mean the December 9,
2003. The term "Warrant" as used herein shall be deemed to include any warrants
issued upon transfer or partial exercise of this Warrant unless the context
clearly requires otherwise. Capitalized terms used but not otherwise defined
herein shall have the respective meaning ascribed to them in the Note and
Warrant Purchase Agreement dated as of July 18, 2003 by and among the Company
and the Investors listed on Schedule A and Schedule B thereto (the "Purchase
Agreement").
1. Term. The purchase right represented by this Warrant is exercisable, in
whole or in part, at any time and from time to time from the Date of Grant
through the date three (3) years after the Initial Closing Date.
2. Method of Exercise; Payment; Issuance of New Warrant. Subject to Section
1 hereof, the purchase right represented by this Warrant may be exercised by the
holder hereof, in whole or in part and from time to time, at the election of the
holder hereof, by (a) the surrender of this Warrant (with
the notice of exercise substantially in the form attached hereto as Exhibit A-1
duly completed and executed) at the principal office of the Company and the
payment to the Company, by certified or bank check, or by wire transfer to an
account designated by the Company (a "Wire Transfer") of an amount equal to the
then applicable Warrant Price multiplied by the number of Shares then being
purchased, or (b) if in connection with a registered public offering of the
Company's securities, the surrender of this Warrant (with the notice of exercise
form attached hereto as Exhibit A-2 duly completed and executed) at the
principal office of the Company together with notice of arrangements reasonably
satisfactory to the Company for payment to the Company either by certified or
bank check or by Wire Transfer from the proceeds of the sale of shares to be
sold by the holder in such public offering of an amount equal to the then
applicable Warrant Price per share multiplied by the number of Shares then being
purchased, or (c) exercise of the "net issuance" right provided for in Section
10.2 hereof, or (d) the tender of all or a portion of a Senior Secured
Promissory Note issued by the Company pursuant to the Purchase Agreement in a
principal amount equal to the then applicable Warrant Price multiplied by the
number of Shares then being purchased. The person or persons in whose name(s)
any certificate(s) representing the Shares shall be issuable upon exercise of
this Warrant shall be deemed to have become the holder(s) of record of, and
shall be treated for all purposes as the record holder(s) of, the shares
represented thereby (and such shares shall be deemed to have been issued)
immediately prior to the close of business on the date or dates upon which this
Warrant is exercised. In the event of any exercise of the rights represented by
this Warrant, certificates for the shares of stock so purchased shall be
delivered to the holder hereof as soon as practicable and, if requested by the
holder of this Warrant, the Company shall cause its transfer agent to deliver
the certificate representing Shares issued upon exercise of this Warrant to a
broker or other person (as directed by the holder exercising this Warrant)
within the time period required to settle any trade made by the holder after
exercise of this Warrant.
3. Stock Fully Paid; Reservation of Shares. All Shares that may be issued
upon the exercise of the rights represented by this Warrant will, upon issuance
pursuant to the terms and conditions herein, be fully paid and nonassessable,
and free from all taxes, liens and charges with respect to the issue thereof.
During the period within which the rights represented by this Warrant may be
exercised, the Company will at all times have authorized, and reserved for the
purpose of the issue upon exercise of the purchase rights evidenced by this
Warrant, a sufficient number of shares of its Common Stock to provide for the
exercise of the rights represented by this Warrant.
4. Adjustment of Warrant Price and Number of Shares. The number and kind of
securities purchasable upon the exercise of this Warrant and the Warrant Price
shall be subject to adjustment from time to time upon the occurrence of certain
events, as follows:
(a) Reclassification or Merger. In case of any reclassification or
change of securities of the class issuable upon exercise of this Warrant (other
than a change in par value, or from par value to no par value, or from no par
value to par value, or as a result of a subdivision or combination), or in case
of any merger of the Company with or into another corporation (other than a
merger with another corporation in which the Company is the surviving
corporation and which does not result in any reclassification or change of
outstanding securities issuable upon exercise of this Warrant), the Company, or
such surviving corporation, as the case may be, shall duly execute and deliver
to the holder of this Warrant a new Warrant (which, if not in substantially the
form of this Warrant, shall be in form and substance satisfactory to the holder
of this Warrant), or the
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Company shall make appropriate provision without the issuance of a new Warrant,
so that the holder of this Warrant shall have the right to receive upon exercise
of this Warrant, at a total purchase price not to exceed that payable upon the
exercise of the then unexercised portion of this Warrant, and in lieu of the
shares of Common Stock theretofore issuable upon exercise of this Warrant, the
kind and amount of shares of stock, other securities, money and property
receivable upon such reclassification, change or merger by a holder of the
number of shares of Common Stock purchasable under this Warrant immediately
preceding the consummation of such reclassification or merger. Such new Warrant
shall provide for adjustments that shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Section 4. The provisions of
this subparagraph (a) shall similarly apply to successive reclassifications,
changes and mergers.
(b) Subdivision or Combination of Shares. If the Company at any time
while this Warrant remains outstanding and unexpired shall subdivide or combine
its outstanding shares of Common Stock, the Warrant Price shall be
proportionately decreased and the number of Shares issuable hereunder shall be
proportionately increased in the case of a subdivision and the Warrant Price
shall be proportionately increased and the number of Shares issuable hereunder
shall be proportionately decreased in the case of a combination.
(c) Stock Dividends and Other Distributions. If the Company at any
time while this Warrant is outstanding and unexpired shall (i) pay a dividend
with respect to its Common Stock payable in Common Stock, then the Warrant Price
shall be adjusted, from and after the record date fixed for the determination of
the shareholders of the Company entitled to receive such dividend or
distribution, to that price determined by multiplying the Warrant Price in
effect immediately prior to such date of determination by a fraction (A) the
numerator of which shall be the total number of shares of Common Stock
outstanding immediately prior to such dividend or distribution, and (B) the
denominator of which shall be the total number of shares of Common Stock
outstanding immediately after such dividend or distribution; or (ii) make any
other distribution with respect to Common Stock (except any distribution
specifically provided for in Sections 4(a) and 4(b)), then, in each such case,
provision shall be made by the Company such that the holder of this Warrant
shall receive upon exercise of this Warrant a proportionate share of any such
dividend or distribution as though it were the holder of the Shares as of the
record date fixed for the determination of the shareholders of the Company
entitled to receive such dividend or distribution.
(d) Adjustment for Issuance of Shares of Common Stock Below Warrant
Price. If the Company shall issue, or be deemed to issue (as provided below),
any additional shares of Common Stock other than Excluded Stock, as defined
below ("Additional Shares of Common Stock") for a consideration per share less
than the Warrant Price in effect immediately prior to the issuance of such
Additional Shares of Common Stock (excluding stock splits, stock dividends,
combinations, reclassifications and capital reorganizations which are covered in
Sections 4(a), 4(b) and 4(c) above), the Warrant Price shall be reduced
concurrent with each such issuance to a price calculated as follows:
Adjusted Warrant Price = (Outstanding Stock x Warrant Price) + Additional Stock
Consideration Outstanding Stock + No. of Additional Shares of Common Stock
As used herein:
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"Additional Stock Consideration" means the consideration received by the Company
upon the issuance of the Additional Shares of Common Stock.
"Convertible Securities" means any evidence of indebtedness, shares or
securities, in each case convertible into or exchange for Additional Shares of
Common Stock.
"Excluded Stock" means; (a) securities issued, or deemed issued (as provided
below), to directors, officers, employees or consultants of the Company or a
subsidiary of the Company in connection with their service as directors of the
Company or a subsidiary of the Company, their employment by the Company or a
subsidiary of the Company or their retention as consultants by the Company or a
subsidiary of the Company under the Company's Amended and Restated 1999 Stock
Plan, the Vector Internet Services Inc. 1997 Stock Option Plan, the Vector
Internet Services Inc. 1999 Stock Option Plan, the Company's 1999 Employee Stock
Purchase Plan or the Company's Amended and Restated 2001 Stock Option and
Incentive Plan (the "Plans"), plus such additional number of shares issued or
issuable to directors, officers, employees or consultants of the Company or a
subsidiary of the Company under any amendment of the Plans, or under other
plans, adopted or assumed by the Company with the approval of the Board of
Directors of the Company, plus such number of shares of Common Stock which are
repurchased by the Company from such persons pursuant to contractual rights held
by the Company and at repurchase prices not exceeding the respective original
purchase prices paid by such persons to the Company therefor; (b) shares of
Common Stock issuable upon exercise of warrants outstanding as of the date
hereof; (c) shares of Common Stock issued, or deemed issued (as provided below),
pursuant to a merger, consolidation or stock or asset acquisition approved by
the Company's Board of Directors; (d) shares of Common Stock issuable upon the
conversion of the Series X Preferred Stock or the Series Y Preferred Stock; (e)
shares of Common Stock issued as payment of interest in accordance with the
terms of the Notes issued pursuant to the Purchase Agreement; and (f) the
issuance, or deemed issuance, of securities of the Company for any purpose and
in any amount as approved by the Company's Board of Directors, including the
approval of (i) a majority of the Series X Directors, (ii) the Series Y Director
(as defined in the Amended and Restated Stockholders Agreement dated, as of July
18, 2003 among the Company and the Investors named therein (the "Stockholders
Agreement")), if any, and (iii) the Warrant Investor Directors (as defined in
the Stockholders Agreement), if any.
"No. of Additional Shares of Common Stock" means the number of units of
Additional Shares of Common Stock issued in connection with the issuance of the
same.
"Options" means rights, options or warrants to subscribe for, purchase or
otherwise acquire shares of Common Stock or Convertible Securities.
"Outstanding Stock" means the total number of shares of Common Stock outstanding
plus the total number of shares of Common Stock issuable upon conversion or
exercise of outstanding Convertible Securities (including this Warrant and all
other warrants) immediately prior to the issuance of the Additional Shares of
Common Stock; provided that the number of shares of Common Stock outstanding at
any given time shall not include shares owned or held by or for the account of
the Company.
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No adjustment in the Warrant Price need be made if such adjustment would result
in a change in the Warrant Price of less than $0.01. Any such adjustment which
is not made shall be carried forward and shall be made at the time of and
together with any subsequent adjustment which, on a cumulative basis, amounts to
an adjustment of $0.01 or more in the Warrant Price. No adjustment in the
Warrant Price of this Warrant shall be made in respect of the issuance of
Additional Shares of Common Stock unless the consideration per share for such
Additional Shares of Common Stock issued or deemed to be issued (as provided
below) by the Company is less than the Warrant Price then in effect on the date
of, and immediately prior to, such issue, for this Warrant.
For purposes of making any adjustment required under this Section 4(d), the
consideration received by the Company for any issue or sale of securities shall
(a) to the extent that it consists of cash be computed as the amount of cash
received by the Company without deduction of any underwriting or similar
commissions, compensation or concessions paid or allowed by the Company in
connection with such issue or sale, (b) to the extent that it consists of
property other than cash, be computed at the fair market value of that property
as determined in good faith by the Board of Directors, and (c) if Additional
Shares of Common Stock, Convertible Securities or right or Options are issued or
sold together with other securities or other assets of the Company for a
consideration which covers both, be computed (as provided in clauses (a) and (b)
above) as the portion of the consideration so received that may be reasonably
determined in good faith by the Board of Directors to be allocable to such
Additional Shares of Common Stock, Convertible Securities or rights or Options.
If the holders of a majority-in-interest of the warrants issued pursuant to the
Purchase Agreement shall, in good faith, disagree with any determination made by
the Board of Directors of the Company of the fair market value of any property
(including without limitation any securities other than shares of Common Stock)
pursuant to the warrants issued pursuant to the Purchase Agreement (such holders
hereinafter referred to as the "Requesting Holders"), and such disagreement is
in respect of property valued by the Board of Directors of the Company at more
than $500,000, then the Requesting Holders may by written notice to the Company
(an "Appraisal Notice"), given within 15 days after notice to the holders of the
warrants issued pursuant to the Purchase Agreement following such determination,
elect to contest such determination; provided, however, that the holders of the
warrants issued pursuant to the Purchase Agreement may not seek appraisal or any
determination of fair market value to the extent that the Company has received a
fairness opinion or other appraisal from an independent appraiser selected by
the Board of Directors of the Company (including the Warrant Investor Directors,
if any) in connection with the transaction giving rise to such determination.
Within 15 days after an Appraisal Notice, the Company shall engage an Appraiser
to make an independent determination of such fair market value (the "Appraiser's
Determination"), and to deliver to the Company and the holder of this Warrant a
report describing its methodology and results in reasonable detail within 15
days of such engagement. The Company and the holder of this Warrant shall be
afforded reasonable opportunities to discuss the appraisal with the Appraiser.
The Appraiser's Determination shall be final and binding on the Company and the
holder of this Warrant, absent manifest error. The costs of conducting an
appraisal, including all fees and expenses of the Appraiser, shall be borne one
half by the Requesting Holders (among the Requesting Holders, pro rata according
to the number of shares issuable upon exercise of outstanding warrants issued
under the Purchase Agreement that are held by the Requesting Holders) and one
half by the Company. "Appraiser" means an independent appraiser chosen by the
Board of Directors of the Company with the consent of the Requesting Holder with
the greatest number of Warrant Shares issuable upon
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exercise of the warrants issued pursuant to the Purchase Agreement, which
consent shall not be unreasonably withheld or delayed.
For purposes of the adjustment required under this Section 4(d), if at any time
or from time to time after the Date of Grant, the Company issues or sells any
Options or Convertible Securities, then in each case the Company shall be deemed
to have issued at the time of the issuance of such Options or Convertible
Securities the maximum number of Additional Shares of Common Stock (as set forth
in the instruments relating thereto, giving effect to any provision contained
therein for a subsequent upward adjustment of such number) issuable upon
exercise or conversion thereof and to have received as consideration for the
issuance of such shares of Common Stock an amount equal to the total amount of
consideration, if any, received by the Company for the issuance of such Options
or Convertible Securities plus, in the case of such Options, the minimum amounts
of consideration, if any (as set forth in the instruments relating thereto,
giving effect to any provision contained therein for a subsequent downward
adjustment of such consideration), payable to the Company upon the exercise of
such Options and, in the case of Convertible Securities, the minimum amounts of
consideration, if any, payable to the Company upon the subsequent conversion of
any such Convertible Security (other than by cancellation of liabilities or
obligations evidenced by such Convertible Securities). No further adjustment of
the Warrant Price, adjusted upon the issuance of such Options or Convertible
Securities, shall be made as a result of the actual issuance of Additional
Shares of Common Stock on the exercise of any such Options or the conversion of
any such Convertible Securities. If any such Options or the conversion privilege
represented by any such Convertible Securities shall expire without having been
exercised, the Warrant Price adjusted upon the issuance of such Options or
Convertible Securities shall be readjusted to the Warrant Price which would have
been in effect had an adjustment been made on the basis that the only Additional
Shares of Common Stock so issued were the Additional Shares of Common Stock, if
any, actually issued or sold for the consideration received by the Company for
the granting of all such Options, whether or not exercised, plus the
consideration received for issuing or selling the Convertible Securities
actually converted plus the consideration, if any, actually received by the
Company (other than by cancellation of liabilities or obligations evidenced by
such Convertible Securities) on the conversion of such Convertible Securities.
Upon the happening of any of the following events, namely, if the purchase price
provided for in any Option, the additional consideration, if any, payable upon
the conversion or exchange of any Convertible Securities, or the rate at which
Convertible Securities are convertible into or exchangeable for Common Stock
shall change at any time (including, but not limited to, changes under or by
reason of provisions designed to protect against dilution), the Warrant Price in
effect at the time of such event shall forthwith be readjusted to the Warrant
Price which would have been in effect at such time had such Options or
Convertible Securities still outstanding provided for such changed purchase
price, additional consideration or conversion rate, as the case may be, at the
time initially granted, issued or sold, but only if as a result of such
adjustment the Warrant Price then in effect hereunder is thereby reduced; and on
the termination of any such Option or any such right to convert or exchange such
Convertible Securities, the Warrant Price then in effect hereunder shall
forthwith be increased to the Warrant Price which would have been in effect at
the time of such termination had such Option or Convertible Securities, to the
extent outstanding immediately prior to such termination, never been issued.
(e) Adjustment of Number of Shares. Upon each adjustment in the
Warrant Price, the number of Shares purchasable hereunder shall be adjusted, to
the nearest whole share, to the
6
product obtained by multiplying the number of Shares purchasable immediately
prior to such adjustment in the Warrant Price by a fraction, the numerator of
which shall be the Warrant Price immediately prior to such adjustment and the
denominator of which shall be the Warrant Price immediately thereafter. In no
event shall any further adjustment to the Warrant Price or number of shares
issuable upon exercise of this Warrant be made pursuant to this Section 4(e) in
connection with an event resulting in an adjustment in the Warrant Price and/or
the number of Shares issuable upon exercise of this Warrant pursuant to Sections
4(a), (b),(c) or (d) of this Warrant.
5. Notice of Adjustments. Whenever the Warrant Price or the number of
Shares purchasable hereunder shall be adjusted pursuant to Section 4 hereof, the
Company shall make a certificate signed by its chief financial officer setting
forth, in reasonable detail, the event requiring the adjustment, the amount of
the adjustment, the method by which such adjustment was calculated, and the
Warrant Price and the number of Shares purchasable hereunder after giving effect
to such adjustment, and shall cause copies of such certificate to be mailed
(without regard to Section 13 hereof, by first class mail, postage prepaid) to
the holder of this Warrant at such holder's last known address.
6. Fractional Shares. No fractional shares of Common Stock will be issued
in connection with any exercise hereunder, but in lieu of such fractional shares
the Company shall make a cash payment therefor based on the fair market value of
the Common Stock on the date of exercise as reasonably determined in good faith
by the Company's Board of Directors.
7. Compliance with Securities Act; Disposition of Warrant or Shares of
Common Stock.
(a) Compliance with Securities Act. The holder of this Warrant, by
acceptance hereof, agrees that this Warrant, and the Shares to be issued upon
exercise hereof are being acquired for investment and that such holder will not
offer, sell or otherwise dispose of this Warrant, or any Shares except under
circumstances which will not result in a violation of the Securities Act of
1933, as amended (the "Act"), or any applicable state securities laws. Upon
exercise of this Warrant, unless the Shares being acquired are registered under
the Act and any applicable state securities laws or an exemption from such
registration is available, the holder hereof shall confirm in writing that the
Shares so purchased are being acquired for investment and not with a view toward
distribution or resale in violation of the Act and shall confirm such other
matters related thereto as may be reasonably requested by the Company. This
Warrant and all Shares issued upon exercise of this Warrant (unless registered
under the Act and any applicable state securities laws) shall be stamped or
imprinted with a legend in substantially the following form:
These securities have not been registered under the Securities Act of
1933, as amended, or any state securities laws. They may not be sold,
offered for sale, pledged or hypothecated in the absence of a
registration statement in effect with respect to the securities under
such Act and any applicable state securities laws or pursuant to an
exemption under such laws, together with, in certain cases, an opinion
of counsel reasonably satisfactory to the Company that such
registration is not required.
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Said legend shall be removed by the Company, upon the request of a holder, at
such time as the restrictions on the transfer of the applicable security shall
have terminated. In addition, in connection with the issuance of this Warrant,
the holder specifically represents to the Company by acceptance of this Warrant
as follows:
(1) The holder is aware of the Company's business affairs
and financial condition, and has acquired information about the Company
sufficient to reach an informed and knowledgeable decision to acquire this
Warrant. The holder is acquiring this Warrant, and will acquire the Shares
issuable upon exercise of this Warrant, for its own account for investment
purposes only and not with a view to, or for the resale in connection with, any
"distribution" thereof in violation of the Act; provided, however, that, subject
to compliance with the terms of the Purchase Agreement, the Stockholders
Agreement and applicable law, the disposition of such holder's property shall at
all times be within its control.
(2) The holder understands that neither this Warrant nor the
Shares issuable upon exercise of this Warrant have been registered under the Act
in reliance upon a specific exemption therefrom, which exemption depends upon,
among other things, the bona fide nature of the holder's investment intent as
expressed herein.
(3) The holder further understands that this Warrant and the
Shares issuable upon exercise of this Warrant must be held indefinitely unless
subsequently registered under the Act and qualified under any applicable state
securities laws, or unless exemptions from registration and qualification are
otherwise available. The holder is aware of the provisions of Rule 144,
promulgated under the Act and that the Company has no obligation to register
this Warrant under the Act or to qualify this Warrant under any applicable state
securities laws.
(4) The holder is an "accredited investor" as such term is
defined in Rule 501 of Regulation D promulgated under the Act.
(b) Disposition of Warrant or Shares. With respect to any offer, sale
or other disposition of this Warrant or any Shares acquired pursuant to the
exercise of this Warrant prior to registration of such Warrant or Shares, the
holder hereof agrees to give written notice to the Company prior thereto,
describing briefly the manner thereof, together with a written opinion of such
holder's counsel, or other evidence reasonably satisfactory to the Company, to
the effect that such offer, sale or other disposition may be effected without
registration or qualification (under the Act as then in effect or any federal or
state securities law then in effect) of this Warrant or the Shares and
indicating whether or not under the Act certificates for this Warrant or the
Shares to be sold or otherwise disposed of require any restrictive legend as to
applicable restrictions on transferability in order to ensure compliance with
such law. Upon receiving such written notice and reasonably satisfactory opinion
or other evidence, the Company, as promptly as practicable but no later than
fifteen (15) days after receipt of the written notice, shall notify such holder
that such holder may sell or otherwise dispose of this Warrant or such Shares,
all in accordance with the terms of the notice delivered to the Company. If a
determination has been made pursuant to this Section 7(b) that the opinion of
counsel for the holder or other evidence is not reasonably satisfactory to the
Company, the Company shall so notify the holder promptly with details thereof
after such determination has been made. Notwithstanding the foregoing, this
Warrant or such Shares may, as to such federal
8
laws, be offered, sold or otherwise disposed of in accordance with Rule 144
under the Act, provided that the Company shall have been furnished with such
information as the Company may reasonably request to provide a reasonable
assurance that the provisions of Rule 144 have been satisfied. Each certificate
representing this Warrant or the Shares thus transferred (except a transfer
pursuant to Rule 144 or 144A) shall bear a legend as to the applicable
restrictions on transferability in order to ensure compliance with such laws,
unless in the aforesaid opinion of counsel for the holder, such legend is not
required in order to ensure compliance with such laws. The Company may issue
stop transfer instructions to its transfer agent in connection with such
restrictions.
(c) Applicability of Restrictions. Neither any restrictions of any
legend described in this Warrant nor the requirements of Section 7(b) above
shall apply to any transfer of, or grant of a security interest in, this Warrant
(or the Common Stock obtainable upon exercise thereof) or any part hereof (i) to
a partner of the holder if the holder is a partnership or to a member of the
holder if the holder is a limited liability company, (ii) to a partnership of
which the holder is a partner or a limited liability company of which the holder
is a member, or (iii) to any affiliate of the holder if the holder is a
corporation; provided, however, in any such transfer, if applicable, the
transferee shall on the Company's request agree in writing to be bound by the
terms of this Warrant as if an original holder hereof.
8. Rights as Shareholders; Information. No holder of this Warrant, as such,
shall be entitled to vote or receive dividends or be deemed the holder of Common
Stock or any other securities which may at any time be issuable on the exercise
hereof for any purpose, nor shall anything contained herein be construed to
confer upon the holder of this Warrant, as such, any of the rights of a
shareholder of the Company or any right to vote for the election of directors or
upon any matter submitted to shareholders at any meeting thereof, or to receive
notice of meetings, or to receive dividends or subscription rights or otherwise
until this Warrant shall have been exercised and the Shares purchasable upon the
exercise hereof shall have become deliverable, as provided herein.
Notwithstanding the foregoing, the Company will transmit to the holder of this
Warrant such information, documents and reports as are generally distributed to
the holders of any class or series of the securities of the Company for which
this warrant is then exercisable concurrently with the distribution thereof to
the shareholders.
9. Registration Rights. The Company has granted registration rights to the
holder of this Warrant for the resale of the Common Stock of the Company
obtained upon exercise hereof, pursuant to the Stockholders Agreement.
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10. Additional Rights.
10.1 Notice of Corporate Action. In the event the Company proposes to: (i) pay,
distribute, or take a record of the holders of its Common Stock for the purpose
of determining the holders thereof who are entitled to receive, any dividend or
other distribution, or any right to subscribe for, purchase or otherwise acquire
any shares of capital stock or any other securities or property, or (ii)
consummate any capital reorganization, reclassification, recapitalization,
consolidation, merger, transfer of all or substantially all of the Company's
assets, dissolution, liquidation or winding-up, or any similar transaction,
then, at least 10 days prior to the earlier of any applicable record date or
such event, as the case may be, the Company shall mail to the holder of this
Warrant a notice specifying: (a) the date or expected date on which any such
payment or distribution is to be made or record is to be taken and the amount
and character of any such dividend, distribution or right; (b) the date or
expected date on which any such reorganization, reclassification,
recapitalization, consolidation, merger, transfer, dissolution, liquidation,
winding-up or similar transaction is to take effect and any record date
therefor; (c) the time as of which any holders of record of shares of Common
Stock and/or any other class of securities shall be entitled to exchange their
shares of Common Stock and/or other securities for the securities or other
property deliverable upon such reorganization, reclassification,
recapitalization, consolidation, merger, transfer, dissolution, liquidation,
winding-up or similar transaction and a description in reasonable detail of such
transaction; and (d) in each case, the expected effect on the Warrant Price of
each such transaction or event. The Company shall update any such notice to
reflect any change in the foregoing information.
10.2 Right to Convert Warrant into Stock: Net Issuance.
(a) Right to Convert. In addition to and without limiting the rights
of the holder under the terms of this Warrant, the holder shall have the right
to convert this Warrant or any portion thereof (the "Conversion Right") into
shares of Common Stock as provided in this Section 10.2 at any time or from time
to time during the term of this Warrant. Upon exercise of the Conversion Right
with respect to a particular number of Shares subject to this Warrant (the
"Converted Warrant Shares"), the Company shall deliver to the holder (without
payment by the holder of any exercise price or any cash or other consideration)
that number of shares of fully paid and nonassessable Common Stock as is
determined according to the following formula:
X = B - A
-----
Y
Where: X = the number of shares of Common Stock to be issued to the
holder upon such exercise
Y = the fair market value of one share of Common Stock
A = the aggregate Warrant Price of the specified number of
Converted Warrant Shares immediately prior to the exercise
of the Conversion Right (i.e., the number of Converted
Warrant Shares multiplied by the Warrant Price)
10
B = the aggregate fair market value of the specified number of
Converted Warrant Shares (i.e., the number of Converted
Warrant Shares multiplied by the fair market value of one
Converted Warrant Share)
No fractional shares shall be issuable upon exercise of the Conversion Right,
and, if the number of shares to be issued determined in accordance with the
foregoing formula is other than a whole number, the Company shall pay to the
holder an amount in cash equal to the fair market value of the resulting
fractional share on the Conversion Date (as hereinafter defined). For purposes
of Section 9 of this Warrant, shares issued pursuant to the Conversion Right
shall be treated as if they were issued upon the exercise of this Warrant.
(b) Method of Exercise. The Conversion Right may be exercised by the
holder by the surrender of this Warrant at the principal office of the Company
together with a written statement (which may be in the form of Exhibit A-1 or
Exhibit A-2 hereto) specifying that the holder thereby intends to exercise the
Conversion Right and indicating the number of shares subject to this Warrant
which are being surrendered (referred to in Section 10.2(a) hereof as the
Converted Warrant Shares) in exercise of the Conversion Right. Such conversion
shall be effective upon receipt by the Company of this Warrant together with the
aforesaid written statement, or on such later date as is specified therein (the
"Conversion Date"), and, at the election of the holder hereof, may be made
contingent upon the closing of the sale of the Company's Common Stock to the
public in a public offering pursuant to a Registration Statement under the Act
(a "Public Offering"). Certificates for the Shares issuable upon exercise of the
Conversion Right and, if applicable, a new Warrant evidencing the balance of the
Shares remaining subject to this Warrant, shall be issued as of the Conversion
Date and shall be delivered to the holder within thirty (30) days following the
Conversion Date.
(c) Determination of Fair Market Value. For purposes of this Section
10.2, "fair market value" of a share of Common Stock as of a particular date
(the "Determination Date") shall mean:
(i) If the Conversion Right is exercised in connection with and
contingent upon a Public Offering, and if the Company's Registration Statement
relating to such Public Offering ("Registration Statement") has been declared
effective by the Securities and Exchange Commission, then the initial "Price to
Public" specified in the final prospectus with respect to such offering.
(ii) If the Conversion Right is not exercised in connection with
and contingent upon a Public Offering, then as follows:
(A) If traded on a securities exchange or the Nasdaq National Market, the
fair market value of the Common Stock shall be deemed to be the average of
the closing prices of the Common Stock on such exchange or market over the
five trading days immediately prior to the Determination Date;
(B) If traded on the Nasdaq Stock Market (other than the Nasdaq National
Market) or other over-the-counter system, the fair market value of the
Common Stock shall be deemed
11
to be the average of the closing bid prices of the Common Stock over the
five trading days immediately prior to the Determination Date; and
(C) If there is no public market for the Common Stock, then fair market
value shall be determined by (i) mutual agreement of the holders of a
majority-in-interest of the warrants issued pursuant to the Purchase
Agreement who are then seeking to exercise their Conversion Rights (the
"Converting Holders") and the Company or (ii) if no such mutual agreement
can be reached within 15 days, then the higher of (a) the book value of a
share of the Common Stock as determined by a firm of independent public
accountants selected (within 10 days after the failure of the Company and
the Converting Holders to reach mutual agreement) by the Board of Directors
of the Company with the consent of the holders of the majority-in-interest
of the warrants issued pursuant to the Purchase Agreement that are
beneficially owned by Converting Holders, which consent shall not be
unreasonably withheld or delayed, as at the last day of any month ending
within 60 days preceding the date as of which the determination is to be
made (such determination of the independent public accountant to be
completed within 30 days after such independent public accountant is chosen
by the Company and the Converting Holders) or (b) the fair value thereof
determined in good faith by an independent appraiser (chosen within 10 days
after the failure of the Company and the Converting Holders to reach mutual
agreement by the Board of Directors of the Company with the consent of the
Converting Holder exercising the Conversion Right with respect to the
greatest number of shares, which consent shall not be unreasonably withheld
or delayed) as of a date which is within 15 days of the date as of which
the determination is to be made (such determination of the independent
appraiser to be completed within 30 days after such independent appraiser
is chosen by the Company and the Converting Holders). The fees and expenses
of any such independent public accountant or independent appraiser shall be
borne one half by the Converting Holders (among the Converting Holders, pro
rata according to the number of shares for which Conversion Rights are
being exercised) and one half by the Company.
If closing prices or closing bid prices are no longer reported by a securities
exchange or other trading system, the closing price or closing bid price shall
be that which is reported by such securities exchange or other trading system at
4:00 p.m. New York City time on the applicable trading day.
10.3 Exercise Prior to Expiration. To the extent this Warrant is not previously
exercised as to all of the Shares subject hereto, and if the fair market value
of one share of the Common Stock is greater than the Warrant Price then in
effect, this Warrant shall be deemed automatically exercised pursuant to Section
10.2 above (even if not surrendered) immediately before its expiration. For
purposes of such automatic exercise, the fair market value of one share of
Common Stock upon such expiration shall be determined pursuant to Section
10.2(c). To the extent this Warrant or any portion thereof is deemed
automatically exercised pursuant to this Section 10.3, the Company agrees to
promptly notify the holder hereof of the number of Shares, if any, the holder
hereof is to receive by reason of such automatic exercise.
11. Representations and Warranties. The Company represents and warrants to
the holder of this Warrant as follows:
12
(a) This Warrant has been duly authorized and executed by the Company
and is a valid and binding obligation of the Company enforceable in accordance
with its terms, subject to laws relating to bankruptcy, insolvency, the relief
of debtors or creditors' rights generally and the rules of law or principles at
equity governing specific performance, injunctive relief and other equitable
remedies;
(b) The Shares have been duly authorized and reserved for issuance by
the Company as of the Date of Grant and, when issued in accordance with the
terms hereof, will be validly issued, fully paid and non-assessable;
(c) The execution and delivery of this Warrant as of the Date of
Grant, and the issuance of the Shares upon exercise of this Warrant in
accordance with the terms hereof (i) are not and will not be, inconsistent with
the Company's certificate of incorporation or by-laws, (ii) assuming the
holder's representations to the Company set forth in Section 7(a) are true and
complete, do not and will not contravene any law, governmental rule or
regulation, judgment or order applicable to the Company, (iii) do not and will
not conflict with or contravene any provision of, or constitute a default under,
any indenture, mortgage, contract or other instrument of which the Company is a
party or by which it is bound, and (iv) assuming the holder's representations to
the Company set forth in Section 7(a) are true and complete, do not and will not
require the consent or approval of, the giving of notice to, the registration or
filing with or the taking of any action in respect of or by, any Federal, state
or local government authority or agency or other person, except for the filing
of notices pursuant to federal and state securities laws, which filings will be
effected by the time required thereby; and
(d) As of the Date of Grant, there are no actions, suits, audits,
investigations or proceedings pending or, to the knowledge of the Company,
threatened against the Company in any court or before any governmental
commission, board or authority which, if adversely determined, will have a
material adverse effect on the ability of the Company to perform its obligations
under this Warrant.
12. Modification and Waiver. This Warrant and any provision hereof may be
changed, waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of the same is sought.
13. Notices. Any notice, request, communication or other document required
or permitted to be given or delivered to the holder hereof or the Company shall
be delivered, or shall be sent by certified or registered mail, postage prepaid,
to each such holder at its address as shown on the books of the Company or to
the Company at the address indicated therefor on the signature page of this
Warrant with a copy to the General Counsel at the same address and with another
copy to Xxxxx, Xxxxxxx & Xxxxxxxxx, LLP, 000 Xxxx Xxxxxx, Xxxxxx, XX 00000,
Attention: Xxxx X. Xxxxxxx, or at such other address as such party may designate
by ten (10) days' advance written notice to the other parties.
14. Binding Effect on Successors. This Warrant shall be binding upon any
corporation succeeding the Company by merger or consolidation and all of the
obligations of the Company relating to the Shares issuable upon the exercise or
conversion of this Warrant shall survive the
13
exercise, conversion and termination of this Warrant and all of the covenants
and agreements of the Company shall inure to the benefit of the successors and
assigns of the holder hereof.
15. Lost Warrants or Stock Certificates. The Company covenants to the
holder hereof that, upon receipt of evidence reasonably satisfactory to the
Company of the loss, theft, destruction or mutilation of this Warrant or any
stock certificate and, in the case of any such loss, theft or destruction, upon
receipt of an indemnity reasonably satisfactory to the Company, or in the case
of any such mutilation upon surrender and cancellation of such Warrant or stock
certificate, the Company will make and deliver a new Warrant or stock
certificate, of like tenor, in lieu of the lost, stolen, destroyed or mutilated
Warrant or stock certificate.
16. Descriptive Headings. The descriptive headings of the several
paragraphs of this Warrant are inserted for convenience only and do not
constitute a part of this Warrant. The language in this Warrant shall be
construed as to its fair meaning without regard to which party drafted this
Warrant.
17. Governing Law. This Warrant shall be construed and enforced in
accordance with, and the rights of the parties shall be governed by, the laws of
the State of New York.
18. Survival of Representations, Warranties and Agreements. All
representations and warranties of the Company and the holder hereof contained
herein shall survive the Date of Grant, the exercise or conversion of this
Warrant (or any part hereof) or the termination or expiration of rights
hereunder. All agreements of the Company and the holder hereof contained herein
shall survive indefinitely until, by their respective terms, they are no longer
operative.
19. Remedies. In case any one or more of the covenants and agreements
contained in this Warrant shall have been breached, the holders hereof (in the
case of a breach by the Company), or the Company (in the case of a breach by a
holder), may proceed to protect and enforce their or its rights either by suit
in equity and/or by action at law, including, but not limited to, an action for
damages as a result of any such breach and/or an action for specific performance
of any such covenant or agreement contained in this Warrant.
20. No Impairment of Rights. The Company will not, by amendment of its
certificate of incorporation or through any other means, avoid or seek to avoid
the observance or performance of any of the terms of this Warrant, but will at
all times in good faith assist in the carrying out of all such terms and in the
taking of all such action as may be necessary or appropriate in order to protect
the rights of the holder of this Warrant against impairment.
21. Severability. The invalidity or unenforceability of any provision of
this Warrant in any jurisdiction shall not affect the validity or enforceability
of such provision in any other jurisdiction, or affect any other provision of
this Warrant, which shall remain in full force and effect.
22. Recovery of Litigation Costs. If any legal action or other proceeding
is brought for the enforcement of this Warrant, or because of an alleged
dispute, breach, default, or misrepresentation in connection with any of the
provisions of this Warrant, the successful or prevailing party or parties shall
be entitled to recover reasonable attorneys' fees and other costs incurred in
that action or proceeding, in addition to any other relief to which it or they
may be entitled.
14
23. Entire Agreement; Modification. This Warrant and the Purchase Agreement
constitutes the entire agreement between the parties pertaining to the subject
matter contained in it and supersedes all prior and contemporaneous agreements,
representations, and undertakings of the parties, whether oral or written, with
respect to such subject matter.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
--------------------------------------------
15
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed in its
corporate name by its duly authorized officer and to be dated as of the Date of
Grant set forth on the first page to this Warrant.
XXX.XXX, INC.
By:/s/ Xxxxxx X. XxXxxxxx
----------------------
Name: Xxxxxx X. XxXxxxxx
Title: Chief Financial Officer
Address: 000 Xxxx Xxxxx Xxxxx, 0xx Xxxxx
Xxx Xxxxx, XX 00000
EXHIBIT A-1
NOTICE OF EXERCISE
To: XXX.XXX, INC. (the "Company")
1. The undersigned hereby:
|_| elects to purchase __ shares of Common Stock of the Company pursuant to the
terms of the attached Warrant, and tenders herewith payment of the purchase
price of such shares in full, or
|_| *elects to exercise its net issuance rights pursuant to Section 10.2 of the
attached Warrant with respect to __ shares of Common Stock.
2. Please issue a certificate or certificates representing said shares in
the name of the undersigned or in such other name or names as are specified
below:
_________________________________________
(Name)
_________________________________________
_________________________________________
(Address)
3. The undersigned represents that the aforesaid shares are being
acquired for the account of the undersigned for investment and not with a view
to, or for resale in connection with, the distribution thereof and that the
undersigned has no present intention of distributing or reselling such shares,
all except as in compliance with applicable securities laws.
_________________________________________
(Signature)
___________________________
(Date)
A-2
EXHIBIT A-2
NOTICE OF EXERCISE
To: XXX.XXX, INC. (the "Company")
1. Contingent upon and effective immediately prior to the closing (the
"Closing") of the Company's public offering contemplated by the Registration
Statement on Form S, (File No. ______________) which was filed with the
Securities and Exchange Commission on ____________, 20__, the undersigned
hereby:
|_| elects to purchase __ shares of Common Stock of the Company (or such lesser
number of shares as may be sold on behalf of the undersigned at the
Closing) pursuant to the terms of the attached Warrant, or
|_| elects to exercise its net issuance rights pursuant to Section 10.2 of the
attached Warrant with respect to __ Shares of Common Stock.
2. Please deliver to the custodian for the selling shareholders a stock
certificate representing __ such shares.
3. The undersigned has instructed the custodian for the selling
shareholders to deliver to the Company $__ or, if less, the net proceeds due the
undersigned from the sale of shares in the aforesaid public offering. If such
net proceeds are less than the purchase price for such shares, the undersigned
agrees to deliver the difference to the Company prior to the Closing.
_________________________________________
(Name)
_________________________________________
_________________________________________
(Address)
___________________________
(Date)
A-3
