EXHIBIT 10.4
WARRANT
NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS
EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR
THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS. THIS SECURITY AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS
SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER
LOAN SECURED BY SUCH SECURITIES.
COMMON STOCK PURCHASE
WARRANT TO PURCHASE UP TO 77,143 SHARES OF COMMON STOCK OF
TARRANT APPAREL GROUP
THIS COMMON STOCK PURCHASE WARRANT (the "WARRANT") certifies that, for
value received, Durham Capital Corporation (the "HOLDER"), is entitled, upon the
terms and subject to the limitations on exercise and the conditions hereinafter
set forth, at any time on or after June 16, 2006 (the "INITIAL EXERCISE DATE")
and on or prior to the close of business on the ten year anniversary of the
Initial Exercise Date (the "TERMINATION DATE") but not thereafter, to subscribe
for and purchase from Tarrant Apparel Group, a California corporation (the
"COMPANY"), up to the Maximum Number (as defined below) of shares (the "WARRANT
SHARES") of Common Stock, no par value per share, of the Company (the "COMMON
STOCK"). The "MAXIMUM NUMBER" shall be (i) at any time prior to the borrowing
contemplated by Section 2.3 of the Credit Agreement (as defined below) (the "2.3
BORROWING DATE"), SEVENTY THOUSAND, and (ii) on or at any time after the 2.3
Borrowing Date, SEVENTY-SEVEN THOUSAND ONE HUNDRED FORTY THREE. The purchase
price with respect to the shares of Common Stock under this Warrant shall be
equal to the Exercise Price, as defined in Section 2(b).
SECTION 1. GENERAL.
Capitalized terms used and not otherwise defined herein shall have the
meanings set forth in that certain Securities Purchase Agreement (the "PURCHASE
AGREEMENT"), dated June 16, 2006, among the Company and the purchasers signatory
thereto.
The Warrant Shares are entitled to the benefits of that certain
registration rights agreement of even date herewith between the Company and
certain investors named therein (the "REGISTRATION RIGHTS AGREEMENT").
SECTION 2. EXERCISE.
(a) EXERCISE OF WARRANT. Exercise of the purchase rights
represented by this Warrant may be made, in whole or in part, at any time or
times on or after the date hereof
and on or before the Termination Date by delivery to the Company of a duly
executed facsimile copy of the Notice of Exercise Form annexed hereto (or such
other office or agency of the Company as it may designate by notice in writing
to the registered Holder at the address of such Holder appearing on the books of
the Company); PROVIDED, HOWEVER, within 5 Trading Days of the date said Notice
of Exercise is delivered to the Company, the Holder shall have surrendered this
Warrant to the Company and the Company shall have received payment of the
aggregate Exercise Price of the shares thereby purchased by wire transfer or
cashier's check drawn on a United States bank. "TRADING DAY" shall mean a day
during which trading in securities generally occurs in the applicable securities
market or on the principal securities exchange or bulletin board on which the
Common Stock is then traded, listed or quoted (the "TRADING MARKET").
(b) EXERCISE PRICE. The initial exercise price of the Common Stock
under this Warrant shall be the amount set forth in the table below, subject to
adjustment hereunder (the "EXERCISE PRICE").
Number of
Number of Shares (before Shares (on or after the
the 2.3 Borrowing Date) 2.3 Borrowing Date) Initial Exercise Price
---------------------------- ------------------------- -------------------------
70,000 77,143 $1.88
---------------------------- ------------------------- -------------------------
(c) CASHLESS EXERCISE. This Warrant may also be exercised by means
of a "cashless exercise" in which the Holder shall be entitled to receive a
certificate for the number of Warrant Shares (X) equal to the quotient obtained
by using the following formula:
Y(A-B)
X = --------
A
Where:
(A) = the Current Market Value measured as of the Trading Day
immediately preceding the date of such election;
(B) = the Exercise Price of this Warrant, as adjusted; and
(Y) = the number of Warrant Shares in respect of which the net issue
election is made.
For purposes of this Agreement, the "CURRENT MARKET VALUE" of one share
of Common Stock as of a particular date shall be determined as follows: (i) if
traded on a securities exchange or through the NASDAQ National Market, the value
shall be deemed to be the average of the closing prices of the securities on
such exchange over the fifteen (15) day period ending three (3) days prior to
the cashless exercise election; (ii) if traded over-the-counter, the value shall
be deemed to be the average of the closing bid or sale prices (whichever is
applicable) over the fifteen (15) day period ending three (3) days prior to the
cashless exercise; and (iii) if there is no active public market, the value
shall be the Fair Market Value thereof. "FAIR MARKET VALUE" of shares or assets
shall be as determined in good faith by the Board of Directors of the Company,
and, if requested by Xxxxxx, shall be established by an impartial and
disinterested internationally recognized accounting, appraisal
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or investment banking firm as may be agreed by the Company and the Holder (the
"FINANCIAL EXPERT") paid for equally by Holders of the Credit Agreement
Warrants, on the one hand, and the Company, on the other hand. Pending the
determination of the Financial Expert, the Company shall take all steps and make
such adjustments and issue such Warrant Shares as are appropriate based on the
valuation of its Board of Director, with the remainder to be delivered upon the
determination of the Financial Expert, which shall be binding on both parties.
Notwithstanding anything herein to the contrary, on the Termination
Date, this Warrant shall be automatically exercised via cashless exercise
pursuant to this Section 2(c).
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(d) HOLDER'S RESTRICTIONS. Notwithstanding anything to the
contrary herein, the Company shall not be required to issue any shares upon
exercise of this Warrant if such issuance would cause the Company to be in
violation of applicable federal securities laws or the rules and regulations of
the National Association of Securities Dealers by virtue of such exercise;
PROVIDED, HOWEVER, that the Company agrees to use its best efforts to make
alternative arrangements to complete the exercise by the Holder hereof in
compliance with applicable securities laws and the rules and regulations of the
National Association of Securities Dealers if such laws and rules and
regulations permit such alternative arrangements, including, with respect to any
situation in which the Warrant Shares would exceed the Maximum Exercise Amount
below, taking all actions necessary to call and hold a meeting of shareholders
to attain such approval as may be required by the applicable rules and
regulations of the trading market from the shareholders of the Company with
respect to the transactions contemplated by the Transaction Documents, including
the issuance of all of the Warrant Shares issuable upon exercise of the Warrants
(the "SHAREHOLDER APPROVAL"). The Holder shall not prior to Shareholder Approval
have the right to exercise any portion of this Warrant, pursuant to Section 2(c)
or otherwise, to the extent that after giving effect to such issuance after
exercise, the shares issued with respect to this Warrant, together with any
other Warrants issued pursuant to the Credit Agreement, dated as of June 16,
2006, by and among the Company and the other parties thereto (as amended or
modified from time to time, the "CREDIT AGREEMENT", and such Warrants, the
"CREDIT AGREEMENT WARRANTS"), would represent more than 19.9% of the shares of
Common Stock issued and outstanding at the Initial Exercise Date (without giving
effect to the Shares issued or issuable under the Credit Agreement Warrants)
(the "MAXIMUM EXERCISE AMOUNT"). For purposes of this Section 2(d), the number
of outstanding shares of Common Stock shall be as reflected in (x) the Company's
most recent Form 10-Q or Form 10-K, as the case may be, (y) a more recent public
announcement by the Company or (z) any other notice by the Company or the
Company's Transfer Agent setting forth the number of shares of Common Stock
outstanding. To the extent that the Company has received an exercise notice in
excess of the Maximum Exercise Amount from any holder of a Credit Agreement
Warrant, the Company shall notify the other holders of the Credit Agreement
Warrants and shall give each holder of a Credit Agreement Warrant the
opportunity to exercise PRO RATA in accordance with the number of shares
underlying each Credit Agreement Warrant. The Company shall issue such amount of
shares of Common Stock as are allowable under this Section 2(d), and, at the
time of delivery of the certificate or certificates representing Warrant Shares,
deliver to Holder a new Warrant evidencing the rights of Holder to purchase the
unpurchased Warrant Shares called for by this Warrant, which new Warrant shall
in all other respects be identical with this Warrant and subject to the
conditions of this Section 2(d).
(e) MECHANICS OF EXERCISE.
i. AUTHORIZATION OF WARRANT SHARES. The Company
covenants that all Warrant Shares which may be issued upon the exercise of the
purchase rights represented by this Warrant will, upon exercise of the purchase
rights represented by this Warrant, be duly authorized, validly issued, fully
paid and nonassessable and free from all taxes, liens and charges in respect of
the issue thereof.
ii. DELIVERY OF CERTIFICATES UPON EXERCISE. Certificates
for shares purchased hereunder shall be transmitted by the transfer agent of the
Company to the Holder by crediting the account of the Holder's prime broker with
the
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Depository Trust Company through its Deposit Withdrawal Agent Commission
("DWAC") system if the Company is a participant in such system, and otherwise by
physical delivery to the address specified by the Holder in the Notice of
Exercise within 3 Trading Days from the delivery to the Company of the Notice of
Exercise Form, surrender of this Warrant and payment of the aggregate Exercise
Price as set forth above ("WARRANT SHARE DELIVERY DATE"). This Warrant shall be
deemed to have been exercised on the date the Exercise Price is received by the
Company. The Warrant Shares shall be deemed to have been issued, and Holder or
any other person so designated to be named therein shall be deemed to have
become a holder of record of such shares for all purposes, as of the date the
Warrant has been exercised by payment to the Company of the Exercise Price.
iii. DELIVERY OF NEW WARRANTS UPON EXERCISE. If this
Warrant shall have been exercised in part, the Company shall, at the time of
delivery of the certificate or certificates representing Warrant Shares, deliver
to Holder a new Warrant evidencing the rights of Holder to purchase the
unpurchased Warrant Shares called for by this Warrant, which new Warrant shall
in all other respects be identical with this Warrant.
iv. RESCISSION RIGHTS. If the Company fails to cause its
transfer agent to transmit to the Holder a certificate or certificates
representing the Warrant Shares pursuant to this Section 2(e)(iv) by the Warrant
Share Delivery Date, then the Holder shall be entitled, by written notice to the
Company at any time on or before the Holder's receipt of such certificate or
certificates, to rescind such exercise. Nothing herein shall limit a Holder's
right to pursue any other remedies available to it hereunder, at law or in
equity including, without limitation, a decree of specific performance and/or
injunctive relief with respect to the Company's failure to timely deliver
certificates representing shares of Common Stock upon exercise of the Warrant as
required pursuant to the terms hereof.
v. NO FRACTIONAL SHARES OR SCRIP. No fractional shares
or scrip representing fractional shares shall be issued upon the exercise of
this Warrant. As to any fraction of a share which Holder would otherwise be
entitled to purchase upon such exercise, the Company shall pay a cash adjustment
in respect of such final fraction in an amount equal to such fraction multiplied
by the Current Market Value of the Common Stock on the date of exercise.
vi. CHARGES, TAXES AND EXPENSES. Issuance of certificates
for Warrant Shares shall be made without charge to the Holder for any issue or
transfer tax or other expense in respect of the issuance of such certificate,
all of which taxes and expenses shall be paid by the Company, and such
certificates shall be issued in the name of the Holder or in such name or names
as may be directed by the Holder; including any transfer taxes incidental to the
issue of certificates for Warrant Shares in a name other than the name of the
Holder.
vii. CLOSING OF BOOKS. The Company will not close its
stockholder books or records in any manner which prevents the timely exercise of
this Warrant, pursuant to the terms hereof.
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SECTION 3. CERTAIN ADJUSTMENTS.
(a) If the Company at any time while this Warrant is outstanding:
(A) declares a stock dividend or otherwise makes a distribution or distributions
on shares of its Common Stock or any other equity or equity equivalent
securities payable in shares of Common Stock (which, for avoidance of doubt,
shall not include any shares of Common Stock issued by the Company pursuant to
this Warrant), (B) subdivides outstanding shares of Common Stock into a larger
number of shares, (C) combines (including by way of reverse stock split)
outstanding shares of Common Stock into a smaller number of shares, or (D)
issues by reclassification of shares of the Common Stock any shares of capital
stock of the Company, then in each case the Exercise Price shall be multiplied
by a fraction of which the numerator shall be the number of shares of Common
Stock (excluding treasury shares, if any) outstanding before such event and of
which the denominator shall be the number of shares of Common Stock outstanding
after such event and the number of shares issuable upon exercise of this Warrant
shall be proportionately adjusted. Any adjustment made pursuant to this Section
3(a) shall become effective immediately after the record date for the
determination of stockholders entitled to receive such dividend or distribution
and shall become effective immediately after the effective date in the case of a
subdivision, combination or re-classification.
(b) From time to time after the date hereof, if the Company or any
Subsidiary thereof, as applicable, at any time while this Warrant is
outstanding, shall offer, sell, grant any option to purchase or offer, sell or
grant any right to reprice its securities, or otherwise dispose of or issue (or
announce any offer, sale, grant or any option to purchase or other disposition)
any Common Stock or Common Stock Equivalents (as defined below) entitling any
Person to acquire shares of Common Stock, at an effective price per share less
than the then Exercise Price, as adjusted hereunder (if the holder of the Common
Stock or Common Stock Equivalents so issued shall at any time, whether by
operation of purchase price adjustments, reset provisions, floating conversion,
exercise or exchange prices or otherwise, or due to warrants, options or rights
per share which is issued in connection with such issuance, but excluding
adjustments resulting from customary market price-based anti-dilution
provisions, be entitled to receive shares of Common Stock at an effective price
per share which is less than the Exercise Price, such issuance shall be deemed
to have occurred for less than the Exercise Price), then the Exercise Price
shall be reduced to the price determined by multiplying the Exercise Price in
effect immediately prior to the date of such sale or issuance (which date in the
event of distribution to shareholders shall be deemed to be the record date set
by the Company to determine shareholders entitled to participate in such
distribution) by a fraction: (1) the numerator of which shall be (A) the number
of shares of Common Stock outstanding on the date of such sale or issuance plus
(B) the number of additional shares of Common Stock which the aggregate
consideration received by the Company upon such issuance or sale (plus the
aggregate of any additional amount to be received by the Company upon the
exercise of such subscription rights, options or warrants) would purchase at the
then effective Exercise Price; and (2) the denominator of which shall be (A) the
number of shares of Common Stock outstanding on the date of such issuance or
sale plus (B) the number of additional shares of Common Stock offered for the
subscription or purchase (or into which the Common Stock Equivalents so offered
are exercisable or convertible). Any adjustments required by this Section 3(b)
shall be made immediately after such issuance or sale or record date, as the
case may be. For purposes of this Agreement, "COMMON STOCK EQUIVALENTS" shall
mean any securities of the Company or the Subsidiaries which would entitle the
holder thereof to acquire at any time Common Stock, including without
limitation, any debt, preferred stock, rights, options, warrants or other
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instrument that is at any time convertible into or exchangeable for, or
otherwise entitles the holder thereof to receive, Common Stock.
The anti-dilution adjustment provisions of this Section 3(b) and
Section 3(c) shall cease to apply if:
i. the volume weighted average of the closing prices for
the Common Stock on the Trading Market over any twenty (20) trading day period
shall be in excess of two (2) times the Exercise Price (e.g., $4.00 per share
with an Exercise Price of $2.00) (the "TRADING PERIOD");
ii. the Warrant was freely exercisable by the Holder
without restriction hereunder throughout the Trading Period and all of the
Warrant Shares receivable upon exercise by the Holder would have been Freely
Tradeable throughout the Trading Period;
iii. the Company shall have provided written notice to the
Holder within twenty calendar days of the close of the Trading Period that such
Trading Period has occurred showing the calculations with respect to the Trading
Period with reasonable detail and setting forth a statement of the facts
supporting with particularity its conclusion that (i) and (ii) above have been
satisfied; and
iv. the Holder shall not have reasonably objected within
10 business days of receipt of the notice on the grounds that the conditions set
forth above were not satisfied during the Trading Period.
"FREELY TRADEABLE" means, for the purposes of this paragraph, that throughout
the Trading Period the Holder, having properly exercised the Warrants and
received the underlying Warrant Shares from the Company, would have been able
freely to exercise and trade any and all of the Warrant Shares received upon
exercise, including, without limitation, the following conditions being met: (w)
the Company is not in default of its obligations under the Registration Rights
Agreement and a Registration Statement (as defined in the Registration Rights
Agreement) allowing the resale of the Warrant Shares shall be effective and
available for use by the Holder, or, if the Measurement Period occurs after the
Effectiveness Period (as defined in the Registration Rights Agreement), the
Holder is not an affiliate of the Company and shall be permitted under
applicable securities laws to trade freely the Warrant Shares on the applicable
Trading Market under Rule 144(k) under the Securities Act, (x) such sale shall
be allowable under applicable state securities or blue sky laws, (y) the Holder
shall not otherwise be prevented or restricted, including by action by the
Company or by the failure of the Company to fulfill its obligations under the
Registration Rights Agreement, from effecting sales pursuant to the Registration
Statement or under Rule 144(k), including as a result of any blackout periods
imposed on insiders applicable to the Holder or possession of any inside
information which in the reasonable opinion of the Holder would prevent the
Holder from trading during such period, and (z) the market has Sufficient Volume
during the Trading Period. "SUFFICIENT VOLUME" means that (i) there is an active
public market for the Common Stock and (ii) the aggregate trading volume over
the Trading Period is greater than the Warrant Shares together with all other
Credit Agreement Warrants with the same initial Exercise Price divided by 0.21.
For example, if there are 1,000,000 Warrant Shares together with all other
Credit Agreement Warrants with the same initial Exercise Price, there must be an
active public market for the Common Stock for the duration of such Trading
Period and the aggregate trading volume over the Trading Period
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shall have been at least 4,761,904 shares of Common Stock during such period.
Notwithstanding the foregoing, if Shareholder Approval is required with respect
to the issuance of any of the Warrant Shares and such Shareholder Approval has
not been obtained, this paragraph shall not apply, and the anti-dilution
adjustment provisions of this Section 3(b) and Section 3(c) shall remain in
effect.
(c) If at any time or from time to time after the date hereof the
Company shall (i) issue or sell any Common Stock or Common Stock Equivalents
without consideration or for consideration per share (determined (1) in the case
of Common Stock Equivalents, by dividing (x) the total amount received or
receivable by the Company in consideration of the sale and issuance of such
Common Stock Equivalents plus the minimum aggregate consideration payable to the
Company upon exercise or conversion or exchange thereof by (y) the total number
of shares of Common Stock covered by such Common Stock Equivalents and (2) in
the case of any noncash consideration, as determined in good faith by the Board
of Directors of the Company) less than the Current Market Value of the Common
Stock in effect immediately prior to the date of such issuance or sale or (ii)
fix a record date for the issuance of subscription rights, options or warrants
to all holders of Common Stock entitling them to subscribe for or purchase
Common Stock (or Common Stock Equivalents) at a price (or having an exercise or
conversion price per share) less than the Current Market Value in effect
immediately prior to the record date (which date in the event of distribution to
shareholders shall be deemed to be the record date set by the Company to
determine shareholders entitled to participate in such distribution), the
Exercise Price shall be reduced to the lesser of the Exercise Price determined
by (i) subtracting from the Exercise Price the amount that the Current Market
Value of the Common Stock exceeds the consideration per share referred to above
and (ii) multiplying the Exercise Price in effect immediately prior to the date
of such sale or issuance (which date in the event of distribution to
shareholders shall be deemed to be the record date set by the Company to
determine shareholders entitled to participate in such distribution) by a
fraction: (1) the numerator of which shall be (A) the number of shares of Common
Stock outstanding on the date of such sale or issuance plus (B) the number of
additional shares of Common Stock which the aggregate consideration received by
the Company upon such issuance or sale (plus the aggregate of any additional
amount to be received by the Company upon the exercise of such subscription
rights, options or warrants) would purchase at the Current Market Value; and (2)
the denominator of which shall be (A) the number of shares of Common Stock
outstanding on the date of such issuance or sale plus (B) the number of
additional shares of Common Stock offered for the subscription or purchase (or
into which the Common Stock Equivalents so offered are exercisable or
convertible). Any adjustments required by this Section 3(c) shall be made
immediately after such issuance or sale or record date, as the case may be. Such
adjustments shall be made successively whenever such event shall occur. To the
extent that shares of Common Stock (or Common Stock Equivalents) are not
delivered after the expiration of such subscription rights, options or warrants,
the Exercise Price shall be readjusted to the Exercise Price which would then be
in effect had the adjustments made upon the issuance of such rights, options or
warrants been made upon the basis of delivery of only the number of shares of
Common Stock (or Common Stock Equivalents) actually delivered.
(d) If at any time or from time to time after the date hereof the
Company shall fix a record date for the issuance or making a distribution to all
holders of the Common Stock (including any such distribution to be made in
connection with a consolidation or merger in which the Company is to be the
continuing corporation) of evidences of its indebtedness, any other securities
of the Company or any cash, property or other assets (excluding a
8
combination, reclassification or recapitalization referred to in Section 3(a)
hereof, cash dividends or cash distributions paid out of net profits or earned
surplus legally available therefor and in the ordinary course of business or
subscription rights, options or warrants for Common Stock or Common Stock
Equivalents (excluding those referred to in Section 3(a) hereof), any such
non-excluded event being herein called a "SPECIAL DIVIDEND"), (i) the Exercise
Price shall be decreased immediately after the record date for such Special
Dividend to a price determined by multiplying (A) the Exercise Price in effect
on such record date less the Fair Market Value of the evidences of indebtedness,
securities or property, or other assets issued or distributed in such Special
Dividend applicable to one share of Common Stock or of such subscription rights
or warrants applicable to one share of Common Stock and (B) the denominator of
which shall be the Exercise Price then in effect and (ii) the number of shares
of Common Stock subject to purchase upon exercise of this Warrant shall be
increased to a number determined by multiplying the number of shares of Common
Stock subject to purchase immediately before such Special Dividend by a fraction
(x) the numerator of which shall be the Exercise Price in effect immediately
before such Special Dividend and (y) the denominator of which shall be the
Exercise Price in effect immediately after such Special Dividend. Any adjustment
required by this Section 3(d) shall be made successively whenever such a record
date is fixed and in the event that such distribution is not so made, the
Exercise Price shall again be adjusted to be the Exercise Price that was in
effect immediately prior to such record date.
(e) If at any time or from time to time after the date hereof the
Company shall make a distribution to all holders of the Common Stock of stock of
a subsidiary or securities convertible into or exercisable for such stock, then
in lieu of an adjustment in the Exercise Price or the number of Warrant Shares
purchasable upon the exercise of this Warrant, the Holder, upon the exercise
hereof at any time after such distribution, shall be entitled to receive from
the Company, such subsidiary or both, as the Company shall determine, the stock
or other securities to which such Holder would have been entitled if the Holder
had exercised this Warrant immediately prior thereto, all subject to further
adjustment as provided in this Section 3, and the Company shall reserve, for the
life of this Warrant, such securities of such subsidiary or other corporation.
(f) Whenever the Exercise Price payable upon exercise of this
Warrant is adjusted pursuant to the foregoing paragraphs of this Section 3, the
Warrant Shares shall simultaneously be adjusted by multiplying the number of
Warrant Shares initially issuable upon exercise of this Warrant by the Exercise
Price in effect on the date thereof and dividing the product so obtained by the
Exercise Price, as adjusted.
(g) If, at any time while this Warrant is outstanding, (A) the
Company effects any merger or consolidation of the Company with or into another
Person, (B) the Company effects any sale of all or substantially all of its
assets in one or a series of related transactions, (C) any tender offer or
exchange offer (whether by the Company or another Person) is completed pursuant
to which holders of Common Stock are permitted to tender or exchange their
shares for other securities, cash or property, or (D) the Company effects any
reclassification of the Common Stock or any compulsory share exchange pursuant
to which the Common Stock is effectively converted into or exchanged for other
securities, cash or property (in any such case, a "FUNDAMENTAL TRANSACTION"),
then, upon any subsequent conversion of this Warrant, the Holder shall have the
right to receive, for each Warrant Share that would have been issuable upon such
exercise absent such Fundamental Transaction, at the option of the Holder, (a)
upon exercise of this Warrant, the number of shares of Common Stock of the
successor or acquiring corporation or of the Company, if it is the surviving
corporation, and Alternate Consideration receivable upon or as a result of such
reorganization, reclassification, merger, consolidation or disposition of assets
by a Holder of the number of
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shares of Common Stock for which this Warrant is exercisable immediately prior
to such event or (b) if the Company is acquired in an all cash transaction, cash
equal to the value of this Warrant as determined in accordance with the
Black-Scholes option pricing formula (the "ALTERNATE CONSIDERATION"). For
purposes of any such exercise, the determination of the Exercise Price shall be
appropriately adjusted to apply to such Alternate Consideration based on the
amount of Alternate Consideration issuable in respect of one share of Common
Stock in such Fundamental Transaction, and the Company shall apportion the
Exercise Price among the Alternate Consideration in a reasonable manner
reflecting the relative value of any different components of the Alternate
Consideration. If holders of Common Stock are given any choice as to the
securities, cash or property to be received in a Fundamental Transaction, then
the Holder shall be given the same choice as to the Alternate Consideration it
receives upon any exercise of this Warrant following such Fundamental
Transaction. To the extent necessary to effectuate the foregoing provisions, any
successor to the Company or surviving entity in such Fundamental Transaction
shall issue to the Holder a new warrant consistent with the foregoing provisions
and evidencing the Holder's right to exercise such warrant into Alternate
Consideration. The terms of any agreement pursuant to which a Fundamental
Transaction is effected shall include terms requiring any such successor or
surviving entity to comply with the provisions of this Section 3(g) and insuring
that this Warrant (or any such replacement security) will be similarly adjusted
upon any subsequent transaction analogous to a Fundamental Transaction. The
provisions of this Section 3(g) shall similarly apply to successive
reclassifications, capital reorganizations, consolidations, mergers, sales or
conveyances.
(h) EXEMPT ISSUANCE. Notwithstanding the foregoing, no
adjustments, Alternate Consideration nor notices shall be made, paid or issued
under this Section 3 in respect of
i. the issuance of Common Stock pursuant to a stock
split, subdivision, combination or re-classification which is governed by
Section 3(a) hereof, for which adjustment has already been made pursuant to
Section 3(a) hereof;
ii. Common Stock issuable or issued to employees,
consultants or directors of the Corporation for the primary purpose of
soliciting or retaining their employment or services directly or pursuant to a
stock option plan or restricted stock plan approved by the Board of Directors of
the Corporation, provided that the granting of options or rights pursuant to
this clause are in the ordinary course of business and are usual and customary;
iii. shares of Common Stock or options or warrants to
purchase Common Stock, issued to financial institutions or lessors in connection
with commercial credit arrangements, equipment financings or similar
transactions, provided such issuances are approved by the Board of Directors of
the Company and shall not include a transaction in which the Company is issuing
securities primarily for the purpose of raising capital or to an entity whose
primary business is investing in securities;
iv. Common Stock issued in connection with bona fide
acquisitions, mergers or similar transactions and approved by the Board of
Directors of the
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Company, provided that this shall not include a transaction in which the Company
is issuing securities primarily for the purpose of raising capital;
v. the granting of any Credit Agreement Warrant or
vi. the issuance of Common Stock pursuant to any option,
warrant, right or exercisable, exchangeable or convertible security outstanding
as of the Initial Exercise Date or any Credit Agreement Warrant.
(i) CALCULATIONS. All calculations under this Section 3 shall be
made to the nearest cent or the nearest 1/100th of a share, as the case may be.
The number of shares of Common Stock outstanding at any given time shall not
includes shares of Common Stock owned or held by or for the account of the
Company, and the description of any such shares of Common Stock shall be
considered on issue or sale of Common Stock. For purposes of this Section 3, the
number of shares of Common Stock deemed to be issued and outstanding as of a
given date shall be the sum of the number of shares of Common Stock (excluding
treasury shares, if any) issued and outstanding. In respect of any dilutive
event which would trigger more than one anti-dilution adjustment hereunder, this
Section 3 shall be construed in a way to maximize the anti-dilution protection
to the Holder.
(j) OTHER DILUTIVE EVENTS. In case the Company or any of its
Subsidiaries takes any voluntary action, as to which the provisions of this
Section 3 are not strictly applicable but the failure to make any adjustment
would not fairly protect the purchase rights represented by this Warrant in
accordance with the essential intent and principles of such sections then, in
each such case, the Company shall appoint a Financial Expert, which shall give
their opinion upon the adjustment, if any, on a basis consistent with the
essential intent and principles established in Sections 3, necessary to
preserve, without dilution, the purchase rights represented by this Warrant.
Without limiting the generality of the foregoing, the Company acknowledges that
issuance of any equity security by any Subsidiary to any Person other than the
issuer or a wholly-owned Subsidiary or sale of existing equity securities of
Subsidiaries or investees by the Company or any Subsidiary for a price in each
case less than the fair value thereof would be such voluntary actions. Upon
receipt of such opinion, the Company will promptly mail a copy thereof to the
Holder and shall make the adjustments described therein.
(k) VOLUNTARY ADJUSTMENT BY COMPANY. The Company may at any time
during the term of this Warrant reduce the then current Exercise Price to any
amount and for any period of time deemed appropriate by the Board of Directors
of the Company.
(l) NOTICE TO HOLDERS.
i. NOTICE OF ADJUSTMENT TO EXERCISE PRICE. Whenever the
Exercise Price is adjusted pursuant to this Section 3, the Company shall
promptly mail to each Holder a notice setting forth the Exercise Price after
such adjustment and setting forth a brief statement of the facts requiring such
adjustment.
ii. NOTICE TO ALLOW EXERCISE BY HOLDER. If (A) the
Company shall declare a dividend (or any other distribution) on the Common
Stock; (B) the Company shall declare a special nonrecurring cash dividend on or
a redemption of the Common Stock; (C) the Company shall authorize the granting
to all holders of the Common Stock of any additional shares of Common Stock or
Common Stock
11
Equivalents or rights, options or warrants to subscribe for or purchase any
shares of capital stock of any class or of any rights; (D) the approval of any
stockholders of the Company shall be required in connection with any
reclassification of the Common Stock, any consolidation or merger to which the
Company is a party, any sale or transfer of all or substantially all of the
assets of the Company, of any compulsory share exchange whereby the Common Stock
is converted into other securities, cash or property; or (E) the Company shall
propose or authorize the voluntary or involuntary dissolution, liquidation or
winding up of the affairs of the Company; then, in each case, the Company shall
cause to be mailed to the Holder at its last addresses as it shall appear upon
the Warrant Register of the Company, at least 20 calendar days prior to the
applicable record or effective date hereinafter specified, a notice stating (x)
the date on which a record is to be taken for the purpose of such dividend,
distribution, redemption, rights or warrants, or if a record is not to be taken,
the date as of which the holders of the Common Stock of record to be entitled to
such dividend, distributions, redemption, rights or warrants are to be
determined or (y) the date on which such reclassification, consolidation,
merger, sale, transfer or share exchange is expected to become effective or
close, and the date as of which it is expected that holders of the Common Stock
of record shall be entitled to exchange their shares of the Common Stock for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transferor share exchange; PROVIDED, that the
failure to mail such notice or any defect therein or in the mailing thereof
shall not affect the validity of the corporate action required to be specified
in such notice. The Holder is entitled to exercise this Warrant during the
20-day period commencing the date of such notice to the effective date of the
event triggering such notice.
SECTION 4. TRANSFER OF WARRANT.
(a) TRANSFERABILITY. Subject to compliance with any applicable
securities laws and the conditions set forth in Sections 5(a) and 4(d) hereof,
this Warrant and all rights hereunder are transferable, in whole or in part,
upon surrender of this Warrant at the principal office of the Company, together
with a written assignment of this Warrant substantially in the form attached
hereto duly executed by the Holder or its agent or attorney. Upon such surrender
and, if required, such payment, the Company shall execute and deliver a new
Warrant or Warrants in the name of the assignee or assignees and in the
denomination or denominations specified in such instrument of assignment, and
shall issue to the assignor a new Warrant evidencing the portion of this Warrant
not so assigned, and this Warrant shall promptly be cancelled. A Warrant, if
properly assigned, may be exercised by a new holder for the purchase of Warrant
Shares without having a new Warrant issued.
(b) NEW WARRANTS. This Warrant may be divided or combined with
other Warrants upon presentation hereof at the aforesaid office of the Company,
together with a written notice specifying the names and denominations in which
new Warrants are to be issued, signed by the Holder or its agent or attorney.
Subject to compliance with Section 4(a), as to any transfer which may be
involved in such division or combination, the Company shall execute and deliver
a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided
or combined in accordance with such notice.
(c) WARRANT REGISTER. The Company shall register this Warrant,
upon records to be maintained by the Company for that purpose (the "WARRANT
REGISTER"), in the name of the record Holder hereof from time to time. The
Company may deem and treat
12
the registered Holder of this Warrant as the absolute owner hereof for the
purpose of any exercise hereof or any distribution to the Holder, and for all
other purposes, absent actual notice to the contrary.
(d) TRANSFER RESTRICTIONS. If, at the time of the surrender of
this Warrant in connection with any transfer of this Warrant, the transfer of
this Warrant shall not be registered pursuant to an effective registration
statement under the Securities Act and under applicable state securities or blue
sky laws, the Company may require, as a condition of allowing such transfer that
the Holder or transferee of this Warrant, as the case may be, establish to the
Company's reasonable satisfaction that such transfer may be made without
registration under the Securities Act and under applicable state securities or
blue sky laws (which may in the reasonable opinion of the Company require a
written opinion of counsel, provided that an opinion in form, substance and
scope customary for opinions of counsel in comparable transactions shall be
deemed to be have satisfied this provision).
SECTION 5. MISCELLANEOUS.
(a) TITLE TO WARRANT. Prior to the Termination Date and subject to
compliance with applicable laws and Section 4 of this Warrant, this Warrant and
all rights hereunder are transferable, in whole or in part, at the office or
agency of the Company by the Holder in person or by duly authorized attorney,
upon surrender of this Warrant together with the Assignment Form annexed hereto
properly endorsed.
(b) NO RIGHTS AS SHAREHOLDER UNTIL EXERCISE. This Warrant does not
entitle the Holder to any voting rights or other rights as a shareholder of the
Company prior to the exercise hereof. Upon the surrender of this Warrant and the
payment of the aggregate Exercise Price (or by means of a cashless exercise),
the Warrant Shares so purchased shall be and be deemed to be issued to such
Holder as the record owner of such shares as of the close of business on the
later of the date of such surrender and payment.
(c) LOSS, THEFT, DESTRUCTION OR MUTILATION OF WARRANT. The Company
covenants that upon receipt by the Company of evidence reasonably satisfactory
to it of the loss, theft, destruction or mutilation of this Warrant or any stock
certificate relating to the Warrant Shares, and in case of loss, theft or
destruction, of indemnity or security reasonably satisfactory to it (which, in
the case of the Warrant, shall not include the posting of any bond), and upon
surrender and cancellation of such Warrant or stock certificate, if mutilated,
the Company will make and deliver a new Warrant or stock certificate of like
tenor and dated as of such cancellation, in lieu of such Warrant or stock
certificate.
(d) SATURDAYS, SUNDAYS, HOLIDAYS, ETC. If the last or appointed
day for the taking of any action or the expiration of any right required or
granted herein shall be a Saturday, Sunday or a legal holiday, then such action
may be taken or such right may be exercised on the next succeeding day not a
Saturday, Sunday or legal holiday.
(e) AUTHORIZED SHARES. The Company covenants that during the
period the Warrant is outstanding, it will reserve and keep available for
issuance from its authorized and unissued Common Stock a sufficient number of
shares to provide for the issuance of the Warrant Shares upon the exercise of
any purchase rights under this Warrant. The Company further covenants that its
issuance of this Warrant shall constitute full authority to its officers who are
charged with the duty of executing stock certificates to execute and issue the
necessary certificates for the Warrant Shares upon the exercise of the purchase
rights under
13
this Warrant. If at any time the number of authorized but unissued shares of
Common Stock shall not be sufficient to effect the exercise of this Warrant, the
Company shall take any and all corporate action as is necessary to increase its
authorized but unissued shares of Common Stock to such number of shares as shall
be sufficient for such purpose. The Company will take all action within its
control as may be necessary to assure that such Warrant Shares may be issued as
provided herein without violation of any applicable law or regulation, or of any
requirements of the Trading Market upon which the Common Stock may be listed.
Except and to the extent as waived or consented to by the Holder, the Company
shall not by any action, including, without limitation, amending its certificate
of incorporation or through any 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 of this Warrant, but will at all times in good faith assist in the
carrying out of all such terms and in the taking of all such actions as may be
necessary or appropriate to protect the rights of Holder as set forth in this
Warrant against impairment including dilution to the extent provided herein.
Without limiting the generality of the foregoing, the Company will (a) not
increase the par value of any Warrant Shares above the amount payable therefor
upon such exercise immediately prior to such increase in par value, (b) take all
such action as may be necessary or appropriate in order that the Company may
validly and legally issue fully paid and nonassessable Warrant Shares upon the
exercise of this Warrant, and (c) use reasonable best efforts to obtain all such
authorizations, exemptions or consents from any public regulatory body having
jurisdiction thereof as may be necessary to enable the Company to perform its
obligations under this Warrant. Before taking any action which would result in
an adjustment in the number of Warrant Shares for which this Warrant is
exercisable or in the Exercise Price, the Company shall obtain all such
authorizations or exemptions thereof, or consents thereto, as may be necessary
from any public regulatory body or bodies having jurisdiction thereof.
(f) JURISDICTION. THIS WARRANT SHALL BE DEEMED TO BE A CONTRACT
MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK. This
Warrant constitute the entire understanding among the parties hereto with
respect to the subject matter hereof and supersede any prior agreements, written
or oral, with respect thereto. EACH PARTY TO THIS WARRANT HEREBY IRREVOCABLY
SUBMITS TO THE JURISDICTION OF ANY NEW YORK STATE OR FEDERAL COURT SITTING IN
NEW YORK IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS WARRANT
OR RELATED DOCUMENT, AND EACH HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN
RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH NEW
YORK STATE OR FEDERAL COURT. THE COMPANY AGREES THAT SUCH JURISDICTION SHALL BE
EXCLUSIVE WITH RESPECT TO ANY SUCH ACTION OR PROCEEDING BROUGHT BY IT. EACH
PARTY TO THIS WARRANT HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT IT MAY
EFFECTIVELY DO SO, THE DEFENSE OF ANY INCONVENIENT FORUM TO THE MAINTENANCE OF
SUCH ACTION OR PROCEEDING.
(g) WAIVER OF JURY TRIAL, ETC. THE COMPANY AND THE HOLDER HEREBY
KNOWINGLY, VOLUNTARILY, AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A
TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF,
UNDER, OR IN CONNECTION WITH, THIS WARRANT, OR ANY COURSE OF CONDUCT, COURSE OF
DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN), OR ACTIONS OF THE
14
HOLDER. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE HOLDER ENTERING INTO
THIS AGREEMENT.
(h) RESTRICTIONS. The Holder acknowledges that the Warrant Shares
acquired upon the exercise of this Warrant, if not registered, will have
restrictions upon resale imposed by state and federal securities laws.
(i) NONWAIVER AND EXPENSES. No course of dealing or any delay or
failure to exercise any right hereunder on the part of Holder shall operate as a
waiver of such right or otherwise prejudice Xxxxxx's rights, powers or remedies,
notwithstanding the fact that all rights hereunder terminate on the Termination
Date. The Company shall pay all fees, expenses and costs in connection with the
issuance, exercise or transfer of this Warrant or the Warrant Shares. Without
limiting the foregoing, if the Company willfully and knowingly fails to comply
with any provision of this Warrant, which results in any material damages to the
Holder, the Company shall pay to Holder such amounts as shall be sufficient to
cover any costs and expenses including, but not limited to, reasonable
attorneys' fees, including those of appellate proceedings, incurred by Holder in
collecting any amounts due pursuant hereto or in otherwise enforcing any of its
rights, powers or remedies hereunder.
(j) NOTICES. All notices required under this Warrant and shall be
deemed to have been given or made for all purposes (i) upon personal delivery,
(ii) upon confirmation receipt that the communication was successfully sent to
the applicable number if sent by facsimile, or (iii) one day after being sent,
when sent by professional overnight courier service. Notices to the Company
shall be sent to the principal office of the Company (or at such other place as
the Company shall notify the Holder hereof in writing). Notices to the Holder
shall be sent to the address of the Holder on the books of the Company (or at
such other place as the Holder shall notify the Company hereof in writing).
(k) LIMITATION OF LIABILITY. No provision hereof, in the absence
of any affirmative action by Holder to exercise this Warrant or purchase Warrant
Shares, and no enumeration herein of the rights or privileges of Holder, shall
give rise to any liability of Holder for the purchase price of any Common Stock
or as a stockholder of the Company, whether such liability is asserted by the
Company or by creditors of the Company.
(l) REMEDIES. Holder, in addition to being entitled to exercise
all rights granted by law, including recovery of damages, will be entitled to
specific performance of its rights under this Warrant. The Company agrees that
monetary damages would not be adequate compensation for any loss incurred by
reason of a breach by it of the provisions of this Warrant and hereby agrees to
waive the defense in any action for specific performance that a remedy at law
would be adequate.
(m) SUCCESSORS AND ASSIGNS. Subject to applicable securities laws,
this Warrant and the rights and obligations evidenced hereby shall inure to the
benefit of and be binding upon the successors of the Company and the successors
and permitted assigns of Holder. The provisions of this Warrant are intended to
be for the benefit of all Holders from time to time of this Warrant and shall be
enforceable by any such Holder or holder of Warrant Shares.
(n) AMENDMENT. This Warrant may be modified or amended or the
provisions hereof waived with the written consent of the Company and the Holder.
15
(o) SEVERABILITY. Wherever possible, each provision of this
Warrant shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Warrant shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provisions or the remaining provisions of this Warrant.
(p) HEADINGS. The headings used in this Warrant are for the
convenience of reference only and shall not, for any purpose, be deemed a part
of this Warrant.
16
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
by its officer thereunto duly authorized as of the date first written above.
TARRANT APPAREL GROUP
By: __________________________________
Name:
Title:
[SIGNATURE PAGE TO DURHAM WARRANT]
17
NOTICE OF EXERCISE
To: TARRANT APPAREL GROUP
(1) The undersigned hereby elects to purchase ________ Warrant Shares of
the Company, with an original exercise price of $_____, pursuant to the
terms of the attached Warrant (only if exercised in full), and tenders
herewith payment of the exercise price in full.
(2) Payment shall take the form of (check applicable box):
[_] in lawful money of the United States; or
[_] the cancellation of such number of Warrant Shares as is
necessary, in accordance with the formula set forth in
subsection 2(c), to exercise this Warrant with respect to the
number of Warrant Shares set forth above.
(3) Please issue a certificate or certificates representing said Warrant
Shares in the name of the undersigned or in such other name as is
specified below:
The Warrant Shares shall be delivered to the following:
(4) The undersigned is an "accredited investor" as defined in Regulation D
promulgated under the Securities Act of 1933, as amended.
(5) In exercising this Warrant, the undersigned xxxxxx confirms and
acknowledges that the Warrant Shares are being acquired solely for the
account of the undersigned and not as a nominee for any other party,
and that the undersigned will not offer, sell or otherwise dispose of
any such Warrant Shares except under circumstances that will not result
in a violation of the Securities Act, or any applicable state
securities laws.
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[SIGNATURE OF HOLDER]
Name of Investing Entity:
---------------------------------------
SIGNATURE OF AUTHORIZED
SIGNATORY OF INVESTING ENTITY:
---------------------------------------
Name of Authorized Signatory:
---------------------------------------
Title of Authorized Signatory:
---------------------------------------
Date:__________________________________
19
ASSIGNMENT FORM
(To assign the foregoing warrant, execute
this form and supply required information.
Do not use this form to exercise the warrant.)
FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby are
hereby assigned to ______________________________________ whose address is
_______________________________________________.
Dated: ______________, _______
Holder's Signature:
___________________________________________
Holder's Address:
___________________________________________
Signature Guaranteed:
___________________________________________
NOTE: The signature to this Assignment Form must correspond with the name as it
appears on the face of the Warrant, without alteration or enlargement or any
change whatsoever, and must be guaranteed by a bank or trust company. Officers
of corporations and those acting in a fiduciary or other representative capacity
should file proper evidence of authority to assign the foregoing Warrant.
20
