WARRANT AGREEMENT
March 28, 2000
Capital West Securities, Inc.
000 X. Xxxxxxxx, Xxxxx 000
One Leadership Square
Xxxxxxxx Xxxx, Xxxxxxxx 00000
Ladies and Gentlemen:
MGi2, Inc., a Delaware corporation (the "Company"), does hereby issue
and sell to Capital West Securities, Inc. ("Capital West") or any permitted
assigns thereof warrants (the "Warrants") to purchase up to an aggregate of
190,000 shares of the Company's common stock, par value $.01 per share (the
"Common Stock"), subject to adjustment and the terms and conditions contained in
this Agreement.
1. ISSUANCE OF WARRANTS; EXERCISE PRICE. The Warrants, which are in the form
attached hereto as Exhibit "A," are issued to Capital West concurrently with the
execution of this Agreement in consideration of the services Capital West has
performed for the Company and the payment by Capital West to the Company of the
sum of $5,000.00, the receipt and sufficiency of which are hereby acknowledged
by the Company. Capital West, or such other holder or holders of the Warrants to
whom transfer is authorized in accordance with the terms of this Agreement,
shall have the right to purchase up to an aggregate of 190,000 shares of Common
Stock at an exercise price per share of Common Stock equal to 165% of the public
offering price per share of Common Stock as set forth in the Company's Form N-2
Registration Statement, Registration No.333-95905 (the "Registration
Statement"), as declared effective by the U.S. Securities & Exchange Commission
(the "Exercise Price"). The number, character and Exercise Price of such shares
of Common Stock covered by the Warrants are subject to adjustment as hereinafter
provided. The term "Common Stock" includes, unless the context otherwise
requires, the stock and other securities and property receivable upon exercise
of the Warrants.
2. REPRESENTATIONS AND WARRANTIES. The Company represents and warrants to
Capital West and to each subsequent holder of the Warrants the following.
2.1 AUTHORITY. This Agreement has been duly authorized, executed
and delivered by the Company and constitutes the valid and
binding obligation of the Company enforceable in accordance
with its terms. Neither the issuance of the Warrants nor the
issuance of the shares of Common Stock issuable upon exercise
of the Warrants will result in a breach or violation of any
terms or provisions of, or constitute a default under, any
contract, indenture, mortgage, deed of trust, loan agreement
or other agreement or instrument to which the Company is a
party or by which the Company is bound, the Certificate of
Incorporation or Bylaws of the Company, or any law, order,
rule, regulation or decree of any government, governmental
instrumentality or court, domestic or foreign, or result in
the creation or imposition of any lien, charge or encumbrance
upon any property or assets of the Company.
2.2 COMPLIANCE WITH LAWS. No consent, approval, authorization or
order of any court or governmental agency or body is required
for the sale and issuance of the Warrants or the sale and
issuance of the shares of Common Stock issuable upon exercise
of the Warrants, except such as have been obtained or the
restrictions on transferability as may be required under the
Securities Act of 1933, as amended (the "1933 Act"), and such
as may be required under state securities or blue sky laws in
connection with the issuance of the Warrants and the shares of
Common Stock issuable upon exercise of the Warrants. Upon
exercise of the Warrants by the holder thereof, the shares of
Common Stock with respect to which the Warrants are exercised
will be validly issued, fully paid, and non-assessable, and
good and marketable title to such shares of Common Stock will
be delivered to such holder free and clear of all liens,
encumbrances, equities, claims or preemptive or similar
rights.
2.3 REPORTING. During the term of this Agreement, the Company will
make timely filings of all periodic and other reports and
forms and other materials required (but only to the extent
required) to be filed with the Commission pursuant to the 1933
Act, the Investment Company Act of 1940, as amended (the
"Investment Company Act"), or the Securities Exchange Act of
1934, as amended (the "Exchange Act") (the 1933 Act,
Investment Company Act and the Exchange Act being collectively
called the "Acts"), and with any national securities exchange
or quotation system upon which any of the securities of the
Company may be listed.
3. NOTICES OF RECORD DATE. In the event of (a) any taking by the Company of a
record date with respect to the holders of any class of securities of the
Company for purposes of determining which of such holders are entitled to
dividends or other distributions (other than regular quarterly dividends), or
any right to subscribe for, purchase or otherwise acquire shares of stock of any
class or any other securities or property, or to receive any other right, (b)
any capital reorganization of the Company, or reclassification or
recapitalization of capital stock of the Company or any transfer in one or more
related transactions of all or a majority of the assets or revenue or income
generating capacity of the Company to, or consolidation or merger of the Company
with or into, any other entity or person, or (c) any voluntary or involuntary
dissolution or winding up of the Company, then and in each such event the
Company will mail or cause to be mailed to each holder of the Warrants at the
time outstanding a notice specifying, as the case may be, the date on which any
such record is to be taken for the purpose of such dividend, distribution or
right, and stating the amount and character of such dividend, distribution or
right; or the date on which any such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, conveyance, dissolution,
liquidation or winding-up is to take place and the time, if any is to be fixed,
as of which the holders of record of Common Stock (or any other class of stock
or securities of the Company, or another issuer pursuant to paragraph 6,
receivable upon the exercise of the Warrants) will be entitled to exchange their
shares of Common Stock (or such other stock or securities) for securities or
other property deliverable upon such event. Any such notice will be deposited in
the United States mail, postage prepaid, at least ten days prior to the date
therein specified, and the holders(s) of the Warrant(s) may exercise the
Warrant(s) and participate in such event as a registered holder of Common Stock,
upon exercise of the Warrant(s) so held, within the ten day period from the date
of mailing of such notice.
4. NO IMPAIRMENT. The Company will not, by amendment of its organizational
documents or
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through any reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities, or any other action, avoid or seek to
avoid the observance or performance of any of the terms of this Agreement or of
the Warrants, but will at all times in good faith take any and all action as may
be necessary in order to protect the rights of the holders of the Warrants
against impairment. Without limiting the generality of the foregoing, the
Company (a) will at all times reserve and keep available, solely for issuance
and delivery upon exercise of the Warrants, shares of Common Stock issuable from
time to time upon exercise of the Warrants, (b) will not increase the par value
of any shares of stock receivable upon exercise of the Warrants above the amount
payable in respect thereof upon such exercise, and (c) will take all such action
as may be necessary or appropriate in order that the Company may validly and
legally issue fully paid and non-assessable stock upon the exercise of the
Warrants, or any of them.
5. EXERCISE OF WARRANTS. At any time and from time to time on and after the
first anniversary of the date that the U.S. Securities & Exchange Commission
(the "Commission") declares effective the Registration Statement and expiring at
5:00 p.m., Houston, Texas time, on the fifth anniversary from the date that the
Commission declared effective the Registration Statement, Warrants may be
exercised as to all or any portion of the whole number of shares of Common Stock
covered by the Warrants by the holder thereof. If such expiration date falls on
a Saturday, Sunday, or on a legal holiday on which federal banks are required to
be closed, then the Warrants may be exercised until 5:00 p.m. Houston, Texas
time on the next succeeding business day.
5.1 METHOD OF EXERCISE. The Warrants may be exercised by delivery
to the Company at the Company's principal offices of (a) the
Warrants to be exercised, (b) executed written Election to
Purchase Common Stock for shares to be purchased in the form
attached hereto as Exhibit "B" and (c) except as otherwise
provided in this paragraph 5.1, a certified check payable to
the order of the Company in the amount required for purchase
of the shares as to which the Warrant is being exercised.
Warrants may be exercised without the payment of cash to the
Company by delivery to the Company of (y) the Warrants to be
exercised, and (z) the executed Election to Purchase Common
Stock in the form attached as Exhibit "B", pursuant to which
the holder thereof elects to exercise the Warrants or any
portion thereof by implementing the cashless exercise
procedure, and upon such cashless exercise the holder shall
receive upon such surrender of the Warrant(s) (and without any
payment in cash) that number of shares of Common Stock equal
to the product of the number of shares of Common Stock
obtainable upon exercise of the Warrant(s) (or the portion
thereof as to which the exercise relates) multiplied by a
fraction, (i) the numerator of which is the difference between
the then Current Value (as defined in this paragraph 5.3) of
one full share of Common Stock on the date of exercise and the
Exercise Price, and (ii) the denominator of which is the
Current Value of one full share of Common Stock on the date of
exercise.
5.2 ISSUANCE OF CERTIFICATE. Upon the exercise of a Warrant in
whole or in part, the Company will within five business days
thereafter, at its expense (including the payment by the
Company of any applicable issue or transfer taxes), cause to
be issued in the name of and delivered to the Warrant holder a
certificate or certificates for the number of fully paid and
non-assessable shares of Common Stock to which such
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holder is entitled upon exercise of the Warrant. If such
holder is entitled to a fractional share, in lieu thereof such
holder will be paid a cash amount equal to such fraction,
multiplied by the Current Value of one full share of Common
Stock on the date of exercise. Certificates for shares of
Common Stock issuable by reason of the exercise of the Warrant
or Warrants will be dated and will be effective as of the date
of the surrendering of the Warrant for exercise,
notwithstanding any delays in the actual execution, issuance
or delivery of the certificates for the shares so purchased.
If a Warrant (or Warrants) is exercised as to less than the
aggregate amount of all shares of Common Stock issuable upon
exercise of all Warrants held by such person, the Company will
issue a new Warrant to the holder of the Warrant so exercised
covering the aggregate number of shares of Common Stock as to
which Warrants remain unexercised.
5.3 CURRENT VALUE DEFINED. For purposes of this Agreement,
"Current Value" means (a) the average of the means between the
closing bid and asked prices of the Common Stock in the
over-the-counter market for 20 consecutive business days
commencing 30 business days before the date of such notice,
(b) if the Common Stock is quoted on the Nasdaq SmallCap
Market, the average of the means of the daily closing bid and
asked prices of the Common Stock as quoted on the Nasdaq
SmallCap Market for 20 consecutive business days commencing 30
business days before the date of such notice, (c) if the
Common Stock is listed on any national securities exchange or
the Nasdaq National Market System, the average of the daily
closing prices of the Common Stock as published on such
national securities exchange or quoted the Nasdaq National
Market System, as applicable, for 20 consecutive business days
commencing 30 business days before the date of such notice or
(d) if none of the foregoing valuation methods are applicable,
the Appraised Value (as defined below).
5.4 APPRAISAL VALUE DEFINED. For the purposes of this Agreement,
"Appraised Value" is the value determined in accordance with
the following procedures. For a period of five business days
after the date of an event (a "Valuation Event") requiring
determination of Current Value at a time when no public market
exists for the Common Stock (the "Negotiation Period"), each
party to this Agreement agrees to negotiate in good faith to
reach agreement upon the Appraised Value of the securities or
property at issue, as of the date of the Valuation Event,
which will be the fair market value of such securities or
property, without premium for control or discount for minority
interests, illiquidity or restrictions on transfer. If the
parties are unable to agree upon the Appraised Value of such
securities or other property by the end of the Negotiation
Period, then the Appraised Value of such securities or
property will be determined for purposes of this Agreement by
a recognized appraisal or investment banking firm mutually
agreeable to the holders of the Warrants and the Company (the
"Appraiser"). If the holders of the Warrants and the Company
cannot agree on an Appraiser within two business days after
the end of the Negotiation Period, the Company, on the one
hand, and the holders of the Warrants, on the other hand, will
each select an Appraiser within 10 business days after the end
of the Negotiation Period and those two Appraisers will select
10 days after the end of the Negotiation Period an independent
Appraiser to determine the fair market value of such
securities
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or property, without premium for control or discount for
minority interests. Such independent Appraiser will be
directed to determine fair market value of such securities or
property as soon as practicable, but in no event later than 30
days from the date of its selection. The determination by an
Appraiser of the fair market value will be conclusive and
binding on all parties to this Agreement. Appraised Value of
each share of Common Stock at a time when(a) the Company is
not a reporting company under the Exchange Act and(b) the
Common Stock is not traded in the organized securities
markets, will, in all cases, be calculated by determining the
Appraised Value of the entire Company taken as a whole and
dividing that value by the number of shares of Common Stock
then outstanding, without premium for control or discount for
minority interests, illiquidity or restrictions on transfer.
The costs of the Appraisers will be borne by the Company. In
no event will the Appraised Value of the Common Stock be less
than the per share consideration received or receivable with
respect to the Common Stock or securities or property of the
same class in connection with a pending transaction involving
a sale, merger, recapitalization, reorganization,
consolidation, or share exchange, dissolution of the Company,
sale or transfer of all or a majority of its assets or revenue
or income generating capacity, or similar transaction.
6. PROTECTION AGAINST DILUTION.
6.1 STOCK DIVIDENDS; SUBDIVISIONS; RECLASSIFICATION. If, at any
time or from time to time after the date of this Agreement,
the Company (a) pays a dividend or make a distribution on its
Common Stock in shares of Common Stock, (b) subdivides its
outstanding shares of Common Stock into a greater number of
shares, (c) combines its outstanding shares of Common Stock
into a smaller number of shares, or (d) issues by
reclassification of its Common Stock any shares of any other
class of capital stock of the Company, the number of shares of
Common Stock issuable upon exercise of the Warrants and the
Exercise Price in effect immediately prior to such event will
be adjusted so that, upon exercise of the Warrants, the holder
will be entitled to purchase, without additional consideration
therefor, the number of shares of Common Stock or other
capital stock of the Company which the holder would have owned
or been entitled to purchase immediately following the
happening of any of the events described above in this
paragraph 6.1 had the Warrants been exercised and the holder
become the holder of record of the shares of Common Stock
issuable upon exercise of the Warrants immediately prior to
the record date fixed for the determination of stockholders
entitled to receive such dividend or distribution or the
effective date of such subdivision, combination or
reclassification at an Exercise Price equal to the aggregate
consideration which the holder would have had to pay for such
shares of Common Stock immediately prior to such event divided
by the number of shares of Common Stock the holder is entitled
to receive immediately after such event. An adjustment made
pursuant to this paragraph 6.1 will become
effective immediately after the record date in the case of a
dividend or distribution and will become effective immediately
after the effective date in the case of a subdivision,
combination or reclassification.
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6.2 CERTAIN SALES. Except as provided in paragraph 6.4, if, at any
time or from time to time after the date of this Agreement,
the Company issues or sells any shares of Common Stock for a
consideration per share less than the Exercise Price in effect
immediately prior to such issuance or sale, the Exercise Price
will be adjusted as of the date of such issuance or sale to be
the price determined by dividing (a) the sum of (i) the number
of shares of Common stock outstanding immediately prior to
such issuance or sale multiplied by the Exercise Price plus
(ii) the consideration received by the Company upon such
issuance or sale by (b) the total number of shares of Common
Stock outstanding after such issuance or sale.
6.3 CERTAIN OPTIONS AND WARRANTS. Except as provided in paragraph
6.4, if, at any time or from time to time after the date of
this Agreement, the Company issues or sells any rights,
options, warrants, or other securities entitling the holders
thereof to purchase Common Stock or to convert such securities
into Common Stock at a price per share (determined by dividing
(a) the total amount, if any, received or receivable by the
Company in consideration of the issuance or sale of such
rights, options, warrants or other securities plus the total
amount, if any, payable to the Company upon exercise or
conversion thereof (the "Total Consideration") by (b) the
number of additional shares of Common Stock issuable upon
exercise or conversion of such securities) which is less than
the Exercise Price in effect on the date of such issuance or
sale, the Exercise Price will be adjusted as of the date of
such issuance or sale to be the price determined by dividing
(a) the sum of (i) the number of shares of Common Stock
outstanding on the date of such issuance or sale multiplied by
the Exercise Price in effect immediately prior thereto plus
(ii) the Total Consideration by (b) the sum of (i) the number
of shares of Common Stock outstanding on the date of such
issuance or sale plus (ii) the maximum number of additional
shares of Common Stock issuable upon exercise or conversion of
such securities.
6.4 OPTION PLANS. No adjustment in the Exercise Price will be
required in the case of (a) the grant by the Company of stock
options to employees of the Company under the Company's 2000
Stock Plan to the extent such grants do not exceed an
aggregate of 650,000 shares of Common Stock and such grants
are in accordance with the Company's 2000 Stock Plan, or (b)
the issuance of shares of Common Stock upon the exercise of
stock options (i) referred to in clause (a) hereof or (ii)
granted by the Company which grant had triggered an adjustment
in the Exercise Price.
6.5 MERGERS; CONSOLIDATION; SALE. In case of any consolidation or
merger to which the Company is a party other than a merger or
consolidation in which the Company is the continuing
corporation, or in case of any sale or conveyance to another
entity of all or substantially all of the property of the
Company as an entirety or substantially as an entirety, or in
the case of any statutory exchange of securities with another
entity (including any exchange effected in connection with a
merger of any other corporation with the Company), the holders
of the Warrants will have the right thereafter, upon exercise
of the Warrants, to receive the kind and amount of securities,
cash or other property which the holder would have owned or
been entitled to receive immediately after such consolidation,
merger, statutory exchange, sale or conveyance had the
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Warrants been exercised immediately prior to the effective
date of such consolidation, merger, statutory exchange, sale
or conveyance, and, in any such case, if necessary,
appropriate adjustment will be made in the application
thereafter of the provisions of this paragraph 6 with respect
to the rights and interests of the holders of the Warrants so
that the provisions of this paragraph 6 thereafter will be
correspondingly applicable, as nearly as may reasonably be, to
such securities and other property. The provisions of this
paragraph 6.5 will similarly apply to successive
consolidations, mergers, statutory, exchanges, sales or
conveyances. Notice of any such consolidation, merger,
statutory exchange, sale or conveyance, and of said provisions
so proposed to be made, will be mailed to the holders of the
Warrants not less than 10 days prior to such event. A sale of
all, or substantially all, of the assets of the Company for a
consideration consisting primarily of securities will be
deemed a consolidation or merger for the foregoing purposes.
6.6 REQUIREMENTS FOR ADJUSTMENTS. No adjustment of the Exercise
Price will be required unless such adjustment would require an
increase or decrease of at least $0.05; provided, however,
that any adjustments which by reason of this paragraph 6.6 are
not required to be made will be carried forward and taken into
account in any subsequent adjustment, and provided further,
that adjustments will be required and made in accordance with
the provisions of this paragraph 6 (other than this paragraph
6.6) not later than such time as may be required in order to
preserve the tax-free nature of a distribution to the holder.
All calculations under this paragraph 6 will be made to the
nearest cent or to the nearest 1/100th of a share, as the case
may be. Anything in this paragraph 6 to the contrary
notwithstanding, the Company will be entitled to make such
reductions in the Exercise Price, in addition to those
required by this paragraph 6, as it will deem to be advisable
in its discretion in order that any stock dividend,
subdivision of shares or distribution of rights to purchase
stock or securities convertible or exchangeable for stock
hereafter made by the Company to its shareholders will not be
taxable.
6.7 CERTIFICATE OF ADJUSTMENT. Whenever the Exercise Price is
adjusted as provided in this paragraph 6 and upon any
modification of the rights of any holder of Warrants in
accordance with this paragraph 6, the Company promptly will
prepare or obtain, a certificate setting forth (a) the
Exercise Price and the number of the shares of Common Stock
issuable upon exercise of the Warrants after such adjustment
or modification, and (b) a brief statement of the facts
requiring such adjustment or modification and the manner of
computing the same, and will cause copies of such certificate
to be mailed promptly to the holders of Warrants.
6.8 CERTAIN CASH DIVIDENDS. If the Board of Directors of the
Company declares any dividend or other distribution in cash
with respect to the Common Stock, other than out of earned
surplus, or net profits for the fiscal year in which such
dividend is declared, the Company will mail notice thereof to
the holders of the Warrants not less than 15 days prior to the
record date fixed for determining shareholders entitled to
participate in such dividend or other distribution.
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6.9 CONSIDERATION DEFINED. For purposes of this paragraph 6, if
any shares of Common Stock, options or securities entitling
the holders thereof to purchase Common Stock will be, or are
to be, sold or issued by the Company for cash, the net
proceeds received by the Company will be deemed to be the
consideration received by the Company therefor. If any shares
of Common Stock, options or securities entitling the holders
thereof to purchase Common Stock or to convert such securities
into Common Stock will be, or are to be, sold or issued for a
consideration other than cash, the amount of the
consideration, other than cash received by the Company, will
be deemed to be the fair value of such consideration as
determined in good faith by the Board of Directors of the
Company, without deduction of any expenses incurred or any
underwriting commissions or concessions paid or allowed by the
Company in connection therewith.
7. REGISTRATION RIGHTS.
7.1 DEMAND RIGHTS. The Company agrees that, upon written request
given to the Company at any time on or after the first
anniversary of the effective date of the Registration
Statement and expiring at 5:00 p.m., Houston, Texas time, on
the fifth anniversary of the effective date of the
Registration Statement, from the holder or holders of not less
than 51% of the shares of Common Stock subject to the then
outstanding Warrants and Common Stock acquired upon exercise
of the Warrants and not resold (excluding Warrants and Warrant
Shares, if any, held by the Company, and any affiliate,
director, officer, or employee of the Company), it will,
within 45 days after receipt of such notice, promptly prepare,
file and diligently prosecute to effectiveness, an appropriate
filing with the Commission of a registration statement
covering all of such shares under the Acts, and the
appropriate registration statements or applications under the
securities laws of such states as such holders, in their
discretion, will determine, and will use its best efforts to
have such registration statement and application (including
both the registration under the Acts and the registration or
application made under the various state securities laws)
declared effective as soon as practicable after the filing
thereof and to remain effective and current for a period of at
least 180 days (exclusive of any period during which the
prospectus included therein does not meet the requirements of
the Acts) and will take all other action necessary or
appropriate to cause the prospectus included therein to be
available for the sale of such shares from time to time during
such period by the holders thereof in ordinary brokerage
transactions in the over-the-counter market or on any national
securities exchange on which the Common Stock is then listed.
At least 15 days prior to such filing, the Company will give
written notice of such proposed filing to each registered
holder of any of the Warrants at the holders' addresses
appearing on the records of the Company and to each registered
holder of Common Stock purchased from the exercise of any
Warrants at such holder's address appearing on the Company
records, and will offer to include in such registration
statement any proposed distribution of such Common Stock held
or to be held by each such registered holder; provided,
however, that except as provided in paragraph 7.5, the Company
need not effect the registration of the sale or distribution
of Common Stock purchased upon exercise of Warrants under this
paragraph 7.1 more
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than once; provided further, that the inclusion of any shares
of Common Stock issuable upon the exercise of the Warrants in
the Registration Statement shall not be counted or considered
for the purposes of this paragraph 7.1. Notwithstanding the
foregoing, the rights of the holders of the Warrants and the
Warrant Shares acquired upon exercise of the Warrants under
this paragraph 7.1 shall expire at such time as each
registered holder of the Warrants and the Warrant Shares shall
have received from counsel to the Company, which counsel must
be reasonably acceptable to Capital West, an unqualified
written legal opinion, which opinion must be reasonably
satisfactory to Capital West and its counsel, that all such
holders have the unqualified right under all applicable
securities laws to immediately and at any time after the date
of such opinion freely trade and sell, without any
restrictions or limitations under any applicable securities
laws, all of the Warrant Shares then held and purchasable upon
the exercise of the Warrants by all such holders.
7.2 EXPENSES. All expenses, disbursements and fees (including, but
not limited to, fees and expenses of counsel for the Company,
special auditing fees specifically attributable to the sale by
the selling holder or holders of Common Stock, printing
expenses (including all necessary copies of the registration
statement and prospectuses contained therein), registration
and filing fees and blue sky fees and expenses, and fees and
charges of the Company's transfer agent and registrar for
services rendered in connection therewith) will be borne by
the Company; provided, however, that the Company will not be
required to pay for any expenses of any registration
proceeding begun (in which case holders will bear such
expenses) if the registration request is subsequently
withdrawn at any time at the request of the holder or holders
of not less than 51% of the shares issued and issuable upon
exercise of the Warrants, unless such withdrawal is due to the
misconduct of the Company or due to an unforeseen material
adverse change in the business, properties, prospects or
financial condition of the Company occurring prior to the
effectiveness of the registration statement, in which case the
Company will continue to bear such expenses.
7.3 OFFERING MATERIALS. In connection with any registration under
the Act and specified state securities law pursuant to this
Agreement, the Company will, without charge, furnish each
holder whose shares are registered thereunder with copies of
the registration statement and all amendments thereto and
will, without charge, supply each such holder with copies of
any preliminary and final prospectus included therein in such
quantities as may be necessary for the purposes of such
proposed sale or distribution that the holder or holders may
reasonably request.
7.4 HOLDER INFORMATION. In connection with any registration of
shares pursuant to this paragraph 7, the holders whose shares
are being registered will furnish the Company with such
information concerning such holders and the proposed sale or
distribution as will be required for use in the preparation of
such registration statement and applications.
7.5 PIGGYBACK RIGHTS. If any time following one year after the
effective date of the Registration Statement and expiring on
the fifth anniversary of the effective date of
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the Registration Statement, the Company proposes to file a
registration statement under the Acts or any of them covering
a proposed sale of shares of Common Stock or any other
securities of the Company, (other than registration statements
under a Form S-8 (or successor forms) to register interests in
employee benefit plans or Form S-4 (or successor forms) to
register securities issued in connection with mergers or
acquisitions), the Company will (a) give to each holder who
then owns any Warrants or any shares of Common Stock acquired
pursuant to the exercise of Warrants notice of such proposed
registration at least 30 days prior to the filing of the
registration statement, (b) upon the written request of each
such holder given to the Company at least 10 days prior to
such filing, include within the coverage of such registration
statement all shares of Common Stock subject to the Warrants
or acquired upon exercise of the Warrants which it has been so
requested to include, (c) use its best efforts to cause such
registration statement to become effective under the Acts as
soon as practicable and (d) take all other action necessary
under any Federal or state law or regulation of any
governmental authority to permit all shares of Common Stock
subject to the Warrants or acquired upon the exercise of the
Warrants which it has been so requested to include within the
coverage of such registration statement to be sold or
otherwise disposed of, and maintain such in compliance with
each such Federal and state law and regulation of any
governmental authority for a period not less than 180 days
(exclusive of any periods during which the prospectus included
therein does not meet the requirements of the Acts); provided
however, that the Company may withdraw or cease proceeding
with the registration if it shall withdraw or cease proceeding
with the registration of such securities originally proposed
to be registered. All expenses, disbursements and fees
(including, but without limitation, fees and expenses of
counsel, auditing fees, printing expenses, Commission filing
fees and expenses, but excluding any underwriting discounts or
commissions) incurred in connection with the registration by
the Company of the sale of any shares for any such holder
under this paragraph 7.5 will be borne by the Company.
8. INDEMNIFICATION; CONTRIBUTION.
8.1 INDEMNIFICATION OF WARRANT HOLDERS. The Company will indemnify
and hold harmless Capital West and each holder of the Warrants
and of Common Stock registered pursuant to paragraph 7 of this
Agreement with the Commission, or under the Registration
Statement, or under any Blue Sky Law or regulation and each
officer, director, employee or representative of Capital West
and such holder (individually each of the foregoing, an
"Indemnified Holder", and collectively the foregoing the
"Indemnified Holders") against any losses, claims, damages, or
liabilities, joint or several, to which any of the Indemnified
Holders may become subject under the Acts or otherwise,
insofar as such losses, claims, damages, or liabilities (or
actions in respect thereof) arise out of or are based upon an
untrue statement or alleged untrue statement of a material
fact contained in any preliminary prospectus, registration
statement, prospectus, or any amendment or supplement thereto,
or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading, and will reimburse each Indemnified Holder for any
legal or other expenses reasonably
10
incurred by the Indemnified Holder in connection with
investigating or defending any such action or claim regardless
of the negligence of any such Indemnified Holder; provided,
however, that the Company will not be liable in any such case
to the extent that any such loss, claim, damage, or liability
arises out of or is based upon an untrue statement or alleged
untrue statement or omission or alleged omission made in any
preliminary prospectus, registration statement or prospectus,
or any such amendment or supplement thereto, in reliance upon
and in conformity with written information furnished to the
Company by such Indemnified Holder expressly for use therein.
8.2 INDEMNIFICATION OF THE COMPANY. Each holder of Common Stock
registered pursuant to paragraph 7 of this Agreement will,
severally and not jointly, indemnify and hold harmless the
Company against any losses, claims, damages, or liabilities to
which the Company may become subject under the Acts insofar as
such losses, claims, damages, or liabilities (or actions in
respect thereof) arise out of or are based upon an untrue
statement or alleged untrue statement of a material fact
contained in any such preliminary prospectus, registration
statement or prospectus, or any amendment or supplement
thereto, registering shares of Common Stock pursuant to
paragraph 7 of this Agreement or arise out of or are based
upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to
make the statements therein not misleading, in each case to
the extent, but only to the extent, that such untrue statement
or alleged untrue statement or omission or alleged omission
was made in any such preliminary prospectus, registration
statement or prospectus, or any amendment or supplement
thereto, in reliance upon and in conformity with written
information furnished to the Company by such holder expressly
for use therein.
8.3 PROCEDURE FOR INDEMNIFICATION. Promptly after receipt by an
indemnified party under paragraphs 8.1 or 8.2 of the
commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the
indemnifying party under either such subsection, notify the
indemnifying party in writing of the commencement thereof; but
the omission so to notify the indemnifying party will not
relieve it from any liability that it may otherwise have to
any indemnified party. If any such action shall be brought
against any indemnified party and such indemnified party
notifies the indemnifying party of the commencement thereof,
the indemnifying party will be entitled to assume the defense
thereof by notice in writing to the indemnified party using
counsel reasonably satisfactory to the indemnified party.
After notice from the indemnifying party to such indemnified
party of its election to assume the defense thereof, using
counsel reasonably satisfactory to the indemnified party, the
indemnifying party will not be liable to such indemnified
party for any legal expenses of other counsel or any other
expense, in each case subsequently incurred by such
indemnified party, in connection with the defense thereof
other than reasonable costs of investigation incurred prior to
the assumption by the indemnifying party, unless such expenses
have been specifically authorized in writing by the
indemnifying party, the indemnifying party has failed to
assume the defense and employ counsel reasonably satisfactory
to the indemnified party , or the named parties to any such
action include both the indemnified party and the indemnifying
party and such
11
indemnified party has been advised by counsel that the
representation of such indemnified party and the indemnifying
party by the same counsel would be inappropriate due to actual
or potential differing interests between them, in each of
which cases the fees of counsel for the indemnified party will
be paid by the indemnifying party.
8.4 CONTRIBUTION. If the indemnification provided for in this
paragraph 8 is unavailable or insufficient to hold harmless an
indemnified party under paragraphs 8.1 or 8.2 in respect of
any losses, claims, damages, or liabilities (or action in
respect thereof) referred to therein, then each indemnifying
party will contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages,
or liabilities (or actions in respect thereof) in such
proportion as is appropriate to reflect the relative benefits
received by the Company and the holder or holders from this
Agreement and from the offering of the shares of Common Stock.
If, however, the allocation provided by the immediately
preceding sentence is not permitted by applicable law, then
each indemnifying party will contribute to such amount paid or
payable by such indemnified party in such proportion as is
appropriate to reflect not only such relative benefits but
also the relative fault of the Company and the holders in
connection with the statement or omissions that resulted in
such losses, claims, damages, or liabilities (or actions in
respect thereof), as well as any other relevant equitable
considerations. The relative fault will be determined by
reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to
information supplied by the Company or the holder and the
parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.
The Company and the holders agree that it would not be just
and equitable if contribution pursuant to this paragraph 8.4
were determined by pro rata allocation (even if the holders
were treated as one entity for such purpose) or by any other
method of allocation that does not take into account the
equitable considerations referred to above in this paragraph
8.4. Except as provided in paragraph 8.3, the amount paid or
payable by an indemnified party as a result of the losses,
claims, damages, or liabilities (or actions in respect
thereof) referred to above in this paragraph 8.4 will be
deemed to include any legal or other expenses reasonably
incurred by such indemnified party in connection with
investigation or defending any such action or claim. No person
guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the 0000 Xxx) will be entitled to
contribution from any person who was not guilty of such
fraudulent misrepresentation. Notwithstanding any provision in
this paragraph 8.4 to the contrary, no holder will be liable
for any amount, in the aggregate, in excess of the net
proceeds to such holder from the sale of such holder's shares
(obtained upon exercise of Warrants) giving rise to such
losses, claims, damages, or liabilities.
8.5 RIGHTS CUMULATIVE. The obligations of the Company under this
paragraph 8 will be in addition to any liability that the
Company may otherwise have and will extend, upon the same
terms and conditions, to each person, if any, who controls any
holder of Warrants within the meaning of the Act. The
obligations of the holders of Common Stock under this
paragraph 8 will be in addition to any liability that such
holders may
12
otherwise have and will extend, upon the same terms and
conditions to each person, if any, who controls the Company
within the meaning of the Acts.
9. STOCK EXCHANGE LISTING. If the Company lists its Common Stock on any national
securities exchange or the NASDAQ National Market System or Small Cap Market,
the Company will, at its expense, also list on such exchange or the NASDAQ,
whichever is applicable, all shares of Common Stock issuable pursuant to the
Warrants.
10. SPECIFIC PERFORMANCE. The Company stipulates that remedies at law, in money
damages, available to the holder or holders of the Warrants, or of a holder or
holders of Common Stock issued pursuant to exercise of the Warrants, in the
event of any default or threatened default by the Company in the performance of
or compliance with any of the terms of this Agreement are not and will not be
adequate. Therefore, the Company agrees that the terms of this Agreement may be
specifically enforced by a decree for the specific performance of any agreement
contained herein or by an injunction (without providing a bond) against a
violation or threatened violation of any of the terms hereof or otherwise.
11. SUCCESSORS AND ASSIGNS; BINDING EFFECT. This Agreement will be binding upon
and inure to the benefit of Capital West and the Company and their respective
successors and permitted assigns.
12. NOTICES. Any notice hereunder will be given by registered or certified mail,
if to the Company at its principal office located at 0000 Xxxx Xxxxxxx, Xxxxx
000, Xxxxxxx, Xxxxx 00000, if to Capital West to the attention of Xxxxxx X.
XxXxxxxx, Xxxxxx X. Xxxxx, or Xxxxxxx X. Xxxxx at its principal office located
at One Leadership Square, Suite 200, 000 Xxxxx Xxxxxxxx, Xxxxxxxx Xxxx,
Xxxxxxxx, 00000, and, if to any of the other holders, to their respective
addresses shown in the Warrant ledger of the Company, provided that any holder
may at any time on three days' written notice to the Company designate or
substitute another address where notice is to be given. Notice will be deemed
given and received after a certified or registered letter, properly addressed
with postage prepaid, is deposited in the U.S. mail.
13. SEVERABILITY. Every provision of this Agreement is intended to be severable.
If any term or provision hereof is illegal or invalid for any reason whatsoever,
such illegality or invalidity will not affect the remainder of this Agreement.
14. ASSIGNMENT; REPLACEMENT OF WARRANTS. If the Warrant or Warrants are
assigned, in whole or in part, the Warrants will be surrendered at the principal
office of the Company, and thereupon, in the case of a partial assignment, a new
Warrant will be issued to the holder thereof covering the number of shares not
assigned, and the assignee will be entitled to receive a new Warrant covering
the number of shares so assigned. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction, or mutilation of
any Warrant and appropriate bond or indemnification protection, the Company will
issue a new Warrant of like tenor. Except as contemplated by paragraph 7 of this
Agreement, the Warrants will not be transferred, sold, or otherwise hypothecated
by Capital West or any other person and the Warrants will be nontransferable,
except to (a) one or more persons, each of which on the date of transfer is an
officer of or partner in Capital West; (b) to one or more of the underwriters
participating in the IPO as set forth in the Registration Statement or any
officer or partner of such underwriter, (c) a partnership or partnerships, the
partners of which are
13
Capital West or any of the underwriters referred to in (b) above and one or
more persons, each of whom on the date of transfer is an officer of Capital
West or any of the underwriters referred to in (b) above; (d) a successor to
Capital West in merger or consolidation;(e) a purchaser of all or
substantially all of Capital West's assets; or(f) a person that receives a
Warrant upon death of a holder pursuant to will, trust, or the laws of
intestate succession which assignee shall be bound by the provisions of this
Section 14. Upon such assignment, Capital West or the holder, whichever is
applicable, will execute the form attached hereto as Exhibit C and deliver
such to the Company.
15. GOVERNING LAW. This Agreement will be governed and construed in accordance
with the laws of the State of Delaware without giving effect to the principles
of choice of laws thereof.
16. DEFINITION. All references to the word "you", and to "Capital West" in this
Agreement will be deemed to apply with equal effect to any persons or entities
to whom Warrants have been assigned or transferred in accordance with the terms
hereof, and, where appropriate, to any persons or entities holding shares of
Common Stock issuable upon exercise of Warrants.
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17. HEADINGS. The headings herein are for purposes of reference only and will
not limit or otherwise affect the meaning of any of the provisions hereof.
Very truly yours,
MGi2, Inc.
By:
-----------------------------------------
Xxxx X. Xxxxxxxx, Chief Executive Officer
Accepted as of April ____, 2000.
CAPITAL WEST SECURITIES, INC.
By:
------------------------------
Xxxxxx X. XxXxxxxx, Chairman
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