STOCK PURCHASE WARRANT
This Warrant is issued this 23rd day of September, 1994, by FRONT ROYAL,
INC., a North Carolina corporation (the "Company"), to J. XXXX XXXXX (J. XXXX
XXXXX and any subsequent assignee or transferee hereof are hereinafter referred
to collectively as "Holder" or "Holders").
AGREEMENT:
1. Issuance of Warrant; Term. For and in consideration of J. XXXX XXXXX
making a loan to the Company in an amount of up to SIXTY-FIVE THOUSAND AND
NO/100ths DOLLARS ($65,000) pursuant to the terms of a promissory note of even
date herewith (the "Note") and related loan agreement of even date herewith (the
"Loan Agreement"), and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company hereby grants to
Holder the right to purchase 7,025 shares of the Company's common stock (the
"Common Stock"), which the Company represents to equal .16% of the shares of
capital stock outstanding on the date hereof, calculated on a fully diluted
basis ("Base Amount"), provided that in the event that any portion of the
indebtedness evidenced by the Note is outstanding on the following dates, the
Base Amount shall be increased to the corresponding number set forth below:
Date Base Amount
---- -----------
September 23, 1997 9,366 shares, which the Company
represents to equal .21% of the shares of
capital stock outstanding on the date hereof
calculated on a fully diluted basis
September 23, 1998 11,708 shares, which the Company
represents to equal .26% of the shares of
capital stock outstanding on the date hereof
calculated on a fully diluted basis
September 23, 1999 14,049 shares, which the Company
represents to equal .31% of the shares of
capital stock outstanding on the date hereof
calculated on a fully diluted basis
The shares of Common Stock issuable upon exercise of this Warrant are
hereinafter referred to as the "Shares." This Warrant shall be exercisable at
any time and from time to time from the date hereof until September 30, 1999.
However, notwithstanding the foregoing, if the Second Disbursement (as defined
in Section 4.2 of the Loan Agreement) is not made, the Base Amount for the
initial period shall be reduced to 5,471, and the Base Amount for each
subsequent year shall be reduced as follows:
Date Base Amount
---- -----------
September 23, 1997 7,294
September 23, 1998 9,118
September 23, 1999 10,942
2. Exercise Price. The exercise price per share for which all or any of the
Shares may be purchased pursuant to the terms of this Warrant shall be One Cent
($.01).
3. Exercise. This Warrant may be exercised by the Holder hereof (but only
on the conditions hereinafter set forth) as to all or any increment or
increments of One Hundred (100) Shares (or the balance of the Shares if less
than such number), upon delivery of written notice of intent to exercise to the
Company at the following address: 0000 Xxxxxxx Xxxxxxxxx, Xxxxxxxxxxx, Xxxxx
Xxxxxxxx 00000 or such other address as the Company shall designate in a written
notice to the Holder hereof, together with this Warrant and a certified or
cashier's check payable to the Company for the aggregate purchase price of the
Shares so purchased. Upon exercise of this Warrant as aforesaid, the Company
shall as promptly as practicable, and in any event within fifteen (15) days
thereafter, execute and deliver to the Holder of this Warrant a certificate or
certificates for the total number of whole Shares for which this Warrant is
being exercised in such names and denominations as are requested by such Holder.
If this Warrant shall be exercised with respect to less than all of the Shares,
the Holder shall be entitled to receive a new Warrant covering the number of
Shares in respect of which this Warrant shall not have been exercised, which new
Warrant shall in all other respects be identical to this Warrant. The Company
covenants and agrees that it will pay when due any and all state and federal
issue taxes which may be payable in respect of the issuance of this Warrant or
the issuance of any Shares upon exercise of this Warrant.
4. Covenants and Conditions. The above provisions are subject to the
following:
(a) Neither this Warrant nor the Shares have been registered under the
Securities Act of 1933, as amended ("Securities Act") or any state
securities laws ("Blue Sky Laws"). This Warrant has been acquired for
investment purposes and not with a view to distribution or resale and may
not be pledged, hypothecated, sold, made subject to a security interest, or
otherwise transferred without (i) an effective registration statement for
such Warrant under the Securities Act and such applicable Blue Sky Laws, or
(ii) an opinion of counsel, which opinion and counsel shall be reasonably
satisfactory to the Company and its counsel, that registration is not
required under the Securities Act or under any applicable Blue Sky Laws
(the Company hereby acknowledges that Bass, Xxxxx & Xxxx is acceptable
counsel). Transfer of the shares issued upon the exercise of this Warrant
shall be restricted in the same manner and to the same extent as the
Warrant and the certificates representing such Shares shall bear
substantially the following legend:
THE SHARES OF COMMON STOCK REPRESENTED BY THIS
CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR
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ANY APPLICABLE STATE SECURITIES LAW AND MAY NOT BE
TRANSFERRED UNTIL (I) A REGISTRATION STATEMENT
UNDER THE ACT OR SUCH APPLICABLE STATE SECURITIES
LAWS SHALL HAVE BECOME EFFECTIVE WITH REGARD
THERETO, OR (II) IN THE OPINION OF COUNSEL
ACCEPTABLE TO THE COMPANY, REGISTRATION UNDER SUCH
SECURITIES ACTS OR SUCH APPLICABLE STATE
SECURITIES LAWS IS NOT REQUIRED IN CONNECTION WITH
SUCH PROPOSED TRANSFER.
The Holder hereof and the Company agree to execute such other documents and
instruments as counsel for the Company reasonably deems necessary to effect the
compliance of the issuance of this Warrant and any shares of Common Stock issued
upon exercise hereof with applicable federal and state securities laws.
(b) The Company covenants and agrees that all Shares which may be
issued upon exercise of this Warrant will, upon issuance and payment
therefor, be legally and validly issued and outstanding, fully paid and
nonassessable, free from all taxes, liens, charges and preemptive rights,
if any, with respect thereto or to the issuance thereof. The Company shall
at all times reserve and keep available for issuance upon the exercise of
this Warrant such number of authorized but unissued shares of Common Stock
as will be sufficient to permit the exercise in full of this Warrant.
(c) The Company covenants and agrees that it shall not sell any shares
of the Company's capital stock at a price below the fair market value of
such shares, without the prior written consent of the Holder hereof, other
than shares or options issued to the management of the Company pursuant to
an incentive plan approval by the Company's board of directors. The fair
market value of the Company's capital stock shall be determined in good
faith by the Company's board of directors. In the event that the Company
sells shares of the Company's capital stock in violation of this Section
4(c), the number of shares issuable upon exercise of this Warrant shall be
equal to the product obtained by multiplying the number of shares issuable
pursuant to this Warrant prior to such sale by the quotient obtained by
dividing (i) the fair market value of the shares issued in violation of
this Section 4(c) by (ii) the price at which such shares were sold.
5. Transfer of Warrant. Subject to the provisions of Section 4 hereof, this
Warrant may be transferred, in whole or in part, to any person or business
entity, by presentation of the Warrant to the Company with written instructions
for such transfer. Upon such presentation for transfer, the Company shall
promptly execute and deliver a new Warrant or Warrants in the form hereof in the
name of the assignee or assignees and in the denominations specified in such
instructions. The Company shall pay all expenses incurred by it in connection
with the preparation, issuance and delivery of Warrants under this Section.
6. Warrant Holder Not Shareholder; Rights Offering; Preemptive Rights.
Except as otherwise provided herein, this Warrant does not confer upon the
Holder, as such, any right whatsoever as a shareholder of the Company.
Notwithstanding the foregoing, if the Company
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should offer to all of the Company's shareholders the right to purchase any
securities of the Company, then all shares of Common Stock that are subject to
this Warrant shall be deemed to be outstanding and owned by the Holder and the
Holder shall be entitled to participate in such rights offering. The Company
shall not grant any preemptive rights with respect to any of its capital stock
without the prior written consent of the Holder.
7. Observation Rights. The Holder of this Warrant shall receive notice of
and be entitled to attend or may send a representative to attend all meetings of
the Company's Board of Directors in a non-voting observation capacity, from the
date hereof until such time as the indebtedness evidenced by the Note has been
paid in full.
8. Adjustment Upon Changes in Stock.
(a) If all or any portion of this Warrant shall be exercised
subsequent to any stock split, stock dividend, recapitalization,
combination of shares of the Company, or other similar event, occurring
after the date hereof, then the Holder exercising this Warrant shall
receive, for the aggregate price paid upon such exercise, the aggregate
number and class of shares which such Holder would have received if this
Warrant had been exercised immediately prior to such stock split, stock
dividend, recapitalization, combination of shares, or other similar event.
If any adjustment under this Section 8(a) would create a fractional share
of Common Stock or a right to acquire a fractional share of Common Stock,
such fractional share shall be disregarded and the number of shares subject
to this Warrant shall be the next higher number of shares, rounding all
fractions upward. Whenever there shall be an adjustment pursuant to this
Section 8(a), the Company shall forthwith notify the Holder or Holders of
this Warrant of such adjustment, setting forth in reasonable detail the
event requiring the adjustment and the method by which such adjustment was
calculated.
(b) If all or any portion of this Warrant shall be exercised
subsequent to any merger, consolidation, exchange of shares, separation,
reorganization or liquidation of the Company, or other similar event,
occurring after the date hereof, as a result of which shares of Common
Stock shall be changed into the same or a different number of shares of the
same or another class or classes of securities of the Company or another
entity, then the Holder exercising this Warrant shall receive, for the
aggregate price paid upon such exercise, the aggregate number and class of
shares which such Holder would have received if this Warrant had been
exercised immediately prior to such merger, consolidation, exchange of
shares, separation, reorganization or liquidation, or other similar event.
If any adjustment under this Section 8(b) would create a fractional share
of Common Stock or a right to acquire a fractional share of Common Stock,
such fractional share shall be disregarded and the number of shares subject
to this Warrant shall be the next higher number of shares, rounding all
fractions upward. Whenever there shall be an adjustment pursuant to this
Section 8(b), the Company shall forthwith notify the Holder or Holders of
this Warrant of such adjustment, setting forth in reasonable detail the
event requiring the adjustment and the method by which such adjustment was
calculated.
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9. Registration.
(a) The Company and the holders of the Shares agree that if at any
time after the date hereof the Company shall propose to file a registration
statement with respect to any of its Common Stock on a form suitable for a
secondary offering, it will give notice in writing to such effect to the
registered holder(s) of the Shares at least thirty (30) days prior to such
filing, and, at the written request of any such registered holder, made
within ten (10) days after the receipt of such notice, will include therein
at the Company's cost and expense (including the fees and expenses of
counsel to such holder(s), but excluding underwriting discounts,
commissions and filing fees attributable to the Shares included therein)
such of the Shares as such holder(s) shall request; provided, however, that
if the offering being registered by the Company is underwritten and if the
representative of the underwriters certifies in writing that the inclusion
therein of the Shares would materially and adversely affect the sale of the
securities to be sold by the Company thereunder, then the Company shall be
required to include in the offering only that number of securities,
including the Shares, which the underwriters determine in their sole
discretion will not jeopardize the success of the offering (the securities
so included to be apportioned pro rata among all selling shareholders
according to the total amount of securities entitled to be included therein
owned by each selling shareholder, but in no event shall the total amount
of Shares included in the offering be less than the number of securities
included in the offering by any other single selling shareholder).
(b) Whenever required under this Agreement to use its best efforts to
effect the registration of any of the Shares, the Company shall, as
expeditiously as reasonably possible:
(i) Prepare and file with the Securities and Exchange Commission
(the "Commission") a registration statement covering such Shares and
use its best efforts to cause such registration statement to be
declared effective by the Commission as expeditiously as possible and
to keep such registration effective until the earlier of (A) the date
when all Shares covered by the registration statement have been sold
or (B) two hundred seventy (270) days from the effective date of the
registration statement; provided, that before filing a registration
statement or prospectus or any amendment or supplements thereto, the
Company will furnish to each Holder of Shares covered by such
registration statement and the underwriters, if any, copies of all
such documents proposed to be filed (excluding exhibits, unless any
such person shall specifically request exhibits), which documents will
be subject to the review of such Holders and underwriters, and the
Company will not file such registration statement or any amendment
thereto or any prospectus or any supplement thereto (including any
documents incorporated by reference therein) with the Commission if
(A) the underwriters, if any, shall reasonably object to such filing
or (B) if information in such registration statement or prospectus
concerning a particular selling Holder has changed and such Holder or
the underwriters, if any, shall reasonably object.
(ii) Prepare and file with the Commission such amendments and
post-effective amendments to such registration statement as may be
necessary to keep such
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registration statement effective during the period referred to in
Section 9(b)(i) and to comply with the provisions of the Securities
Act with respect to the disposition of all securities covered by such
registration statement, and cause the prospectus to be supplemented by
any required prospectus supplement, and as so supplemented to be filed
with the Commission pursuant to Rule 424 under the Securities Act.
(iii) Furnish to the selling Holder(s) such numbers of copies of
such registration statement, each amendment thereto, the prospectus
included in such registration statement (including each preliminary
prospectus), each supplement thereto and such other documents as they
may reasonably request in order to facilitate the disposition of the
Shares owned by them.
(iv) Use its best efforts to register and qualify under such
other securities laws of such jurisdictions as shall be reasonably
requested by any selling Holder and do any and all other acts and
things which may be reasonably necessary or advisable to enable such
selling Holder to consummate the disposition of the Shares owned by
such Holder, in such jurisdictions; provided, however, that the
Company shall not be required in connection therewith or as a
condition thereto to qualify to transact business or to file a general
consent to service of process in any such states or jurisdictions.
(v) Promptly notify each selling Holder of the happening of any
event as a result of which the prospectus included in such
registration statement contains an untrue statement of a material fact
or omits any fact necessary to make the statements therein not
misleading and, at the request of any such Holder, the Company will
prepare a supplement or amendment to such prospectus so that, as
thereafter delivered to the purchasers of such Shares, such prospectus
will not contain an untrue statement of a material fact or omit to
state any fact necessary to make the statements therein not
misleading.
(vi) Provide a transfer agent and registrar for all such Shares
not later than the effective date of such registration statement.
(vii) Enter into such customary agreements (including
underwriting agreements in customary form for a primary offering) and
take all such other actions as the underwriters, if any, reasonably
request in order to expedite or facilitate the disposition of such
Shares (including, without limitation, effecting a stock split or a
combination of shares).
(viii) Make available for inspection by any selling Holder or any
underwriter participating in any disposition pursuant to such
registration statement and any attorney, accountant or other agent
retained by any such selling Holder or underwriter, all financial and
other records, pertinent corporate documents and properties of the
Company, and cause the officers, directors, employees and independent
accountants of the Company to supply all information reasonably
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requested by any such seller, underwriter, attorney, accountant or
agent in connection with such registration statement.
(ix) Promptly notify the selling Holder(s) and the underwriters,
if any, of the following events and (if requested by any such person)
confirm such notification in writing: (A) the filing of the prospectus
or any prospectus supplement and the registration statement and any
amendment or post-effective amendment thereto and, with respect to the
registration statement or any post-effective amendment thereto, the
declaration of the effectiveness of such documents, (B) any requests
by the Commission for amendments or supplements to the registration
statement or the prospectus or for additional information, (C) the
issuance or threat of issuance by the Commission of any stop order
suspending the effectiveness of the registration statement or the
initiation of any proceedings for that purpose and (D) the receipt by
the Company of any notification with respect to the suspension of the
qualification of the Shares for sale in any jurisdiction or the
initiation or threat of initiation of any proceeding for such
purposes.
(x) Make every reasonable effort to prevent the entry of any
order suspending the effectiveness of the registration statement and
obtain at the earliest possible moment the withdrawal of any such
order, if entered.
(xi) Cooperate with the selling Holder(s) and the underwriters,
if any, to facilitate the timely preparation and delivery of
certificates representing the Shares to be sold and not bearing any
restrictive legends, and enable such Shares to be in such lots and
registered in such names as the underwriters may request at least two
(2) business days prior to any delivery of the Shares to the
underwriters.
(xii) Provide a CUSIP number for all the Shares not later than
the effective date of the registration statement.
(xiii) Prior to the effectiveness of the registration statement
and any post-effective amendment thereto and at each closing of an
underwritten offering: (A) make such representations and warranties to
the selling Holder(s) and the underwriters, if any, with respect to
the Shares and the registration statement as are customarily made by
issuers in primary underwritten offerings; (B) use its best efforts to
obtain "cold comfort" letters and updates thereof from the Company's
independent certified public accountants addressed to the selling
Holders and the underwriters, if any, such letters to be in customary
form and covering matters of the type customarily covered in "cold
comfort" letters by underwriters in connection with primary
underwritten offerings; (C) deliver such documents and certificates as
may be reasonably requested (1) by the holders of a majority of the
Shares being sold, and (2) by the underwriters, if any, to evidence
compliance with clause (A) above and with any customary conditions
contained in the underwriting agreement or other agreement entered
into by the Company; and (D) obtain opinions of counsel to the Company
and updates thereof (which counsel and which opinions shall be
reasonably satisfactory to the underwriters, if any), covering the
matters customarily covered in
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opinions requested in underwritten offerings and such other matters as
may be reasonably requested by the selling Holders and underwriters or
their counsel. Such counsel shall also state that no facts have come
to the attention of such counsel which cause them to believe that such
registration statement, the prospectus contained therein, or any
amendment or supplement thereto, as of their respective effective or
issue dates, contains any untrue statement of any material fact or
omits to state any material fact necessary to make the statements
therein not misleading (except that no statement need be made with
respect to any financial statements, notes thereto or other financial
data or other expertized material contained therein). If for any
reason the Company's counsel is unable to give such opinion, the
Company shall so notify the Holders of the Shares and shall use its
best efforts to remove expeditiously all impediments to the rendering
of such opinion.
(xiv) Otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission, and make generally
available to its security holders earnings statements satisfying the
provisions of Section 11(a) of the Securities Act, no later than
forty-five (45) days after the end of any twelve-month period (or
ninety (90) days, if such period is a fiscal year) (A) commencing at
the end of any fiscal quarter in which the Shares are sold to
underwriters in a firm or best efforts underwritten offering, or (B)
if not sold to underwriters in such an offering, beginning with the
first month of the first fiscal quarter of the Company commencing
after the effective date of the registration statement, which
statements shall cover such twelve-month periods.
(c) After the date hereof, the Company shall not grant to any holder
of securities of the Company any registration rights which have a priority
greater than or equal to those granted to Holders pursuant to this Warrant
without the prior written consent of the Holder(s).
(d) The Company's obligations under Section 9(a) above with respect to
each Holder of Shares are expressly conditioned upon such Holder's
furnishing to the Company in writing such information concerning such
Holder and the terms of such holder's proposed offering as the Company
shall reasonably request for inclusion in the Registration Statement. If
any Registration Statement including any of the Shares is filed, then the
Company shall indemnify each Holder thereof (and each underwriter for such
Holder and each person, if any, who controls such underwriter within the
meaning of the Securities Act from any loss, claim, damage or liability
arising out of, based upon or in any way relating to any untrue statement
of a material fact contained in such Registration Statement or any omission
to state therein a material fact required to be stated herein or necessary
to make the statements therein not misleading, except for any such
statement or omission based on information furnished in writing by such
Holder expressly for use in connection with such Registration Statement;
and such Holder shall indemnify the Company (and each of its officers and
directors and each person, if any, who controls the Company within the
meaning of the Securities Act, each underwriter for the Company and each
person, if any, who controls such underwriter within the meaning of the
Securities Act) and each other such Holder against any loss, claim, damage
or liability arising from any such statement or omission which was made
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in reliance upon information furnished in writing to the Company by such
Holder of the Shares expressly for use in connection with such Registration
Statement.
(e) For purposes of this Section 9, all of the Registrable Securities
shall be deemed to be issued and outstanding.
10. Certain Notices. In case at any time the Company shall propose to:
(a) declare any cash dividend upon its Common Stock;
(b) declare any dividend upon its Common Stock payable in stock or
make any special dividend or other distribution to the holders of its
Common Stock;
(c) offer for subscription to the holders of any of Common Stock any
additional shares of stock in any class or other rights;
(d) reorganize, or reclassify the capital stock of the Company, or
consolidate, merge or otherwise combine with, or sell of all or
substantially all of its assets to, another corporation; or
(e) voluntarily or involuntarily dissolve, liquidate or wind up of the
affairs of the Company;
then, in any one or more of said cases, the Company shall give to the Holder of
the Warrant, by certified or registered mail, (i) at least twenty (20) days'
prior written notice of the date on which the books of the Company shall close
or a record shall be taken for such dividend, distribution or subscription
rights or for determining rights to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding-up, and (ii) in the case of such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding-up, at least
twenty (20) days' prior written notice of the date when the same shall take
place. Any notice required by clause (i) shall also specify, in the case of any
such dividend, distribution or subscription rights, the date on which the
holders of Common Stock shall be entitled thereto, and any notice required by
clause (ii) shall specify the date on which the holders of Common Stock shall be
entitled to exchange their Common Stock for securities or other property
deliverable upon such reorganization, reclassification, consolidation, merger,
sale, dissolution, liquidation or winding-up, as the case may be.
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IN WITNESS WHEREOF, the parties hereto have set their hands as of the date
first above written.
FRONT ROYAL, INC.,
a North Carolina corporation
By:__________________________________
Title:_____________________________
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J. XXXX XXXXX
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