THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED OR ANY APPLICABLE STATE SECURITIES LAW,
AND MAY NOT BE SOLD, PLEDGED, OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE
REGISTRATION THEREOF UNDER SUCH ACT OR PURSUANT TO RULE 144 AND AN EXEMPTION
UNDER APPLICABLE STATE LAW OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO
THE CORPORATION AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED.
REPLACEMENT WARRANT TO PURCHASE STOCK
Corporation: Solution Technology International, Inc., a Delaware
corporation (the "Company")
Number of Shares: 930,245, as such number may be increased pursuant to Section
1.7 of this Warrant.
Class of Stock: Series A Preferred Stock, or, if at the time of the exercise
of this Warrant the Company has not closed its next round of
equity financing which raises not less than Two Million
Dollars ($2,000,000) (the "Series A Financing"), then the
Company's Common Stock (the "Common Stock")
Warrant Price: $0.001
Issue Date: December 22, 2003
Expiration Date: January 9, 2010
THIS REPLACEMENT WARRANT CERTIFIES THAT, for the agreed upon value of
$1.00 and for other good and valuable consideration, CROSSHILL GEORGETOWN
CAPITAL, L.P. ("Holder") is entitled to purchase the number of fully paid and
nonassessable shares of the Series A Preferred Stock and/or Common Stock (in
either case, the "Shares") of the Company at the Warrant Price all as set forth
herein and as adjusted pursuant to Article 2 of this Warrant, subject to the
provisions and upon the terms and conditions set forth in this Warrant.
ARTICLE 1. EXERCISE.
1.1 Method of Exercise. Holder may exercise this Warrant by delivering a
duly executed Notice of Exercise in substantially the form attached as Appendix
1 to the principal office of the Company. Unless Holder is exercising the
conversion right set forth in Section 1.2, Holder shall also deliver to the
Company a certified check, wire transfer, or other method acceptable to the
Company in its reasonable discretion for the aggregate Warrant Price for the
Shares being purchased.
1.2 Conversion Right. In lieu of exercising this Warrant as specified in
Section 1.1, Holder may from time to time convert this Warrant, in whole or in
part, into a number of Shares determined by dividing (a) the aggregate fair
market value of the Shares or other securities otherwise issuable upon exercise
of this Warrant minus the aggregate Warrant Price of such Shares by (b) the fair
market value of one Share. The fair market value of the Shares shall be
determined pursuant to Section 1.3.
1.3 Fair Market Value. If the Shares are traded in a public market, the
fair market value of the Shares shall be the closing price of the Shares (or the
closing price of the Company's stock into which the Shares are convertible)
reported for the business day immediately before Holder delivers its Notice of
Exercise to the Company. If the Shares are not traded in a public market, the
Board of Directors of the Company shall determine fair market value in its
reasonable good faith judgment.
1.4 Delivery of Certificate and New Warrant. Promptly after Holder
exercises or converts this Warrant and in any event within ten (10) days of such
exercise or conversion of this Warrant, the Company shall deliver to Holder
certificates for the Shares acquired and if this Warrant has not been fully
exercised or converted and has not expired, a new Warrant representing the
Shares not so acquired. Each stock certificate so delivered shall be in such
denominations of Shares as may be requested by the Holder hereof.
1.5 Replacement of Warrants. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of loss, theft or destruction, on delivery of an
indemnity agreement reasonably satisfactory in form and amount to the Company
or, in the case of mutilation, or surrender and cancellation of this Warrant,
the Company, at its expense, shall execute and deliver, in lieu of this Warrant,
a new warrant of like tenor.
1.6 Assumption on Sale, Merger, or Consolidation of the Company.
1.6.1 "Acquisition". For the purpose of this Warrant, "Acquisition"
means any sale, license, or other disposition of all or substantially all of the
assets of the Company, or any reorganization, consolidation, or merger of the
Company where the holders of the Company's securities before the transaction
beneficially own less than 50% of the outstanding voting securities of the
surviving entity after the transaction.
1.6.2 Assumption of Warrant. Upon the closing of any Acquisition,
the successor entity shall assume the obligations of this Warrant, and this
Warrant shall be exercisable for the same securities, cash, and property as
would be payable for the Shares issuable upon exercise of the unexercised
portion of this Warrant as if such Shares were outstanding on the record date
for the Acquisition and subsequent closing. The Warrant Price and/or number of
Shares shall be adjusted accordingly.
1.7 Additional Warrants. If the Obligations (as such term is defined in
that certain Loan and Security Agreement, dated January 10, 2003, between the
Company and CrossHill Georgetown Capital, L.P. ("Crosshill") (as amended from
time to time, the "Loan Agreement"; capitalized terms used herein and not
otherwise defined shall have the meanings given to such terms in the Loan
Agreement), are not repaid in full on or before the Revolving Maturity Date set
forth therein, in addition to any rights of the Holder pursuant to this Warrant,
for each thirty (30) day period, or portion thereof, that the Obligations remain
outstanding, the Holder shall be entitled to purchase 60,000 additional Shares
at the same per share price as the Warrant Price set forth above. Holder's
rights to purchase such additional Shares is in addition to, and not in lieu of,
any other rights and remedies which Crosshill may have under the Loan Documents
and without waiving any rights or remedies thereunder.
ARTICLE 2. ADJUSTMENTS TO THE SHARES.
2.1 Stock Dividends, Splits, Etc. Stock Dividends, Splits, Etc. If this
Warrant is exercisable for Common Stock and the Company declares or pays a
dividend on its Common Stock payable in Common Stock, or other securities or
subdivi des its outstanding Common Stock into a greater amount of Common Stock,
then upon exercise of this Warrant, for each Share acquired, Holder shall
receive, without cost to Holder, the total number and kind of securities to
which Holder would have been entitled had Holder owned the Shares of record as
of the date the dividend or subdivision occurred. If this Warrant is exercisable
for shares of Series A Preferred Stock and the Company declares or pays a
dividend on its Series A Preferred Stock payable in Series A Preferred Stock or
other securities or subdivides its outstanding Series A Preferred Stock into a
greater amount of Series A Preferred Stock, then upon exercise of this Warrant,
for each Share acquired, Holder shall receive, without cost to Holder, the total
number and kind of securities to which Holder would have been entitled had
Holder owned the Shares of record as of the date the dividend or subdivision
occurred. If shares of the Company's Series A Preferred Stock or Common Stock,
as the case may be, are combined or consolidated, by reclassification or
otherwise, into a lesser number of shares, then the Warrant Price for the Shares
of Series A Preferred Stock or Common Stock, as the case may be, issuable upon
exercise of this Warrant shall be proportionately increased.
2
2.2 Reclassification, Exchange, Combinations or Substitution. Upon any
reclassification, exchange, substitution, or other event that results in a
change of the number and/or class of the securities issuable upon exercise or
conversion of this Warrant, Holder shall be entitled to receive, upon exercise
or conversion of this Warrant, the number and kind of securities and property
that Holder would have received for the Shares if this Warrant had been
exercised immediately before such reclassification, exchange, substitution, or
other event. Such an event shall include any automatic conversion of the
outstanding or issuable securities of the Company of the same class or series as
the Shares to Common Stock pursuant to the terms of the Company's Certificate of
Incorporation upon the closing of a registered public offering of the Common
Stock. The Company or its successor shall promptly issue to Holder a new Warrant
for such new securities or other property. The new Warrant shall provide for
adjustments which shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Article 2 including, without limitation,
adjustments to the Warrant Price and to the number of securities or property
issuable upon exercise of the new Warrant. The provisions of this Section 2.2
shall similarly apply to successive reclassifications, exchanges, substitutions,
or other events.
2.3 Adjustments for Diluting Issuances. The Warrant Price and the number
of Shares issuable upon exercise of this Warrant or, if the Shares are Preferred
Stock, the number of shares of Common Stock issuable upon conversion of the
Shares, shall be subject to adjustment, from time to time in the manner set
forth in the Company's Certificate of Incorporation. The Company agrees that the
anti-dilution protection granted to the Holder shall be identical to the
protection granted to the Investors (as that term is defined in Section 3.3).
The provisions set forth for the Shares in the Company's Certificate of
Incorporation relating to the above in effect as of the date of the closing of
the Series A Financing may not be amended, modified or waived, without the prior
written consent of Holder unless such amendment, modification or waiver effects
Holder in the same manner as they effect all other holders of the same class or
series as the Shares.
2.4 No Impairment. The Company shall not, by amendment of its Certificate
of Incorporation or through a reorganization, transfer of assets, consolidation,
merger, dissolution, issue, or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed under this Warrant by the Company, but shall at all times
in good faith assist in carrying out of all the provisions of this Article 2 and
in taking all such action as may be necessary or appropriate to protect Holder's
rights under this Article against impairment.
2.5 Fractional Shares. No fractional Shares shall be issuable upon
exercise or conversion of the Warrant and the number of Shares to be issued
shall be rounded down to the nearest whole Share. If a fractional share interest
arises upon any exercise or conversion of the Warrant, the Company shall
eliminate such fractional share interest by paying Holder the amount computed by
multiplying the fractional interest by the fair market value of a full Share.
2.6 Certificate as to Adjustments. Upon each adjustment of the Warrant
Price, the Company shall promptly notify Holder in writing, and, at the
Company's expense, promptly compute such adjustment, and furnish Holder with a
certificate of its Chief Financial Officer setting forth such adjustment and the
facts upon which such adjustment is based. The Company shall, upon written
request, furnish Holder a certificate setting forth the Warrant Price in effect
upon the date thereof and the series of adjustments leading to such Warrant
Price.
3
ARTICLE 3. REPRESENTATIONS AND COVENANTS OF THE COMPANY.
3.1 Representations and Warranties. The Company represents and warrants to
the Holder as follows:
(a) All Shares which may be issued upon the exercise of the purchase
right represented by this Warrant, and all securities, if any, issuable upon
conversion of the Shares, shall, upon issuance in accordance with the terms
hereof, be duly authorized, validly issued, fully paid and nonassessable, and
free of any liens and encumbrances except for restrictions on transfer provided
for herein or under applicable federal and state securities laws.
(b) The Capitalization Table provided to Holder and attached hereto
is true and complete as of the Issue Date.
(c) The Company further covenants and agrees that, 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 issue
or transfer upon exercise of the subscription rights evidenced by this Warrant,
a sufficient number of Shares of authorized but unissued stock, or other
securities and property, when and as required to provide for the exercise of the
rights represented by this Warrant.
3.2 Notice of Certain Events. If the Company proposes at any time (a) to
declare any dividend or distribution upon its Common Stock, whether in cash,
property, stock, or other securities and whether or not a regular cash dividend;
(b) to offer for subscription pro rata to the holders of any class or series of
its stock any additional shares of stock of any class or series or other rights;
(c) to effect any reclassification or recapitalization of Common Stock; (d) to
merge or consolidate with or into any other corporation, or sell, lease,
license, or convey all or substantially all of its assets, or to liquidate,
dissolve or wind up; or (e) offer holders of registration rights the opportunity
to participate in an underwritten public offering of the company's securities
for cash, then, in connection with each such event, the Company shall give
Holder (1) at least 10 days prior written notice of the date on which a record
will be taken for such dividend, distribution, or subscription rights (and
specifying the date on which the holders of Common Stock will be entitled
thereto) or for determining rights to vote, if any, in respect of the matters
referred to in (c) and (d) above; (2) in the case of the matters referred to in
(c) and (d) above at least 10 days prior written notice of the date when the
same will take place (and specifying the date on which the holders of Common
Stock will be entitled to exchange their Common Stock for securities or other
property deliverable upon the occurrence of such event); and (3) in the case of
the matter referred to in (e) above, the same notice as is given to the holders
of such registration rights.
3.3 Registration Under Securities Act of 1933, as amended (the "1933
Act"). The Company agrees that the Shares (or if the Shares are Series A
Preferred Stock, the Common Stock into which the Shares may be converted) shall
be subject to the piggyback registration rights as set forth in the Company's
Investor Rights Agreement or similar agreement mutually agreed upon by the
Company and the investors (the "Investors') participating in the Series A
Financing (the "Investor Rights Agreement"). The Company agrees that the
piggyback registration rights granted to the Holder shall be identical to those
granted to the Investors. The provisions set forth in the Company's Investor
Rights Agreement relating to the above may not be amended, modified or waived
without the prior written consent of the Holder unless such amendment,
modification or waiver effects the Holder in the same manner as it effects the
Investors and all other holders of the same class or series as the Shares.
3.4 No Shareholder Rights. Except as provided in this Warrant, the Holder
will not have any rights as a shareholder of the Company, including voting
rights, until the exercise of this Warrant.
4
ARTICLE 4. REPRESENTATIONS, WARRANTIES OF THE HOLDER. The Holder represents and
warrants to the Company as follows:
4.1 Purchase for Own Account. Except for transfers to Holder's affiliates,
this Warrant and the securities to be acquired upon exercise of this Warrant by
the Holder will be acquired for investment for the Holder's account, not as a
nominee or agent, and not with a view to the public resale or distribution
within the meaning of the 1933 Act, and the Holder has no present intention of
selling, granting any participation in, or otherwise distributing the same. The
Holder acknowledges that the Warrant and the shares of stock issuable upon
exercise thereof may not be sold, pledged or otherwise transferred except for
the rights of the Holder at all times to sell or otherwise dispose of all or any
part of such shares under an effective registration statement under the
Securities Act and applicable state securities laws, or under an exemption from
such registration that, in the opinion of outside counsel to the Holder, is
available under the Securities Act and applicable state securities laws. If the
Holder should in the future decide to dispose of all or any part of this Warrant
or the shares issuable upon exercise thereof, the Holder understands and agrees
that it may do so only in compliance with the Securities Act and applicable
state securities laws, as then in effect. If not an individual, the Holder also
represents that the Holder has not been formed for the specific purpose of
acquiring this Warrant or the Shares.
4.2 Disclosure of Information. The Holder has received or has had full
access to all the information it considers necessary or appropriate to make an
informed investment decision with respect to the acquisition of this Warrant and
its underlying securities. The Holder further has had an opportunity to ask
questions and receive answers from the Company regarding the terms and
conditions of the offering of this Warrant and its underlying securities and to
obtain additional information (to the extent the Company possessed such
information or could acquire it without unreasonable effort or expense)
necessary to verify any information furnished to the Holder or to which the
Holder has access.
4.3 Investment Experience. The Holder understands that the purchase of
this Warrant and its underlying securities involves substantial risk. The
Holder: (i) has experience as an investor in securities of companies in the
development stage and acknowledges that the Holder is able to fend for itself,
can bear the economic risk of such Holder's investment in this Warrant and its
underlying securities and has such knowledge and experience in financial or
business matters that the Holder is capable of evaluating the merits and risks
of its investment in this Warrant and its underlying securities and/or (ii) has
a preexisting personal or business relationship with the Company and certain of
its officers, directors or controlling persons of a nature and duration that
enables the Holder to be aware of the character, business acumen and financial
circumstances of such persons.
4.4 Accredited Investor Status. The Holder is an "accredited investor"
within the meaning of Regulation D promulgated under the 1933 Act.
4.5 Execution of Other Documents. The Holder hereby agrees that, upon the
full or partial exercise of its right to purchase Shares hereunder, the Holder
shall become a party to, and the Shares shall become subject to, the Investor
Rights Agreement, any Right of First Refusal and Co-Sale agreement and similar
agreements if any such agreements are executed in connection with the Series A
Financing or an Acquisition, as the same may be amended form time to time;
provided, however, that such agreements contain usual and customary terms and
the Holder is treated in parity with the other holders subject to all such
agreements.
ARTICLE 5. MISCELLANEOUS.
5.1 Term: This Warrant is exercisable in whole or in part at any time and
from time to time on or before the Expiration Date.
5
5.2 Legends. This Warrant and the Shares (and the securities issuable,
directly or indirectly, upon conversion of the Shares, if any) shall be
imprinted with a legend in substantially the following form:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED OR UNDER ANY APPLICABLE STATE LAWS, AND MAY NOT BE SOLD, PLEDGED
OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER
SUCH ACT AND AN EXEMPTION UNDER APPLICABLE STATE LAW OR PURSUANT TO RULE
144 OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE CORPORATION
AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED.
5.3 Compliance with Securities Laws on Transfer. This Warrant and the
Shares issuable upon exercise of this Warrant (and the securities issuable,
directly or indirectly, upon conversion of the Shares, if any) may not be
transferred or assigned in whole or in part without compliance with applicable
federal and state securities laws by the transferor and the transferee
(including, without limitation, the delivery of investment representation
letters and legal opinions reasonably satisfactory to the Company, as reasonably
requested by the Company). The Company shall not require Holder to provide an
opinion of counsel if the transfer is to any affiliate of Holder or if there is
no material question as to the availability of current information as referenced
in Rule 144(c), Holder represents that it has complied with Rule 144(d) and (e)
in reasonable detail, the selling broker represents that it has complied with
Rule 144(f), and the Company is provided with a copy of Holder's notice of
proposed sale. At the written request of the Holder, who proposes to sell Stock
issuable upon the exercise of this Warrant in compliance with Rule 144, within
ten (10) days after receipt of such request, a written statement confirming the
Company's compliance with the filing requirements of the Securities and Exchange
Commission as set forth in such Rule, as such Rule may be amended from time to
time. In addition, the Company agrees to provide the Holder within ten (10) days
of written request such additional documents as the Holder may require in order
to exercise its rights under this Warrant and transfer the Shares issued
hereunder and carry out the intent of this Warrant, including, without
limitation, an opinion of counsel for the benefit of the Holder or any
underwriter or broker.
5.4 Transfer Procedure. Subject to the provisions of Section 5.3, Holder
may transfer all of this Warrant or the Shares issuable upon exercise of this
Warrant (or the securities issuable, directly or indirectly, upon conversion of
the Shares, if any) and its rights and obligations hereunder at any time to any
affiliate of Holder or to any other transferee by giving the Company notice of
the portion of the Warrant being transferred setting forth the name, address and
taxpayer identification number of the transferee and surrendering this Warrant
to the Company for reissuance to the transferee(s) (and Holder, if applicable).
Unless the Company is filing financial information with the SEC pursuant to the
Securities Exchange Act of 1934, the Company shall have the right to refuse to
transfer any portion of this Warrant to any person who directly competes with
the Company.
5.5 Notices. All notices and other communications from the Company to the
Holder, or vice versa, shall be deemed delivered and effective when given
personally or sent by overnight delivery service or first-class registered or
certified mail, postage prepaid, at such address as may have been furnished to
the Company or the Holder, as the case may be, in writing by the Company or such
holder from time to time. All notices shall be addressed as follows:
If to the Holder: CrossHill Georgetown Capital, L.P.
0000 Xxxxxx Xxxxxxxxx, Xxxxx 0000
Xxxxxxxxx, Xxxxxxxx 00000
Attention: Xxxxxxx X. Xxxxxx, Principal
6
If to the Company: Solution Technology International, Inc.
0000x Xxxxxxxxx Xxxxx
Xxxxx 0
Xxxxxxxxx, Xxxxxxxx 00000
Attention: Xxx Xxxxxx
With a copy to: Xxxxxx Xxxxxx & Xxxxx
Suite 600
0000 Xxxxxxxxxxx Xxxxxx, X.X.
Xxxxxxxxxx, X.X. 00000
Attention: Xxxxxx Xxxxx, Esq.
5.6 Waiver. This Warrant and any term hereof may be changed, waived,
discharged or terminated only by an instrument in writing signed by the party
against which enforcement of such change, waiver, discharge or termination is
sought.
5.7 Attorney's Fees. In the event of any dispute between the parties
concerning the terms and provisions of this Warrant, the party prevailing in
such dispute shall be entitled to collect from the other party all costs
incurred in such dispute, including reasonable attorney's fees.
5.8 Replacement Warrant. This Warrant replaces, supercedes and restates in
its entirety that certain Warrant to Purchase Stock dated October 10, 2003 from
the Company in favor of the Holder.
5.9 Governing Law. This Warrant shall be governed by and construed in
accordance with the laws of the Commonwealth of Virginia, without giving effect
to its principles regarding conflicts of law.
[SIGNATURES APPEAR ON THE FOLLOWING PAGE]
7
"COMPANY"
Solution Technology International, Inc.
By: /s/ Xxx X. Xxxxxx
-------------------------------------
Name: Xxx X. Xxxxxx
Title: President
"HOLDER"
CrossHill Georgetown Capital, L.P.
By: /s/ Xxxxxxx X. Xxxxxx
-------------------------------------
Xxxxxxx X. Xxxxxx, Principal
8
1 APPENDIX 1
2
3
4 NOTICE OF EXERCISE
------------------
5
6
7
8 1. Holder elects to purchase_________ shares of the___Common Stock/___ shares
9 of the Preferred Stock of the Company pursuant to the terms of the attached Warrant, and tenders
10 payment of the purchase price of the shares in full.
11
12 [or]
13
14 1. Holder elects to convert the attached Warrant into Shares/cash [strike one] in the manner
15 specified in the Warrant. This conversion is exercised for______ of the Shares
16 covered by the Warrant.
17 [Strike paragraph that does not apply.]
18 2. Please issue a certificate or certificates representing the shares in the name specified
19 below:
20
21 ---------------------------------------------
22 Holder's Name
23
24
25 ---------------------------------------------
26
27 ---------------------------------------------
28 (Address)
29
30 3. The undersigned represents it is acquiring the shares solely for its own account and not as a
31 nominee for any other party and not with a view toward the resale or distribution except in compliance
32 with applicable securities laws.
33
34
35 HOLDER:
36
37 ---------------------------
38
39
40 By:_______________________________
41
42 Name:____________________________
43
44 Title:_______________________________
45
46 -----------------
47 (Date)
48
