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U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): April 7, 1999
MODACAD, INC.
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(Exact name of registrant as specified in its charter)
California 33-31166 95-4145930
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(State or other jurisdiction of (Commission (IRS Employer
incorporation or organization) File Number) Identification No.)
3861 Sepulveda Blvd., Culver City 90230
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (310) 751-2100
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Not Applicable
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(Former name or former address, if changed since last report)
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Item 5. Other Events
ModaCAD reports its transaction with four investors, pursuant to which such
investors purchased an aggregate of 776,827 shares of the common stock of
ModaCAD and, subject to shareholder approval, warrants to purchase an
aggregate of 919,245 shares of ModaCAD's common stock. Concurrently with
the investor transaction, ModaCAD entered an agreement under which Intel
Corporation purchased 455,218 shares of ModaCAD's common stock and, subject
to shareholder approval, warrants to purchase 538,674 shares of ModaCAD's
common stock. See attached press release issued on April 9, 1999 and the
Securities Purchase Agreement between ModaCAD and the Purchasers named
therein, both of which are, by this reference, incorporated herein.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
ModaCAD, INC.
Date: April 9, 1999 By: /s/ LEE FREEDMAN
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Lee Freedman
Vice President, Finance and
Chief Financial Officer
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PRESS RELEASE
Modacad Closes Investment Round
LOS ANGELES, CALIFORNIA, April 9, 1999 . . . . Modacad, Inc. (NASDAQ: MODA), an
e-Commerce solutions provider for the fashion industry, today announced that it
has completed a privately placed investment of common stock and warrants valued
at $8.5 million. The lead financial investor was Castle Creek Technology
Partners, LLC, and other financial investors included Marshall Capital
Management, Inc., an affiliate of Credit Suisse First Boston. Concurrently,
Modacad announced that Intel Corporation has taken a $5 million equity position
in Modacad in exchange for its right to present and future royalty streams under
an existing business agreement.
The financial investors, led by Castle Creek, received $8.5 million of common
stock priced at $10.98 per share. Additionally, these investors received five
year warrants to purchase 271,889 shares of Modacad stock at a premium of 25%
above the common stock purchase price, as well as one year cash-exercise
warrants to purchase 323,678 shares of Modacad stock at a premium of 20% above
the common stock purchase price and 15-month cash-exercise warrants to purchase
323,678 shares of Modacad stock also at a premium of 20% above the common stock
purchase price. The exerciseability of the warrants is subject to shareholder
approval.
"This investment will expand our institutional shareholder base and give us
access to the capital necessary to accelerate our expansion in the Internet
e-Commerce marketplace," stated Maurizio Vecchione, Modacad's president and
chief operating officer.
In return for its royalty streams, Intel received $5 million of Modacad common
stock, also priced at $10.98 per share. Intel also received warrants to purchase
a proportionate number of shares of Modacad stock with terms substantially
similar to the warrants issued to the investors led by Castle Creek. The
agreement with Intel enables Modacad to apply its revenue toward the execution
of its internet strategy while maintaining its working relationship with Intel.
"Provided the value of Modacad stock increases sufficiently and the
cash-exercise warrants are exercised, we would have access to up to an
additional $13.5 million in cash," stated Maurizio Vecchione, Modacad's
president and chief operating officer.
As the result of this transaction, Intel and Castle Creek will each become 6.2%
shareholders in Modacad. PaineWebber Incorporated and ING Baring Furman Selz LLC
acted as placement agents and advisors to Modacad.
Founded in 1988, Modacad is an enabler of e-Commerce for manufacturers and
consumers. With more than 11 years of experience, the Company is a recognized
leader in 3D rendering and digital content management. Modacad recently launched
a new apparel e-commerce site at www.styleclick.com, featuring fashion, fitness
and beauty products, that allows users to comparison shop among leading brands.
The investment will increase Modacad's ability to develop the market for
styleclick.com and to enhance its web-based merchandising products.
For further information, or a complete investor kit, contact Gail Laguna,
Investor Relations manager, at 310-751-2100 or visit ModaCAD's web site at
www.modacad.com.
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SECURITIES PURCHASE AGREEMENT
This SECURITIES PURCHASE AGREEMENT ("Agreement") is entered into as of
April 7, 1999, by and between ModaCAD, Inc., a California corporation (the
"Company"), with headquarters located at Culver City, California and the
purchasers (the "Purchasers") set forth on the execution pages hereof, with
regard to the following:
RECITALS
A. The Company and Purchasers are executing and delivering this Agreement
in reliance upon the exemption from securities registration afforded by the
provisions of Regulation D ("Regulation D"), as promulgated by the United States
Securities and Exchange Commission (the "SEC") under the Securities Act of 1933,
as amended (the "Securities Act").
B. Purchasers desire to purchase, upon the terms and conditions stated in
this Agreement, (i) shares of the Company's Common Stock (the "Common Stock"),
(ii) Warrants in the form of Exhibit A-1 hereto (the "First Warrant") entitling
the holder thereof to purchase shares of Common Stock, (iii) Warrants in the
form of Exhibit A-2 hereto entitling the holder thereof to purchase shares of
Common Stock (the "Second Warrant") and (iv) Warrants in the form of Exhibit A-3
hereto entitling the holder thereof to purchase shares of Common Stock (the
"Third Warrant" and, taken together with the First Warrant and the Second
Warrant, the "Warrants"). The shares of Common Stock being purchased hereunder
are referred to herein as the "Shares" or the "Stock" and the shares of Common
Stock issuable upon exercise of the Warrants are referred to herein as the
"Warrant Shares". The Shares, the Warrants and the Warrant Shares are
collectively referred to herein as the "Securities."
C. Contemporaneous with the execution and delivery of this Agreement, the
parties hereto are executing and delivering a Registration Rights Agreement in
the form attached hereto as Exhibit B (the "Registration Rights Agreement"),
pursuant to which the Company has agreed to provide certain registration rights
under the Securities Act, the rules and regulations promulgated thereunder and
applicable state securities laws.
AGREEMENTS
NOW, THEREFORE, in consideration of their respective promises contained
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the Company and Purchasers hereby agree as
follows:
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ARTICLE I
PURCHASE AND SALE OF SECURITIES
I.1 Purchase of Shares and Warrants. Subject to the terms and the
satisfaction or waiver of the conditions set forth in this Agreement, the
issuance, sale and purchase of the Shares and Warrants shall be consummated in
one closing hereinafter referred to as the "Closing").
a. [Intentionally deleted].
b. On the date of the Closing, subject to the satisfaction (or waiver)
of the applicable conditions set forth in Articles VI and VII, the Company
shall issue and sell to each Purchaser, and each Purchaser shall purchase
from the Company (i) the number of shares of Common Stock set forth below
such Purchaser's name on the signature pages hereof, (ii) a Warrant
entitling the holder thereof to purchase the number of Warrant Shares as
set forth in such Warrant and (iii) the Second Warrant entitling the holder
thereof to purchase the number of Warrant Shares as set forth in such
Warrant. The aggregate purchase price to be paid by Purchasers for the
Common Stock and Warrants being purchased by Purchasers at the Closing is
equal to eight million, five hundred and thirty two thousand, four hundred
seventy three dollars ($8,532,473), which is one hundred and one percent
(101%) of the closing sale price on April 6, 1999 (the "Per Share Price"),
times the numbers of shares of Common Stock set forth on the signature
pages executed by each Purchaser. The purchase price to be paid by each
Purchaser for the Common Stock and Warrants being purchased by such
Purchaser at the Closing is equal to one hundred and one percent (101%) of
the closing sale price on April 6, 1999 times the number of shares of
Common Stock set forth on the signature page executed by such Purchaser.
c. [Intentionally deleted].
d. Each Purchaser represents that it and any person trading on its
behalf, has not engaged in any bids for or purchases or sales of the Common
Stock during the period beginning sixteen (16) trading days prior to the
date of the Closing and ending on the trading day immediately preceding the
date of the Closing.
I.2 Form of Payment. At each Closing, each Purchaser shall pay the
applicable Purchase Price for the Securities being purchased by such Purchaser
at such Closing by wire transfer to the Company, in accordance with the
Company's written wiring instructions, against delivery of duly executed stock
certificates and Warrants, and the Company shall deliver to each Purchaser such
executed stock certificates and Warrants against delivery of such Purchase Price
from each Purchaser. The obligations in this Agreement of each Purchaser shall
be separate from the obligations of each other Purchaser and shall relate solely
to the Purchased Securities to be purchased by such Purchaser. The obligations
of the Company with respect to each Purchaser shall be separate from the
obligations of the Company to each other Purchaser and shall not be conditioned
as to any Purchaser upon the performance of the obligations of any other
Purchaser.
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I.3 Closing Dates. Subject to the satisfaction (or waiver) of the
conditions set forth in Articles VI and VII below, the date and time of the
issuance, sale and purchase of the Securities pursuant to this Agreement shall
be April 7, 1999 (the"Closing Date"). The Closing shall occur at 10:00 a.m.
Chicago time, at the offices of Altheimer & Gray, 10 S. Wacker Drive, Chicago,
IL 60606.
I.4 Limitation on Sales. Notwithstanding anything to the contrary contained
in this Agreement, the Company may not sell and any Purchaser may not purchase
any shares of Common Stock pursuant to this Agreement and the transactions
contemplated hereby to the extent that such sale and purchase would result in
such Purchaser beneficially owning in excess of 9.9% of the shares of Common
Stock. For the purposes of this paragraph, beneficial ownership and all
determinations and calculations, including without limitation, with respect to
calculations of percentage ownership, shall be determined in accordance with
Section 13(d) of the Securities Exchange Act of 1934, as amended, and Regulation
13D and G thereunder. This Section 1.4(c) may not be waived by Purchaser unless
such waiver has been voted upon and approved by a majority of the holders of the
Common Stock.
ARTICLE II
PURCHASER'S REPRESENTATIONS AND WARRANTIES
Each Purchaser represents and warrants, solely with respect to itself and
its purchase hereunder and not with respect to any other Purchaser or the
purchase hereunder by any other Purchaser (and no Purchaser shall be deemed to
make or have any liability for any representation or warranty made by any other
Purchaser), to the Company as set forth in this Article II. No Purchaser makes
any other representations or warranties, express or implied, to the Company in
connection with the transactions contemplated hereby and any and all prior
representations and warranties, if any, which may have been made by a Purchaser
to the Company in connection with the transactions contemplated hereby shall be
deemed to have been merged in this Agreement and any such prior representations
and warranties, if any, shall not survive the execution and delivery of this
Agreement.
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II.1 Investment Purpose. Purchaser is purchasing the Shares and Warrants
for Purchaser's own account for investment only and not with a view toward or in
connection with the public re-sale or distribution thereof, except pursuant to
sales that are exempt from the registration requirements of the Securities Act
and/or sales registered under the Securities Act. Purchaser will not resell any
of the Securities except pursuant to sales that are exempt from the registration
requirements of the Securities Act and/or sales registered under the Securities
Act. Purchaser understands that Purchaser must bear the economic risk of this
investment indefinitely, unless the applicable Securities are registered
pursuant to the Securities Act and any applicable state securities laws or an
exemption from such registration is available, and that the Company has no
present intention of registering any such Securities other than as contemplated
by the Registration Rights Agreement. By making the representations in this
Section 2.1, the Purchaser does not agree to hold any Securities for any minimum
or other specific term and reserves the right to dispose of any or all of the
Securities at any time in accordance with or pursuant to a registration
statement or an applicable exemption from registration under the Securities Act.
II.2 Accredited Investor Status. Purchaser is an "accredited investor" as
that term is defined in Rule 501(a) of Regulation D.
II.3 Reliance on Exemptions. Purchaser understands that the Shares and
Warrants are being offered and sold to Purchaser in reliance upon specific
exemptions from the registration requirements of the United States federal and
state securities laws and that the Company is relying upon the truth and
accuracy of the representations and warranties of Purchaser set forth herein in
order to determine the availability of such exemptions and the eligibility of
Purchaser to acquire the Securities.
II.4 Information. Purchaser and its counsel have been furnished all
materials relating to the business, finances and operations of the Company and
materials relating to the offer and sale of the Shares and Warrants which have
been specifically requested by Purchaser. Purchaser has been afforded the
opportunity to ask questions of the Company, and its officers, directors,
employees and agents, and has received what Purchaser believes to be complete
and satisfactory answers to any such inquiries. Neither such inquiries nor any
other due diligence investigation conducted by Purchaser or any of its
representations and warranties shall modify, amend or affect Purchaser's right
to rely on the Company's representations and warranties contained in Article
III. Purchaser understands that Purchaser's investment in the Securities
involves a high degree of risk.
II.5 Governmental Review. Purchaser understands that no United States
federal or state agency or any other government or governmental agency has
passed upon or made any recommendation or endorsement of the Securities or an
investment therein.
II.6 Transfer or Resale. Purchaser understands that (i) except as provided
in the Registration Rights Agreement, the Securities have not been and are not
being registered under the Securities Act or any state securities laws, and may
not be transferred unless subsequently registered thereunder or an exemption
from such registration is available (which exemption the Company expressly
agrees may be established as contemplated in clauses (b) and (c) of Section 5.1
hereof); (ii) any sale of such Securities made in reliance on Rule 144 under the
Securities Act (or a successor rule) ("Rule 144") may be made only in accordance
with the terms of said Rule and further, if said Rule is not applicable, any
resale of such Securities without registration under the Securities Act may
require compliance with some other exemption under the Securities Act or the
rules and regulations of the SEC thereunder; and (iii) neither the Company nor
any other person is under any obligation to register such Securities under the
Securities Act or any state securities laws or to comply with the terms and
conditions of any exemption thereunder (in each case, other than pursuant to
this Agreement or the Registration Rights Agreement).
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II.7 Legends. Purchaser understands that, subject to Article V hereof, the
certificates for the Warrants, and until such time as the Shares and the Warrant
Shares, as applicable, have been registered under the Securities Act as
contemplated by the Registration Rights Agreement or otherwise may be sold by
Purchaser pursuant to Rule 144, the certificates for the Shares and Warrant
Shares will bear a restrictive legend (the "Legend") in the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY
STATE OF THE UNITED STATES. THE SECURITIES REPRESENTED HEREBY MAY NOT BE OFFERED
OR SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SECURITIES UNDER APPLICABLE SECURITIES LAWS OR UNLESS OFFERED,
SOLD OR TRANSFERRED PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THOSE LAWS.
II.8 Authorization; Enforcement. This Agreement and the Registration Rights
Agreement have been duly and validly authorized, executed and delivered on
behalf of Purchaser and are valid and binding agreements of Purchaser
enforceable against Purchaser in accordance with their terms.
II.9 Residency. Purchaser is a resident of the jurisdiction set forth under
Purchaser's name on the signature page hereof executed by Purchaser.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to each Purchaser that:
III.1 Organization and Qualification. The Company and each of its
subsidiaries is a corporation duly organized, validity existing and in good
standing under the laws of the jurisdiction in which it is incorporated, and has
the requisite corporate power and authority to own its properties and to carry
on its business as now being conducted. The Company and each of its subsidiaries
is duly qualified as a foreign corporation to do business and is in good
standing in every jurisdiction where the failure to so qualify would have a
Material Adverse Effect. "Material Adverse Effect" means any material adverse
effect on (i) the business, operations, properties, financial condition,
operating results or prospects of the Company and its subsidiaries, taken as a
whole on a consolidated basis, (ii) the transactions contemplated hereby, (iii)
the ability of the Company to perform its obligations under this Agreement, the
Warrants or the Registration Rights Agreement (collectively, the "Transaction
Documents") or (iv) the Purchaser's interest in the Securities.
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III.2 Authorization; Enforcement. (a) The Company has the requisite
corporate power and authority (i) to enter into and perform its obligations
under each of the Transaction Documents, (ii) to issue and sell, and to perform
its obligations with respect to, the Shares and the Warrants in accordance with
the terms hereof and thereof, as applicable, (iii) issue the Warrant Shares in
accordance with the terms of the Warrants; (b) the execution, delivery and
performance of each of the Transaction Documents by the Company and the
consummation by it of the transactions contemplated hereby and thereby
(including without limitation the issuance of the Warrants and the reservation
for issuance and the issuance of the Shares and the Warrant Shares) have been
duly authorized by all necessary corporate action and no further consent or
authorization of the Company, its board of directors, or its stockholders or any
other person, body or agency is required with respect to any of the transactions
contemplated hereby or thereby (whether under rules of The Nasdaq National
Market ("Nasdaq"), the National Association of Securities Dealers or otherwise),
other than the Nasdaq Authorizations (as herein defined) and the declaration or
ordering of effectiveness by the SEC of the Registration Statement or Statements
as contemplated by the Registration Rights Agreement (collectively, the
"Consents"); (c) this Agreement, the Registration Rights Agreement and the
Warrants have been duly executed and delivered by the Company; and (d) each of
the Transaction Documents constitutes a legal, valid and binding obligation of
the Company enforceable against the Company in accordance with its terms.
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III.3 Capitalization. The capitalization of the Company as of the date of
this Agreement, including the authorized capital stock, the number of shares
issued and outstanding, the number of shares reserved for issuance pursuant to
the Company's stock option plans, the number of shares reserved for issuance
pursuant to securities (other than the Warrants) exercisable for, or convertible
into or exchangeable for any shares of Common Stock and the number of shares to
be initially reserved for issuance upon exercise of the Warrants is set forth on
Schedule 3.3. All of such outstanding shares of capital stock have been, or upon
issuance will be, validly issued, fully paid and non-assessable. No shares of
capital stock of the Company (including the Shares and the Warrant Shares) are
subject to preemptive rights or any other similar rights of the stockholders of
the Company or any liens or encumbrances. Except as disclosed in Schedule 3.3,
as of the date of this Agreement, (i) there are no outstanding options,
warrants, scrip, rights to subscribe for, calls or commitments of any character
whatsoever relating to, or securities or rights convertible into or exercisable
or exchangeable for, any shares of capital stock of the Company or any of its
subsidiaries, or contracts, commitments, understandings or arrangements by which
the Company or any of its subsidiaries is or may become bound to issue
additional shares of capital stock of the Company or any of its subsidiaries,
and (ii) there are no agreements or arrangements under which the Company or any
of its subsidiaries is obligated to register the sale of any of its or their
securities under the Securities Act (except the Registration Rights Agreement).
The Company has furnished to Purchaser true and correct copies of the Company's
Certificate of Incorporation as currently in effect ("Certificate of
Incorporation"), and the Company's By-laws as currently in effect (the
"By-laws"). The Company has set forth on Schedule 3.3 all instruments and
agreements (other than the Certificate of Incorporation and By-laws) governing
securities convertible into or exercisable or exchangeable for Common Stock of
the Company (and the Company shall provide to Purchaser copies thereof upon the
request of Purchaser). Except as disclosed in Schedule 3.3, the Company has no
indebtedness for borrowed money and no agreement providing for indebtedness for
borrowed money. Except as disclosed in Schedule 3.3 and this Agreement, the
Company has no share purchase agreements, rights plans or agreements containing
similar provisions and no agreements containing anti-dilution provisions. No
anti-dilution provisions which have, individually or in the aggregate, any
dilutive effect on Purchaser's investment are triggered as a result of any of
the transactions contemplated hereby, including exercise of the Warrants. Intel
Corporation has specifically agreed that no anti-dilution provisions will be
triggered as a result of the transactions contemplated hereby with respect to
Intel Corporation shares and warrants issued in connection herewith. The Company
shall provide Purchaser with a written update of this representation signed by
the Company's Chief Executive Officer or Chief Financial Officer on behalf of
the Company as of the date of the Closing and it shall be a condition to
Purchaser's obligations at Closing that there are no material changes in such
capitalization since the Company's representation on the date hereof. The
Company has no subsidiaries, except as provided on Schedule 3.3. All such
subsidiaries included on Schedule 3.3. are one hundred percent (100%) owned by
the Company. Except as provided on Schedule 3.3, the Company has no investments,
either debt or equity, in any other entity.
III.4 Issuance of Shares. The Shares and the Warrant Shares are duly
authorized and reserved for issuance, and, upon issuance in accordance with the
terms hereof and exercise of the Warrants in accordance with the terms thereof,
as applicable, will be validly issued, fully paid and non-assessable, and free
from all liens, claims and encumbrances and will not be subject to preemptive
rights or other similar rights of stockholders of the Company. The Warrants are
duly authorized and are validly issued, fully paid and non-assessable, and free
from all liens, claims and encumbrances and are not and will not be subject to
preemptive rights or other similar rights of stockholders of the Company. The
Board of Directors of the Company has unanimously approved the issuance of
Shares pursuant to the terms hereof and of shares of Common Stock issuable upon
full exercise of the First Warrants, the Second Warrants and the Third Warrants
pursuant to the terms thereof (without giving effect to any limitations on
exercise contained therein, including for purposes of Nasdaq Rule 4460(i) and
Nasdaq Rule 4310(c)(25)(H)(1)(b)) (the "Nasdaq Authorizations"), has unanimously
recommended to the stockholders of the Company the approval of the Nasdaq
Authorizations and will seek Shareholder Approval (as defined in Section 4.13)
at the Company's next annual meeting, which is currently scheduled for June 29,
1999. No further corporate authorization or approval (other than the Shareholder
Approval) is required under the rules of the Nasdaq with respect to the
transaction contemplated by this Agreement, including, without limitation, the
issuance of the Shares and Warrant Shares and the inclusion thereof for trading
on the Nasdaq.
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III.5 No Conflicts. The execution, delivery and performance of this
Agreement, the Warrants and the Registration Rights Agreement by the Company,
and the consummation by the Company of transactions contemplated hereby and
thereby (including, without limitation, the issuance and reservation for
issuance, as applicable, of the Shares and Warrant Shares and the Purchaser's
purchase and acquisition of the Shares, the Warrants and the Warrant Shares) do
not and will not (a) result in a violation of the Certificate of Incorporation
or By-laws, (b) conflict with, or constitute a default (or an event which with
notice or lapse of time or both would become a default) under, or give to others
any rights of termination, amendment, acceleration or cancellation of, any
agreement, indenture or instrument to which the Company or any of its
subsidiaries is a party (except for such conflicts, defaults, terminations,
amendments, accelerations, and cancellations as would not, individually or in
the aggregate, have a Material Adverse Effect), or (c) result in a violation of
any law, rule, regulation, order, judgment or decree (including, without
limitation, U.S. federal and state securities laws and regulations) applicable
to the Company or any of its subsidiaries, or by which any property or asset of
the Company or any of its subsidiaries, is bound or affected. Neither the
Company nor any of its subsidiaries is in violation of its Certificate of
Incorporation, by-laws or other organizational documents, and neither the
Company nor any of its subsidiaries is in default (and no event has occurred
which, with notice or lapse of time or both, would put the Company or any of its
subsidiaries in default) under, nor has there occurred any event giving others
(with notice or lapse of time or both) any rights of termination, amendment,
acceleration or cancellation of, any agreement, indenture or instrument to which
the Company or any of its subsidiaries is a party, except for possible defaults
or rights as would not, individually or in the aggregate, have a Material
Adverse Effect. The business of the Company and its subsidiaries is not being
conducted, and shall not be conducted so long as a Purchaser owns any of the
Securities, in violation of any law, ordinance, rule, regulation, order,
judgment or decree of any governmental entity, court or arbitration tribunal
except for possible violations the sanctions for which either singly or in the
aggregate would not have a Material Adverse Effect. The Company is not required
to obtain any consent, authorization or order of, or make any filing or
registration with, any court or governmental agency or any regulatory or
self-regulatory agency in order for it to execute, deliver or perform any of its
obligations under this Agreement, the Warrants or the Registration Rights
Agreement or to perform its obligations in accordance with the terms hereof or
thereof, other than the Consents. The purchase and acquisition of the Securities
by the Purchaser do not violate any law, rule, regulation, order, judgment or
decree applicable to the Company, or require further filing by the Company or
Purchaser under such law, rule, regulation, order, judgment or decree, by virtue
of the Company's business or assets, other than the Consents. The Company is not
in violation of the listing requirements of Nasdaq and does not reasonably
anticipate that the Common Stock will be de-listed by Nasdaq for the foreseeable
future, and the Company has made all necessary filings and notifications with,
and obtained all necessary approvals from, Nasdaq with respect to the
transactions contemplated hereby, including, without limitation, the issuance of
the Securities and the listing of the Shares and the Warrant Shares on the
Nasdaq.
<PAGE>
III.6 Registration and SEC Documents. The Common Stock is registered under
Section 12 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act") and has been so registered since March 1, 1996. Except as disclosed in
Schedule 3.6, since February 1996, the Company has timely filed all reports,
schedules, forms, statements and other documents required to be filed by it with
the SEC pursuant to the reporting requirements of the Exchange Act (all of the
foregoing filed after February 1996, and all exhibits included therein and
financial statements and schedules thereto and documents incorporated by
reference therein, being referred to herein as the "SEC Documents" and such
documents filed prior to the date hereof, the "Filed SEC Documents"), including
for purposes of determining the availability of Form S-3. The Company has
delivered to each Purchaser true and complete copies of the SEC Documents filed
since December 31, 1997. As of their respective dates, the SEC Documents
complied in all material respects with the requirements of the Exchange Act and
the rules and regulations of the SEC promulgated thereunder applicable to the
SEC Documents, and none of the SEC Documents, at the time they were filed with
the SEC, contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. None of the statements made in any such SEC Document is, or,
except pursuant to Filed SEC Documents has been, required to be updated or
amended under applicable law. The financial statements of the Company included
in the SEC Documents were prepared in accordance with U.S. generally accepted
accounting principles, consistently applied, and the rules and regulations of
the SEC during the periods involved (except (i) as may be otherwise indicated in
such financial statements or the notes thereto, or (ii) in the case of unaudited
interim statements, to the extent they do not include footnotes or are condensed
or summary statements) and present accurately and completely the consolidated
financial position of the Company and its consolidated subsidiaries as of the
dates thereof and the consolidated results of their operations and cash flows
for the periods then ended (subject, in the case of unaudited statements, to
normal, immaterial year-end audit adjustments). Except as set forth in the
financial statements of the Company included in the Filed SEC Documents, the
Company has no liabilities, contingent or otherwise, other than (i) liabilities
incurred subsequent to the date of such financial statements in the ordinary
course of business consistent with past practice and (ii) obligations under
contracts and commitments incurred in the ordinary course of business and not
required under generally accepted accounting principles to be reflected in such
financial statements, in each case of clause (i) and (ii) next above which,
individually or in the aggregate, are not material to the financial condition,
business, operations, properties, operating results or prospects of the Company
and its subsidiaries taken on a whole. The Filed SEC Documents, as supplemented
by Schedule 3.6 hereto, contain a complete and accurate list of all material
undischarged written or oral contracts, agreements, leases or other instruments
to which the Company or any subsidiary is a party or by which the Company or any
subsidiary is bound or to which any of the properties or assets of the Company
or any subsidiary is subject (each a "Contract"), except to the extent not
required to be filed pursuant to the applicable Rules and Regulations of the
SEC. None of the Company, its subsidiaries or, to the best knowledge of the
Company, any of the other parties thereto, is in breach or violation of any
Contract, which breach or violation relates to indebtedness for borrowed money,
is with respect to an obligation in excess of one hundred thousand dollars
($100,000) or would have a Material Adverse Effect. No event, occurrence or
condition exists which, with the lapse of time, the giving of notice, or both,
or the happening of any further event or condition, would become a breach or
default by the Company or its subsidiaries under any Contract which breach or
default would have a Material Adverse Effect.
III.7 Absence of Certain Changes. Since December 31, 1998, there has been
no material adverse change and no material adverse development in the business,
properties, operations, financial condition, results of operations or prospects
of the Company, except as disclosed in Schedule 3.7.
<PAGE>
III.8 Absence of Litigation. Except as disclosed in Schedule 3.8, there is
no action, suit, proceeding, inquiry or investigation before or by any court,
public board, governmental agency or authority, or self-regulatory organization
or body pending or, to the knowledge of the Company or any of its subsidiaries,
threatened against or affecting the Company, any of its subsidiaries, or any of
their respective directors or officers in their capacities as such, wherein an
unfavorable decision, ruling or finding could reasonably be expected to have a
Material Adverse Effect or would adversely affect the transactions contemplated
by this Agreement or any of the documents contemplated hereby or which would
adversely affect the validity or enforceability of, or the authority or ability
of the Company to perform its obligations under, this Agreement or any of such
other documents. To the Company's knowledge, there are no facts which, if known
by a potential claimant or governmental agency or authority, could give rise to
a claim or proceeding which, if asserted or conducted with results unfavorable
to the Company or any of its subsidiaries, could reasonably be expected to have
a Material Adverse Effect.
III.9 Disclosure. No information relating to or concerning the Company set
forth in this Agreement or provided to Purchaser in connection with the
transactions contemplated hereby contains an untrue statement of a material fact
or omits to state a material fact necessary in order to make the statements made
herein or therein, in light of the circumstances under which they were made, not
misleading. Except for the execution and performance of this Agreement and the
transactions contemplated hereby, no material fact (within the meaning of the
federal securities laws of the United States) exists with respect to the Company
or any of its subsidiaries which has not been publicly disclosed.
III.10 Acknowledgment Regarding Purchaser's Purchase of the Securities. The
Company acknowledges and agrees that each Purchaser is acting independently and
is not acting as a financial advisor or fiduciary of the Company (or in any
similar capacity) with respect to this Agreement or the transactions
contemplated hereby, that this Agreement and the transaction contemplated
hereby, and the relationship between each Purchaser and the Company, are
"arms-length", and that any statement made by any Purchaser, or any of its
representatives or agents, in connection with this Agreement or the transactions
contemplated hereby is not advice or a recommendation, is merely incidental to
such Purchaser's purchase of the Securities and has not been relied upon in any
way by the Company, its officers, directors or other representatives. The
Company further represents to Purchaser that the Company's decision to enter
into this Agreement and the transactions contemplated hereby has been based
solely on an independent evaluation by the Company and its representatives.
III.11 Current Public Information. The Company is currently eligible to
register the resale of the Shares and the Warrant Shares by the Purchaser in a
secondary offering under General Instruction B3 and B4 of Form S-3 on a
registration statement on Form S-3 under the Securities Act, all as contemplated
by Section 2.1 of the Registration Rights Agreement.
III.12 No General Solicitation. Neither the Company nor any person acting
on behalf of the Company has conducted any "general solicitation," as described
in Rule 502(c) under Regulation D, with respect to any of the Securities being
offered hereby.
<PAGE>
III.13 No Integrated Offering. Neither the Company, nor any of its
affiliates, nor any person acting on their behalf, has directly or indirectly
made any offers or sales of any security or solicited any offers to buy any
security under circumstances that would prevent the parties hereto from
consummating the transactions contemplated hereby pursuant to an exemption from
registration under the Securities Act pursuant to the provisions of Regulation
D. The transactions contemplated hereby are exempt from the registration
requirements of the Securities Act, assuming the accuracy of the representations
and warranties herein contained of each Purchaser to the extent relevant for
such determination.
III.14 No Brokers. The Company has taken no action which would give rise to
any claim by any person for brokerage commissions, finder's fees or similar
payments by Purchaser relating to this Agreement or the transactions
contemplated hereby, except for dealings with PaineWebber Incorporated and ING
Baring Furman Selz LLC (the fees of which shall be paid in full by the Company).
The Company will indemnify each Purchaser from and against any fees and expenses
sought or other claims made by PaineWebber Incorporated or ING Baring Furman
Selz LLC.
III.15 Acknowledgment of Dilution. The number of Warrant Shares issuable
upon exercise of the Warrants may increase substantially in certain
circumstances. The Company's executive officers and directors have studied and
fully understand the terms of this Agreement and the transactions contemplated
hereby and the nature of the securities being sold hereunder and recognize that
they have a potentially dilutive effect. The board of directors of the Company
has unanimously concluded in its good faith business judgment that the issuance
of the Shares, the Warrants and the Warrant Shares as contemplated hereby is in
the best interests of the Company. The Company acknowledges that its obligation
to issue Warrant Shares upon exercise of the Warrants is binding upon it and
enforceable regardless of the dilution that such issuance may have on the
ownership interests of other stockholders.
III.16 Intellectual Property. Each of the Company and its subsidiaries owns
or possesses adequate and enforceable rights to use all patents, patent
applications, trademarks, trademark applications, trade names, service marks,
copyrights, copyright applications, licenses, know-how (including trade secrets
and other unpatented and/or unpatentable proprietary or confidential
information, systems or procedures) and other similar rights and proprietary
knowledge (collectively, "Intangibles") used or necessary for the conduct of its
business as now being conducted and as previously described in the Company's
Annual Report on Form 10-K most recently filed and any subsequently filed
reports on Form 10-Q and Form 8-K. Neither the Company nor any subsidiary of the
Company infringes on or is in conflict with any right of any other person with
respect to any Intangibles nor is there any claim of infringement made by a
third party against or involving the Company or any of its subsidiaries, which
infringement, conflict or claim, individually or in the aggregate, if the
subject of an unfavorable decision, ruling or finding, would have a Material
Adverse Effect.
<PAGE>
III.17 Foreign Corrupt Practices. Neither the Company, nor any of its
subsidiaries, nor any director, officer, agent, employee or other person acting
on behalf of the Company or any subsidiary has, in the course of his actions
for, or on behalf of, the Company, used any corporate funds for any unlawful
contribution, gift, entertainment or other unlawful expenses relating to
political activity; made any direct or indirect unlawful payment to any foreign
or domestic government official or employee from corporate funds; violated or is
in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977,
as amended; or made any bribe, rebate, payoff, influence payment, kickback or
other unlawful payment to any foreign or domestic government official or
employee. Without limiting the generality of the foregoing, the Company and its
subsidiaries have not directly or indirectly made or agreed to make (whether or
not said payment is lawful) any payment to obtain, or with respect to, sales
other than usual and regular compensation to its or their employees and sales
representatives with respect to such sales.
III.18 Key Employees. The Key Employee (as defined below) is currently
serving the Company in the capacity disclosed in Schedule 3.18. No Key Employee,
to the best of the knowledge of the Company and its subsidiaries, is, or is now
expected to be, in violation of any material term of any employment contract,
confidentiality, disclosure or proprietary information agreement,
non-competition agreement, or any other contract or agreement or any restrictive
covenant, and the continued employment of each Key Employee does not subject the
Company or any of its subsidiaries to any liability with respect to any of the
foregoing matters. No Key Employee has, to the best of the knowledge of the
Company and its subsidiaries, any intention to terminate or limit his employment
with, or services to, the Company or any of its subsidiaries, nor is any such
Key Employee subject to any constraints (e.g., litigation) which would cause
such employee to be unable to devote his full time and attention to such
employment or services. "Key Employee" means Maurizio Vecchione.
ARTICLE IV
COVENANTS
IV.1 Best Efforts. The parties shall use their best efforts timely to
satisfy each of the conditions described in Articles VI and VII of this
Agreement.
IV.2 Securities Laws. The Company agrees to file a Form D with respect to
the Securities with the SEC as required under Regulation D and to provide a copy
thereof to each Purchaser on or prior to the date of Closing. The Company agrees
to file a Form 8-K disclosing this Agreement and the transactions contemplated
hereby with the SEC within three (3) days following the date of Closing. Such
Form 8-K shall contain as exhibits this Agreement, the Warrant and the
Registration Rights Agreement. The Company shall, on or prior to the date of
Closing, take such action as is necessary to sell the Securities to each
Purchaser in accordance with applicable securities laws of the states of the
United States, and shall provide evidence of any such action so taken to each
Purchaser on or prior to the date of the Closing. Without limiting any of the
Company's obligations under this Agreement, the Registration Rights Agreement or
the Warrant, from and after the date of Closing, neither the Company nor any
person acting on its behalf shall take any action which would adversely affect
any exemptions from registration under the Securities Act with respect to the
transactions contemplated hereby.
<PAGE>
IV.3 Reporting Status. So long as any Purchaser beneficially owns any of
the Securities, the Company shall timely file all reports required to be filed
with the SEC pursuant to the Exchange Act, and the Company shall not terminate
its status as an issuer required to file reports under the Exchange Act even if
the Exchange Act or the rules and regulations thereunder would permit such
termination.
IV.4 Use of Proceeds. The Company shall use the proceeds from the sale of
the Preferred Stock for working capital purposes.
IV.5 Restriction on Below Market Issuance of Securities.(a) For a period of
one (1) year following the date of the Closing, the Company shall not issue or
agree to issue (except (i) to the Purchasers pursuant to this Agreement, (ii)
pursuant to any employee stock option, stock purchase or restricted stock plan
of the Company in effect on the date hereof up to the aggregate amounts set
forth on Schedule 4.5 hereto, (iii) pursuant to strategic investments from
industry participants, the primary purpose of each of which is not to raise
equity capital) any equity securities or any equity-like or equity-linked
securities of the Company (or any security convertible into or exercisable or
exchangeable, directly or indirectly, for equity, equity-like or equity-linked
securities of the Company) if such securities are issued at a price (or in the
case of securities convertible into or exercisable or exchangeable, directly or
indirectly, for Common Stock such securities provide for a conversion, exercise
or exchange price) which may be less than the then current market price for
Common Stock on the date of issuance (in the case of Common Stock) or the date
of conversion, exercise or exchange (in the case of securities convertible into
or exercisable or exchangeable, directly or indirectly, for Common Stock).
IV.6 Further Restriction on Issuance of Securities. While any Purchaser
holds any Shares, Warrants or Warrant Shares, the Company and each of its
subsidiaries shall not issue, or authorize for issuance, or otherwise transfer
or enter into any commitment to issue or otherwise transfer, any debt or equity
security, bond, note or other security of any of the Company's subsidiaries.
IV.7 Expenses. The Company shall pay to Castle Creek Technology Partners
LLC ("CCTP"), or at its direction, at the Closing reimbursement for the expenses
incurred by it and its affiliates and advisors in connection with the
negotiation, preparation, execution, and delivery of this Agreement and the
other agreements and documents to be executed in connection herewith, including,
without limitation, due diligence and attorneys' fees and expenses (the
"Expenses"). In addition, from time to time thereafter, upon CCTP's written
request, the Company shall pay to CCTP such Expenses, if any, not so paid at
Closing and/or covered by such payment, in each case to the extent incurred by
CCTP. The Company shall not be required to reimburse Expenses to the extent such
Expenses exceed fifty thousand dollars ($50,000) in the aggregate.
<PAGE>
IV.8 Information. The Company agrees to send the following reports to each
Purchaser until the earlier of (i) such Purchaser transfers, assigns or sells
all of its Securities; or (ii) the 2nd anniversary of the Closing Date: (a)
within three (3) days after the filing with the SEC, a copy of its Annual Report
on Form 10-K, its Quarterly Reports on Form 10-Q, any proxy statements and any
Current Reports on Form 8-K; and (b) within two (2) days after release, copies
of all press releases issued by the Company or any of its subsidiaries. The
Company further agrees to promptly provide to each Purchaser any information
with respect to the Company, its properties, or its business or such Purchaser's
investment as such Purchaser may reasonably request; provided, however, that the
Company shall not be required to give any Purchaser any material nonpublic
information. If any information requested by a Purchaser from the Company
contains material nonpublic information, the Company shall inform such Purchaser
in writing that the information requested contains material nonpublic
information and shall in no event provide such information to any Purchaser
without the express prior written consent of such Purchaser after being so
informed.
IV.9 Restriction on Each Purchaser. Each Purchaser agrees (whether itself
or through agent on behalf of itself) not to engage in any purchases or sales of
the Common Stock (i) during the period beginning sixteen (16) trading days prior
to the date of the Closing and ending on the trading day prior to the date of
the Closing, and (ii) if the average of the closing bid prices of the Common
Stock for the period beginning fifteen (15) days prior to the first (1st)
anniversary of the Closing and ending on the 1st anniversary of the Closing (the
"Reset Period") is less than the Per Share Price, during the Reset Period.
IV.10 Listing. For a period of beginning on the Closing Date and ending on
the third (3rd) anniversary of the Closing Date, the Company shall continue the
listing and trading of its Common Stock on The Nasdaq National Market, the
Nasdaq SmallCap Market, the New York Stock Exchange or the American Stock
Exchange, secure and maintain listing and trading of the Shares and Warrant
Shares on such exchange, and comply in all respects with the Company's
reporting, filing and other obligations under the by-laws or rules of such
exchange. If the Company fails to maintain the listing or trading of the Common
Stock as required by this Section 4.10, then beginning on the tenth (10th)
business day following such failure, if the Common Stock is still not listed or
traded, then the Company shall pay to each Purchaser an amount equal to one
percent (1%) of the fair market value of the Shares and Warrant Shares then held
by such Purchaser per day that such failure continues. For purposes hereof, the
number of Warrant Shares held by a Purchaser shall be calculated as though all
Warrants held by such Purchaser were fully exercised, without regard to any
limitations on the exercise thereof. If the Common Stock is not listed or traded
for an aggregate of thirty (30) days over any twelve (12) month period, each
Purchaser may, at its option, require the Company to purchase all or any portion
of the Shares and Warrant Shares held by such Purchaser at a price per share
equal to the greater of (i) one hundred fifty percent (150%) of the Per Share
Price and (ii) the fair market value of such share.
IV.11 Prospectus Delivery Requirement. Each Purchaser understands that the
Securities Act may require delivery of a prospectus relating to the Common Stock
in connection with any sale thereof pursuant to a registration statement under
the Securities Act covering the resale by such Purchaser of the Common Stock
being sold.
IV.12 Intentional Acts or Omissions. The Company shall not intentionally
perform any act which if performed, or intentionally omit to perform any act
which, if omitted to be performed, would prevent or excuse the performance of
this Agreement or any of the transactions contemplated hereby.
<PAGE>
IV.13 Share Authorization. The Company shall use its best efforts to have
Nasdaq confirm in writing that the Shares and the Warrant Shares issuable upon
full exercise of the First Warrants, the Second Warrants and the Third Warrants
are not subject to Nasdaq Rule 4460(i) (the "Nasdaq Approval"). The Company
shall also use its best efforts to have Nasdaq confirm in writing that the
Shares and the Warrant Shares issuable upon full exercise of the Warrants are
not subject to Nasdaq Rule 4310(c)(25)(H)(i)(b) (the "Second Nasdaq Approval").
The Company shall also use its best efforts to obtain the Shareholder Approval
no later than the Approval Date (as defined below), except to the extent such
Shareholder Approval is not required by virtue of receipt by the Company of
either the Nasdaq Approval or the Second Nasdaq Approval, as applicable. For
purposes hereof, the "Approval Date" means the Company's next annual meeting of
stockholders, which meeting shall be held no later than July 30, 1999. For
purposes hereof, "Shareholder Approval" means (i) authorization by the
stockholders of the Company of the issuance of Shares pursuant to the terms
hereof and shares of Common Stock issuable upon the exercise of the First
Warrants, the Second Warrants and the Third Warrants (in each case without
giving effect to any limitations on the exercise thereof) pursuant to the terms
thereof and, if necessary, the elimination of any prohibitions under the rules
or regulations of any stock exchange, interdealer quotation system or other
self-regulatory organization with jurisdiction over the Company or any of its
securities on the Company's ability to issue Shares and shares of Common Stock
upon exercise of the First Warrants, the Second Warrants and the Third Warrants
(in each case without giving effect to any limitations on the exercise thereof),
including all necessary approvals under each of (i) Nasdaq Rule 4460(i) (the
"4460 Shareholder Approval") and (ii) Nasdaq Rule 4310(c)(25)(H)(1)(I)(b) (the
"4310 Shareholder Approval"). In addition, the Company shall have a definitive
proxy statement seeking to obtain Shareholder Approval mailed to each
stockholder of the Company at least twenty (20) business days prior to the
Approval Date. The Company shall deliver any SEC comments it receives with
respect to its proxy statement to each Purchaser and will not file such proxy
statement (or any revisions thereto), whether such proxy statement is in
preliminary or definitive form, without the approval of each Purchaser, which
approval shall not be unreasonably withheld or delayed. If the Company fails to
obtain Shareholder Approval by the Approval Date, and has not then obtained each
of the Nasdaq Approval and the Second Nasdaq Approval, each Purchaser may, at
its option, (the "Exchange Option") require the Company to purchase all or any
portion of the First Warrant, the Second Warrant and/or the Third Warrant held
by such Purchaser for the Exchange Price (as herein defined), subject to the
limitation on shares set forth below. The "Exchange Price" means a price equal
to the number of shares of Common Stock Purchaser has exercised the option to
require the Company to purchase times the greater of (x) one hundred fifty
percent (150%) of the Black-Scholes Amount (as herein defined) of such Warrant
and (y) the average closing sale price during the ten (10) trading days
immediately preceding the earlier of (i) July 30, 1999 and (ii) the annual
meeting of the Company's shareholders at which Shareholder Approval is
considered over the Exercise Price. Such number of shares may include all shares
of Common Stock Purchaser could receive upon exercise of such Warrant without
giving effect to any limitations on the exercise thereof, but only to the extent
such Warrant is not exercisable due to failure to obtain Shareholder Approval,
the Nasdaq Approval and/or the Second Nasdaq Approval. The Company may elect to
pay such Purchaser the Exchange Price either (m) in cash or (n) if, in the good
faith business judgment of the Company's board of directors, the Company does
not have sufficient liquidity to pay some or all of the Exchange Price, in cash
(the "Cash Portion") to the extent that the Company has sufficient liquidity and
in a promissory note (the "Exchange Note") to such Purchaser with a one-year
term, interest equal to the then-current prime rate and in principal amount
equal to the the difference between the Exchange Price and the Cash Portion. If
the Company elects to deliver a Exchange Note, then the Company shall repay the
outstanding principal and interest on the Exchange Note at the end of the
one-year term and, during the one-year term, shall take all reasonable necessary
actions to ensure that such outstanding principal and interest will be timely
paid (and shall not take any actions inconsistent with such objective). From
time to time during the one-year term, the Company shall pre-pay such
outstanding principal and interest to the extent that it has sufficient
liquidity, it being understood and agreed that no such pre-payment shall be
required if, in the good faith business judgment of the Company's board of
directors, the Company does not have any such liquidity with which to make any
such pre-payment. If the Company delivers a Exchange Note and during the
one-year term of such note, obtains Shareholder Approval as required by this
Section 4.13, the Company may, at its election, require the holder of a Exchange
Note to exchange such Exchange Note for a Warrant with identical terms to the
Warrant (or part thereof) which was exchanged by the Company (the "Original
Warrant"), entitling such holder to purchase a number of shares of Common Stock
equal to (I) the number of shares which could have been purchased by exercise of
the Original Warrant times (II) the then-current outstanding principal and
interest on the Exchange Note divided by (III) the original principal amount of
the Exchange Note, at an exercise price equal to (q) the closing sale price of
the Common Stock on the date the Company elected to exchange the Exchange Note
for a warrant minus (r) an amount equal to the difference between (X) the
average of the highest "X" (as defined below) closing sale prices of the Common
Stock during the period (the "Computation Period") beginning on the earlier of
(i) July 30, 1999 and (ii) the date of the Company's annual meeting of
shareholders at which Shareholder Approval was considered and ending on the date
the Company elects to exchange the Exchange Notes for a new warrant and (Y) the
exercise price of the Original Warrant at the time of exchange (with such number
of shares and such exercise price being appropriately adjusted to give effect to
any adjustments which would have been made to the exercise price and number of
shares had such Warrant remained outstanding from the time of the exchange until
the date of exchange); provided the following conditions are then met:
(i) the Company has delivered to the Purchasers notice of its
intention to exercise its right to exchange within ten (10) business days
after obtaining Shareholder Approval;
(ii) the exercise period of the new warrant begins on the date of
issuance thereof and ends on the date which is the number of days following
the effectiveness of the resale Registration Statement required to be filed
under Section 2.1(b) of the Registration Rights Agreement equal to the
number of days remaining in the exercise period of the Original Warrant at
the time of the exchange of the Original Warrant;
(iii) the Common Stock, including all Warrant Shares, is listed and
trading on the Nasdaq National Market or the New York Stock Exchange;
<PAGE>
(iv) no breach of a material agreement or obligation of the Company
under this Agreement, the Registration Rights Agreement or the Warrants has
occurred; and
(v) within sixty (60) days after the exchange, the Company shall
obtain the effectiveness of a Registration Statement on Form S-3 covering
the resale of the Warrant Shares on Form S-3; the Registration Rights
Agreement shall apply to this obligation as if this obligation were
included in Section 2.1(a) of the Registration Rights Agreement.
For purposes of this Section 4.13, "X" shall mean: if the Computation
Period is four (4) months or less, ten (10); if the Computation Period is
greater than four (4) months but less than six (6) months, fifteen (15); if the
Computation Period is greater than or equal to six (6) months, twenty (20).
ARTICLE V
LEGEND REMOVAL AND TRANSFER INSTRUCTIONS
V.1 Removal of Legend. The Legend shall be removed and the Company shall
issue a certificate without any legend to the holder of any Security upon which
such Legend is stamped, and a certificate for a Security shall be originally
issued without any legend, if, unless otherwise required by applicable state
securities laws, (a) the sale of such Security is registered under the
Securities Act, (b) such holder provides the Company with an opinion of counsel,
in form, substance and scope customary for opinions of counsel in comparable
transactions, and reasonably satisfactory to the Company (the cost of which
shall be borne by the Holder), to the effect that a public sale or transfer of
such Security may be made without registration under the Securities Act or (c)
such Security can be sold pursuant to Rule 144. Purchaser agrees to sell all
Securities, including those represented by a certificate(s) from which the
Legend has been removed, or which were originally issued without the Legend, (i)
pursuant to an effective registration statement and to deliver a prospectus in
connection with such sale or (ii) in compliance with an exemption from the
registration requirements of the Securities Act. In the event the Legend is
removed from any Security or any Security is issued without the Legend and
thereafter the effectiveness of a registration statement covering the resale of
such Security is suspended or a supplement or amendment thereto is required by
applicable securities laws, then upon reasonable advance notice to Purchaser
holding such Security, the Company may require that the Legend be placed on any
such Security that cannot then be sold pursuant to an effective registration
statement or Rule 144 or with respect to which the opinion referred to in clause
(b) next above has not been rendered, which Legend shall be removed when such
Security may be sold pursuant to an effective registration statement or Rule 144
or such holder provides the opinion with respect thereto described in clause (b)
next above. Except for the Legend required pursuant to this Section 5.1, the
Securities shall bear no legend.
<PAGE>
V.2 Transfer Agent Instructions. The Company shall instruct its transfer
agent to issue certificates, registered in the name of Purchaser or its nominee,
for the Shares and Warrant Shares in such amounts as specified from time to time
by Purchaser to the Company. Such certificates shall bear a legend only in the
form of the Legend and only to the extent permitted by Section 5.1 above. The
Company warrants that no instruction other than such instructions referred to in
this Article V, and no stop transfer instructions other than stop transfer
instructions to give effect to Section 2.6 hereof in the case of the Shares and
Warrant Shares prior to registration thereof under the Securities Act, will be
given by the Company to its transfer agent and that the Securities shall
otherwise be freely transferable on the books and records of the Company.
Nothing in this Section shall affect in any way Purchaser's obligations and
agreement set forth in Section 5.1 hereof to resell the Securities pursuant to
an effective registration statement and to deliver a prospectus in connection
with such sale or in compliance with an exemption from the registration
requirements of applicable securities laws. Without limiting any other rights of
Purchaser or obligations of the Company, if (a) Purchaser provides the Company
with an opinion of counsel, which opinion of counsel shall be in form, substance
and scope customary for opinions of counsel in comparable transactions (the
reasonable cost of which shall be borne by the Company), to the effect that the
Securities to be sold or transferred may be sold or transferred pursuant to an
exemption from registration or (b) a Purchaser transfers Securities pursuant to
Rule 144, the Company shall permit the transfer, and promptly instruct its
transfer agent to issue one or more certificates in such name and in such
denomination as specified by such Purchaser in order to effect such a transfer
or sale. The Company acknowledges that a breach by it of its obligations
hereunder will cause irreparable harm to a Purchaser by vitiating the intent and
purpose of the transaction contemplated hereby. Accordingly, the Company
acknowledges that the remedy at law for a breach of its obligations under this
Article V will be inadequate and agrees, in the event of a breach or threatened
breach by the Company of the provisions of this Article V, that a Purchaser
shall be entitled, in addition to all other available remedies, to an injunction
restraining any breach and requiring immediate issuance and transfer, without
the necessity of showing economic loss and without any bond or other security
being required.
V.3 Failure to Remove Legend. If the Company fails to remove any legend as
required by this Article V (a "Legend Removal Failure"), then beginning on the
tenth (10th) day following such failure, if the Company continues to fail to
remove such legend, the Company shall pay to each Purchaser holding shares
subject to a Legend Removal Failure an amount equal to one percent (1%) of the
fair market value of the Shares and Warrant Shares then held by such Purchaser
per day that such failure continues. For purposes hereof, the number of Warrant
Shares held by a Purchaser shall be calculated as though all Warrants held by
such Purchaser were fully exercised, without regard to any limitations on the
exercise thereof. If during any twelve (12) month period, the Company fails to
remove any legend as required by this Article V for an aggregate of thirty (30)
days, each Purchaser holding shares subject to a Legend Removal Failure may, at
its option, require the Company to purchase all or any portion of the Shares and
Warrant Shares held by such Purchaser at a price per share equal to the greater
of (i) one hundred fifty percent (150%) of the Per Share Price and (ii) the fair
market value of such share.
ARTICLE VI
CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL
<PAGE>
VI.1 Conditions to the Company's Obligation to Sell. The obligation of the
Company hereunder to issue and sell the Shares and Warrants to a Purchaser at
the Closing is subject to the satisfaction, as of the date of the Closing and
with respect to such Purchaser, of each of the following conditions thereto,
provided that these conditions are for the Company's sole benefit and may be
waived by the Company at any time in its sole discretion:
(i) Such Purchaser shall have executed the signature page to this
Agreement and the Registration Rights Agreement and delivered the same to
the Company.
(ii) Such Purchaser shall deliver the applicable Purchase Price for
the Shares and Warrant Shares purchased at the Closing.
(iii) The representations and warranties of such Purchaser shall be
true and correct as of the date when made and as of the Closing as though
made at that time, and Purchaser shall have performed, satisfied and
complied in all material respects with the covenants and agreements
required by this Agreement to be performed or complied with by Purchaser at
or prior to the Closing. The Company shall have received a certificate
executed by the Chief Executive Officer or Chief Financial Officer of such
Purchaser dated the Date of the Closing to the foregoing effect and as to
such other matters as may be reasonably requested by the Company.
(iv) No statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or endorsed by any
court or governmental authority of competent jurisdiction or any
self-regulatory organization having authority over the matters contemplated
hereby which restricts or prohibits the consummation of any of the
transactions contemplated by this Agreement.
ARTICLE VII
CONDITIONS TO EACH PURCHASER'S OBLIGATION TO PURCHASE
VII.1 Conditions to the Closing. The obligation of each Purchaser hereunder
to purchase the Shares and Warrants to be purchased by it on the date of the
Closing is subject to the satisfaction of each of the following conditions,
provided that these conditions are for each Purchaser's sole benefit and may be
waived by such Purchaser (with respect to it) at any time in such Purchaser's
sole discretion:
(i) The Company shall have executed the signature page to this
Agreement and the Registration Rights Agreement and delivered the same to
such Purchaser.
(ii) The Company shall have delivered duly executed certificates for
the Shares (in such denominations as such Purchaser shall reasonably
request) and Warrant being so purchased by Purchaser at the Closing.
<PAGE>
(iii) The Common Stock, including all Shares and Warrant Shares, shall
be listed on the Nasdaq and trading in the Common Stock shall not have been
suspended by the Nasdaq, the SEC or other regulatory authority and no
de-listing or suspension shall be reasonably likely for the foreseeable
future.
(iv) The representations and warranties of the Company shall be true
and correct as of the date when made and as of the Closing as though made
at that time and the Company shall have performed, satisfied and complied
with the covenants and agreements required by this Agreement to be
performed or complied with by the Company at or prior to the Closing. Such
Purchaser shall have received a certificate, executed by the Chief
Executive Officer or Chief Financial Officer of the Company, dated as of
the Closing to the foregoing effect and as to such other matters as may be
reasonably requested by such Purchaser.
(v) No statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or endorsed by any
court or governmental authority of competent jurisdiction or any
self-regulatory organization having authority over the matters contemplated
hereby which prohibits the consummation of any of the transactions
contemplated by this Agreement.
(vi) Such Purchaser shall have received the officer's certificate
described in Section 3.3, dated as of the Closing and there shall be no
material changes from the date of signing of this Agreement to the date of
the Closing other than as a result of issuance of Common Stock pursuant to
options, warrants and other obligations disclosed on Schedule 3.3 as of the
date of this Agreement.
(vii) Such Purchaser shall have received opinions of the Company's
counsel, dated as of the Closing, in the form attached hereto as Exhibit C.
(viii) The Company's transfer agent has agreed to act in accordance
with irrevocable instructions in the form attached hereto as Exhibit D.
(ix) Intel Corporation ("Intel") has previously or simultaneously with
the Closing exchanged all rights to Intel's future royalty stream into
warrants (on the same terms as the Warrants, including but not limited to
with respect to exercise price) Common Stock at an exchange rate acceptable
to the Company which is not less than five million dollars ($5,000,000),
pursuant to documents acceptable to such Purchaser.
(x) The Company has filed a Form D with respect to the Securities with
the SEC as required under Regulation D and has provided a copy thereof to
each Purchaser.
<PAGE>
(xi) The Company has filed an Additional Listing Application (and no
additional time is required for the effectiveness thereof) with respect to
all Shares and Warrant Shares with the National Association of Securities
Dealers and has provided a copy thereof to each Purchaser.
VII.2 [Intentionally deleted].
ARTICLE VIII
GOVERNING LAW; MISCELLANEOUS
VIII.1 Governing Law; Jurisdiction. This Agreement shall be governed by and
construed in accordance with the laws of the State of California applicable to
contracts made and to be performed in the State of California. The parties
hereto irrevocably consent to the jurisdiction of the United States federal
courts located in the State of California and the state courts located in the
County of Los Angeles in the State of California in any suit or proceeding based
on or arising under this Agreement or the transactions contemplated hereby and
irrevocably agree that all claims in respect of such suit or proceeding may be
determined in such courts. The Company irrevocably waives the defense of an
inconvenient forum to the maintenance of such suit or proceeding. The Company
further agrees that service of process upon the Company mailed by the first
class mail shall be deemed in every respect effective service of process upon
the Company in any suit or proceeding arising hereunder. Nothing herein shall
affect any Purchaser's right to serve process in any other manner permitted by
law. The parties hereto agree that a final non-appealable judgment in any such
suit or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on such judgment or in any other lawful manner.
<PAGE>
VIII.2 Vecchione Transactions. If Maurizio Vecchione disposes of any Common
Stock beneficially owned by him while the Common Stock is trading at or below
twenty five dollars ($25) per share during the period beginning on the date of
the Closing and ending on the earlier of (i) the later of (a) six (6) months
following the effectiveness of the Registration Statement required to be filed
pursuant to Section 2.1 of the Registration Rights Agreement and (b) the first
(1st) anniversary of the date of the Closing and (ii) the date on which Maurizio
Vecchione ceases to be President or CEO of the Company, the Company shall pay to
each Purchaser an amount equal to (x) the number of Shares and Warrant Shares
(without giving effect to any exercise thereof) then held by such Purchaser
times (y) the difference between (m) the closing bid price of the Common Stock
on the trading day immediately preceding the day on which such disposal was
publicly announced (the "Vecchione Announcement Date") and (n) the lowest
closing bid price of the Common Stock during the thirty (30) trading day period
beginning on the Vecchione Announcement Date; provided, however, that the
Company shall not be required to make such payment with respect to any sales
until Maurizio Vecchione sells or otherwise transfers in excess of fifty
thousand (50,000) shares of Common Stock in aggregate during such period at a
price less than twenty five dollars ($25) pursuant to Rule 144. If Joyce
Freedman or Lee Freedman (each a "Freedman") dispose of any stock beneficially
owned by such Freedman at any time during the period begining on the date of the
Closing and ending on the date which is six (6) months following the
effectiveness of the Registration Statement required to be filed pursuant to
Section 2.1 of the Registration Rights Agreement, the Company shall pay to each
Purchaser an amount equal to (x) the number of Shares and Warrant Shares
(without giving effect to any exercise thereof) then held by such Purchaser
times (y) the difference between (m) the closing bid price of the Common Stock
on the trading day immediately preceding the day on which such disposal was
publicly announced (the "Freedman Announcement Date") and (n) the lowest closing
bid price of the Common Stock during the thirty (30) trading day period
beginning on the Freedman Announcement Date.
VIII.3 Counterparts. This Agreement may be executed in two or more
counterparts, including, without limitation, by facsimile transmission, all of
which counterparts shall be considered one and the same agreement and shall
become effective when counterparts have been signed by each party and delivered
to the other party. In the event any signature page is delivered by facsimile
transmission, the party using such means of delivery shall cause additional
original executed signature pages to be promptly delivered to the other parties.
VIII.4 Headings. The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Agreement.
VIII.5 Severability. If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement or the
validity or enforceability of this Agreement in any other jurisdiction.
VIII.6 Scope of Agreement; Amendments. This Agreement and the documents and
instruments referenced herein contain the entire understanding of the parties
with respect to the matters covered herein and therein and, except as
specifically set forth herein or therein, no Purchaser makes any representation,
warranty, covenant or undertaking with respect the transactions contemplated
hereby. No provision of this Agreement may be waived other than by an instrument
in writing signed by the party to be charged with enforcement and no provision
of this Agreement may be amended other than by an instrument in writing signed
by the Company and each Purchaser.
VIII.7 Notice. Any notice herein required or permitted to be given shall be
in writing and may be personally served or delivered by courier or by
facsimile-machine confirmed telecopy, and shall be deemed delivered at the time
and date of receipt (which shall include telephone line facsimile transmission).
The addresses for such communications shall be:
If to the Company:
ModaCAD, Inc.
3861 Sepulveda Blvd.
Culver City, CA 90230
Telecopy: (310) 751-2120
Attention: President
<PAGE>
with a copy to:
Coudert Brothers
1055 West Seventh Street - 20th Floor
Los Angeles, CA 90017
Telecopy: (213) 689-4467
Attention: John A. St. Clair
If to any Purchaser, to such address set forth under such Purchaser's name on
the signature page hereto executed by such Purchaser. Each party shall provide
notice to the other parties of any change in address.
VIII.8 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and assigns. Neither
the Company nor any Purchaser shall assign this Agreement or any rights or
obligations hereunder without the prior written consent of the other.
Notwithstanding the foregoing, each Purchaser may assign its rights and
obligations hereunder and may transfer any or all of its Securities to any of
its "affiliates," as that term is defined under the Exchange Act, without the
consent of the Company so long as such affiliate is an accredited investor. This
provision shall not limit each Purchaser's right to transfer the Securities
pursuant to the terms of this Agreement. In addition, and notwithstanding
anything to the contrary contained in this Agreement, the Warrant or the
Registration Rights Agreement, the Securities may be pledged, and all rights of
Purchaser under this Agreement or any other agreement or document related to the
transaction contemplated hereby may be assigned, without further consent of the
Company, to a bona fide pledgee in connection with a Purchaser's margin or
brokerage accounts.
VIII.9 Third Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.
<PAGE>
VIII.10 Survival. The representations, warranties, covenants and agreements
of the Company in this Agreement shall survive each and every Closing hereunder
notwithstanding any due diligence investigation conducted by or on behalf of
Purchaser. The Company agrees to indemnify and hold harmless each Purchaser and
each of each Purchaser's officers, directors, employees, partners, agents and
affiliates for loss or damage to the extent arising as a result of or related to
(a) any breach by the Company of any of its representations or covenants set
forth herein or (b) any cause of action, suit or claim brought or made against
such indemnitee (other than by the Company solely for breach of this Agreement,
the Warrant or the Registration Rights Agreement by the indemnitee or by
governmental or regulatory authorities) and arising out of or resulting from the
execution, delivery, performance or enforcement of this Agreement or any other
instrument, document or agreement executed pursuant hereto or contemplated
hereby, any transaction financed or to be financed in whole or in part, directly
or indirectly, with the proceeds of the issuance of the Securities or the status
of Purchaser as an investor in the Company, except to the extent that such
actual loss or damage arises out of or results from a breach by such indemnitee
of this Agreement, the Warrant or the Registration Rights Agreement or from a
Purchaser's violation of law. The right to indemnification shall include the
right to advancement of expenses as they are incurred.
VIII.11 Public Filings; Publicity. Immediately following execution of this
Agreement, the Company shall issue a press release with respect to the
transactions contemplated hereby. The Company and each Purchaser shall have the
right to approve before issuance any press releases (including the foregoing
press release), SEC or other filings, or any other public statements, with
respect to the transactions contemplated hereby; provided, however, that the
Company shall be entitled, without the prior approval of any Purchaser, to make
any press release or SEC, Nasdaq, NASD or exchange filings with respect to such
transactions as is required by applicable law and regulations (although each
Purchaser shall (to the extent time permits) be consulted by the Company in
connection with any such press release prior to its release and shall be
provided with a copy thereof).
VIII.12 Further Assurances. Each party shall do and perform, or cause to be
done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby, including, without limitation, the filing of
all appropriate documentation and notifications with Nasdaq with respect to the
Warrant Shares immediately following each of any applicable Shareholder
Approval, any applicable Nasdaq Approval and any applicable Second Nasdaq
Approval.
VIII.13 Remedies. No provision of this Agreement providing for any remedy
to a Purchaser shall limit any remedy which would otherwise be available to such
Purchaser at law or in equity. Nothing in this Agreement shall limit any rights
a Purchaser may have with any applicable federal or state securities laws with
respect to the investment contemplated hereby.
VIII.14 Directly or Indirectly. Where any provision in this Agreement
refers to action to be taken by any person or entity, or which such person or
entity is prohibited from taking, such provision shall be applicable whether the
action in question is taken directly or indirectly by such person or entity.
<PAGE>
VIII.15 Remedies, Characterizations, Other Obligations, Breaches and
Injunctive Relief. The remedies provided in this Agreement shall be cumulative
and in addition to all other remedies available under this Agreement, at law or
in equity (including a decree of specific performance and/or other injunctive
relief), no remedy contained herein shall be deemed a waiver of compliance with
the provisions giving rise to such remedy and nothing herein shall limit a
Purchaser's right to actual damages for any failure by the Company to comply
with the terms of this Agreement. The Company covenants to each Purchaser that
there shall be no characterization concerning this instrument other than as
expressly provided herein. Amounts set forth or provided for herein with respect
to payments and the like (and the computation thereof) shall be the amounts to
be received by each Purchaser and shall not, except as expressly provided
herein, be subject to any other obligation of the Company (or the performance
thereof). The Company acknowledges that a breach by it of its obligations
hereunder will cause irreparable harm to the Purchasers and that the remedy at
law for any such breach may be inadequate. The Company therefore agrees that, in
the event of any such breach or threatened breach, the Purchasers shall be
entitled, in addition to all other available remedies, to an injunction
restraining any breach, without the necessity of showing economic loss and
without any bond or other security being required.
<PAGE>
VIII.16 Payment of Cash; Defaults. Whenever the Company is required to make
any cash payment to a Purchaser under this Agreement, such cash payment shall be
due on the date (the "Cash Due Date") that such Purchaser delivers written
notice from the Purchaser to the Company. Such cash payment shall be made to the
Purchaser by the method (by certified or cashier's check or wire transfer of
immediately available funds) elected by such Holder. If such payment is not
delivered within two (2) days of the Cash Due Date, such Purchaser shall
thereafter be entitled to interest on the unpaid amount at a per annum rate
equal to the lower of eighteen percent (18%) and the highest interest rate
permitted by applicable law until such amount is paid in full to the Holder.
VIII.17 Failure or Indulgence Not Waiver. No failure or delay on the part
of a Purchaser in the exercise of any power, right or privilege hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such power, right or privilege preclude other or further exercise thereof or of
any other right, power or privilege.
VIII.18 Termination. In the event that the Closing shall not have occurred
on or before two (2) business days after the date of this agreement, unless the
parties agree otherwise, this Agreement shall terminate at the close of business
on such date.
VIII.19 Black-Scholes Amount. The "Black-Scholes Amount" shall be an amount
determined by calculating the "Black-Scholes" value of an option to purchase one
share of Common Stock on the applicable page on the Bloomberg online page, using
the following variable values at the time of applicable to the purchase: (i) the
current market price of the Common Stock equal to the closing trade price on the
date of the Closing; (ii) volatility of the Common Stock equal to volatility of
the Common Stock on the date of the Closing; (iii) a risk free rate equal to the
interest rate on the United States treasury bill or treasury note with a
maturity corresponding to the remaining term of the Warrant on the date of the
Closing; and (iv) an exercise price equal to the Exercise Price on the date of
the Closing. In the event such calculation function is no longer available
utilizing the Bloomberg online page, the Holder shall calculate such amount in
its reasonable discretion using the closest available alternative mechanism and
variable values to those available utilizing the Bloomberg online page for such
calculation function.
VIII.20 Miscellaneous. Notwithstanding anything to the contrary in this
Agreement or the Warrants, to the extent that the consent or approval of each
Purchaser is required under the documents, with respect to a given matter, no
Purchaser who initially puchases less than one million dollars ($1,000,000)
shall have such consent or approval right.
* * *
<PAGE>
IN WITNESS WHEREOF, the undersigned Purchasers and the Company have caused
this Agreement to be duly executed as of the date first above written.
PURCHASERS:
PURCHASER:
CASTLE CREEK TECHNOLOGY PARTNERS LLC
By: Castle Creek Partners, L.L.C.
Its: Investment Manager
By:
Name: John D. Ziegelman
Title: Managing Member
ADDRESS:77 W. Wacker Drive, Suite 4040 COPY TO: Altheimer & Gray
Chicago, Illinois 60601 10 S. Wacker Drive, Suite 4000
Facsimile: (312) 499-6999 Chicago, Illinois 60606
Attention: Peter H. Lieberman
Facsimile: (312) 715-4800
JURISDICTION: ILLINOIS
AGGREGATE NUMBER OF SHARES: 455,218
AGGREGATE NUMBER OF WARRANT SHARES REPRESENTED BY WARRANT A-1: 159,326
AGGREGATE NUMBER OF WARRANT SHARES REPRESENTED BY WARRANT A-2: 189,674
AGGREGATE NUMBER OF WARRANT SHARES REPRESENTED BY WARRANT A-3: 189,674
<PAGE>
PURCHASER:
MARSHALL CAPITAL MANAGEMENT, INC.
By:
Name: Allan Weine
Title: President
ADDRESS:c/o Credit Suisse First Boston COPY TO:c/o Credit Suisse First Boston
11 Madison Ave., Third Floor 227 W. Monroe Street, 41st Floor
New York, NY 10010 Chicago, IL 60606
Facsimile Number: (312) 750-1031
JURISDICTION: NEW YORK
AGGREGATE NUMBER OF SHARES: 227,609
AGGREGATE NUMBER OF WARRANT SHARES REPRESENTED BY WARRANT A-1: 79,663
AGGREGATE NUMBER OF WARRANT SHARES REPRESENTED BY WARRANT A-2: 94,837
AGGREGATE NUMBER OF WARRANT SHARES REPRESENTED BY WARRANT A-3: 94,837
<PAGE>
PURCHASER:
WINFIELD CAPITAL CORP.
By:
Name: Paul A. Perlin
Title: Chief Executive Officer
ADDRESS: 237 Mamaroneck Avenue COPY TO:
White Plains, New York 10605
Facsimile Number: (914) 949-7195
JURISDICTION: New York
AGGREGATE NUMBER OF SHARES: 47,000
AGGREGATE NUMBER OF WARRANT SHARES REPRESENTED BY WARRANT A-1: 16,450
AGGREGATE NUMBER OF WARRANT SHARES REPRESENTED BY WARRANT A-2: 19,583
AGGREGATE NUMBER OF WARRANT SHARES REPRESENTED BY WARRANT A-3: 19,583
<PAGE>
PURCHASER:
SPINNER ASSET MANAGEMENT CO.
By:
Name:
Title:
ADDRESS: COPY TO:
Facsimile Number:
JURISDICTION:
AGGREGATE NUMBER OF SHARES: 47,000
AGGREGATE NUMBER OF WARRANT SHARES REPRESENTED BY WARRANT A-1: 16,450
AGGREGATE NUMBER OF WARRANT SHARES REPRESENTED BY WARRANT A-2: 19,583
AGGREGATE NUMBER OF WARRANT SHARES REPRESENTED BY WARRANT A-3: 19,583
<PAGE>
COMPANY:
MODACAD, INC.
By: /s/ JOYCE FREEDMAN
________________________________
Name: Joyce Freedman
Title: Chief Executive Officer
<PAGE>
EXHIBIT A-1
VOID AFTER 5:00 P.M.
[EASTERN] TIME ON APRIL 7, 2004 [fifth anniversary of Closing]
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE OF
THE UNITED STATES. THE SECURITIES REPRESENTED HEREBY MAY NOT BE OFFERED OR SOLD
OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
FOR THE SECURITIES UNDER APPLICABLE SECURITIES LAWS, OR UNLESS OFFERED, SOLD OR
TRANSFERRED PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THOSE LAWS.
Right to Purchase ____ Shares of Common Stock
Date: April 7, 1999
MODACAD, INC.
STOCK PURCHASE WARRANT
THIS CERTIFIES THAT, for value received, _______________ or its registered
assigns, is entitled to purchase from ModaCAD, Inc., a California corporation
(the "Company"), at any time or from time to time during the period specified in
Section 2 hereof, ______________ [0.35 times (initial tranche funded amount
divided by initial tranche purchase price per share)] fully paid and
nonassessable shares of the Company's common stock (the "Common Stock"), at an
initial exercise price of $13.72 per share (the "Exercise Price" [125% of Per
Share Price (as defined in the Securities Purchase Agreement (as defined
below)]), subject to adjustment as contained in Section 1(f) hereof. This
Warrant is being issued pursuant to that certain Securities Purchase Agreement
dated April 7, 1999 between the Company and the signatory thereto (the
"Securities Purchase Agreement"). The number of shares of Common Stock
purchasable hereunder (the "Warrant Shares") and the Exercise Price are subject
to adjustment as provided in Section 4 hereof. The term "Warrants" means this
Warrant and the other warrants of the Company issued pursuant to the terms of
the Securities Purchase Agreement.
<PAGE>
The term "Closing Bid Price" means, for any security as of any date, the
closing bid price of such security on the principal securities exchange or
trading market where such security is listed or traded as reported by Bloomberg
Financial Markets or a comparable reporting service of national reputation
selected by the Company and reasonably acceptable to the holder hereof (the
"Holder") if Bloomberg Financial Markets is not then reporting closing bid
prices of such security (collectively, "Bloomberg"), or if the foregoing does
not apply, the last reported sale price of such security in the over-the-counter
market on the electronic bulletin board of such security as reported by
Bloomberg, or, if no sale price is reported for such security by Bloomberg, the
average of the bid prices of any market makers for such security as reported in
the "pink sheets" by the National Quotation Bureau, Inc. If the Closing Bid
Price cannot be calculated for such security on such date on any of the
foregoing bases, the Closing Bid Price of such security on such date shall be
the fair market value as reasonably determined by an investment banking firm
selected by the Company and reasonably acceptable to the Holder with the costs
of such appraisal to be borne by the Company.
This Warrant is subject to the following terms, provisions, and conditions:
1. Mechanics of Exercise. Subject to the provisions hereof, including,
without limitation, the limitations contained in Section 8(f) hereof, this
Warrant may be exercised as follows:
(a) Manner of Exercise. This Warrant may be exercised by the Holder,
in whole or in part, by the surrender of this Warrant (or evidence of loss,
theft, destruction or mutilation thereof in accordance with Section 8(c)
hereof), together with a completed exercise agreement in the Form of
Exercise Agreement attached hereto as Exhibit 1 (the "Exercise Agreement"),
to the Company at the Company's principal executive offices (or such other
office or agency of the Company as it may designate by notice to the
Holder), and upon (i) payment to the Company in cash, by certified or
official bank check or by wire transfer for the account of the Company, of
the Exercise Price for the Warrant Shares specified in the Exercise
Agreement or (ii) if the Holder elects to effect a Cashless Exercise (as
defined in Section 12(c) below), delivery to the Company of a written
Exercise Agreement for a Cashless Exercise hereunder for the Warrant Shares
specified in the Exercise Agreement. The Warrant Shares so purchased shall
be deemed to be issued to the Holder or Holder's designees, as the record
owner of such shares, as of the date on which this Warrant shall have been
surrendered, the completed Exercise Agreement shall have been delivered,
and payment (or notice of an election to effect a Cashless Exercise) shall
have been made for such shares as set forth above.
(b) Issuance of Certificates. Subject to Section 1(c), certificates
for the Warrant Shares so purchased, representing the aggregate number of
shares specified in the Exercise Agreement, shall be delivered to the
Holder within a reasonable time, not exceeding three (3) business days,
after this Warrant shall have been so exercised (the "Delivery Period").
The certificates so delivered shall be in such denominations as may be
reasonably requested by the Holder and shall be registered in the name of
Holder or such other name as shall be designated by such Holder. If this
Warrant shall have been exercised only in part, then, unless this Warrant
has expired, the Company shall, at its expense, at the time of delivery of
such certificates, deliver to the Holder a new Warrant representing the
number of shares with respect to which this Warrant shall not then have
been exercised.
<PAGE>
(c) Exercise Disputes. In the case of any dispute with respect to an
exercise, the Company shall promptly issue such number of shares of Common
Stock as are not disputed in accordance with this Section. If such dispute
involves the calculation of the Exercise Price, the Company shall submit
the disputed calculations to a nationally recognized independent accounting
firm (selected by the Company) via facsimile within three (3) business days
of receipt of the Exercise Agreement. The accounting firm shall audit the
calculations and notify the Company and the converting Holder of the
results no later than two (2) business days from the date it receives the
disputed calculations. The accounting firm's calculation shall be deemed
conclusive, absent manifest error. The Company shall then issue the
appropriate number of shares of Common Stock in accordance with this
Section.
(d) Fractional Shares. No fractional shares of Common Stock are to be
issued upon the exercise of this Warrant, but the Company shall pay a cash
adjustment in respect of any fractional share which would otherwise be
issuable in an amount equal to the same fraction of the Exercise Price of a
share of Common Stock (as determined for exercise of this Warrant into
whole shares of Common Stock); provided that in the event that sufficient
funds are not legally available for the payment of such cash adjustment any
fractional shares of Common Stock shall be rounded up to the next whole
number.
(e) Buy-In. If (i) the Company fails for any reason (other than
Holder's failure to pay to the Company the Exercise Price or to deliver to
the Company a duly executed notice to exercise a Cashless Exercise) to
deliver during the Delivery Period shares of Common Stock to Holder upon an
exercise of this Warrant and (ii) after the applicable Delivery Period with
respect to such an exercise, Holder purchases (in an open market
transaction or otherwise) shares of Common Stock to make delivery upon a
sale by Holder of the shares of Common Stock (the "Sold Shares") which
Holder was entitled to receive upon such exercise (a "Buy-in"), the Company
shall pay Holder (in addition to any other remedies available to Holder)
the amount by which (x) Holder's total purchase price (including brokerage
commission, if any) for the shares of Common Stock so purchased exceeds (y)
the lesser of (A) the Exercise Price or (B) the net proceeds received by
Holder from the sale of the Sold Shares. Holder shall provide the Company
written notification indicating any amounts payable to Holder pursuant to
this subsection.
2. Period of Exercise. This Warrant is exercisable at any time or from time
to time on or after the date hereof and before 5:00 P.M., Eastern Time on the
fifth (5th) anniversary of the date hereof (the "Exercise Period").
3. Certain Agreements of the Company. The Company hereby covenants and
agrees as follows:
(a) Shares to be Fully Paid. All Warrant Shares will, upon issuance in
accordance with the terms of this Warrant, be validly issued, fully paid,
and non-assessable and free from all liens, claims and encumbrances.
<PAGE>
(b) Reservation of Shares. During the Exercise Period, the Company
shall at all times have authorized, and reserved for the purpose of
issuance upon exercise of this Warrant, a sufficient number of shares of
Common Stock to provide for the exercise of this Warrant.
(c) Listing. From and after the date of issuance of this Warrant, the
Company shall have secured and shall thereafter, for at least three (3)
years after the date of issuance of this Warrant, maintain the listing of
the shares of Common Stock issuable upon exercise of this Warrant upon The
Nasdaq National Market, the Nasdaq SmallCap Market, the New York Stock
Exchange or the American Stock Exchange, as required by Section 4.10 of the
Securities Purchase Agreement and upon each national securities exchange or
automated quotation system, if any, upon which shares of Common Stock are
then listed or become listed and shall maintain, so long as any other
shares of Common Stock shall be so listed, such listing of all shares of
Common Stock from time to time issuable upon the exercise of this Warrant;
and the Company shall so list on each national securities exchange or
automated quotation system, as the case may be, and shall maintain such
listing of any other shares of capital stock of the Company issuable upon
the exercise of this Warrant so long as any shares of the same class shall
be listed on such national securities exchange or automated quotation
system.
(d) Certain Actions Prohibited. The Company will not, by amendment of
its charter 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 to be observed or performed by it
hereunder, but will at all times in good faith assist in the carrying out
of all the provisions of this Warrant and in the taking of all such actions
as may reasonably be requested by the Holder of this Warrant in order to
protect the exercise privilege of the Holder of this Warrant, consistent
with the tenor and purpose of this Warrant. Without limiting the generality
of the foregoing, the Company will take all such actions as may be
necessary or appropriate in order that the Company may validly and legally
issue fully paid and nonassessable shares of Common Stock upon the exercise
of this Warrant.
4. Antidilution Provisions. During the Exercise Period or until fully
exercised, the Exercise Price and the number of Warrant Shares shall be subject
to adjustment from time to time as provided in this Section 4. In the event that
any adjustment of the Exercise Price as required herein results in a fraction of
a cent, such Exercise Price shall be rounded up or down to the nearest cent.
(a) Adjustment of Exercise Price and Number of Shares upon Issuance of
Common Stock. Except as otherwise provided in Section 4(c) and 4(e) hereof,
if and whenever after the initial issuance of this Warrant, the Company
issues or sells, or in accordance with Section 4(b) hereof is deemed to
have issued or sold, any shares of Common Stock for no consideration or for
a consideration per share less than the Market Price (as herein defined) on
the date of issuance (a "Dilutive Issuance"), then effective immediately
upon the Dilutive Issuance, the Exercise Price will be adjusted in
accordance with the following formula:
<PAGE>
E' = (E) (O + P/M) / (CSDO)
where:
E' = the adjusted Exercise Price
E = the then current Exercise Price;
M = the then current Market Price;
O = the number of shares of Common Stock outstanding immediately prior
to the Dilutive Issuance;
P = the aggregate consideration, calculated as set forth in Section 4(b)
hereof, received by the Company upon such Dilutive Issuance; and
CSDO = the total number of shares of Common Stock Deemed Outstanding (as
herein defined) immediately after the Dilutive Issuance.
(b) Effect on Exercise Price of Certain Events. For purposes of
determining the adjusted Exercise Price under Section 4(a) hereof, the
following will be applicable:
<PAGE>
(i) Issuance of Rights or Options. If the Company in any manner
issues or grants any warrants, rights or options, whether or not
immediately exercisable, to subscribe for or to purchase Common Stock
or other securities exercisable, convertible into or exchangeable for
Common Stock ("Convertible Securities"), but not to include the grant
or exercise of any stock or options which may hereafter be granted or
exercised under any employee or Director benefit plan of the Company
now existing or to be implemented in the future, so long as the
issuance of such stock or options is approved by a majority of the
non-employee members of the Board of Directors of the Company or a
majority of the members of a committee of non-employee directors
established for such purpose (such warrants, rights and options to
purchase Common Stock or Convertible Securities are hereinafter
referred to as "Options"), and the price per share for which Common
Stock is issuable upon the exercise of such Options is less than the
Market Price on the date of issuance ("Below Market Options"), then
the maximum total number of shares of Common Stock issuable upon the
exercise of all such Below Market Options (assuming full exercise,
conversion or exchange of Convertible Securities, if applicable) will,
as of the date of the issuance or grant of such Below Market Options,
be deemed to be outstanding and to have been issued and sold by the
Company for such price per share. For purposes of the preceding
sentence, the price per share for which Common Stock is issuable upon
the exercise of such Below Market Options is determined by dividing
(i) the total amount, if any, received or receivable by the Company as
consideration for the issuance or granting of such Below Market
Options, plus the minimum aggregate amount of additional
consideration, if any, payable to the Company upon the exercise of all
such Below Market Options, plus, in the case of Convertible Securities
issuable upon the exercise of such Below Market Options, the minimum
aggregate amount of additional consideration payable upon the
exercise, conversion or exchange thereof at the time such Convertible
Securities first become exercisable, convertible or exchangeable, by
(ii) the maximum total number of shares of Common Stock issuable upon
the exercise of all such Below Market Options (assuming full
conversion of Convertible Securities, if applicable). No further
adjustment to the Exercise Price will be made upon the actual issuance
of such Common Stock upon the exercise of such Below Market Options or
upon the exercise, conversion or exchange of Convertible Securities
issuable upon exercise of such Below Market Options.
(ii) Issuance of Convertible Securities.
(A) If the Company in any manner issues or sells any
Convertible Securities, whether or not immediately convertible
(other than where the same are issuable upon the exercise of
Options) and the price per share for which Common Stock is
issuable upon such exercise, conversion or exchange (as
determined pursuant to Section 4(b)(ii)(B) if applicable) is less
than the Market Price on the date of issuance, then the maximum
total number of shares of Common Stock issuable upon the
exercise, conversion or exchange of all such Convertible
Securities will, as of the date of the issuance of such
Convertible Securities, be deemed to be outstanding and to have
been issued and sold by the Company for such price per share. For
the purposes of the preceding sentence, the price per share for
which Common Stock is issuable upon such exercise, conversion or
exchange is determined by dividing (i) the total amount, if any,
received or receivable by the Company as consideration for the
issuance or sale of all such Convertible Securities, plus the
minimum aggregate amount of additional consideration, if any,
payable to the Company upon the exercise, conversion or exchange
thereof at the time such Convertible Securities first become
exercisable, convertible or exchangeable, by (ii) the maximum
total number of shares of Common Stock issuable upon the
exercise, conversion or exchange of all such Convertible
Securities. No further adjustment to the Exercise Price will be
made upon the actual issuances of such Common Stock upon
exercise, conversion or exchange of such Convertible Securities.
(B) If the Company in any manner issues or sells any
Convertible Securities with a fluctuating conversion or exercise
price or exchange ratio (a "Variable Rate Convertible Security"),
then the price per share for which Common Stock is issuable upon
such exercise, conversion or exchange for purposes of the
calculation contemplated by Section 4(b)(ii)(A) shall be deemed
to be the lowest price per share which would be applicable
assuming that (1) all holding period and other conditions to any
discounts contained in such Convertible Security have been
satisfied, and (2) the Market Price on the date of issuance of
such Convertible Security was 80% of the Market Price on such
date (the "Assumed Variable Market Price").
<PAGE>
(iii) Change in Option Price or Conversion Rate. Except for the
grant or exercise of any stock or options which may hereafter be
granted or exercised under any employee or Director benefit plan of
the Company now existing or to be implemented in the future, so long
as the issuance of such stock or options is approved by a majority of
the non-employee members of the Board of Directors of the Company or a
majority of the members of a committee of non-employee directors
established for such purpose, if there is a change at any time in (i)
the amount of additional consideration payable to the Company upon the
exercise of any Options; (ii) the amount of additional consideration,
if any, payable to the Company upon the exercise, conversion or
exchange or any Convertible Securities; or (iii) the rate at which any
Convertible Securities are convertible into or exchangeable for Common
Stock (other than under or by reason of provisions designed to protect
against dilution), the Exercise Price in effect at the time of such
change will be readjusted to the Exercise Price which would have been
in effect at such time had such Options or Convertible Securities
still outstanding provided for such changed additional consideration
or changed conversion rate, as the case may be, at the time initially
granted, issued or sold.
(iv) Treatment of Expired Options and Unexercised Convertible
Securities. If, in any case, the total number of shares of Common
Stock issuable upon exercise of any Options or upon exercise,
conversion or exchange of any Convertible Securities is not, in fact,
issued and the rights to exercise such option or to exercise, convert
or exchange such Convertible Securities shall have expired or
terminated, the Exercise Price then in effect will be readjusted to
the Exercise Price which would have been in effect at the time of such
expiration or termination had such Options or Convertible Securities,
to the extent outstanding immediately prior to such expiration or
termination (other than in respect of the actual number of shares of
Common Stock issued upon exercise or conversion thereof), never been
issued.
(v) Calculation of Consideration Received. If any Common Stock,
Options or Convertible Securities are issued, granted or sold for
cash, the consideration received therefor for purposes of this Warrant
will be the amount received by the Company therefor, before deduction
of reasonable commissions, underwriting discounts or allowances or
other reasonable expenses paid or incurred by the Company in
connection with such issuance, grant or sale. In case any Common
Stock, Options or Convertible Securities are issued or sold for a
consideration part or all of which shall be other than cash, the
amount of the consideration other than cash received by the Company
will be the fair market value of such consideration except where such
consideration consists of freely-tradeable securities, in which case
the amount of consideration received by the Company will be the Market
Price thereof as of the date of receipt. In case any Common Stock,
Options or Convertible Securities are issued in connection with any
merger or consolidation in which the Company is the surviving
corporation, the amount of consideration therefor will be deemed to be
the fair market value of such portion of the net assets and business
of the non-surviving corporation as is attributable to such Common
Stock, Options or Convertible Securities, as the case may be. The fair
market value of any consideration other than cash or securities will
be determined in the good faith reasonable business judgment of the
Board of Directors.
<PAGE>
(vi) Exceptions to Adjustment of Exercise Price. No adjustment to
the Exercise Price will be made (i) upon the exercise of any warrants,
options or convertible securities issued and outstanding on the date
hereof in accordance with the terms of such securities as of such
date; (ii) upon the grant or exercise of any stock or options which
may hereafter be granted or exercised under any employee or Director
benefit plan of the Company now existing or to be implemented in the
future, so long as the issuance of such stock or options is approved
by a majority of the non-employee members of the Board of Directors of
the Company or a majority of the members of a committee of
non-employee directors established for such purpose; (iii) upon the
issuance of the Common Shares (as defined in the Securities Purchase
Agreement) or Warrants in accordance with terms of the Securities
Purchase Agreement; or (iv) upon the exercise of the Warrants.
(c) Subdivision or Combination of Common Stock. If the Company, at any
time after the initial issuance of this Warrant, subdivides (by any stock
split, stock dividend, recapitalization, reorganization, reclassification
or otherwise) its shares of Common Stock into a greater number of shares,
then, after the date of record for effecting such subdivision, the Exercise
Price in effect immediately prior to such subdivision will be
proportionately reduced. If the Company, at any time after the initial
issuance of this Warrant, combines (by reverse stock split,
recapitalization, reorganization, reclassification or otherwise) its shares
of Common Stock into a smaller number of shares, then, after the date of
record for effecting such combination, the Exercise Price in effect
immediately prior to such combination will be proportionately increased.
(d) Adjustment in Number of Shares. Upon each adjustment of the
Exercise Price pursuant to the provisions of this Section 4, the number of
shares of Common Stock issuable upon exercise of this Warrant shall be
adjusted by multiplying a number equal to the Exercise Price in effect
immediately prior to such adjustment by the number of shares of Common
Stock issuable upon exercise of this Warrant immediately prior to such
adjustment and dividing the product so obtained by the adjusted Exercise
Price.
<PAGE>
(e) Major Transactions. If the Company shall consolidate or merge with
any other corporation or entity (other than a merger in which the Company
is the surviving or continuing entity and its capital stock is unchanged
and unissued in such transaction (except for Common Stock constituting less
than twenty percent (20%) of the Company's Common Stock then outstanding))
or any subsidiary of the Company shall be a party to a merger or
consolidation or other extraordinary transaction and the Company issues
twenty percent (20%) or more of its Common Stock in any such merger,
consolidation or other transaction or there shall occur any share exchange
pursuant to which all of the outstanding shares of Common Stock are
converted into other securities or property or any reclassification or
change of the outstanding shares of Common Stock (each of the foregoing
being a "Major Transaction"), then each holder of a Warrant may thereafter,
at its option, be entitled, at its election, either to (a) in the event
that the Common Stock remains outstanding or holders of Common Stock
receive any common stock or substantially similar equity interest, in each
of the foregoing cases which is publicly traded, retain its Warrant and
such Warrant shall continue to apply to such Common Stock or shall apply,
as nearly as practicable, to such other common stock or equity interest, as
the case may be, or (b) regardless of whether (a) applies, receive
consideration, in exchange for such Warrant, equal to the greater of, as
determined in the sole discretion of such holder, (i) the number of shares
of stock or securities or property of the Company, or of the entity
resulting from such Major Transaction (the "Major Transaction
Consideration"), to which a holder of the number of shares of Common Stock
delivered upon the exercise of such Warrant would have been entitled upon
such Major Transaction had such holder exercised the Warrant (without
regard to any limitations on conversion or elsewhere contained) on the
trading date immediately preceding the public announcement of the
transaction resulting in such Major Transaction and had such Common Stock
been issued and outstanding and had such Holder been the holder of record
of such Common Stock at the time of the consummation of such Major
Transaction, and (ii) cash paid by the Company in immediately available
funds, in an amount equal to one hundred and twenty five percent (125%) of
the Black-Scholes Amount (as defined herein) times the number of shares of
Common Stock for which this Warrant was exercisable (without regard to any
limitations on exercise herein contained); and the Company shall make
lawful provision for the foregoing as a part of such Major Transaction and
shall cause the issuer of any security in such transaction which
constitutes Registrable Securities under that certain Registration Rights
Agreement dated April 7, 1999 among the Company and the signatories thereto
(the "Registration Rights Agreement") to assume all of the Company's
obligations under the Registration Rights Agreement. No sooner than ten
(10) business days nor later than five (5) business days prior to the
consummation of the Major Transaction, but not prior to the public
announcement of such Major Transaction, the Company shall deliver written
notice ("Notice of Major Transaction") to each holder of a Warrant, which
Notice of Major Transaction shall be deemed to have been delivered one (1)
business day after the Company's sending such notice by telecopy (provided
that the Company sends a confirming copy of such notice on the same day by
overnight courier) of such Notice of Major Transaction. Such Notice of
Major Transaction shall indicate the amount and type of the Major
Transaction consideration which such holder of a Warrant would receive
under this Section. If the Major Transaction Consideration does not consist
entirely of United States currency, such holder may elect to receive United
States currency in an amount equal to the value of the Major Transaction
Consideration in lieu of the Major Transaction Consideration by delivering
notice of such election to the Company within five (5) business days of
such holder's receipt of the Notice of Major Transaction.
The "Black-Scholes Amount" shall be an amount determined by calculating the
"Black-Scholes" value of an option to purchase one share of Common Stock on the
applicable page on the Bloomberg online page, using the following variable
values: (i) the current market price of the Common Stock equal to the closing
trade price on the last trading day before the date of the Notice of the Major
Transaction; (ii) volatility of the Common Stock equal to the volatility of the
common Stock during the 100 trading day period preceding the date of the Notice
of the Major Transaction; (iii) a risk free rate equal to the interest rate on
the United States treasury bill or treasury note with a maturity corresponding
to the remaining term of this Warrant on the date of the Notice of the Major
Transaction; and (iv) an exercise price equal to the Exercise Price on the date
of the Notice of the Major Transaction. In the event such calculation function
is no longer available utilizing the Bloomberg online page, the Holder shall
calculate such amount in its sole discretion using the closest available
alternative mechanism and variable values to those available utilizing the
Bloomberg online page for such calculation function.
<PAGE>
(f) Distribution of Assets. In case the Company shall declare or make
any distribution of its assets (or rights to acquire its assets) to holders
of Common Stock as a partial liquidating dividend, by way of return of
capital or otherwise (including any dividend or distribution to the
Company's shareholders of cash or shares (or rights to acquire shares) of
capital stock of a subsidiary) (a "Distribution"), at any time after the
initial issuance of this Warrant, then the Holder shall be entitled upon
exercise of this Warrant for the purchase of any or all of the shares of
Common Stock subject hereto, to receive the amount of such assets (or
rights) which would have been payable to the Holder had such Holder been
the holder of such shares of Common Stock on the record date for the
determination of shareholders entitled to such Distribution.
(g) Notices of Adjustment. Upon the occurrence of any event which
requires any adjustment of the Exercise Price, then, and in each such case,
the Company shall give notice thereof to the Holder, which notice shall
state the Exercise Price resulting from such adjustment and the increase or
decrease in the number of Warrant Shares purchasable at such price upon
exercise, setting forth in reasonable detail the method of calculation and
the facts upon which such calculation is based. Such calculation shall be
certified by the chief financial officer of the Company.
(h) Minimum Adjustment of Exercise Price. No adjustment of the
Exercise Price shall be made in an amount of less than 1% of the Exercise
Price in effect at the time such adjustment is otherwise required to be
made, but any such lesser adjustment shall be carried forward and shall be
made at the time and together with the next subsequent adjustment which,
together with any adjustments so carried forward, shall amount to not less
than 1% of such Exercise Price.
(i) No Fractional Shares. No fractional shares of Common Stock are to
be issued upon the exercise of this Warrant, but the Company shall pay a
cash adjustment in respect of any fractional share which would otherwise be
issuable in an amount equal to the same fraction of the Market Price of a
share of Common Stock; provided that in the event that sufficient funds are
not legally available for the payment of such cash adjustment any
fractional shares of Common Stock shall be rounded up to the next whole
number.
(j) Other Notices. In case at any time:
(i) the Company shall declare any dividend upon the Common Stock
payable in shares of stock of any class or make any other distribution
to the holders of the Common Stock;
(ii) the Company shall offer for subscription pro rata to the
holders of the Common Stock any additional shares of stock of any
class or other rights;
(iii) there shall be any capital reorganization of the Company,
or reclassification of the Common Stock, or consolidation or merger of
the Company with or into, or sale of all or substantially all of its
assets to, another corporation or entity; or
(iv) there shall be a voluntary or involuntary dissolution,
liquidation or winding-up of the Company;
<PAGE>
then, in each such case, the Company shall give to the Holder (a) notice of the
date on which the books of the Company shall close or a record shall be taken
for determining the holders of Common Stock entitled to receive any such
dividend, distribution, or subscription rights or for determining the holders of
Common Stock entitled to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding-up and (b) in the case of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding-up, notice of
the date (or, if not then known, a reasonable approximation thereof by the
Company) when the same shall take place. Such notice shall also specify the date
on which the holders of Common Stock shall be entitled to receive such dividend,
distribution, or subscription rights or to exchange their Common Stock for stock
or other securities or property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation, or
winding-up, as the case may be. Such notice shall be given at least 30 days
prior to the record date or the date on which the Company's books are closed in
respect thereto, but in no event earlier than public announcement of such
proposed transaction or event. Failure to give any such notice or any defect
therein shall not affect the validity of the proceedings referred to in clauses
(i), (ii), (iii) and (iv) above.
(k) Certain Definitions.
(i) "Common Stock Deemed Outstanding" shall mean the number of
shares of Common Stock actually outstanding (not including shares of
Common Stock held in the treasury of the Company), plus (x) in case of
any adjustment required by Section 4(a) resulting from the issuance of
any Options, the maximum total number of shares of Common Stock
issuable upon the exercise of the Options for which the adjustment is
required (including any Common Stock issuable upon the conversion of
Convertible Securities issuable upon the exercise of such Options),
and (y) in the case of any adjustment required by Section 4(a)
resulting from the issuance of any Convertible Securities, the maximum
total number of shares of Common Stock issuable upon the exercise,
conversion or exchange of the Convertible Securities for which the
adjustment is required, as of the date of issuance of such Convertible
Securities, if any.
(ii) "Market Price," as of any date, (i) means the average of the
Closing Bid Prices for the shares of Common Stock as reported to The
Nasdaq National Market for the trading day immediately preceding such
date, or (ii) if The Nasdaq National Market is not the principal
trading market for the Common Stock, the average of the last reported
bid prices on the principal trading market for the Common Stock during
the same period, or, if there is no bid price for such period, the
last reported sales price for such period, or (iii) if market value
cannot be calculated as of such date on any of the foregoing bases,
the Market Price shall be the average fair market value as reasonably
determined by an investment banking firm selected by the Company and
reasonably acceptable to the Holders of a majority in interest of the
Warrants, with the costs of the appraisal to be borne by the Company.
The manner of determining the Market Price of the Common Stock set
forth in the foregoing definition shall apply with respect to any
other security in respect of which a determination as to market value
must be made hereunder.
<PAGE>
(iii) "Common Stock," for purposes of this Section 4, includes
the Common Stock and any additional class of stock of the Company
having no preference as to dividends or distributions on liquidation,
provided that the shares purchasable pursuant to this Warrant shall
include only Common Stock in respect of which this Warrant is
exercisable, or shares resulting from any subdivision or combination
of such Common Stock, or in the case of any reorganization,
reclassification, consolidation, merger, or sale of the character
referred to in Section 4(e) hereof, the stock or other securities or
property provided for in such Section.
(l) Other Adjustments. If:
(1) Maurizio Vecchione disposes of any shares of Common
Stock beneficially owned by him while the Common Stock is trading
at or below twenty five dollars ($25) per share during the period
beginning on the date of the First Closing and ending on the
earlier of (i) the later of (A) six (6) months after the
effectiveness of the Registration Statement required to be filed
by Section 2.1 of the Registration Rights Agreement and (B) the
first (1st) anniversary of the date of the First Closing and (ii)
the date on which Maurizio Vecchione ceases to be President or
CEO of the Company; or
(2) Joyce Freedman or Lee Freedman (each a "Freedman")
dispose of any shares of Common Stock beneficially owned by such
Freedman at any time during the period begining on the date of
the Closing and ending on the date which is six (6) months
following the effectiveness of the Registration Statement
required to be filed by Section 2.1 of the Registration Rights
Agreement,
then the Exercise Price shall be adjusted to the Adjusted Exercise Price (as
defined herein) if such adjustment would result in a decrease in the Exercise
Price; provided, however, that the Exercise Price shall not be adjusted upon the
occurrence of a disposal described in clause (1) until Maurizio Vecchione sells
or otherwise transfers in excess of fifty thousand (50,000) shares of Common
Stock in aggregate during such period at a price less than twenty five dollars
($25) pursuant to Rule 144. For any disposal of Common Stock described
hereunder, the "Adjusted Exercise Price" shall mean the lesser of (a) the lowest
closing bid price of the Common Stock during the thirty (30) trading day period
beginning on the trading day (the "Announcement Date") immediately preceding the
day on which such disposal was publicly announced and (b) the price per share
which Vecchione or such Freedman, as applicable, received in connection with
such disposal; provided, however, that if the Adjusted Exercise Price described
above is greater than the Exercise Price, then the Adjusted Exercise Price shall
be equal to (c) the lowest closing bid price of the Common Stock during the
thirty (30) trading day period beginning on the Announcement Date divided by (d)
the closing bid price of the Common Stock on the Announcement Date times (e) the
Exercise Price.
<PAGE>
5. Cap Amount. Prior to Nasdaq Approval (as defined in the Securities
Purchase Agreement) or 4460 Shareholder Approval (as defined in the Securities
Purchase Agreement), unless otherwise permitted by The Nasdaq National Market or
unless the rules thereof no longer are applicable to the Company, in no event
shall the total number of shares of Common Stock issued at the Closing under the
Securities Purchase Agreement and upon exercise of the Warrants exceed the
maximum number of shares of Common Stock that the Company can without
stockholder approval so issue pursuant to Nasdaq Rule 4460(i) (or any successor
rule) (the "Cap Amount") upon Closing under the Securities Purchase Agreement
and the exercise of the Warrants, which, as of the date of initial issuance of
Common Stock and Warrants to the Holders, which amount is one million, two
hundred thirty two thousand and forty five (1,232,045) shares. The Cap Amount
shall be allocated pro rata among the Holders based on the number of shares of
Common Stock and Warrants issued to each Holder. In the event a Holder shall
sell or otherwise transfer any of such Holder's Warrants, each transferee shall
be allocated a pro rata portion of such transferor's Cap Amount. A Holder's
allocable portion of the Cap Amount shall be allocated first to the Common Stock
issued to the Holder at the Closing under the Securities Purchase Agreement,
then to the First Warrants (as defined in the Securities Purchase Agreement) and
only the Warrants shall be subject to the limitation imposed by this Section 5.
6. Issue Tax. The issuance of certificates for Warrant Shares upon the
exercise of this Warrant shall be made without charge to the Holder or such
shares for any issuance tax or other costs in respect thereof, provided that the
Company shall not be required to pay any tax which may be payable in respect of
any transfer involved in the issuance and delivery of any certificate in a name
other than the Holder.
7. No Rights or Liabilities as a Shareholder. This Warrant shall not
entitle the Holder to any voting rights or other rights as a shareholder of the
Company. No provision of this Warrant, in the absence of affirmative action by
the Holder to purchase Warrant Shares, and no mere enumeration herein of the
rights or privileges of the Holder, shall give rise to any liability of the
Holder for the Exercise Price or as a shareholder of the Company, whether such
liability is asserted by the Company or by creditors of the Company.
8. Transfer, Exchange, Redemption and Replacement of Warrant.
a. Restriction on Transfer. This Warrant and the rights granted to the
Holder are transferable, in whole or in part, upon surrender of this
Warrant, together with a properly executed assignment in the Form of
Assignment attached hereto as Exhibit 2, at the office or agency of the
Company referred to in Section 8(e) below, provided, however, that any
transfer or assignment shall be subject to the provisions of Section 5.1
and 5.2 of the Securities Purchase Agreement. Until due presentment for
registration of transfer on the books of the Company, the Company may treat
the registered holder hereof as the owner and holder hereof for all
purposes, and the Company shall not be affected by any notice to the
contrary. Notwithstanding anything to the contrary contained herein, the
registration rights described in Section 9 hereof are assignable only in
accordance with the provisions of the Registration Rights Agreement.
b. Warrant Exchangeable for Different Denominations. This Warrant is
exchangeable, upon the surrender hereof by the Holder at the office or
agency of the Company referred to in Section 8(e) below, for new Warrants,
in the form hereof, of different denominations representing in the
aggregate the right to purchase the number of shares of Common Stock which
may be purchased hereunder, each of such new Warrants to represent the
right to purchase such number of shares as shall be designated by the
Holder of at the time of such surrender.
<PAGE>
c. Replacement of Warrant. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction, or mutilation
of this Warrant or, in the case of any such loss, theft, or destruction,
upon delivery, of an indemnity agreement reasonably satisfactory in form
and amount to the Company, or, in the case of any such mutilation, upon
surrender and cancellation of this Warrant, the Company, at its expense,
will execute and deliver, in lieu thereof, a new Warrant, in the form
hereof, in such denominations as Holder may request.
d. Cancellation; Payment of Expenses. Upon the surrender of this
Warrant in connection with any transfer, exchange, or replacement as
provided in this Section 8, this Warrant shall be promptly canceled by the
Company. The Company shall pay all issuance taxes (other than securities
transfer taxes) and charges payable in connection with the preparation,
execution, and delivery of Warrants pursuant to this Section 8.
e. Warrant Register. The Company shall maintain, at its principal
executive offices (or such other office or agency of the Company as it may
designate by notice to the Holder), a register for this Warrant, in which
the Company shall record the name and address of the person in whose name
this Warrant has been issued, as well as the name and address of each
transferee and each prior owner of this Warrant.
f. Additional Restriction on Exercise or Transfer. Notwithstanding
anything to the contrary contained herein, the Warrants shall not be
exercisable by the Holder to the extent (but only to the extent) that, if
exercisable by Holder, Holder would beneficially own in excess of 9.9% (the
"Applicable Percentage") of the shares of Common Stock. To the extent the
above limitation applies, the determination of whether the Warrants shall
be exercisable (vis-a-vis other securities owned by Holder which contain
similar limitations on conversion) and of which Warrants shall be
exercisable (as among Warrants) shall be made on the basis of the earliest
submission of the Warrants (vis-a-vis other securities owned by the Holder
which contain similar limitations on conversion and vis a vis other
Warrants), in each case subject to such aggregate percentage limitation. No
prior inability to exercise Warrants pursuant to this paragraph shall have
any effect on the applicability of the provisions of this paragraph with
respect to any subsequent determination of exercisability. For the purposes
of this paragraph, beneficial ownership and all determinations and
calculations, including without limitation, with respect to calculations of
percentage ownership, shall be determined in accordance with Section 13(d)
of the Securities Exchange Act of 1934, as amended, and Regulation 13D and
G thereunder. The provisions of this paragraph may be implemented in a
manner otherwise than in strict conformity with the terms of this Section
8(f) with the approval of the Board of Directors of the Company and the
Holder: (i) with respect to any matter to cure any ambiguity herein, to
correct this paragraph (or any portion hereof) which may be defective or
inconsistent with the intended Applicable Percentage beneficial ownership
limitation herein contained or to make changes or supplements necessary or
desirable to properly give effect to such Applicable Percentage limitation;
and (ii) with respect to any other matter (including through any amendment
of this Warrant), with the further consent of the holders of a majority of
the then outstanding shares of Common Stock. For clarification, it is
expressly a term of this security that the limitations contained in this
Section shall apply to each successor Holder.
<PAGE>
9. Registration Rights. The initial holder of this Warrant (and certain
assignees thereof) is entitled to the benefit of such registration rights in
respect of the Warrant Shares as are set forth in the Registration Rights
Agreement.
10. Notices. Any notice herein required or permitted to be given shall be
in writing and may be personally served or delivered by courier or by confirmed
telecopy, and shall be deemed delivered at the time and date of receipt (which
shall include telephone line facsimile transmission). The addresses for such
communications shall be:
If to the Company:
ModaCAD, Inc.
3861 Sepulveda Blvd.
Culver City, CA 90230
Telecopy: (310) 751-2120
Attention: President
with a copy to:
Coudert Brothers
1055 West Seventh Street - 20th Floor
Los Angeles, CA 90017
Telecopy: (213) 689-4467
Attention: John A. St. Clair
and if to the Holder, at such address as Holder shall have provided in writing
to the Company, or at such other address as each such party furnishes by notice
given in accordance with this Section 10.
11. Governing Law; Jurisdiction. This Warrant shall be governed by and
construed in accordance with the laws of the State of California applicable to
contracts made and to be performed in the State of California. The Company
irrevocably consents to the jurisdiction of the United States federal courts
located in the State of California and the state courts located in the County of
Los Angeles in the State of California in any suit or proceeding based on or
arising under this Warrant and irrevocably agrees that all claims in respect of
such suit or proceeding may be determined in such courts. The Company
irrevocably waives the defense of an inconvenient forum to the maintenance of
such suit or proceeding. The Company agrees that a final nonappealable judgment
in any such suit or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on such judgment or in any other lawful manner.
12. Miscellaneous.
<PAGE>
a. Amendments. This Warrant and any provision hereof may only be
amended by an instrument in writing signed by the Company and the Holder,
subject to the limitation contained in Section 8(f).
b. Descriptive Headings. The descriptive headings of the several
Sections of this Warrant are inserted for purposes of reference only, and
shall not affect the meaning or construction of any of the provisions
hereof.
c. Cashless Exercise. Notwithstanding anything to the contrary
contained in this Warrant, this Warrant may be exercised by presentation
and surrender of this Warrant to the Company at its principal executive
offices with a written notice of the Holder's intention to effect a
Cashless Exercise, including a calculation of the number of shares of
Common Stock to be issued upon such exercise in accordance with the terms
hereof (a "Cashless Exercise"). In the event of a Cashless Exercise, in
lieu of paying the Exercise Price in cash, the Holder shall surrender this
Warrant for the number of shares of Common Stock determined by multiplying
the number of Warrant Shares to which it would otherwise be entitled by a
fraction, the numerator of which shall be the difference between the then
current Market Price per share of the Common Stock and the Exercise Price,
and the denominator of which shall be such then current Market Price per
share of Common Stock.
di Assignability. This Warrant shall be binding upon the Company and
its successors and assigns and shall inure to the benefit of Holder and its
successors and assigns. The Holder shall notify the Company upon the
assignment of this Warrant.
* * *
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed
by its duly authorized officer.
ModaCAD, Inc.
By: /s/ JOYCE FREEDMAN
_____________________________
Name: Joyce Freedman
Title: Chief Executive Officer
<PAGE>
FORM OF EXERCISE AGREEMENT
(To be Executed by the Holder in order to Exercise the Warrant)
The undersigned hereby irrevocably exercises the right to purchase
____________ of the shares of common stock of ModaCAD, Inc., a California
corporation (the "Company"), evidenced by the attached Warrant, and [herewith
makes payment of the Exercise Price with respect to such shares in full/ elects
to effect a Cashless Exercise pursuant to the terms of the Warrant], all in
accordance with the conditions and provisions of said Warrant.
(i) The undersigned agrees not to offer, sell, transfer or otherwise
dispose of any Common Stock obtained on exercise of the Warrant, except under
circumstances that will not result in a violation of the Securities Act of 1933,
as amended, or any state securities laws.
(ii) The undersigned requests that stock certificates for such shares be
issued, and a Warrant representing any unexercised portion hereof be issued,
pursuant to the Warrant in the name of the Holder (or such other person or
persons indicated below) and delivered to the undersigned (or designee(s) at the
address (or addresses) set forth below:
Date:
Signature of Holder
Name of Holder (Print)
Address:
<PAGE>
FORM OF ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and transfers
all rights of the undersigned under the within Warrant, with respect to the
number of shares of Common Stock covered thereby set forth hereinbelow, to:
Name of Assignee Address No. of Shares
, and hereby irrevocably constitutes and appoints ______________________________
as agent and attorney-in-fact to transfer said Warrant on the books of the
within-named corporation, with full power of substitution in the premises.
Date:____________, _____,
In the presence of
Name:
Signature:
Title of Signing Officer or Agent (if any):
Address:
Note: The above signature should
correspond exactly with the
name on the face of the within Warrant.
<PAGE>
EXHIBIT A-2
OID AFTER 5:00 P.M.
[EASTERN] TIME ON APRIL 7, 2000 [first anniversary of Closing]
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE OF
THE UNITED STATES. THE SECURITIES REPRESENTED HEREBY MAY NOT BE OFFERED OR SOLD
OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
FOR THE SECURITIES UNDER APPLICABLE SECURITIES LAWS, OR UNLESS OFFERED, SOLD OR
TRANSFERRED PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THOSE LAWS.
Right to Purchase ____ Shares of Common Stock
Date: April 7, 1999
MODACAD, INC.
STOCK PURCHASE WARRANT
THIS CERTIFIES THAT, for value received, _______________ or its registered
assigns, is entitled to purchase from ModaCAD, Inc., a California corporation
(the "Company"), at any time or from time to time during the period specified in
Section 2 hereof, ______________ [Purchaser's portion of $5 million, allocated
pro rata based upon original funding amounts] fully paid and nonassessable
shares of the Company's common stock (the "Common Stock"), at an initial
exercise price of $13.18 per share (the "Exercise Price" [120% of Per Share
Price (as defined in the Securities Purchase Agreement (as defined below)]).
This Warrant is being issued pursuant to that certain Securities Purchase
Agreement dated April 7, 1999 between the Company and the signatory thereto (the
"Securities Purchase Agreement"). The number of shares of Common Stock
purchasable hereunder (the "Warrant Shares") and the Exercise Price are subject
to adjustment as provided in Section 4 hereof. The term "Warrants" means this
Warrant and the other warrants of the Company issued pursuant to the terms of
the Securities Purchase Agreement.
<PAGE>
The term "Closing Bid Price" means, for any security as of any date, the
closing bid price of such security on the principal securities exchange or
trading market where such security is listed or traded as reported by Bloomberg
Financial Markets or a comparable reporting service of national reputation
selected by the Company and reasonably acceptable to the holder hereof (the
"Holder") if Bloomberg Financial Markets is not then reporting closing bid
prices of such security (collectively, "Bloomberg"), or if the foregoing does
not apply, the last reported sale price of such security in the over-the-counter
market on the electronic bulletin board of such security as reported by
Bloomberg, or, if no sale price is reported for such security by Bloomberg, the
average of the bid prices of any market makers for such security as reported in
the "pink sheets" by the National Quotation Bureau, Inc. If the Closing Bid
Price cannot be calculated for such security on such date on any of the
foregoing bases, the Closing Bid Price of such security on such date shall be
the fair market value as reasonably determined by an investment banking firm
selected by the Company and reasonably acceptable to the Holder with the costs
of such appraisal to be borne by the Company.
This Warrant is subject to the following terms, provisions, and conditions:
1. Mechanics of Exercise. Subject to the provisions hereof, including,
without limitation, the limitations contained in Section 8(f) hereof, this
Warrant may be exercised as follows:
(a) Manner of Exercise. This Warrant may be exercised by the Holder,
in whole or in part, by the surrender of this Warrant (or evidence of loss,
theft, destruction or mutilation thereof in accordance with Section 8(c)
hereof), together with a completed exercise agreement in the Form of
Exercise Agreement attached hereto as Exhibit 1 (the "Exercise Agreement"),
to the Company at the Company's principal executive offices (or such other
office or agency of the Company as it may designate by notice to the
Holder), and upon payment to the Company in cash, by certified or official
bank check or by wire transfer for the account of the Company, of the
Exercise Price for the Warrant Shares specified in the Exercise Agreement.
The Warrant Shares so purchased shall be deemed to be issued to the Holder
or Holder's designees, as the record owner of such shares, as of the date
on which this Warrant shall have been surrendered, the completed Exercise
Agreement shall have been delivered, and payment shall have been made for
such shares as set forth above.
(b) Issuance of Certificates. Subject to Section 1(c), certificates
for the Warrant Shares so purchased, representing the aggregate number of
shares specified in the Exercise Agreement, shall be delivered to the
Holder within a reasonable time, not exceeding three (3) business days,
after this Warrant shall have been so exercised (the "Delivery Period").
The certificates so delivered shall be in such denominations as may be
reasonably requested by the Holder and shall be registered in the name of
Holder or such other name as shall be designated by such Holder. If this
Warrant shall have been exercised only in part, then, unless this Warrant
has expired, the Company shall, at its expense, at the time of delivery of
such certificates, deliver to the Holder a new Warrant representing the
number of shares with respect to which this Warrant shall not then have
been exercised.
<PAGE>
(c) Exercise Disputes. In the case of any dispute with respect to an
exercise, the Company shall promptly issue such number of shares of Common
Stock as are not disputed in accordance with this Section. If such dispute
involves the calculation of the Exercise Price, the Company shall submit
the disputed calculations to a nationally recognized independent accounting
firm (selected by the Company) via facsimile within three (3) business days
of receipt of the Exercise Agreement. The accounting firm shall audit the
calculations and notify the Company and the converting Holder of the
results no later than two (2) business days from the date it receives the
disputed calculations. The accounting firm's calculation shall be deemed
conclusive, absent manifest error. The Company shall then issue the
appropriate number of shares of Common Stock in accordance with this
Section.
(d) Fractional Shares. No fractional shares of Common Stock are to be
issued upon the exercise of this Warrant, but the Company shall pay a cash
adjustment in respect of any fractional share which would otherwise be
issuable in an amount equal to the same fraction of the Exercise Price of a
share of Common Stock (as determined for exercise of this Warrant into
whole shares of Common Stock); provided that in the event that sufficient
funds are not legally available for the payment of such cash adjustment any
fractional shares of Common Stock shall be rounded up to the next whole
number.
(e) Buy-In. If (i) the Company fails for any reason (other than
Holder's failure to pay timely to the Company the Exercise Price) to
deliver during the Delivery Period shares of Common Stock to Holder upon an
exercise of this Warrant and (ii) after the applicable Delivery Period with
respect to such an exercise, Holder purchases (in an open market
transaction or otherwise) shares of Common Stock to make delivery upon a
sale by Holder of the shares of Common Stock (the "Sold Shares") which
Holder was entitled to receive upon such exercise (a "Buy-in"), the Company
shall pay Holder (in addition to any other remedies available to Holder)
the amount by which (x) Holder's total purchase price (including brokerage
commission, if any) for the shares of Common Stock so purchased exceeds (y)
the lesser of (A) the Exercise Price or (B) the net proceeds received by
Holder from the sale of the Sold Shares. Holder shall provide the Company
written notification indicating any amounts payable to Holder pursuant to
this subsection.
2. Period of Exercise. This Warrant is exercisable at any time or from time
to time on or after the date hereof and before 5:00 P.M., Eastern Time on the
first (1st) anniversary of the date hereof (the "Exercise Period").
3. Certain Agreements of the Company. The Company hereby covenants and
agrees as follows:
(a) Shares to be Fully Paid. All Warrant Shares will, upon issuance in
accordance with the terms of this Warrant, be validly issued, fully paid,
and non-assessable and free from all liens, claims and encumbrances.
(b) Reservation of Shares. During the Exercise Period, the Company
shall at all times have authorized, and reserved for the purpose of
issuance upon exercise of this Warrant, a sufficient number of shares of
Common Stock to provide for the exercise of this Warrant.
<PAGE>
(c) Listing. From and after the date of issuance of this Warrant, the
Company shall have secured and shall thereafter, for at least three (3)
years after the date of issuance of this Warrant, maintain the listing of
the shares of Common Stock issuable upon exercise of this Warrant upon The
Nasdaq National Market, the Nasdaq SmallCap Market, the New York Stock
Exchange or the American Stock Exchange, as required by Section 4.10 of the
Securities Purchase Agreement and upon each national securities exchange or
automated quotation system, if any, upon which shares of Common Stock are
then listed or become listed and shall maintain, so long as any other
shares of Common Stock shall be so listed, such listing of all shares of
Common Stock from time to time issuable upon the exercise of this Warrant;
and the Company shall so list on each national securities exchange or
automated quotation system, as the case may be, and shall maintain such
listing of any other shares of capital stock of the Company issuable upon
the exercise of this Warrant so long as any shares of the same class shall
be listed on such national securities exchange or automated quotation
system.
(d) Certain Actions Prohibited. The Company will not, by amendment of
its charter 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 to be observed or performed by it
hereunder, but will at all times in good faith assist in the carrying out
of all the provisions of this Warrant and in the taking of all such actions
as may reasonably be requested by the Holder of this Warrant in order to
protect the exercise privilege of the Holder of this Warrant, consistent
with the tenor and purpose of this Warrant. Without limiting the generality
of the foregoing, the Company will take all such actions as may be
necessary or appropriate in order that the Company may validly and legally
issue fully paid and nonassessable shares of Common Stock upon the exercise
of this Warrant.
4. Antidilution Provisions. During the Exercise Period or until fully
exercised, the Exercise Price and the number of Warrant Shares shall be subject
to adjustment from time to time as provided in this Section 4. In the event that
any adjustment of the Exercise Price as required herein results in a fraction of
a cent, such Exercise Price shall be rounded up or down to the nearest cent.
(a) Adjustment of Exercise Price and Number of Shares upon Issuance of
Common Stock. Except as otherwise provided in Section 4(c) and 4(e) hereof,
if and whenever after the initial issuance of this Warrant, the Company
issues or sells, or in accordance with Section 4(b) hereof is deemed to
have issued or sold, any shares of Common Stock for no consideration or for
a consideration per share less than the Market Price (as herein defined) on
the date of issuance (a "Dilutive Issuance"), then effective immediately
upon the Dilutive Issuance, the Exercise Price will be adjusted in
accordance with the following formula:
E' = (E) (O + P/M) / (CSDO)
where:
E' = the adjusted Exercise Price
<PAGE>
E = the then current Exercise Price;
M = the then current Market Price;
O = the number of shares of Common Stock outstanding immediately prior
to the Dilutive Issuance;
P = the aggregate consideration, calculated as set forth in Section 4(b)
hereof, received by the Company upon such Dilutive Issuance; and
CSDO = the total number of shares of Common Stock Deemed Outstanding (as
herein defined) immediately after the Dilutive Issuance.
(b) Effect on Exercise Price of Certain Events. For purposes of
determining the adjusted Exercise Price under Section 4(a) hereof, the
following will be applicable:
(i) Issuance of Rights or Options. If the Company in any manner
issues or grants any warrants, rights or options, whether or not
immediately exercisable, to subscribe for or to purchase Common Stock
or other securities exercisable, convertible into or exchangeable for
Common Stock ("Convertible Securities"), but not to include the grant
or exercise of any stock or options which may hereafter be granted or
exercised under any employee or Director benefit plan of the Company
now existing or to be implemented in the future, so long as the
issuance of such stock or options is approved by a majority of the
non-employee members of the Board of Directors of the Company or a
majority of the members of a committee of non-employee directors
established for such purpose (such warrants, rights and options to
purchase Common Stock or Convertible Securities are hereinafter
referred to as "Options"), and the price per share for which Common
Stock is issuable upon the exercise of such Options is less than the
Market Price on the date of issuance ("Below Market Options"), then
the maximum total number of shares of Common Stock issuable upon the
exercise of all such Below Market Options (assuming full exercise,
conversion or exchange of Convertible Securities, if applicable) will,
as of the date of the issuance or grant of such Below Market Options,
be deemed to be outstanding and to have been issued and sold by the
Company for such price per share. For purposes of the preceding
sentence, the price per share for which Common Stock is issuable upon
the exercise of such Below Market Options is determined by dividing
(i) the total amount, if any, received or receivable by the Company as
consideration for the issuance or granting of such Below Market
Options, plus the minimum aggregate amount of additional
consideration, if any, payable to the Company upon the exercise of all
such Below Market Options, plus, in the case of Convertible Securities
issuable upon the exercise of such Below Market Options, the minimum
aggregate amount of additional consideration payable upon the
exercise, conversion or exchange thereof at the time such Convertible
Securities first become exercisable, convertible or exchangeable, by
(ii) the maximum total number of shares of Common Stock issuable upon
the exercise of all such Below Market Options (assuming full
conversion of Convertible Securities, if applicable). No further
adjustment to the Exercise Price will be made upon the actual issuance
of such Common Stock upon the exercise of such Below Market Options or
upon the exercise, conversion or exchange of Convertible Securities
issuable upon exercise of such Below Market Options.
<PAGE>
(ii) Issuance of Convertible Securities.
(A) If the Company in any manner issues or sells any
Convertible Securities, whether or not immediately convertible
(other than where the same are issuable upon the exercise of
Options) and the price per share for which Common Stock is
issuable upon such exercise, conversion or exchange (as
determined pursuant to Section 4(b)(ii)(B) if applicable) is less
than the Market Price on the date of issuance, then the maximum
total number of shares of Common Stock issuable upon the
exercise, conversion or exchange of all such Convertible
Securities will, as of the date of the issuance of such
Convertible Securities, be deemed to be outstanding and to have
been issued and sold by the Company for such price per share. For
the purposes of the preceding sentence, the price per share for
which Common Stock is issuable upon such exercise, conversion or
exchange is determined by dividing (i) the total amount, if any,
received or receivable by the Company as consideration for the
issuance or sale of all such Convertible Securities, plus the
minimum aggregate amount of additional consideration, if any,
payable to the Company upon the exercise, conversion or exchange
thereof at the time such Convertible Securities first become
exercisable, convertible or exchangeable, by (ii) the maximum
total number of shares of Common Stock issuable upon the
exercise, conversion or exchange of all such Convertible
Securities. No further adjustment to the Exercise Price will be
made upon the actual issuances of such Common Stock upon
exercise, conversion or exchange of such Convertible Securities.
(B) If the Company in any manner issues or sells any
Convertible Securities with a fluctuating conversion or exercise
price or exchange ratio (a "Variable Rate Convertible Security"),
then the price per share for which Common Stock is issuable upon
such exercise, conversion or exchange for purposes of the
calculation contemplated by Section 4(b)(ii)(A) shall be deemed
to be the lowest price per share which would be applicable
assuming that (1) all holding period and other conditions to any
discounts contained in such Convertible Security have been
satisfied, and (2) the Market Price on the date of issuance of
such Convertible Security was 80% of the Market Price on such
date (the "Assumed Variable Market Price").
(iii) Change in Option Price or Conversion Rate. Except for the
grant or exercise of any stock or options which may hereafter be
granted or exercised under any employee or Director benefit plan of
the Company now existing or to be implemented in the future, so long
as the issuance of such stock or options is approved by a majority of
the non-employee members of the Board of Directors of the Company or a
majority of the members of a committee of non-employee directors
established for such purpose, if there is a change at any time in (i)
the amount of additional consideration payable to the Company upon the
exercise of any Options; (ii) the amount of additional consideration,
if any, payable to the Company upon the exercise, conversion or
exchange or any Convertible Securities; or (iii) the rate at which any
Convertible Securities are convertible into or exchangeable for Common
Stock (other than under or by reason of provisions designed to protect
against dilution), the Exercise Price in effect at the time of such
change will be readjusted to the Exercise Price which would have been
in effect at such time had such Options or Convertible Securities
still outstanding provided for such changed additional consideration
or changed conversion rate, as the case may be, at the time initially
granted, issued or sold.
<PAGE>
(iv) Treatment of Expired Options and Unexercised Convertible
Securities. If, in any case, the total number of shares of Common
Stock issuable upon exercise of any Options or upon exercise,
conversion or exchange of any Convertible Securities is not, in fact,
issued and the rights to exercise such option or to exercise, convert
or exchange such Convertible Securities shall have expired or
terminated, the Exercise Price then in effect will be readjusted to
the Exercise Price which would have been in effect at the time of such
expiration or termination had such Options or Convertible Securities,
to the extent outstanding immediately prior to such expiration or
termination (other than in respect of the actual number of shares of
Common Stock issued upon exercise or conversion thereof), never been
issued.
(v) Calculation of Consideration Received. If any Common Stock,
Options or Convertible Securities are issued, granted or sold for
cash, the consideration received therefor for purposes of this Warrant
will be the amount received by the Company therefor, before deduction
of reasonable commissions, underwriting discounts or allowances or
other reasonable expenses paid or incurred by the Company in
connection with such issuance, grant or sale. In case any Common
Stock, Options or Convertible Securities are issued or sold for a
consideration part or all of which shall be other than cash, the
amount of the consideration other than cash received by the Company
will be the fair market value of such consideration except where such
consideration consists of freely-tradeable securities, in which case
the amount of consideration received by the Company will be the Market
Price thereof as of the date of receipt. In case any Common Stock,
Options or Convertible Securities are issued in connection with any
merger or consolidation in which the Company is the surviving
corporation, the amount of consideration therefor will be deemed to be
the fair market value of such portion of the net assets and business
of the non-surviving corporation as is attributable to such Common
Stock, Options or Convertible Securities, as the case may be. The fair
market value of any consideration other than cash or securities will
be determined in the good faith reasonable business judgment of the
Board of Directors.
(vi) Exceptions to Adjustment of Exercise Price. No adjustment to
the Exercise Price will be made (i) upon the exercise of any warrants,
options or convertible securities issued and outstanding on the date
hereof in accordance with the terms of such securities as of such
date; (ii) upon the grant or exercise of any stock or options which
may hereafter be granted or exercised under any employee or Director
benefit plan of the Company now existing or to be implemented in the
future, so long as the issuance of such stock or options is approved
by a majority of the non-employee members of the Board of Directors of
the Company or a majority of the members of a committee of
non-employee directors established for such purpose; (iii) upon the
issuance of the Common Shares (as defined in the Securities Purchase
Agreement) or Warrants in accordance with terms of the Securities
Purchase Agreement; or (iv) upon the exercise of the Warrants.
<PAGE>
(c) Subdivision or Combination of Common Stock. If the Company, at any
time after the initial issuance of this Warrant, subdivides (by any stock
split, stock dividend, recapitalization, reorganization, reclassification
or otherwise) its shares of Common Stock into a greater number of shares,
then, after the date of record for effecting such subdivision, the Exercise
Price in effect immediately prior to such subdivision will be
proportionately reduced. If the Company, at any time after the initial
issuance of this Warrant, combines (by reverse stock split,
recapitalization, reorganization, reclassification or otherwise) its shares
of Common Stock into a smaller number of shares, then, after the date of
record for effecting such combination, the Exercise Price in effect
immediately prior to such combination will be proportionately increased.
(d) Adjustment in Number of Shares. Upon each adjustment of the
Exercise Price pursuant to the provisions of this Section 4, the number of
shares of Common Stock issuable upon exercise of this Warrant shall be
adjusted by multiplying a number equal to the Exercise Price in effect
immediately prior to such adjustment by the number of shares of Common
Stock issuable upon exercise of this Warrant immediately prior to such
adjustment and dividing the product so obtained by the adjusted Exercise
Price.
<PAGE>
(e) Major Transactions. If the Company shall consolidate or merge with
any other corporation or entity (other than a merger in which the Company
is the surviving or continuing entity and its capital stock is unchanged
and unissued in such transaction (except for Common Stock constituting less
than twenty percent (20%) of the Company's Common Stock then outstanding))
or any subsidiary of the Company shall be a party to a merger or
consolidation or other extraordinary transaction and the Company issues
twenty percent (20%) or more of its Common Stock in any such merger,
consolidation or other transaction or there shall occur any share exchange
pursuant to which all of the outstanding shares of Common Stock are
converted into other securities or property or any reclassification or
change of the outstanding shares of Common Stock (each of the foregoing
being a "Major Transaction"), then each holder of a Warrant may thereafter,
at its option, be entitled, at its election, to either (a) in the event
that the Common Stock remains outstanding or holders of Common Stock
receive any common stock or substantially similar equity interest, in each
of the foregoing cases which is publicly traded, retain its Warrant and
such Warrant shall continue to apply to such Common Stock or shall apply,
as nearly as practicable, to such other common stock or equity interest, as
the case may be, or (b) regardless of whether (a) applies, receive
consideration, in exchange for such Warrant, equal to the greater of, as
determined in the sole discretion of such holder, (i) the number of shares
of stock or securities or property of the Company, or of the entity
resulting from such Major Transaction (the "Major Transaction
Consideration"), to which a holder of the number of shares of Common Stock
delivered upon the exercise of such Warrant would have been entitled upon
such Major Transaction had such holder exercised the Warrant (without
regard to any limitations on conversion or elsewhere contained) on the
trading date immediately preceding the public announcement of the
transaction resulting in such Major Transaction and had such Common Stock
been issued and outstanding and had such Holder been the holder of record
of such Common Stock at the time of the consummation of such Major
Transaction, and (ii) cash paid by the Company in immediately available
funds, in an amount equal to one hundred and twenty five percent (125%) of
the Black-Scholes Amount (as defined herein) times the number of shares of
Common Stock for which this Warrant was exercisable (without regard to any
limitations on exercise herein contained); and the Company shall make
lawful provision for the foregoing as a part of such Major Transaction and
shall cause the issuer of any security in such transaction which
constitutes Registrable Securities under that certain Registration Rights
Agreement dated April 7, 1999 among the Company and the signatories thereto
(the "Registration Rights Agreement") to assume all of the Company's
obligations under the Registration Rights Agreement. No sooner than ten
(10) business days nor later than five (5) business days prior to the
consummation of the Major Transaction, but not prior to the public
announcement of such Major Transaction, the Company shall deliver written
notice ("Notice of Major Transaction") to each holder of a Warrant, which
Notice of Major Transaction shall be deemed to have been delivered one (1)
business day after the Company's sending such notice by telecopy (provided
that the Company sends a confirming copy of such notice on the same day by
overnight courier) of such Notice of Major Transaction. Such Notice of
Major Transaction shall indicate the amount and type of the Major
Transaction consideration which such holder of a Warrant would receive
under this Section. If the Major Transaction Consideration does not consist
entirely of United States currency, such holder may elect to receive United
States currency in an amount equal to the value of the Major Transaction
Consideration in lieu of the Major Transaction Consideration by delivering
notice of such election to the Company within five (5) business days of
such holder's receipt of the Notice of Major Transaction.
The "Black-Scholes Amount" shall be an amount determined by calculating the
"Black-Scholes" value of an option to purchase one share of Common Stock on the
applicable page on the Bloomberg online page, using the following variable
values: (i) the current market price of the Common Stock equal to the closing
trade price on the last trading day before the date of the Notice of the Major
Transaction; (ii) volatility of the Common Stock equal to the volatility of the
common Stock during the 100 trading day period preceding the date of the Notice
of the Major Transaction; (iii) a risk free rate equal to the interest rate on
the United States treasury bill or treasury note with a maturity corresponding
to the remaining term of this Warrant on the date of the Notice of the Major
Transaction; and (iv) an exercise price equal to the Exercise Price on the date
of the Notice of the Major Transaction. In the event such calculation function
is no longer available utilizing the Bloomberg online page, the Holder shall
calculate such amount in its sole discretion using the closest available
alternative mechanism and variable values to those available utilizing the
Bloomberg online page for such calculation function.
(f) Distribution of Assets. In case the Company shall declare or make
any distribution of its assets (or rights to acquire its assets) to holders
of Common Stock as a partial liquidating dividend, by way of return of
capital or otherwise (including any dividend or distribution to the
Company's shareholders of cash or shares (or rights to acquire shares) of
capital stock of a subsidiary) (a "Distribution"), at any time after the
initial issuance of this Warrant, then the Holder shall be entitled upon
exercise of this Warrant for the purchase of any or all of the shares of
Common Stock subject hereto, to receive the amount of such assets (or
rights) which would have been payable to the Holder had such Holder been
the holder of such shares of Common Stock on the record date for the
determination of shareholders entitled to such Distribution.
<PAGE>
(g) Notices of Adjustment. Upon the occurrence of any event which
requires any adjustment of the Exercise Price, then, and in each such case,
the Company shall give notice thereof to the Holder, which notice shall
state the Exercise Price resulting from such adjustment and the increase or
decrease in the number of Warrant Shares purchasable at such price upon
exercise, setting forth in reasonable detail the method of calculation and
the facts upon which such calculation is based. Such calculation shall be
certified by the chief financial officer of the Company.
(h) Minimum Adjustment of Exercise Price. No adjustment of the
Exercise Price shall be made in an amount of less than 1% of the Exercise
Price in effect at the time such adjustment is otherwise required to be
made, but any such lesser adjustment shall be carried forward and shall be
made at the time and together with the next subsequent adjustment which,
together with any adjustments so carried forward, shall amount to not less
than 1% of such Exercise Price.
(i) No Fractional Shares. No fractional shares of Common Stock are to
be issued upon the exercise of this Warrant, but the Company shall pay a
cash adjustment in respect of any fractional share which would otherwise be
issuable in an amount equal to the same fraction of the Market Price of a
share of Common Stock; provided that in the event that sufficient funds are
not legally available for the payment of such cash adjustment any
fractional shares of Common Stock shall be rounded up to the next whole
number.
(j) Other Notices. In case at any time:
(i) the Company shall declare any dividend upon the Common Stock
payable in shares of stock of any class or make any other distribution
to the holders of the Common Stock;
(ii) the Company shall offer for subscription pro rata to the
holders of the Common Stock any additional shares of stock of any
class or other rights;
(iii) there shall be any capital reorganization of the Company,
or reclassification of the Common Stock, or consolidation or merger of
the Company with or into, or sale of all or substantially all of its
assets to, another corporation or entity; or
(iv) there shall be a voluntary or involuntary dissolution,
liquidation or winding-up of the Company;
<PAGE>
then, in each such case, the Company shall give to the Holder (a) notice of the
date on which the books of the Company shall close or a record shall be taken
for determining the holders of Common Stock entitled to receive any such
dividend, distribution, or subscription rights or for determining the holders of
Common Stock entitled to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding-up and (b) in the case of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding-up, notice of
the date (or, if not then known, a reasonable approximation thereof by the
Company) when the same shall take place. Such notice shall also specify the date
on which the holders of Common Stock shall be entitled to receive such dividend,
distribution, or subscription rights or to exchange their Common Stock for stock
or other securities or property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation, or
winding-up, as the case may be. Such notice shall be given at least 30 days
prior to the record date or the date on which the Company's books are closed in
respect thereto, but in no event earlier than public announcement of such
proposed transaction or event. Failure to give any such notice or any defect
therein shall not affect the validity of the proceedings referred to in clauses
(i), (ii), (iii) and (iv) above.
(k) Certain Definitions.
(i) "Common Stock Deemed Outstanding" shall mean the number of
shares of Common Stock actually outstanding (not including shares of
Common Stock held in the treasury of the Company), plus (x) in case of
any adjustment required by Section 4(a) resulting from the issuance of
any Options, the maximum total number of shares of Common Stock
issuable upon the exercise of the Options for which the adjustment is
required (including any Common Stock issuable upon the conversion of
Convertible Securities issuable upon the exercise of such Options),
and (y) in the case of any adjustment required by Section 4(a)
resulting from the issuance of any Convertible Securities, the maximum
total number of shares of Common Stock issuable upon the exercise,
conversion or exchange of the Convertible Securities for which the
adjustment is required, as of the date of issuance of such Convertible
Securities, if any.
(ii) "Market Price," as of any date, (i) means the average of the
Closing Bid Prices for the shares of Common Stock as reported to The
Nasdaq National Market for the trading day immediately preceding such
date, or (ii) if The Nasdaq National Market is not the principal
trading market for the Common Stock, the average of the last reported
bid prices on the principal trading market for the Common Stock during
the same period, or, if there is no bid price for such period, the
last reported sales price for such period, or (iii) if market value
cannot be calculated as of such date on any of the foregoing bases,
the Market Price shall be the average fair market value as reasonably
determined by an investment banking firm selected by the Company and
reasonably acceptable to the Holders of a majority in interest of the
Warrants, with the costs of the appraisal to be borne by the Company.
The manner of determining the Market Price of the Common Stock set
forth in the foregoing definition shall apply with respect to any
other security in respect of which a determination as to market value
must be made hereunder.
(iii) "Common Stock," for purposes of this Section 4, includes
the Common Stock and any additional class of stock of the Company
having no preference as to dividends or distributions on liquidation,
provided that the shares purchasable pursuant to this Warrant shall
include only Common Stock in respect of which this Warrant is
exercisable, or shares resulting from any subdivision or combination
of such Common Stock, or in the case of any reorganization,
reclassification, consolidation, merger, or sale of the character
referred to in Section 4(e) hereof, the stock or other securities or
property provided for in such Section.
(l) Other Adjustments. If:
<PAGE>
(1) Maurizio Vecchione disposes of any shares of Common
Stock beneficially owned by him while the Common Stock is trading
at or below twenty five dollars ($25) per share during the period
beginning on the date of the First Closing and ending on the
earlier of (i) the later of (A) six (6) months after the
effectiveness of the Registration Statement required to be filed
by Section 2.1 of the Registration Rights Agreement and (B) the
first (1st) anniversary of the date of the First Closing and (ii)
the date on which Maurizio Vecchione ceases to be President or
CEO of the Company; or
(2) Joyce Freedman or Lee Freedman (each a "Freedman")
dispose of any shares of Common Stock beneficially owned by such
Freedman at any time during the period begining on the date of
the Closing and ending on the date which is six (6) months
following the effectiveness of the Registration Statement
required to be filed by Section 2.1 of the Registration Rights
Agreement,
then the Exercise Price shall be adjusted to the Adjusted Exercise Price (as
defined herein) if such adjustment would result in a decrease in the Exercise
Price; provided, however, that the Exercise Price shall not be adjusted upon the
occurrence of a disposal described in clause (1) until Maurizio Vecchione sells
or otherwise transfers in excess of fifty thousand (50,000) shares of Common
Stock in aggregate during such period at a price less than twenty five dollars
($25) pursuant to Rule 144. For any disposal of Common Stock described
hereunder, the "Adjusted Exercise Price" shall mean the lesser of (a) the lowest
closing bid price of the Common Stock during the thirty (30) trading day period
beginning on the trading day (the "Announcement Date") immediately preceding the
day on which such disposal was publicly announced and (b) the price per share
which Vecchione or such Freedman, as applicable, received in connection with
such disposal; provided, however, that if the Adjusted Exercise Price described
above is greater than the Exercise Price, then the Adjusted Exercise Price shall
be equal to (c) the lowest closing bid price of the Common Stock during the
thirty (30) trading day period beginning on the Announcement Date divided by (d)
the closing bid price of the Common Stock on the Announcement Date times (e) the
Exercise Price.
5. Cap Amount.
<PAGE>
(a) Prior to the earlier of Nasdaq Approval (as defined in the
Securities Purchase Agreement) or the 4460 Shareholder Approval (as defined
in the Securities Purchase Agreement), unless otherwise permitted by The
Nasdaq National Market or unless the rules thereof no longer are applicable
to the Company, in no event shall the total number of shares of Common
Stock issued at the Closing under the Securities Purchase Agreement and
upon exercise of the Warrants exceed the maximum number of shares of Common
Stock that the Company can without stockholder approval so issue pursuant
to Nasdaq Rule 4460(i) (or any successor rule) (the "Cap Amount") upon
Closing under the Securities Purchase Agreement and the exercise of the
Warrants, which, as of the date of initial issuance of Common Stock and
Warrants to the Holders, which amount is one million, two hundred thirty
two thousand and forty five (1,232,045) shares. The Cap Amount shall be
allocated pro rata among the Holders based on the number of shares of
Common Stock and Warrants issued to each Holder. In the event a Holder
shall sell or otherwise transfer any of such Holder's Warrants, each
transferee shall be allocated a pro rata portion of such transferor's Cap
Amount. A Holder's allocable portion of the Cap Amount shall be allocated
first to the Common Stock issued to the Holder at the Closing under the
Securities Purchase Agreement, then to the First Warrants (as defined in
the Securities Purchase Agreement) and only the Warrants shall be subject
to the limitation imposed by this Section 5(a).
(b) Prior to the earlier of Second Nasdaq Approval (as defined in the
Securities Purchase Agreement) or the 4310 Shareholder Approval (as defined
in the Securities Purchase Agreement), unless otherwise permitted by The
Nasdaq National Market or unless the rules thereof no longer are applicable
to the Company, in no event shall this Warrant be exercisable.
6. Issue Tax. The issuance of certificates for Warrant Shares upon the
exercise of this Warrant shall be made without charge to the Holder or such
shares for any issuance tax or other costs in respect thereof, provided that the
Company shall not be required to pay any tax which may be payable in respect of
any transfer involved in the issuance and delivery of any certificate in a name
other than the Holder.
7. No Rights or Liabilities as a Shareholder. This Warrant shall not
entitle the Holder to any voting rights or other rights as a shareholder of the
Company. No provision of this Warrant, in the absence of affirmative action by
the Holder to purchase Warrant Shares, and no mere enumeration herein of the
rights or privileges of the Holder, shall give rise to any liability of the
Holder for the Exercise Price or as a shareholder of the Company, whether such
liability is asserted by the Company or by creditors of the Company.
8. Transfer, Exchange, Redemption and Replacement of Warrant.
a. Restriction on Transfer. This Warrant and the rights granted to the
Holder are transferable, in whole or in part, upon surrender of this
Warrant, together with a properly executed assignment in the Form of
Assignment attached hereto as Exhibit 2, at the office or agency of the
Company referred to in Section 8(e) below, provided, however, that any
transfer or assignment shall be subject to the provisions of Section 5.1
and 5.2 of the Securities Purchase Agreement. Until due presentment for
registration of transfer on the books of the Company, the Company may treat
the registered holder hereof as the owner and holder hereof for all
purposes, and the Company shall not be affected by any notice to the
contrary. Notwithstanding anything to the contrary contained herein, the
registration rights described in Section 9 hereof are assignable only in
accordance with the provisions of the Registration Rights Agreement.
b. Warrant Exchangeable for Different Denominations. This Warrant is
exchangeable, upon the surrender hereof by the Holder at the office or
agency of the Company referred to in Section 8(e) below, for new Warrants,
in the form hereof, of different denominations representing in the
aggregate the right to purchase the number of shares of Common Stock which
may be purchased hereunder, each of such new Warrants to represent the
right to purchase such number of shares as shall be designated by the
Holder of at the time of such surrender.
<PAGE>
c. Replacement of Warrant. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction, or mutilation
of this Warrant or, in the case of any such loss, theft, or destruction,
upon delivery, of an indemnity agreement reasonably satisfactory in form
and amount to the Company, or, in the case of any such mutilation, upon
surrender and cancellation of this Warrant, the Company, at its expense,
will execute and deliver, in lieu thereof, a new Warrant, in the form
hereof, in such denominations as Holder may request.
d. Cancellation; Payment of Expenses. Upon the surrender of this
Warrant in connection with any transfer, exchange, or replacement as
provided in this Section 8, this Warrant shall be promptly canceled by the
Company. The Company shall pay all issuance taxes (other than securities
transfer taxes) and charges payable in connection with the preparation,
execution, and delivery of Warrants pursuant to this Section 8.
<PAGE>
e. Warrant Register. The Company shall maintain, at its principal
executive offices (or such other office or agency of the Company as it may
designate by notice to the Holder), a register for this Warrant, in which
the Company shall record the name and address of the person in whose name
this Warrant has been issued, as well as the name and address of each
transferee and each prior owner of this Warrant.
f. Additional Restriction on Exercise or Transfer. Notwithstanding
anything to the contrary contained herein, the Warrants shall not be
exercisable by the Holder to the extent (but only to the extent) that, if
exercisable by Holder, Holder would beneficially own in excess of 9.9% (the
"Applicable Percentage") of the shares of Common Stock. To the extent the
above limitation applies, the determination of whether the Warrants shall
be exercisable (vis-a-vis other securities owned by Holder which contain
similar limitations on conversion) and of which Warrants shall be
exercisable (as among Warrants) shall be made on the basis of the earliest
submission of the Warrants (vis-a-vis other securities owned by the Holder
which contain similar limitations on conversion and vis a vis other
Warrants), in each case subject to such aggregate percentage limitation. No
prior inability to exercise Warrants pursuant to this paragraph shall have
any effect on the applicability of the provisions of this paragraph with
respect to any subsequent determination of exercisability. For the purposes
of this paragraph, beneficial ownership and all determinations and
calculations, including without limitation, with respect to calculations of
percentage ownership, shall be determined in accordance with Section 13(d)
of the Securities Exchange Act of 1934, as amended, and Regulation 13D and
G thereunder. The provisions of this paragraph may be implemented in a
manner otherwise than in strict conformity with the terms of this Section
8(f) with the approval of the Board of Directors of the Company and the
Holder: (i) with respect to any matter to cure any ambiguity herein, to
correct this paragraph (or any portion hereof) which may be defective or
inconsistent with the intended Applicable Percentage beneficial ownership
limitation herein contained or to make changes or supplements necessary or
desirable to properly give effect to such Applicable Percentage limitation;
and (ii) with respect to any other matter (including through any amendment
of this Warrant), with the further consent of the holders of a majority of
the then outstanding shares of Common Stock. For clarification, it is
expressly a term of this security that the limitations contained in this
Section shall apply to each successor Holder.
<PAGE>
9. Registration Rights. The initial holder of this Warrant (and certain
assignees thereof) is entitled to the benefit of such registration rights in
respect of the Warrant Shares as are set forth in the Registration Rights
Agreement.
10. Notices. Any notice herein required or permitted to be given shall be
in writing and may be personally served or delivered by courier or by confirmed
telecopy, and shall be deemed delivered at the time and date of receipt (which
shall include telephone line facsimile transmission). The addresses for such
communications shall be:
If to the Company:
ModaCAD, Inc.
3861 Sepulveda Blvd.
Culver City, CA 90230
Telecopy: (310) 751-2120
Attention: President
with a copy to:
Coudert Brothers
1055 West Seventh Street - 20th Floor
Los Angeles, CA 90017
Telecopy: (213) 689-4467
Attention: John A. St. Clair
and if to the Holder, at such address as Holder shall have provided in writing
to the Company, or at such other address as each such party furnishes by notice
given in accordance with this Section 10.
11. Governing Law; Jurisdiction. This Warrant shall be governed by and
construed in accordance with the laws of the State of California applicable to
contracts made and to be performed in the State of California. The Company
irrevocably consents to the jurisdiction of the United States federal courts
located in the State of California and the state courts located in the County of
Los Angeles in the State of California in any suit or proceeding based on or
arising under this Warrant and irrevocably agrees that all claims in respect of
such suit or proceeding may be determined in such courts. The Company
irrevocably waives the defense of an inconvenient forum to the maintenance of
such suit or proceeding. The Company agrees that a final nonappealable judgment
in any such suit or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on such judgment or in any other lawful manner.
12. Miscellaneous.
<PAGE>
a. Amendments. This Warrant and any provision hereof may only be
amended by an instrument in writing signed by the Company and the Holder,
subject to the limitation contained in Section 8(f).
b. Descriptive Headings. The descriptive headings of the several
Sections of this Warrant are inserted for purposes of reference only, and
shall not affect the meaning or construction of any of the provisions
hereof.
ci [Intentionally deleted].
di Assignability. This Warrant shall be binding upon the Company and
its successors and assigns and shall inure to the benefit of Holder and its
successors and assigns. The Holder shall notify the Company upon the
assignment of this Warrant.
* * *
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its
duly authorized officer.
ModaCAD, Inc.
By: /s/ JOYCE FREEDMAN
__________________________________
Name: Joyce Freedman
Title: Chief Executive Officer
<PAGE>
FORM OF EXERCISE AGREEMENT
(To be Executed by the Holder in order to Exercise the Warrant)
The undersigned hereby irrevocably exercises the right to purchase
____________ of the shares of common stock of ModaCAD, Inc., a California
corporation (the "Company"), evidenced by the attached Warrant, and herewith
makes payment of the Exercise Price with respect to such shares in full, all in
accordance with the conditions and provisions of said Warrant.
(i) The undersigned agrees not to offer, sell, transfer or otherwise
dispose of any Common Stock obtained on exercise of the Warrant, except under
circumstances that will not result in a violation of the Securities Act of 1933,
as amended, or any state securities laws.
(ii) The undersigned requests that stock certificates for such shares be
issued, and a Warrant representing any unexercised portion hereof be issued,
pursuant to the Warrant in the name of the Holder (or such other person or
persons indicated below) and delivered to the undersigned (or designee(s) at the
address (or addresses) set forth below:
Date: Signature of Holder
Name of Holder (Print)
Address:
<PAGE>
FORM OF ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and transfers
all rights of the undersigned under the within Warrant, with respect to the
number of shares of Common Stock covered thereby set forth hereinbelow, to:
Name of Assignee Address No. of Shares
, and hereby irrevocably constitutes and appoints ______________________________
as agent and attorney-in-fact to transfer said Warrant on the books of the
within-named corporation, with full power of substitution in the premises.
Date:____________, _____,
In the presence of
Name:
Signature:
Title of Signing Officer or Agent (if any):
Address:
Note: The above signature should
correspond exactly with the
name on the face of the within Warrant.
<PAGE>
EXHIBIT A-3
VOID AFTER 5:00 P.M.
[EASTERN] TIME ON JULY 7, 2000 [fifteen (15) months after Closing]
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE OF
THE UNITED STATES. THE SECURITIES REPRESENTED HEREBY MAY NOT BE OFFERED OR SOLD
OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
FOR THE SECURITIES UNDER APPLICABLE SECURITIES LAWS, OR UNLESS OFFERED, SOLD OR
TRANSFERRED PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THOSE LAWS.
Right to Purchase ____ Shares of
Common Stock
Date: April 7, 1999
MODACAD, INC.
STOCK PURCHASE WARRANT
THIS CERTIFIES THAT, for value received, _______________ or its registered
assigns, is entitled to purchase from ModaCAD, Inc., a California corporation
(the "Company"), at any time or from time to time during the period specified in
Section 2 hereof, ______________ [Purchaser's portion of $5 million, allocated
pro rata based upon original funding amounts] fully paid and nonassessable
shares of the Company's common stock (the "Common Stock"), at an initial
exercise price of $13.18 per share (the "Exercise Price" [120% of Per Share
Price (as defined in the Securities Purchase Agreement (as defined below)]).
This Warrant is being issued pursuant to that certain Securities Purchase
Agreement dated April 7, 1999 between the Company and the signatory thereto (the
"Securities Purchase Agreement"). The number of shares of Common Stock
purchasable hereunder (the "Warrant Shares") and the Exercise Price are subject
to adjustment as provided in Section 4 hereof. The term "Warrants" means this
Warrant and the other warrants of the Company issued pursuant to the terms of
the Securities Purchase Agreement.
<PAGE>
The term "Closing Bid Price" means, for any security as of any date, the
closing bid price of such security on the principal securities exchange or
trading market where such security is listed or traded as reported by Bloomberg
Financial Markets or a comparable reporting service of national reputation
selected by the Company and reasonably acceptable to the holder hereof (the
"Holder") if Bloomberg Financial Markets is not then reporting closing bid
prices of such security (collectively, "Bloomberg"), or if the foregoing does
not apply, the last reported sale price of such security in the over-the-counter
market on the electronic bulletin board of such security as reported by
Bloomberg, or, if no sale price is reported for such security by Bloomberg, the
average of the bid prices of any market makers for such security as reported in
the "pink sheets" by the National Quotation Bureau, Inc. If the Closing Bid
Price cannot be calculated for such security on such date on any of the
foregoing bases, the Closing Bid Price of such security on such date shall be
the fair market value as reasonably determined by an investment banking firm
selected by the Company and reasonably acceptable to the Holder with the costs
of such appraisal to be borne by the Company.
This Warrant is subject to the following terms, provisions, and conditions:
1. Mechanics of Exercise. Subject to the provisions hereof, including,
without limitation, the limitations contained in Section 8(f) hereof, this
Warrant may be exercised as follows:
(a) Manner of Exercise. This Warrant may be exercised by the Holder,
in whole or in part, by the surrender of this Warrant (or evidence of loss,
theft, destruction or mutilation thereof in accordance with Section 8(c)
hereof), together with a completed exercise agreement in the Form of
Exercise Agreement attached hereto as Exhibit 1 (the "Exercise Agreement"),
to the Company at the Company's principal executive offices (or such other
office or agency of the Company as it may designate by notice to the
Holder), and upon payment to the Company in cash, by certified or official
bank check or by wire transfer for the account of the Company, of the
Exercise Price for the Warrant Shares specified in the Exercise Agreement.
The Warrant Shares so purchased shall be deemed to be issued to the Holder
or Holder's designees, as the record owner of such shares, as of the date
on which this Warrant shall have been surrendered, the completed Exercise
Agreement shall have been delivered, and payment shall have been made for
such shares as set forth above.
(b) Issuance of Certificates. Subject to Section 1(c), certificates
for the Warrant Shares so purchased, representing the aggregate number of
shares specified in the Exercise Agreement, shall be delivered to the
Holder within a reasonable time, not exceeding three (3) business days,
after this Warrant shall have been so exercised (the "Delivery Period").
The certificates so delivered shall be in such denominations as may be
reasonably requested by the Holder and shall be registered in the name of
Holder or such other name as shall be designated by such Holder. If this
Warrant shall have been exercised only in part, then, unless this Warrant
has expired, the Company shall, at its expense, at the time of delivery of
such certificates, deliver to the Holder a new Warrant representing the
number of shares with respect to which this Warrant shall not then have
been exercised.
<PAGE>
(c) Exercise Disputes. In the case of any dispute with respect to an
exercise, the Company shall promptly issue such number of shares of Common
Stock as are not disputed in accordance with this Section. If such dispute
involves the calculation of the Exercise Price, the Company shall submit
the disputed calculations to a nationally recognized independent accounting
firm (selected by the Company) via facsimile within three (3) business days
of receipt of the Exercise Agreement. The accounting firm shall audit the
calculations and notify the Company and the converting Holder of the
results no later than two (2) business days from the date it receives the
disputed calculations. The accounting firm's calculation shall be deemed
conclusive, absent manifest error. The Company shall then issue the
appropriate number of shares of Common Stock in accordance with this
Section.
(d) Fractional Shares. No fractional shares of Common Stock are to be
issued upon the exercise of this Warrant, but the Company shall pay a cash
adjustment in respect of any fractional share which would otherwise be
issuable in an amount equal to the same fraction of the Exercise Price of a
share of Common Stock (as determined for exercise of this Warrant into
whole shares of Common Stock); provided that in the event that sufficient
funds are not legally available for the payment of such cash adjustment any
fractional shares of Common Stock shall be rounded up to the next whole
number.
(e) Buy-In. If (i) the Company fails for any reason (other than
Holder's failure to pay timely to the Company the Exercise Price) to
deliver during the Delivery Period shares of Common Stock to Holder upon an
exercise of this Warrant and (ii) after the applicable Delivery Period with
respect to such an exercise, Holder purchases (in an open market
transaction or otherwise) shares of Common Stock to make delivery upon a
sale by Holder of the shares of Common Stock (the "Sold Shares") which
Holder was entitled to receive upon such exercise (a "Buy-in"), the Company
shall pay Holder (in addition to any other remedies available to Holder)
the amount by which (x) Holder's total purchase price (including brokerage
commission, if any) for the shares of Common Stock so purchased exceeds (y)
the lesser of (A) the Exercise Price or (B) the net proceeds received by
Holder from the sale of the Sold Shares. Holder shall provide the Company
written notification indicating any amounts payable to Holder pursuant to
this subsection.
2. Period of Exercise. This Warrant is exercisable at any time or from
time to time on or after the date hereof and before 5:00 P.M., Eastern Time
on the date which is fifteen (15) months after the date hereof (the
"Exercise Period").
3. Certain Agreements of the Company. The Company hereby covenants and
agrees as follows:
(a) Shares to be Fully Paid. All Warrant Shares will, upon issuance in
accordance with the terms of this Warrant, be validly issued, fully paid,
and non-assessable and free from all liens, claims and encumbrances.
(b) Reservation of Shares. During the Exercise Period, the Company
shall at all times have authorized, and reserved for the purpose of
issuance upon exercise of this Warrant, a sufficient number of shares of
Common Stock to provide for the exercise of this Warrant.
<PAGE>
(c) Listing. From and after the date of issuance of this Warrant, the
Company shall have secured and shall thereafter, for at least three (3)
years after the date of issuance of this Warrant, maintain the listing of
the shares of Common Stock issuable upon exercise of this Warrant upon The
Nasdaq National Market ("Nasdaq"), the Nasdaq SmallCap Market, the New York
Stock Exchange or the American Stock Exchange, as required by Section 4.10
of the Securities Purchase Agreement and upon each national securities
exchange or automated quotation system, if any, upon which shares of Common
Stock are then listed or become listed and shall maintain, so long as any
other shares of Common Stock shall be so listed, such listing of all shares
of Common Stock from time to time issuable upon the exercise of this
Warrant; and the Company shall so list on each national securities exchange
or automated quotation system, as the case may be, and shall maintain such
listing of any other shares of capital stock of the Company issuable upon
the exercise of this Warrant so long as any shares of the same class shall
be listed on such national securities exchange or automated quotation
system.
(d) Certain Actions Prohibited. The Company will not, by amendment of
its charter 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 to be observed or performed by it
hereunder, but will at all times in good faith assist in the carrying out
of all the provisions of this Warrant and in the taking of all such actions
as may reasonably be requested by the Holder of this Warrant in order to
protect the exercise privilege of the Holder of this Warrant, consistent
with the tenor and purpose of this Warrant. Without limiting the generality
of the foregoing, the Company will take all such actions as may be
necessary or appropriate in order that the Company may validly and legally
issue fully paid and nonassessable shares of Common Stock upon the exercise
of this Warrant.
4. Antidilution Provisions. During the Exercise Period or until fully
exercised, the Exercise Price and the number of Warrant Shares shall be
subject to adjustment from time to time as provided in this Section 4. In
the event that any adjustment of the Exercise Price as required herein
results in a fraction of a cent, such Exercise Price shall be rounded up or
down to the nearest cent.
(a) Adjustment of Exercise Price and Number of Shares upon Issuance of
Common Stock. Except as otherwise provided in Section 4(c) and 4(e) hereof,
if and whenever after the initial issuance of this Warrant, the Company
issues or sells, or in accordance with Section 4(b) hereof is deemed to
have issued or sold, any shares of Common Stock for no consideration or for
a consideration per share less than the Market Price (as herein defined) on
the date of issuance (a "Dilutive Issuance"), then effective immediately
upon the Dilutive Issuance, the Exercise Price will be adjusted in
accordance with the following formula:
E' = (E) (O + P/M) / (CSDO)
where:
E' = the adjusted Exercise Price
E = the then current Exercise Price;
M = the then current Market Price;
O = the number of shares of Common Stock outstanding immediately
prior to the Dilutive Issuance;
P = the aggregate consideration, calculated as set forth in
Section 4(b)hereof, received by the Company upon such Dilutive
Issuance; and
CSDO = the total number of shares of Common Stock Deemed Outstanding
(as herein defined) immediately after the Dilutive Issuance.
(b) Effect on Exercise Price of Certain Events. For purposes of
determining the adjusted Exercise Price under Section 4(a) hereof, the
following will be applicable:
(i) Issuance of Rights or Options. If the Company in any manner issues
or grants any warrants, rights or options, whether or not immediately
exercisable, to subscribe for or to purchase Common Stock or other
securities exercisable, convertible into or exchangeable for Common Stock
("Convertible Securities"), but not to include the grant or exercise of any
stock or options which may hereafter be granted or exercised under any
employee or Director benefit plan of the Company now existing or to be
implemented in the future, so long as the issuance of such stock or options
is approved by a majority of the non-employee members of the Board of
Directors of the Company or a majority of the members of a committee of
non-employee directors established for such purpose (such warrants, rights
and options to purchase Common Stock or Convertible Securities are
hereinafter referred to as "Options"), and the price per share for which
Common Stock is issuable upon the exercise of such Options is less than the
Market Price on the date of issuance ("Below Market Options"), then the
maximum total number of shares of Common Stock issuable upon the exercise
of all such Below Market Options (assuming full exercise, conversion or
exchange of Convertible Securities, if applicable) will, as of the date of
the issuance or grant of such Below Market Options, be deemed to be
outstanding and to have been issued and sold by the Company for such price
per share. For purposes of the preceding sentence, the price per share for
which Common Stock is issuable upon the exercise of such Below Market
Options is determined by dividing (i) the total amount, if any, received or
receivable by the Company as consideration for the issuance or granting of
such Below Market Options, plus the minimum aggregate amount of additional
consideration, if any, payable to the Company upon the exercise of all such
Below Market Options, plus, in the case of Convertible Securities issuable
upon the exercise of such Below Market Options, the minimum aggregate
amount of additional consideration payable upon the exercise, conversion or
exchange thereof at the time such Convertible Securities first become
exercisable, convertible or exchangeable, by (ii) the maximum total number
of shares of Common Stock issuable upon the exercise of all such Below
Market Options (assuming full conversion of Convertible Securities, if
applicable). No further adjustment to the Exercise Price will be made upon
the actual issuance of such Common Stock upon the exercise of such Below
Market Options or upon the exercise, conversion or exchange of Convertible
Securities issuable upon exercise of such Below Market Options.
<PAGE>
(ii) Issuance of Convertible Securities.
(A) If the Company in any manner issues or sells any Convertible
Securities, whether or not immediately convertible (other than where the
same are issuable upon the exercise of Options) and the price per share for
which Common Stock is issuable upon such exercise, conversion or exchange
(as determined pursuant to Section 4(b)(ii)(B) if applicable) is less than
the Market Price on the date of issuance, then the maximum total number of
shares of Common Stock issuable upon the exercise, conversion or exchange
of all such Convertible Securities will, as of the date of the issuance of
such Convertible Securities, be deemed to be outstanding and to have been
issued and sold by the Company for such price per share. For the purposes
of the preceding sentence, the price per share for which Common Stock is
issuable upon such exercise, conversion or exchange is determined by
dividing (i) the total amount, if any, received or receivable by the
Company as consideration for the issuance or sale of all such Convertible
Securities, plus the minimum aggregate amount of additional consideration,
if any, payable to the Company upon the exercise, conversion or exchange
thereof at the time such Convertible Securities first become exercisable,
convertible or exchangeable, by (ii) the maximum total number of shares of
Common Stock issuable upon the exercise, conversion or exchange of all such
Convertible Securities. No further adjustment to the Exercise Price will be
made upon the actual issuances of such Common Stock upon exercise,
conversion or exchange of such Convertible Securities.
(B) If the Company in any manner issues or sells any Convertible
Securities with a fluctuating conversion or exercise price or exchange
ratio (a "Variable Rate Convertible Security"), then the price per share
for which Common Stock is issuable upon such exercise, conversion or
exchange for purposes of the calculation contemplated by Section
4(b)(ii)(A) shall be deemed to be the lowest price per share which would be
applicable assuming that (1) all holding period and other conditions to any
discounts contained in such Convertible Security have been satisfied, and
(2) the Market Price on the date of issuance of such Convertible Security
was 80% of the Market Price on such date (the "Assumed Variable Market
Price").
(iii) Change in Option Price or Conversion Rate. Except for the grant
or exercise of any stock or options which may hereafter be granted or
exercised under any employee or Director benefit plan of the Company now
existing or to be implemented in the future, so long as the issuance of
such stock or options is approved by a majority of the non-employee members
of the Board of Directors of the Company or a majority of the members of a
committee of non-employee directors established for such purpose, if there
is a change at any time in (i) the amount of additional consideration
payable to the Company upon the exercise of any Options; (ii) the amount of
additional consideration, if any, payable to the Company upon the exercise,
conversion or exchange or any Convertible Securities; or (iii) the rate at
which any Convertible Securities are convertible into or exchangeable for
Common Stock (other than under or by reason of provisions designed to
protect against dilution), the Exercise Price in effect at the time of such
change will be readjusted to the Exercise Price which would have been in
effect at such time had such Options or Convertible Securities still
outstanding provided for such changed additional consideration or changed
conversion rate, as the case may be, at the time initially granted, issued
or sold.
<PAGE>
(iv) Treatment of Expired Options and Unexercised Convertible
Securities. If, in any case, the total number of shares of Common Stock
issuable upon exercise of any Options or upon exercise, conversion or
exchange of any Convertible Securities is not, in fact, issued and the
rights to exercise such option or to exercise, convert or exchange such
Convertible Securities shall have expired or terminated, the Exercise Price
then in effect will be readjusted to the Exercise Price which would have
been in effect at the time of such expiration or termination had such
Options or Convertible Securities, to the extent outstanding immediately
prior to such expiration or termination (other than in respect of the
actual number of shares of Common Stock issued upon exercise or conversion
thereof), never been issued.
(v) Calculation of Consideration Received. If any Common Stock,
Options or Convertible Securities are issued, granted or sold for cash, the
consideration received therefor for purposes of this Warrant will be the
amount received by the Company therefor, before deduction of reasonable
commissions, underwriting discounts or allowances or other reasonable
expenses paid or incurred by the Company in connection with such issuance,
grant or sale. In case any Common Stock, Options or Convertible Securities
are issued or sold for a consideration part or all of which shall be other
than cash, the amount of the consideration other than cash received by the
Company will be the fair market value of such consideration except where
such consideration consists of freely-tradeable securities, in which case
the amount of consideration received by the Company will be the Market
Price thereof as of the date of receipt. In case any Common Stock, Options
or Convertible Securities are issued in connection with any merger or
consolidation in which the Company is the surviving corporation, the amount
of consideration therefor will be deemed to be the fair market value of
such portion of the net assets and business of the non-surviving
corporation as is attributable to such Common Stock, Options or Convertible
Securities, as the case may be. The fair market value of any consideration
other than cash or securities will be determined in the good faith
reasonable business judgment of the Board of Directors.
(vi) Exceptions to Adjustment of Exercise Price. No adjustment to the
Exercise Price will be made (i) upon the exercise of any warrants, options
or convertible securities issued and outstanding on the date hereof in
accordance with the terms of such securities as of such date; (ii) upon the
grant or exercise of any stock or options which may hereafter be granted or
exercised under any employee or Director benefit plan of the Company now
existing or to be implemented in the future, so long as the issuance of
such stock or options is approved by a majority of the non-employee members
of the Board of Directors of the Company or a majority of the members of a
committee of non-employee directors established for such purpose; (iii)
upon the issuance of the Common Shares (as defined in the Securities
Purchase Agreement) or Warrants in accordance with terms of the Securities
Purchase Agreement; or (iv) upon the exercise of the Warrants.
<PAGE>
(c) Subdivision or Combination of Common Stock. If the Company, at any
time after the initial issuance of this Warrant, subdivides (by any stock
split, stock dividend, recapitalization, reorganization, reclassification
or otherwise) its shares of Common Stock into a greater number of shares,
then, after the date of record for effecting such subdivision, the Exercise
Price in effect immediately prior to such subdivision will be
proportionately reduced. If the Company, at any time after the initial
issuance of this Warrant, combines (by reverse stock split,
recapitalization, reorganization, reclassification or otherwise) its shares
of Common Stock into a smaller number of shares, then, after the date of
record for effecting such combination, the Exercise Price in effect
immediately prior to such combination will be proportionately increased.
(d) Adjustment in Number of Shares. Upon each adjustment of the
Exercise Price pursuant to the provisions of this Section 4, the number of
shares of Common Stock issuable upon exercise of this Warrant shall be
adjusted by multiplying a number equal to the Exercise Price in effect
immediately prior to such adjustment by the number of shares of Common
Stock issuable upon exercise of this Warrant immediately prior to such
adjustment and dividing the product so obtained by the adjusted Exercise
Price.
<PAGE>
(e) Major Transactions. If the Company shall consolidate or merge with
any other corporation or entity (other than a merger in which the Company
is the surviving or continuing entity and its capital stock is unchanged
and unissued in such transaction (except for Common Stock constituting less
than twenty percent (20%) of the Company's Common Stock then outstanding))
or any subsidiary of the Company shall be a party to a merger or
consolidation or other extraordinary transaction and the Company issues
twenty percent (20%) or more of its Common Stock in any such merger,
consolidation or other transaction or there shall occur any share exchange
pursuant to which all of the outstanding shares of Common Stock are
converted into other securities or property or any reclassification or
change of the outstanding shares of Common Stock (each of the foregoing
being a "Major Transaction"), then each holder of a Warrant may thereafter,
at its option, be entitled, at its election, either to (a) in the event
that the Common Stock remains outstanding or holders of Common Stock
receive any common stock or substantially similar equity interest, in each
of the foregoing cases which is publicly traded, retain its Warrant and
such Warrant shall continue to apply to such Common Stock or shall apply,
as nearly as practicable, to such other common stock or equity interest, as
the case may be, or (b) regardless of whether (a) applies, receive
consideration, in exchange for such Warrant, equal to the greater of, as
determined in the sole discretion of such holder, (i) the number of shares
of stock or securities or property of the Company, or of the entity
resulting from such Major Transaction (the "Major Transaction
Consideration"), to which a holder of the number of shares of Common Stock
delivered upon the exercise of such Warrant would have been entitled upon
such Major Transaction had such holder exercised the Warrant (without
regard to any limitations on conversion or elsewhere contained) on the
trading date immediately preceding the public announcement of the
transaction resulting in such Major Transaction and had such Common Stock
been issued and outstanding and had such Holder been the holder of record
of such Common Stock at the time of the consummation of such Major
Transaction, and (ii) cash paid by the Company in immediately available
funds, in an amount equal to one hundred and twenty five percent (125%) of
the Black-Scholes Amount (as defined herein) times the number of shares of
Common Stock for which this Warrant was exercisable (without regard to any
limitations on exercise herein contained); and the Company shall make
lawful provision for the foregoing as a part of such Major Transaction and
shall cause the issuer of any security in such transaction which
constitutes Registrable Securities under that certain Registration Rights
Agreement dated April 7, 1999 among the Company and the signatories thereto
(the "Registration Rights Agreement") to assume all of the Company's
obligations under the Registration Rights Agreement. No sooner than ten
(10) business days nor later than five (5) business days prior to the
consummation of the Major Transaction, but not prior to the public
announcement of such Major Transaction, the Company shall deliver written
notice ("Notice of Major Transaction") to each holder of a Warrant, which
Notice of Major Transaction shall be deemed to have been delivered one (1)
business day after the Company's sending such notice by telecopy (provided
that the Company sends a confirming copy of such notice on the same day by
overnight courier) of such Notice of Major Transaction. Such Notice of
Major Transaction shall indicate the amount and type of the Major
Transaction consideration which such holder of a Warrant would receive
under this Section. If the Major Transaction Consideration does not consist
entirely of United States currency, such holder may elect to receive United
States currency in an amount equal to the value of the Major Transaction
Consideration in lieu of the Major Transaction Consideration by delivering
notice of such election to the Company within five (5) business days of
such holder's receipt of the Notice of Major Transaction.
The "Black-Scholes Amount" shall be an amount determined by
calculating the "Black-Scholes" value of an option to purchase one share of
Common Stock on the applicable page on the Bloomberg online page, using the
following variable values: (i) the current market price of the Common Stock
equal to the closing trade price on the last trading day before the date of
the Notice of the Major Transaction; (ii) volatility of the Common Stock
equal to the volatility of the common Stock during the 100 trading day
period preceding the date of the Notice of the Major Transaction; (iii) a
risk free rate equal to the interest rate on the United States treasury
bill or treasury note with a maturity corresponding to the remaining term
of this Warrant on the date of the Notice of the Major Transaction; and
(iv) an exercise price equal to the Exercise Price on the date of the
Notice of the Major Transaction. In the event such calculation function is
no longer available utilizing the Bloomberg online page, the Holder shall
calculate such amount in its sole discretion using the closest available
alternative mechanism and variable values to those available utilizing the
Bloomberg online page for such calculation function.
(f) Distribution of Assets. In case the Company shall declare or make
any distribution of its assets (or rights to acquire its assets) to holders
of Common Stock as a partial liquidating dividend, by way of return of
capital or otherwise (including any dividend or distribution to the
Company's shareholders of cash or shares (or rights to acquire shares) of
capital stock of a subsidiary) (a "Distribution"), at any time after the
initial issuance of this Warrant, then the Holder shall be entitled upon
exercise of this Warrant for the purchase of any or all of the shares of
Common Stock subject hereto, to receive the amount of such assets (or
rights) which would have been payable to the Holder had such Holder been
the holder of such shares of Common Stock on the record date for the
determination of shareholders entitled to such Distribution.
<PAGE>
(g) Notices of Adjustment. Upon the occurrence of any event which
requires any adjustment of the Exercise Price, then, and in each such case,
the Company shall give notice thereof to the Holder, which notice shall
state the Exercise Price resulting from such adjustment and the increase or
decrease in the number of Warrant Shares purchasable at such price upon
exercise, setting forth in reasonable detail the method of calculation and
the facts upon which such calculation is based. Such calculation shall be
certified by the chief financial officer of the Company.
(h) Minimum Adjustment of Exercise Price. No adjustment of the
Exercise Price shall be made in an amount of less than 1% of the Exercise
Price in effect at the time such adjustment is otherwise required to be
made, but any such lesser adjustment shall be carried forward and shall be
made at the time and together with the next subsequent adjustment which,
together with any adjustments so carried forward, shall amount to not less
than 1% of such Exercise Price.
(i) No Fractional Shares. No fractional shares of Common Stock are to
be issued upon the exercise of this Warrant, but the Company shall pay a
cash adjustment in respect of any fractional share which would otherwise be
issuable in an amount equal to the same fraction of the Market Price of a
share of Common Stock; provided that in the event that sufficient funds are
not legally available for the payment of such cash adjustment any
fractional shares of Common Stock shall be rounded up to the next whole
number.
(j) Other Notices. In case at any time:
(i) the Company shall declare any dividend upon the Common Stock
payable in shares of stock of any class or make any other distribution to
the holders of the Common Stock;
(ii) the Company shall offer for subscription pro rata to the holders
of the Common Stock any additional shares of stock of any class or other
rights;
(iii) there shall be any capital reorganization of the Company, or
reclassification of the Common Stock, or consolidation or merger of the
Company with or into, or sale of all or substantially all of its assets to,
another corporation or entity; or
(iv) there shall be a voluntary or involuntary dissolution,
liquidation or winding-up of the Company;
<PAGE>
then, in each such case, the Company shall give to the Holder (a) notice of
the date on which the books of the Company shall close or a record shall be
taken for determining the holders of Common Stock entitled to receive any
such dividend, distribution, or subscription rights or for determining the
holders of Common Stock entitled to vote in respect of any such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding-up and (b) in the case of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding-up, notice of the date (or, if not then known, a reasonable
approximation thereof by the Company) when the same shall take place. Such
notice shall also specify the date on which the holders of Common Stock
shall be entitled to receive such dividend, distribution, or subscription
rights or to exchange their Common Stock for stock or other securities or
property deliverable upon such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation, or winding-up, as
the case may be. Such notice shall be given at least 30 days prior to the
record date or the date on which the Company's books are closed in respect
thereto, but in no event earlier than public announcement of such proposed
transaction or event. Failure to give any such notice or any defect therein
shall not affect the validity of the proceedings referred to in clauses
(i), (ii), (iii) and (iv) above.
(k) Certain Definitions.
(i) "Common Stock Deemed Outstanding" shall mean the number of shares
of Common Stock actually outstanding (not including shares of Common Stock
held in the treasury of the Company), plus (x) in case of any adjustment
required by Section 4(a) resulting from the issuance of any Options, the
maximum total number of shares of Common Stock issuable upon the exercise
of the Options for which the adjustment is required (including any Common
Stock issuable upon the conversion of Convertible Securities issuable upon
the exercise of such Options), and (y) in the case of any adjustment
required by Section 4(a) resulting from the issuance of any Convertible
Securities, the maximum total number of shares of Common Stock issuable
upon the exercise, conversion or exchange of the Convertible Securities for
which the adjustment is required, as of the date of issuance of such
Convertible Securities, if any.
(ii) "Market Price," as of any date, (i) means the average of the
Closing Bid Prices for the shares of Common Stock as reported to Nasdaq for
the trading day immediately preceding such date, or (ii) if Nasdaq is not
the principal trading market for the Common Stock, the average of the last
reported bid prices on the principal trading market for the Common Stock
during the same period, or, if there is no bid price for such period, the
last reported sales price for such period, or (iii) if market value cannot
be calculated as of such date on any of the foregoing bases, the Market
Price shall be the average fair market value as reasonably determined by an
investment banking firm selected by the Company and reasonably acceptable
to the Holders of a majority in interest of the Warrants, with the costs of
the appraisal to be borne by the Company. The manner of determining the
Market Price of the Common Stock set forth in the foregoing definition
shall apply with respect to any other security in respect of which a
determination as to market value must be made hereunder.
(iii) "Common Stock," for purposes of this Section 4, includes the
Common Stock and any additional class of stock of the Company having no
preference as to dividends or distributions on liquidation, provided that
the shares purchasable pursuant to this Warrant shall include only Common
Stock in respect of which this Warrant is exercisable, or shares resulting
from any subdivision or combination of such Common Stock, or in the case of
any reorganization, reclassification, consolidation, merger, or sale of the
character referred to in Section 4(e) hereof, the stock or other securities
or property provided for in such Section.
(l) Other Adjustments. If:
<PAGE>
(1) Maurizio Vecchione disposes of any shares of Common Stock
beneficially owned by him while the Common Stock is trading at or below
twenty five dollars ($25) per share during the period beginning on the date
of the First Closing and ending on the earlier of (i) the later of (A) six
(6) months after the effectiveness of the Registration Statement required
to be filed by Section 2.1 of the Registration Rights Agreement and (B) the
first (1st) anniversary of the date of the First Closing and (ii) the date
on which Maurizio Vecchione ceases to be President or CEO of the Company;
or
(2) Joyce Freedman or Lee Freedman (each a "Freedman") dispose of any
shares of Common Stock beneficially owned by such Freedman at any time
during the period begining on the date of the Closing and ending on the
date which is six (6) months following the effectiveness of the
Registration Statement required to be filed by Section 2.1 of the
Registration Rights Agreement,
then the Exercise Price shall be adjusted to the Adjusted Exercise Price
(as defined herein) if such adjustment would result in a decrease in the
Exercise Price; provided, however, that the Exercise Price shall not be
adjusted upon the occurrence of a disposal described in clause (1) until
Maurizio Vecchione sells or otherwise transfers in excess of fifty thousand
(50,000) shares of Common Stock in aggregate during such period at a price
less than twenty five dollars ($25) pursuant to Rule 144. For any disposal
of Common Stock described hereunder, the "Adjusted Exercise Price" shall
mean the lesser of (a) the lowest closing bid price of the Common Stock
during the thirty (30) trading day period beginning on the trading day (the
"Announcement Date") immediately preceding the day on which such disposal
was publicly announced and (b) the price per share which Vecchione or such
Freedman, as applicable, received in connection with such disposal;
provided, however, that if the Adjusted Exercise Price described above is
greater than the Exercise Price, then the Adjusted Exercise Price shall be
equal to (c) the lowest closing bid price of the Common Stock during the
thirty (30) trading day period beginning on the Announcement Date divided
by (d) the closing bid price of the Common Stock on the Announcement Date
times (e) the Exercise Price.
5. Cap Amount.
<PAGE>
(a) Prior to Nasdaq Approval (as defined in the Securities Purchase
Agreement) or the 4460 Shareholder Approval (as defined in the Securities
Purchase Agreement), unless otherwise permitted by The Nasdaq National
Market or unless the rules thereof no longer are applicable to the Company,
in no event shall the total number of shares of Common Stock issued at the
Closing under the Securities Purchase Agreement and upon exercise of the
Warrants exceed the maximum number of shares of Common Stock that the
Company can without stockholder approval so issue pursuant to Nasdaq Rule
4460(i) (or any successor rule) (the "Cap Amount") upon Closing under the
Securities Purchase Agreement and the exercise of the Warrants, which, as
of the date of initial issuance of Common Stock and Warrants to the
Holders, which amount is one million, two hundred thirty two thousand and
forty five (1,232,045) shares. The Cap Amount shall be allocated pro rata
among the Holders based on the number of shares of Common Stock and
Warrants issued to each Holder. In the event a Holder shall sell or
otherwise transfer any of such Holder's Warrants, each transferee shall be
allocated a pro rata portion of such transferor's Cap Amount. A Holder's
allocable portion of the Cap Amount shall be allocated first to the Common
Stock issued to the Holder at the Closing under the Securities Purchase
Agreement, then to the First Warrants (as defined in the Securities
Purchase Agreement) and only the Warrants shall be subject to the
limitation imposed by this Section 5(a).
(b) Prior to the earlier of Second Nasdaq Approval (as defined in the
Securities Purchase Agreement) or the 4310 Shareholder Approval (as defined
in the Securities Purchase Agreement), unless otherwise permitted by The
Nasdaq National Market or unless the rules thereof no longer are applicable
to the Company, in no event shall this Warrant be exercisable.
6. Issue Tax. The issuance of certificates for Warrant Shares upon the
exercise of this Warrant shall be made without charge to the Holder or such
shares for any issuance tax or other costs in respect thereof, provided
that the Company shall not be required to pay any tax which may be payable
in respect of any transfer involved in the issuance and delivery of any
certificate in a name other than the Holder.
7. No Rights or Liabilities as a Shareholder. This Warrant shall not
entitle the Holder to any voting rights or other rights as a shareholder of
the Company. No provision of this Warrant, in the absence of affirmative
action by the Holder to purchase Warrant Shares, and no mere enumeration
herein of the rights or privileges of the Holder, shall give rise to any
liability of the Holder for the Exercise Price or as a shareholder of the
Company, whether such liability is asserted by the Company or by creditors
of the Company.
8. Transfer, Exchange, Redemption and Replacement of Warrant.
a. Restriction on Transfer. This Warrant and the rights granted to the
Holder are transferable, in whole or in part, upon surrender of this
Warrant, together with a properly executed assignment in the Form of
Assignment attached hereto as Exhibit 2, at the office or agency of the
Company referred to in Section 8(e) below, provided, however, that any
transfer or assignment shall be subject to the provisions of Section 5.1
and 5.2 of the Securities Purchase Agreement. Until due presentment for
registration of transfer on the books of the Company, the Company may treat
the registered holder hereof as the owner and holder hereof for all
purposes, and the Company shall not be affected by any notice to the
contrary. Notwithstanding anything to the contrary contained herein, the
registration rights described in Section 9 hereof are assignable only in
accordance with the provisions of the Registration Rights Agreement.
b. Warrant Exchangeable for Different Denominations. This Warrant is
exchangeable, upon the surrender hereof by the Holder at the office or
agency of the Company referred to in Section 8(e) below, for new Warrants,
in the form hereof, of different denominations representing in the
aggregate the right to purchase the number of shares of Common Stock which
may be purchased hereunder, each of such new Warrants to represent the
right to purchase such number of shares as shall be designated by the
Holder of at the time of such surrender.
<PAGE>
c. Replacement of Warrant. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction, or mutilation
of this Warrant or, in the case of any such loss, theft, or destruction,
upon delivery, of an indemnity agreement reasonably satisfactory in form
and amount to the Company, or, in the case of any such mutilation, upon
surrender and cancellation of this Warrant, the Company, at its expense,
will execute and deliver, in lieu thereof, a new Warrant, in the form
hereof, in such denominations as Holder may request.
d. Cancellation; Payment of Expenses. Upon the surrender of this
Warrant in connection with any transfer, exchange, or replacement as
provided in this Section 8, this Warrant shall be promptly canceled by the
Company. The Company shall pay all issuance taxes (other than securities
transfer taxes) and charges payable in connection with the preparation,
execution, and delivery of Warrants pursuant to this Section 8.
e. Warrant Register. The Company shall maintain, at its principal
executive offices (or such other office or agency of the Company as it may
designate by notice to the Holder), a register for this Warrant, in which
the Company shall record the name and address of the person in whose name
this Warrant has been issued, as well as the name and address of each
transferee and each prior owner of this Warrant.
f. Additional Restriction on Exercise or Transfer. Notwithstanding
anything to the contrary contained herein, the Warrants shall not be
exercisable by the Holder to the extent (but only to the extent) that, if
exercisable by Holder, Holder would beneficially own in excess of 9.9% (the
"Applicable Percentage") of the shares of Common Stock. To the extent the
above limitation applies, the determination of whether the Warrants shall
be exercisable (vis-a-vis other securities owned by Holder which contain
similar limitations on conversion) and of which Warrants shall be
exercisable (as among Warrants) shall be made on the basis of the earliest
submission of the Warrants (vis-a-vis other securities owned by the Holder
which contain similar limitations on conversion and vis a vis other
Warrants), in each case subject to such aggregate percentage limitation. No
prior inability to exercise Warrants pursuant to this paragraph shall have
any effect on the applicability of the provisions of this paragraph with
respect to any subsequent determination of exercisability. For the purposes
of this paragraph, beneficial ownership and all determinations and
calculations, including without limitation, with respect to calculations of
percentage ownership, shall be determined in accordance with Section 13(d)
of the Securities Exchange Act of 1934, as amended, and Regulation 13D and
G thereunder. The provisions of this paragraph may be implemented in a
manner otherwise than in strict conformity with the terms of this Section
8(f) with the approval of the Board of Directors of the Company and the
Holder: (i) with respect to any matter to cure any ambiguity herein, to
correct this paragraph (or any portion hereof) which may be defective or
inconsistent with the intended Applicable Percentage beneficial ownership
limitation herein contained or to make changes or supplements necessary or
desirable to properly give effect to such Applicable Percentage limitation;
and (ii) with respect to any other matter (including through any amendment
of this Warrant), with the further consent of the holders of a majority of
the then outstanding shares of Common Stock. For clarification, it is
expressly a term of this security that the limitations contained in this
Section shall apply to each successor Holder.
<PAGE>
g. Redemption at Company's Option.
1. On the first (1st) anniversary of the date hereof and for ten (10)
business days thereafter, the Company shall have the right to elect the
redemption for cash ("Redemption at Company's Option") of all or any part
of the then unexercised portion of this Warrant for the Optional Redemption
Amount (as herein defined), which right shall be exercisable by delivery of
an Optional Redemption Notice (as defined herein) in accordance with the
procedures set forth below. Notwithstanding the delivery of an Optional
Redemption Notice, the Holder shall have the right to exercise all or any
part of this Warrant up to and including the date of redemption; provided,
however that the Company may effect a Redemption at Company's Option only
if: (a) there has not occurred any material breach of any of the Company's
representations, warranties or covenants under the Securities Purchase
Agreement and the Company is not in default of any of its obligations under
the Securities Purchase Agreement, the Registration Rights Agreement and
the Warrants; (b) the Registration Statement (as defined in the
Registration Rights Agreement) required to be filed by the Company pursuant
to the Registration Rights Agreement covering the Shares (as defined in the
Securities Purchase Agreement) and the Warrant Shares issuable upon
conversion of the Warrants, is effective and available for trading; (c) the
Common Stock, including all Shares and Warrant Shares, is listed on the
Nasdaq and trading in the Common Stock is not suspended by the Nasdaq, the
SEC or other regulatory authority and, to the Company's knowledge, no
de-listing or suspension shall be reasonably likely for the foreseeable
future; (d) since December 31, 1998, the Company has not suffered any
Material Adverse Effect (as defined in the Securities Purchase Agreement)
and nothing has occurred which would be reasonably likely to cause a
Material Adverse Effect, and (e) the weighted average sale price of the
Common Stock during any period of fifteen (15) consecutive trading days
during the twenty (20) trading days immediately preceding the first (1st)
anniversary is greater than the Exercise Price. For purposes of this
Section 8(g), the Optional Redemption Amount is equal to (x) one cent
($0.01) times (y) the number of shares underlying the portion of the
Warrant to be redeemed, as specified in the Optional Redemption Notice.
Upon timely delivery of the Optional Redemption Notice, the Optional
Redemption Amount shall be paid to Holder on the date of redemption.
<PAGE>
2. The Company shall effect the Redemption at Company's Option under
this Section 8(g) by delivering written notice thereof (the "Optional
Redemption Notice") on the first (1st) anniversary of the date hereof or
within ten (10) business days thereafter to Holder at the facsimile number
set forth below Holder's name on the signature pages of the Securities
Purchase Agreement or at such other facsimile number as Holder shall have
provided in writing to the Company. Once the Company has delivered such
Optional Redemption Notice, it is irrevocable and binding. The Optional
Redemption Notice shall be deemed to have been delivered to Holder: (i) if
such fax is received by Holder on or prior to 3:00 p.m. New York time, on
the date of transmission of the Company's fax; and (ii) if such fax is
received by Holder after 3:00 p.m. New York time, on the next business day
following the date of transmission provided that, for any notice required
under this subsection to be valid, a copy of such notice must be sent to
Holder on the same day by overnight courier. The Optional Redemption Notice
shall specify the portion of the Warrant which the Company elects to redeem
by specifying the number of shares of Common Stock as to which the Warrant
is being redeemed. The Redemption at Company's Option shall occur on the
thirtieth (30th) day following delivery of the Optional Redemption Notice
(or if such day is not a business day, on the next business day
thereafter).
9 Registration Rights. The initial holder of this Warrant (and certain
assignees thereof) is entitled to the benefit of such registration rights
in respect of the Warrant Shares as are set forth in the Registration
Rights Agreement.
10 Notices. Any notice herein required or permitted to be given shall
be in writing and may be personally served or delivered by courier or by
confirmed telecopy, and shall be deemed delivered at the time and date of
receipt (which shall include telephone line facsimile transmission). The
addresses for such communications shall be:
<PAGE>
If to the Company:
ModaCAD, Inc.
3861 Sepulveda Blvd.
Culver City, CA 90230
Telecopy: (310) 751-2120
Attention: President
with a copy to:
Coudert Brothers
1055 West Seventh Street - 20th Floor
Los Angeles, CA 90017
Telecopy: (213) 689-4467
Attention: John A. St. Clair
and if to the Holder, at such address as Holder shall have provided in
writing to the Company, or at such other address as each such party
furnishes by notice given in accordance with this Section 10.
11 Governing Law; Jurisdiction. This Warrant shall be governed by and
construed in accordance with the laws of the State of California applicable
to contracts made and to be performed in the State of California. The
Company irrevocably consents to the jurisdiction of the United States
federal courts located in the State of California and the state courts
located in the County of Los Angeles in the State of California in any suit
or proceeding based on or arising under this Warrant and irrevocably agrees
that all claims in respect of such suit or proceeding may be determined in
such courts. The Company irrevocably waives the defense of an inconvenient
forum to the maintenance of such suit or proceeding. The Company agrees
that a final nonappealable judgment in any such suit or proceeding shall be
conclusive and may be enforced in other jurisdictions by suit on such
judgment or in any other lawful manner.
12 Miscellaneous.
a Amendments. This Warrant and any provision hereof may only be
amended by an instrument in writing signed by the Company and the Holder,
subject to the limitation contained in Section 8(f).
b Descriptive Headings. The descriptive headings of the several
Sections of this Warrant are inserted for purposes of reference only, and
shall not affect the meaning or construction of any of the provisions
hereof.
c [Intentionally deleted].
<PAGE>
d Assignability. This Warrant shall be binding upon the Company and
its successors and assigns and shall inure to the benefit of Holder and its
successors and assigns. The Holder shall notify the Company upon the
assignment of this Warrant.
* * *
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed
by its duly authorized officer.
ModaCAD, Inc.
By:
Name: Joyce Freedman
Title:Chief Executive Officer
<PAGE>
FORM OF EXERCISE AGREEMENT
(To be Executed by the Holder in order to Exercise the Warrant)
The undersigned hereby irrevocably exercises the right to purchase
____________ of the shares of common stock of ModaCAD, Inc., a California
corporation (the "Company"), evidenced by the attached Warrant, and
herewith makes payment of the Exercise Price with respect to such shares in
full, all in accordance with the conditions and provisions of said Warrant.
(i) The undersigned agrees not to offer, sell, transfer or otherwise
dispose of any Common Stock obtained on exercise of the Warrant, except
under circumstances that will not result in a violation of the Securities
Act of 1933, as amended, or any state securities laws.
(ii) The undersigned requests that stock certificates for such shares
be issued, and a Warrant representing any unexercised portion hereof be
issued, pursuant to the Warrant in the name of the Holder (or such other
person or persons indicated below) and delivered to the undersigned (or
designee(s) at the address (or addresses) set forth below:
Date:
Signature of Holder
Name of Holder (Print)
Address:
<PAGE>
FORM OF ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and
transfers all rights of the undersigned under the within Warrant, with
respect to the number of shares of Common Stock covered thereby set forth
hereinbelow, to:
Name of Assignee Address No. of Shares
, and hereby irrevocably constitutes and appoints
______________________________ as agent and attorney-in-fact to transfer
said Warrant on the books of the within-named corporation, with full power
of substitution in the premises.
Date:____________, _____,
In the presence of
Name:
Signature:
Title of Signing Officer or Agent(if any):
Address:
Note: The above signature should
correspond exactly with the name
on the face of the within Warrant.
<PAGE>
EXHIBIT B
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement"), is made as of April
7, 1999, by and among ModaCAD, Inc., a California corporation (the "Company"),
with headquarters located at Culver City, California and the undersigned (the
"Initial Purchasers").
RECITALS
A. In connection with the Securities Purchase Agreement dated of even date
herewith by and between the Company and the Initial Purchasers (the "Securities
Purchase Agreement"), the Company has agreed, upon the terms and subject to the
conditions contained therein, to issue and sell to the Initial Purchaser (i)
shares of the Company's common stock (the "Common Stock"), (ii) warrants
exercisable for shares of Common Stock, in the form attached as Exhibit A-1 to
the Securities Purchase Agreement, (iii) warrants exercisable for shares of
Common Stock, in the form attached as Exhibit A-2 to the Securities Purchase
Agreement and (iv) warrants exercisable for shares of Common Stock, in the form
attached as Exhibit A-3 to the Securities Purchase Agreement (each of (ii),
(iii) and (iv) a "Warrant" and taken collectively, the "Warrants"). Shares of
Common Stock issued and purchased pursuant to the Securities Purchase Agreement
are herein referred to as "Shares" and shares of Common Stock issuable upon
exercise of the Warrants are herein referred to as "Warrant Shares".
B. To induce Initial Purchasers to execute and deliver the Securities
Purchase Agreement, the Company has agreed to provide certain registration
rights under the Securities Act of 1933, as amended, and the rules and
regulations thereunder, or any similar successor statute (collectively, the
"Securities Act"), and applicable state securities laws.
AGREEMENTS
NOW THEREFORE, in consideration of the premises and the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company, and Initial
Purchasers hereby agree as follows:
ARTICLE I
DEFINITIONS
1.1 Definitions. As used in this Agreement, the following terms shall have
the following meanings:
<PAGE>
(a) "Purchasers" means the Initial Purchasers and any transferees or
assignees who agree to become bound by the provisions of this Agreement in
accordance with Article IX hereof.
(b) "register," "registered," and "registration" refer to a
registration effected by preparing and filing a Registration Statement or
Statements in compliance with the Securities Act and pursuant to Rule 415
under the Securities Act or any successor rule providing for offering
securities on a continuous basis ("Rule 415"), and the declaration or
ordering of effectiveness of such Registration Statement by the United
States Securities and Exchange Commission (the "SEC").
(c) "Registrable Securities" means the Shares and the Warrant Shares
and any shares of capital stock issued or issuable, from time to time (with
any adjustments), on or in exchange for or otherwise with respect to the
Common Stock or any other Registrable Securities.
(d) "Registration Statement" means a registration statement of the
Company under the Securities Act pursuant to the provisions of this
Agreement.
(e) "Funded Amount" means eight million, five hundred thirty two
thousand, four hundred seventy three dollars ($8,532,473).
1.2 Capitalized Terms. Capitalized terms used herein and not otherwise
defined herein shall have the respective meanings set forth in the Securities
Purchase Agreement.
ARTICLE II
REGISTRATION
2.1 Mandatory Registration.
(a) The Company shall prepare and file as soon as practicable but in
any event on or prior to fifteen (15) days after the date of the Closing
(the "Filing Date") with the SEC a Registration Statement on Form S-3 (but,
without limiting the Company's obligation to file on Form S-3, if Form S-3
is unavailable to the Company, on Form S-1) covering the resale of all of
the Registrable Securities in a secondary offering by Purchasers, provided
that each Purchaser shall have provided timely to the Company all
information needed for the Registration Statement regarding it and its plan
of distribution. The Registration Statement (and each amendment or
supplement thereto, and each request for acceleration of effectiveness
thereof) shall be provided to (and subject to the approval of (which
approval shall not be unreasonably withheld or denied)) each Initial
Purchaser and its counsel at least five (5) business days (or fewer to the
extent provided herein) prior to its filing or other submission.
<PAGE>
(b) If the Company fails to timely obtain Nasdaq Approval (as defined
in the Securities Purchase Agreement) or Second Nasdaq Approval (as defined
in the Securities Purchase Agreement), the Company shall (i) within five
(5) days (also a "Filing Date") amend the Registration Statement required
to be filed under subsection (a) to cover the resale of as many of the the
Shares and the Warrant Shares issuable upon exercise of the Warrants as are
registrable in a secondary offering by Purchasers in such Registration
Statement and (ii) prepare and file as soon as practicable but in any event
on or prior to five (5) days after the date of the Shareholder Approval
(also a "Filing Date") with the SEC a Registration Statement on Form S-3
covering the resale of all of the Registrable Securities not covered by the
Registration Statement as described in clause (i) in a secondary offering
by Purchasers, provided that each Purchaser shall have provided timely to
the Company all information needed for the Registration Statement regarding
it and its plan of distribution. Each Registration Statement required to be
filed hereunder (and each amendment or supplement thereto, and each request
for acceleration of effectiveness thereof) shall be provided to (and
subject to the approval of (which approval shall not be unreasonably
withheld or denied)) each Initial Purchaser and its counsel at least five
(5) business days (or fewer to the extent provided herein) prior to its
filing or other submission.
(c) If the Company fails to cause the Registration Statement required
to filed under subsection (a) (as amended, if applicable, as required under
clause (i) of subsection (b)) to become effective before one hundred eighty
(180) days after the Closing, then, as to the shares of Common Stock to be
covered by such Registration Statement or Registration Statements, each
Purchaser shall be entitled to sell (an "Effectiveness Failure Sale") at
any time and from time to time to the Company, and the Company shall be
required to purchase, all or any of its shares of such Common Stock at a
price per share equal to the greater of (i) one hundred fifty percent
(150%) of the Per Share Price (as defined in the Securities Purchase
Agreement) and (ii) the fair market value for such Common Stock. If the
Company fails to cause the Registration Statement required to be filed
under clause (ii) of subsection (b) to become effective before one hundred
eighty (180) days after the earlier (the "Second Filing Deadline") of (x)
the date of filing thereof or (y) the fifth (5th) day after the date of the
Shareholder Approval, then each Purchaser shall be entitled to sell (also
an "Effectiveness Failure Sale") at any time and from time to time to the
Company, and the Company shall be required to purchase, all or part of the
First Warrant, the Second Warrant and/or the Third Warrant held by such
Purchaser at a price equal to one hundred fifty percent (150%) of the
Black-Scholes Amount (as defined in the Securities Purchase Agreement) of
the applicable Warrant times the number of shares underlying that portion
of the Warrant as to which such Purchaser has exercised such option (but
only to the extent required to be covered by such Registration Statement).
(d) After any Registration Statement required to be filed pursuant to
this Section 2.1 has been declared effective by the SEC, if during any
twelve (12) month period sales of all the Registrable Securities cannot be
made pursuant to such Registration Statement for more than thirty (30) days
in aggregate, then each Purchaser shall be entitled to sell to the Company,
and the Company shall be required to purchase, all or any of its shares of
Common Stock at a price per share equal to the greater of (i) one hundred
fifty percent (150%) of the Per Share Price (as defined in the Securities
Purchase Agreement) and (ii) the fair market value for the Common Stock.
<PAGE>
(e) In order to effect an Effectiveness Failure Sale, a Purchaser (a
"Selling Purchaser") shall fax (or otherwise deliver) a notice (the "Notice
of Sale") to the Company indicating the number of shares of Common Stock to
be sold pursuant to such Effectiveness Failure Sale. Upon receipt by the
Company of a facsimile copy of a Notice of Sale from a Selling Purchaser,
the Company shall immediately send, via facsimile, a confirmation to the
Selling Purchaser stating that the Notice of Sale has been received and the
name and telephone number of a contact person at the Company regarding the
Effectiveness Failure Sale. Within five (5) business days after the Notice
of Sale, the Holder shall surrender or cause to be surrendered to the
Company, the certificates representing the shares of Common Stock and/or
the Warrants, as applicable, to be sold hereunder, along with a copy of the
Notice of Sale. The Company shall promptly pay the amount required under
subsection (c) upon delivery of such certificates.
2.2 Underwritten Offering. If any offering pursuant to a Registration
Statement filed pursuant to Section 2.1 hereof involves an underwritten
offering, the Purchasers who hold a majority in interest of the Registrable
Securities subject to such underwritten offering, with the consent of each
Initial Purchaser, shall have the right to select a total of one legal counsel
to represent the Purchasers and an investment banker or bankers and manager or
managers to administer the offering, which investment banker or bankers or
manager or managers shall be reasonably satisfactory to the Company, and all
fees and expenses of which shall be paid by the Purchasers.
<PAGE>
2.3 Payments by the Company. The Company shall cause the Registration
Statement filed pursuant to Section 2.1(a) (or such Registration Statement as
amended pursuant to Section 2.1(b)(i), as applicable) to become effective as
soon as practicable, but in no event later than the sixtieth (60th) day (or the
one hundred twentieth (120th) day if the SEC reviews such Registration
Statement) following the applicable Filing Date (the "Registration Deadline").
The Company shall cause the Registration Statement filed pursuant to Section
2.1(b)(ii), if applicable, to become effective as soon as practicable, but in no
event later than the forty-fifth (45th) day following the applicable Filing Date
(also a "Registration Deadline"). If any Registration Statement required to be
filed by the Company pursuant to Section 2.1 hereof is not declared effective by
the SEC on or before the applicable Registration Deadline (a "Registration
Failure"), or (ii) after such Registration Statement has been declared effective
by the SEC, sales of all the Registrable Securities cannot be made pursuant to
the registration statement (by reason of a stop order or the Company's failure
to update the registration statement or any other reason outside the control of
the Purchasers) (a "Registration Suspension"), then the Company will make
payments to the Purchasers in such amounts and at such times as shall be
determined pursuant to this Section 2.3 as partial relief for the damages to the
Purchasers by reason of any such delay in or reduction of their ability to sell
the Registrable Securities (which remedy shall not be exclusive of any other
remedies available at law or in equity). In the event of a Registration Failure,
the Company shall pay to the Purchasers an amount equal to (A) .02 times (B) the
sum of the aggregate Funded Amount plus the amount payable to the Company under
the Warrants times (C) the number of months (prorated per day for partial
months) following the Registration Deadline prior to the date the Registration
Statement filed pursuant to Section 2.1 is declared effective by the SEC. In
addition, in the event of a Registration Suspension, the Company shall pay to
the Purchasers an amount equal to (D) .02 times (E) the Applicable Funded Amount
times (F) the number of months (prorated per day for partial months) from (x)
the date on which sales of all the Registrable Securities first cannot be made
to (y) the date on which sales of all the Registrable Securities can again be
made. For the purposes of this Section 2.3, "Applicable Funded Amount" shall
mean (G) the sum of the Funded Amount plus the amount payable to the Company
under the Warrants times (H) the number of Shares and Warrant Shares then owned
by the Purchasers (or issuable at that time as Warrant Shares upon full exercise
of the Warrant, without regard to any limitations on conversion thereof) divided
by (I) the number of Shares originally purchased and Warrant Shares issuable
upon full exercise of the Warrant at the time of the original purchase of the
Warrants, in each case without regard to any limitations on conversion thereof.
Amounts to be paid pursuant to this Section 2.3 shall be paid pro rata to
Purchasers based upon the number of Shares and Warrant Shares owned and Warrant
Shares issuable upon full conversion of the Warrant by each Purchaser, and shall
be paid in cash. Such payments shall be made within five (5) days after the end
of each period that gives rise to such obligation, provided that, if any such
period extends for more than thirty (30) days, payments shall be made for each
such thirty (30) day period within five (5) days after the end of such thirty
(30) day period.
2.4 Intentionally deleted
2.5 Eligibility for Form S-3. The Company represents and warrants that it
meets the requirements for the use of Form S-3 for registration of the re-sale
by the Initial Purchaser and any other Purchaser of the Registrable Securities
and the Company shall file all reports required to be filed by the Company with
the SEC in a timely manner so as to maintain such eligibility for the use of
Form S-3.
ARTICLE III
OBLIGATIONS OF THE COMPANY
In connection with the registration of the Registrable Securities, the
Company shall have the following obligations:
3.1 The Company shall prepare promptly and file with the SEC each
Registration Statement required by Section 2.1, and cause each such Registration
Statement relating to Registrable Securities to become effective as soon as
practicable after such filing, and keep the Registration Statement effective
pursuant to Rule 415 and available for use at all times until such date as is
the earlier of (i) the date on which all of the Registrable Securities have been
sold (and no further Registrable Securities may be issued in the future) and
(ii) the date on which all of the Registrable Securities (in the reasonable
opinion of counsel to the Initial Purchasers) may be immediately sold to the
public without registration and without restriction as to the number of
Registrable Securities to be sold, whether pursuant to Rule 144 or otherwise
(the "Registration Period"). Each such Registration Statement (including any
amendments or supplements thereto and prospectuses contained therein and all
documents incorporated by reference therein) shall not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein, or necessary to make the statements therein not misleading.
<PAGE>
3.2 The Company shall prepare and file with the SEC such amendments
(including post-effective amendments) and supplements to a Registration
Statement and the prospectus used in connection with each Registration Statement
as may be necessary to keep such Registration Statement effective and available
for use at all times during the Registration Period, and, during such period,
comply with the provisions of the Securities Act with respect to the disposition
of all Registrable Securities of the Company covered by such Registration
Statement until the termination of the Registration Period or, if earlier, such
time as all of such Registrable Securities have been disposed of in accordance
with the intended methods of disposition by the seller or sellers thereof as set
forth in such Registration Statement. In the event the number of shares
available under a Registration Statement filed pursuant to this Agreement is at
any time insufficient to cover all shares of Common Stock issued or issuable
pursuant to the Warrant or the Securities Purchase Agreement (without regard to
any limitations on exercise contained therein), the Company shall amend, if
permissible, the Registration Statement, or file a new Registration Statement
(on the short form available therefor, if applicable), or both, so as to cover
all of the Warrant Shares issued or issuable upon exercise of the Warrant
(without regard to any limitation on exercise contained therein), in each case,
as soon as practicable, but in any event within five (5) days. The Company shall
cause such amendment and/or new Registration Statement to become effective as
soon as practicable following the filing thereof.
3.3 The Company shall furnish to each Purchaser whose Registrable
Securities are included in the Registration Statement and its legal counsel (a)
promptly after the same is prepared and publicly distributed, filed with the
SEC, or received by the Company, one copy of the Registration Statement and any
amendment thereto, each preliminary prospectus and prospectus and each amendment
or supplement thereto, and, in the case of the Registration Statement referred
to in Section 2.1, each letter written by or on behalf of the Company to the SEC
or the staff of the SEC, and each item of correspondence from the SEC or the
staff of the SEC, in each case relating to such Registration Statement (other
than any portion, if any, thereof which contains information for which the
Company has sought confidential treatment), and (b) such number of copies of a
prospectus, including a preliminary prospectus, and all amendments and
supplements thereto and such other documents as such Purchaser may reasonably
request in order to facilitate the disposition of the Registrable Securities
owned (or to be owned) by such Purchaser.
<PAGE>
3.4 The Company shall (a) register and qualify the Registrable Securities
covered by each Registration Statement under securities laws of such
jurisdictions in the United States as each Purchaser who holds (or has the right
to hold) Registrable Securities being offered reasonably requests, (b) prepare
and file in those jurisdictions such amendments (including post-effective
amendments) and supplements to such registrations and qualifications as may be
necessary to maintain the effectiveness and availability for use thereof during
the applicable Registration Period, (c) take such other actions as may be
necessary to maintain such registrations and qualifications in effect at all
times during the applicable Registration Period, and (d) take all other actions
reasonably necessary or advisable to qualify the Registrable Securities for sale
in such jurisdictions; provided, however, that the Company shall not be required
in connection therewith or as a condition thereto to (i) qualify to do business
in any jurisdiction where it would not otherwise be required to qualify but for
this Section 3.4, (ii) subject itself to general taxation in any such
jurisdiction, (iii) file a general consent to service of process in any such
jurisdiction, (iv) provide any undertakings that cause the Company material
expense or burden, or (v) make any change in its charter or by-laws, which in
each case the board of directors of the Company determines to be contrary to the
best interests of the Company and its stockholders.
3.5 In the event the Purchasers who hold a majority in interest of the
Registrable Securities being offered in an offering pursuant to a Registration
Statement or any amendment or supplement thereto under Section 2.1 or 3.2 hereof
select underwriters for the offering, the Company shall enter into and perform
its obligations under an underwriting agreement, in usual and customary form,
including, without limitation, customary indemnification and contribution
obligations, with the underwriters of such offering, but shall not bear any
costs or expenses of the underwriting.
3.6 As soon as practicable after becoming aware of such event, the Company
shall notify (by telephone and also by facsimile and reputable overnight
courier) each Purchaser of the happening of any event, of which the Company has
knowledge, as a result of which the prospectus included in the Registration
Statement, as then in effect, includes an untrue statement of a material fact or
omission to state a material fact required to be stated therein or necessary to
make the statements therein not misleading, and use its best efforts as soon as
possible (but in any event within five (5) days) to prepare a supplement or
amendment to the Registration Statement (and make all required filings with the
SEC) to correct such untrue statement or omission, and the Company shall
simultaneously (and thereafter as requested) deliver such number of copies of
such supplement or amendment to each Purchaser (or other applicable document) as
such Purchaser may request in writing. Unless such an event is publicly
announced, the Company shall not, without the consent of the Purchaser, give
such Purchaser any material non-public information, but shall inform the
Purchasers that such prospectus includes an untrue statement of a material fact
or omission to state a material fact required to be stated therein or necessary
to make the statements therein not misleading.
3.7 The Company shall use its best efforts to prevent the issuance of any
stop order or other suspension of effectiveness of a Registration Statement,
and, if such an order is issued, to obtain the withdrawal of such order at the
earliest practicable time and the Company shall immediately notify by facsimile
each Purchaser (at the facsimile number for such Purchaser set forth on the
signature page hereto) who holds Registrable Securities (or, in the event of an
underwritten offering, the managing underwriters) of the issuance of such order
and the resolution thereof.
3.8 The Company shall permit counsel designated by each Initial Purchaser
to review the Registration Statement and all amendments and supplements thereto
a reasonable period of time prior to their filing with the SEC, and not file any
document in a form to which such counsel reasonably objects.
3.9 [Intentionally deleted].
<PAGE>
3.10 At the request of any Purchaser, the Company shall furnish, on the
date of effectiveness of the Registration Statement and thereafter from time to
time on such dates as a Purchaser may reasonably request (a) an opinion, dated
as of such applicable date, from counsel representing the Company addressed to
the Purchasers and in form, scope and substances as is customarily given in an
underwritten public offering and (b) a letter, dated as of such applicable date,
from the Company's independent certified public accountants addressed to the
Purchasers and in form, scope and substance as customarily given to underwriters
in an underwritten public offering.
3.11 The Company shall make available for inspection by (i) any Purchaser,
(ii) any underwriter participating in any disposition pursuant to the
Registration Statement, (iii) attorneys and accountants retained by any
Purchaser, and (iv) attorneys retained by such underwriters (collectively, the
"Inspectors") all pertinent financial and other records, and pertinent corporate
documents and properties of the Company (collectively, the "Records"), as shall
be reasonably deemed necessary by each Inspector and cause the Company's
officers, directors and employees to supply all information which any Inspector
may reasonably request; provided, however, that each Inspector shall hold in
confidence and shall not make any disclosure (except to a Purchaser) of any
Record or other information which the Company determines in good faith to be
confidential, and of which determination the Inspectors are so notified in
writing, unless (a) the disclosure of such Records is necessary to avoid or
correct a misstatement or omission in any Registration Statement or is otherwise
required to be disclosed in such Registration Statement to permit Purchaser to
sell under such Registration Statement, (b) the release of such Records is
ordered pursuant to a subpoena or other order from a court or government body of
competent jurisdiction, or is otherwise required by applicable law or legal
process or (c) the information in such Records has been made generally available
to the public other than by disclosure in violation of this or any other
agreement (to the knowledge of the relevant Purchaser). The Company shall not be
required to disclose any confidential information in such Records to any
Inspector until and unless such Inspector shall have entered into
confidentiality agreements (in form and reasonable substance satisfactory to the
Company) with the Company with respect thereto, substantially in the form of
this Section 3.11. Each Purchaser agrees that it shall, upon learning that
disclosure of such Records is sought in or by a court or governmental body of
competent jurisdiction or through other means, give prompt notice to the Company
and allow the Company, at its expense, to undertake appropriate action to
prevent disclosure of, or to obtain a protective order for, the Records deemed
confidential. Nothing herein shall be deemed to limit a Purchaser's ability to
sell Registrable Securities in a manner which is consistent with applicable laws
and regulations.
<PAGE>
3.12 The Company shall hold in confidence and not make any disclosure of
information concerning a Purchaser provided to the Company excluding any
information provided by Purchaser for use in or in connection with a
Registration Statement unless (a) disclosure of such information is necessary to
comply with federal or state securities laws, (b) the disclosure of such
information is necessary to avoid or correct a misstatement or omission in any
Registration Statement, (c) the release of such information is ordered pursuant
to a subpoena or other order from a court or governmental body of competent
jurisdiction or is otherwise required by applicable law or legal process, (d)
such information has been made generally available to the public other than by
disclosure in violation of this or any other agreement (to the knowledge of the
Company), or (e) such Purchaser consents to the form and content of any such
disclosure. The Company agrees that it shall, upon learning that disclosure of
such information concerning a Purchaser is sought in or by a court or
governmental body of competent jurisdiction or through other means, give prompt
notice to such Purchaser prior to making such disclosure, and allow the
Purchaser, at its expense, to undertake appropriate action to prevent disclosure
of, or to obtain a protective order for, such information.
3.13 From and after each Closing, the Company shall cause the listing and
the continuation of listing of all the Registrable Securities related to such
Closing and required to be covered by a Registration Statement on The Nasdaq
National Market or the New York Stock Exchange, and cause the Registrable
Securities to be quoted or listed on each additional national securities
exchange or quotation system upon which the Class A Common Stock is then listed
or quoted.
3.14 The Company shall provide a transfer agent and registrar, which may be
a single entity, for the Registrable Securities not later than the effective
date of the applicable Registration Statement.
3.15 The Company shall cooperate with the Purchasers who hold Registrable
Securities being offered and the managing underwriter or underwriters, if any,
to facilitate the timely preparation and delivery of certificates (not bearing
any restrictive legends) representing Registrable Securities to be offered
pursuant to the Registration Statement and enable such certificates to be in
such denominations or amounts, as the case may be, as the managing underwriter
or underwriters, if any, or the Purchasers may reasonably request and registered
in such names as the managing underwriter or underwriters, if any, or the
Purchasers may request, and, within two (2) business days after a Registration
Statement which includes Registrable Securities is ordered effective by the SEC,
the Company shall cause legal counsel selected by the Company to deliver, to the
transfer agent for the Registrable Securities (with copies to the Purchasers
whose Registrable Securities are included in such Registration Statement) an
opinion of such counsel in the form attached hereto as Exhibit 1.
3.16 At the request of any Purchaser, the Company shall promptly prepare
and file with the SEC such amendments (including post-effective amendments) and
supplements to a Registration Statement and the prospectus used in connection
with a Registration Statement filed pursuant hereto as may be necessary in order
to change the plan of distribution set forth in such Registration Statement.
3.17 The Company shall comply with all applicable laws related to a
Registration Statement and offering and sale of securities covered by the
Registration Statement and all applicable rules and regulations of governmental
authorities in connection therewith (including, without limitation, the
Securities Act and the Securities Exchange Act of 1934, as amended, and the
rules and regulations promulgated by the Commission).
<PAGE>
3.18 The Company shall take all such other actions as any Purchaser or the
underwriters, if any, reasonably request in order to expedite or facilitate the
disposition of such Registrable Securities, but shall not be required to incur
any costs or expenses in connection therewith not otherwise provided herein to
be borne by the Company.
3.19 From and after the date of this Agreement, the Company shall not, and
shall not agree to, allow the holders of any securities of the Company (other
than Purchasers with respect to Registrable Securities) to include any of their
securities in any Registration Statement or any amendment or supplement thereto
under Section 2.1 or 3.2 hereof without the consent of each of the Initial
Purchasers and the holders of a majority of the Registrable Securities. Without
the consent of each of the Initial Purchasers, until the effectiveness of the
Registration Statements contemplated by Section 2.1 hereof, the Company shall
not file any other Registration Statement for the sale of any securities,
whether for the account of the Company or any other person; provided, however
that after the filing of the Registration Statement required to be filed
pursuant to Section 2.1(a) the Company may file a Registration Statement
covering the sale of up to one hundred twenty six thousand three hundred sixteen
(126,316) shares of Common Stock by Intel Corporation (such shares of Common
Stock issuable pursuant to that certain Warrant issued by the Company to Intel
Corporation as of November 13, 1997, included as item (4) on Schedule 3.3 to the
Securities Purchase Agreement) and a Registration Statement covering the sale of
up to one hundred thousand (100,000) shares of Common Stock by W.B. McKee, Inc.
(such shares of Common Stock issuable pursuant to those certain Warrants issued
by the Company to such W.B. McKee, Inc. as of March 27, 1996 in connection with
the Company's initial public offering).
3.20 The Registration Statement shall state that it covers such
indeterminate number of additional shares as may be issuable upon exercise of
the Warrants to prevent dilution resulting from stock splits, stock dividends
and other similar transactions.
ARTICLE IV
OBLIGATIONS OF THE PURCHASERS
In connection with the registration of the Registrable Securities, the
Purchasers shall have the following obligations:
4.1 Each Purchaser shall furnish to the Company such information regarding
itself, the Registrable Securities held by it and the intended method of
disposition of the Registrable Securities held by it as shall be reasonably
required to effect the registration of such Registrable Securities. At least
five (5) business days prior to the first anticipated filing date of the
Registration Statement, the Company shall notify each Purchaser of the
information the Company requires from each such Purchaser.
<PAGE>
4.2 Each Purchaser, by such Purchaser's acceptance of the Registrable
Securities, agrees to cooperate with the Company as reasonably requested by the
Company in connection with the preparation and filing of the Registration
Statements hereunder, unless such Purchaser has notified the Company in writing
of such Purchaser's election to exclude all of such Purchaser's Registrable
Securities from the Registration Statement.
4.3 Each Purchaser whose Registrable Securities are included in a
Registration Statement understands that the Securities Act may require delivery
of a prospectus relating thereto in connection with any sale thereof pursuant to
such Registration Statement, and each such Purchaser shall use its reasonable
efforts to comply with the applicable prospectus delivery requirements of the
Securities Act in connection with any such sale.
4.4 [Intentionally omitted]
4.5 Each Purchaser agrees that, upon receipt of written notice from the
Company of the happening of any event of the kind described in Section 3.6, such
Purchaser will immediately discontinue disposition of Registrable Securities
pursuant to the Registration Statement covering such Registrable Securities
until such Purchaser's receipt of the copies of the supplemented or amended
prospectus contemplated by Section 3.6 or advice that a supplement or amendment
is not required and, if so directed by the Company, such Purchaser shall deliver
to the Company (at the expense of the Company) or destroy (and deliver to the
Company a certificate of destruction) all copies in such Purchaser's possession
(other than a limited number of permanent file copies), of the prospectus
covering such Registrable Securities current at the time of receipt of such
notice. Purchaser's obligations under this paragraph shall in no way limit the
Company's obligations under this Agreement or Purchaser's rights or remedies
against the Company with respect to any breach or threatened breach by the
Company of any such obligations.
4.6 Without limiting a Purchaser's rights under Section 2.1 or 3.2 hereof,
no Purchaser may participate in any underwritten distribution hereunder unless
such Purchaser (a) agrees to sell such Purchaser's Registrable Securities on the
basis provided in any underwriting agreements in usual and customary form
entered into by the Company pursuant to Section 3.5 hereof, (b) completes and
executes all questionnaires, powers of attorney, custody agreements,
indemnities, underwriting agreements and other documents reasonably required
under the terms of such underwriting arrangements, and (c) agrees to pay its pro
rata share of all underwriting discounts and commissions and any expenses in
excess of those payable by the Company pursuant to Article V. Without
implication that the contrary would otherwise be true, it is expressly
understood and agreed that no Purchaser shall be required to participate in any
such underwritten distribution.
ARTICLE V
EXPENSES OF REGISTRATION
All expenses, other than underwriting discounts and commissions, incurred
in connection with registrations, filings or qualifications pursuant to Articles
II and III, including, without limitation, all registration, listing and
qualification fees, printers and accounting fees, the fees and disbursements of
counsel for the Company, shall be borne by the Company.
<PAGE>
ARTICLE VI
INDEMNIFICATION
In the event any Registrable Securities are included in a Registration
Statement under this Agreement:
<PAGE>
6.1 To the extent permitted by law, the Company will indemnify, hold
harmless and defend (a) each Purchaser who holds such Registrable Securities,
(b) each underwriter of Registrable Securities and (c) the directors, officers,
partners, members, employees, agents and persons who control any Purchaser
within the meaning of Section 15 of the Securities Act or Section 20 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), if any, (each,
an "Indemnified Person"), against any losses, claims, damages, liabilities or
expenses (collectively, together with actions, proceedings or inquiries whether
or not in any court, before any administrative body or by any regulatory or
self-regulatory organization, whether commenced or threatened, in respect
thereof, "Claims") to which any of them may become subject insofar as such
Claims arise out of or are based upon: (i) any untrue statement or alleged
untrue statement of a material fact in a Registration Statement or the omission
or alleged omission to state therein a material fact required to be stated or
necessary to make the statements therein not misleading, (ii) any untrue
statement or alleged untrue statement of a material fact contained in any
preliminary prospectus if used prior to the effective date of such Registration
Statement, or contained in the final prospectus (as amended or supplemented, if
the Company files any amendment thereof or supplement thereto with the SEC) or
the omission or alleged omission to state therein any material fact necessary to
make the statements made therein, in light of the circumstances under which the
statements therein were made, not misleading, or (iii) any violation or alleged
violation by the Company of the Securities Act, the Exchange Act, any other law,
including, without limitation, any state securities law, or any rule or
regulation thereunder relating to the offer or sale of the Registrable
Securities (the matters in the foregoing clauses (i) through (iii) being,
collectively, "Violations"). The Company shall reimburse each such Indemnified
Person, promptly as such expenses are incurred and are due and payable, for any
reasonable legal fees or other reasonable expenses incurred by them in
connection with investigating or defending any such Claim. Notwithstanding
anything to the contrary contained herein, the indemnification agreement
contained in this Section 6.1: (x) shall not apply to an Indemnified Person with
respect to a Claim arising out of or based upon a Violation which occurs in
reliance upon and in conformity with information furnished in writing to the
Company by such Indemnified Person expressly for use in the Registration
Statement or any such amendment thereof or supplement thereto; (y) shall not
apply to amounts paid in settlement of any Claim if such settlement is effected
without the prior written consent of the Company, which consent shall not be
unreasonably withheld; and (z) with respect to any preliminary prospectus, shall
not inure to the benefit of any Indemnified Person if the untrue statement or
omission of material fact contained in the preliminary prospectus was corrected
on a timely basis in the prospectus, as then amended or supplemented, if such
corrected prospectus was timely made available by the Company pursuant to
Section 3.3 hereof, and the Indemnified Person was promptly advised in writing
not to use the incorrect prospectus prior to the use giving rise to a Violation
and such Indemnified Person, notwithstanding such advice, used it. Such
indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf of the Indemnified Person and shall survive the transfer of
the Registrable Securities by a Purchaser pursuant to Article IX.
6.2 In connection with any Registration Statement in which a Purchaser is
participating, to the extent permitted by law, each such Purchaser agrees to
indemnify, hold harmless and defend, to the same extent and in the same manner
set forth in Section 6.1, the Company, each of its directors, each of its
officers who signs the Registration Statement, its employees, agents and
persons, if any, who control the Company within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act, and any other stockholder
selling securities pursuant to the Registration Statement, together with its
directors, officers and members, and any person who controls such stockholder or
underwriter within the meaning of the Securities Act or the Exchange Act (such
an "Indemnified Party"), against any Claim to which any of them may become
subject, under the Securities Act, the Exchange Act or otherwise, insofar as
such Claim arises out of or is based upon any Violation, in each case to the
extent (and only to the extent) that such Violation occurs in reliance upon and
in conformity with written information furnished to the Company by such
Purchaser expressly for use in connection with such Registration Statement; and
such Purchaser will reimburse any legal or other expenses (promptly as such
expenses are incurred and are due and payable) reasonably incurred by them in
connection with investigating or defending any such Claim; provided, however,
that the indemnity agreement contained in this Section 6.2 shall not apply to
amounts paid in settlement of any Claim if such settlement is effected without
the prior written consent of such Purchaser, which consent shall not be
unreasonably withheld; provided, further, however, that a Purchaser shall be
liable under this Agreement (including this Section 6.2 and Article VII) for
only that amount as does not exceed the net proceeds actually received by such
Purchaser as a result of the sale of Registrable Securities pursuant to such
Registration Statement. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of such Indemnified Party
and shall survive the transfer of the Registrable Securities by the Purchasers
pursuant to Article IX. Notwithstanding anything to the contrary contained
herein, the indemnification agreement contained in this Section 6.2 with respect
to any preliminary prospectus shall not inure to the benefit of any Indemnified
Party if the untrue statement or omission of material fact contained in the
preliminary prospectus was corrected on a timely basis in the prospectus, as
then amended or supplemented, and the Indemnified Party failed to utilize such
corrected prospectus.
<PAGE>
6.3 Promptly after receipt by an Indemnified Person or Indemnified Party
under this Article VI of notice of the commencement of any action (including any
governmental action), such Indemnified Person or Indemnified Party shall, if a
Claim in respect thereof is to be made against any indemnifying party under this
Article VI, deliver to the indemnifying party a written notice of the
commencement thereof, and the indemnifying party shall have the right (at its
expense) to participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly noticed, to assume
and continue control of the defense thereof with counsel mutually satisfactory
to the indemnifying party and the Indemnified Person or the Indemnified Party,
as the case may be; provided, however, that such indemnifying party shall
diligently pursue such defense and an indemnifying party shall not be entitled
to assume (or continue) such defense if the representation by such counsel of
the Indemnified Person or Indemnified Party and the indemnifying party would be
inappropriate due to actual or potential conflicts of interest between such
Indemnified Person or Indemnified Party and the indemnifying party, and any
other party represented by such counsel in such proceeding or the actual or
potential defendants in, or targets of, any such action include both the
Indemnified Person or the Indemnified Party and any such Indemnified Person or
Indemnified Party reasonably determines that there may be legal defenses
available to such Indemnified Person or Indemnified Party which are different
from or in addition to those available to such indemnifying party.
Notwithstanding any assumption of such defense and without limiting any
indemnification obligation provided for in Section 6.1 or 6.2, the Indemnified
Party or Indemnified Persons, as the case may be, shall be entitled to be
represented by counsel (at its own expense if the indemnifying party is
permitted to assume and continue control of the defense and otherwise at the
expense of the indemnifying party) and such counsel shall be entitled to
participate in such defense. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action shall not relieve such indemnifying party of any liability to the
Indemnified Person or Indemnified Party under this Article VI, except to the
extent that the indemnifying party is actually prejudiced in its ability to
defend such action. The indemnification required by this Article VI shall be
made by periodic payments of the amount thereof during the course of the
investigation or defense, as such expense, loss, damage or liability is incurred
and is due and payable.
ARTICLE VII
CONTRIBUTION
To the extent any indemnification by an indemnifying party is prohibited or
limited by law, the indemnifying party agrees to make the maximum contribution
with respect to any amounts for which it would otherwise be liable under Article
VI to the fullest extent permitted by law; provided, however, that (i) no person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation, and (ii) contribution (together
with any indemnification or other obligations under this Agreement) by any
Purchaser of Registrable Securities shall be limited in amount to the net amount
of proceeds received by such Purchaser from the sale of its Registrable
Securities.
ARTICLE VIII
REPORTS UNDER THE EXCHANGE ACT
With a view to making available to each Purchaser the benefits of Rule 144,
the Company agrees that so long as a Purchaser holds Warrants, any Registrable
Securities, the Company shall:
8.1(a) Not terminate its status as an issuer required to file reports under
the Exchange Act even if the Exchange Act or the rules and regulations
thereunder would permit such termination.
<PAGE>
8.1(b) File with the SEC in a timely manner and make and keep available all
reports and other documents required of the Company under the Securities Act and
the Exchange Act so long as the filing and availability of such reports and
other documents is required for the applicable provisions of Rule 144; and
8.2 Furnish to each Purchaser promptly upon written request, (i) a written
statement by the Company that it has complied with the reporting requirements of
Rule 144, the Securities Act and the Exchange Act, (ii) a copy of the most
recent annual or quarterly report of the Company and such other reports and
documents so filed by the Company, and (iii) such other information as may be
reasonably requested to permit the Purchaser to sell such securities pursuant to
Rule 144 without registration.
ARTICLE IX
ASSIGNMENT OF REGISTRATION RIGHTS
The rights of the Purchasers hereunder as to Registrable Securities
transferred by a Purchaser (or represented by Warrants transferred by a
Purchaser), including the right to have the Company register Registrable
Securities pursuant to this Agreement, shall be automatically assigned by each
Purchaser to any transferee of all or any portion of the Registrable Securities
if: (a) the Purchaser agrees in writing with the transferee or assignee to
assign such rights, and a copy of such agreement is furnished to the Company
within a reasonable time after such assignment, (b) the Company is, within a
reasonable time after such transfer or assignment, furnished with written notice
of (i) the name and address of such transferee or assignee, (ii) the securities
with respect to which such registration rights are being transferred or assigned
and (iii) the information specified in Section 3.12 to such transferee, (c)
following such transfer or assignment, the further disposition of such
securities by the transferee or assignee is restricted under the Securities Act
or applicable state securities laws, and (d) at or before the time the Company
receives the written notice contemplated by clause (ii) of this sentence, the
transferee or assignee agrees in writing for the benefit of the Company to be
bound by all of the provisions contained herein. The rights of a Purchaser
hereunder with respect to any Registrable Securities not transferred (and not
represented by Warrants transferred) shall not be assigned by virtue of the
transfer of other Registrable Securities or transferred Warrants representing
other Registrable Securities.
ARTICLE X
AMENDMENT OF REGISTRATION RIGHTS
<PAGE>
Provisions of this Agreement may be amended and the observance thereof may
be waived (either generally or in a particular instance and either retroactively
or prospectively), only with written consent of the Company, any Initial
Purchaser (but not an Initial Purchaser who no longer owns any Registrable
Securities and who is not affected by such amendment or waiver) and Purchasers
who hold a majority interest of the Registrable Securities. Any amendment or
waiver effected in accordance with this Article X shall be binding upon each
Purchaser and the Company. Notwithstanding the foregoing, no amendment or waiver
shall retroactively affect any Purchaser without its consent or prospectively
adversely affect any Purchaser who no longer owns any Warrants, Registrable
Securities without its consent. No amendment or waiver may adversely affect one
or more Purchasers or group of Purchasers vis-a-vis any other Purchaser or group
of Purchasers. Neither Article VI nor Article VII hereof may be amended or
waived in a manner adverse to a Purchaser without its consent. Notwithstanding
anything to the contrary contained in this Article X, no amendment or waiver
shall be applicable to an Initial Purchaser who does not consent in writing
thereto.
ARTICLE XI
MISCELLANEOUS
11.1 A person or entity is deemed to be a holder (or a holder in interest)
of Registrable Securities whenever such person or entity owns of record such
Registrable Securities (or the Warrants which may be exercised for Registrable
Securities). If the Company receives conflicting instructions, notices or
elections from two or more persons or entities with respect to the same
Registrable Securities, the Company shall act upon the basis of instructions,
notice or election received from the registered owner of such Registrable
Securities (or Warrants, as the case may be).
11.2 Any notices herein required or permitted to be given shall be in
writing and may be personally served or delivered by courier or by
machine-generated confirmed telecopy, and shall be deemed delivered at the time
and date of receipt (which shall include telephone line facsimile transmission).
The addresses for such communications shall be:
If to the Company:
ModaCAD, Inc.
3861 Sepulveda Blvd.
Culver City, CA 90230
Telecopy: (310) 751-2120
Attention: President
with a copy to:
Coudert Brothers
1055 West Seventh Street - 20th Floor
Los Angeles, CA 90017
Telecopy: (213) 689-4467
Attention: John A. St. Clair
and if to any Purchaser, at such address as such Purchaser, shall have provided
in writing to the Company, or at such other address as each such party furnishes
by notice given in accordance with this Section 11.2.
<PAGE>
11.3 Failure of any party to exercise any right or remedy under this
Agreement or otherwise, or delay by a party in exercising such right or remedy,
shall not operate as a waiver thereof.
11.4 This Agreement shall be governed by and construed in accordance with
the laws of the State of California applicable to contracts made and to be
performed in the State of California. The Company irrevocably consents to the
jurisdiction of the federal courts located in the state of California and the
state courts of the State of California located in the County of Los Angeles in
the State of Delaware in any suit or proceeding based on or arising under this
Agreement and irrevocably agrees that all claims in respect of such suit or
proceeding may be determined in such courts. The Company irrevocably waives the
defense of an inconvenient forum to the maintenance of such suit or proceeding.
The parties hereto further agree that service of process upon the parties hereto
mailed by first class mail shall be deemed in every respect effective service of
process upon each such party in any such suit or proceeding. Nothing herein
shall affect either party's right to serve process in any other manner permitted
by law. The parties hereto agree that a final non-appealable judgment in any
such suit or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on such judgment or in any other lawful manner.
11.5 This Agreement and the Securities Purchase Agreement (including all
schedules and exhibits thereto and all certificates and opinions required
thereby) constitute the entire agreement among the parties hereto with respect
to the subject matter hereof and thereof. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein and
therein. This Agreement and the Securities Purchase Agreement supersede all
prior agreements and understandings among the parties hereto with respect to the
subject matter hereof and thereof.
11.6 Subject to the requirements of Article IX hereof, this Agreement shall
inure to the benefit of and be binding upon the successors and assigns of each
of the parties hereto. Notwithstanding anything to the contrary contained
herein, including, without limitation, Article IX (and without compliance
therewith), the rights of a Purchaser hereunder shall be assignable to and
exercisable by a bona fide pledgee of the Registrable Securities in connection
with a Purchaser's margin or brokerage accounts.
11.7 The headings in this Agreement are for convenience of reference only
and shall not limit or otherwise affect the meaning hereof.
11.8 This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original but all of which shall constitute one and the
same agreement. This Agreement, once executed by a party, may be delivered to
the other party hereto, by facsimile transmission of a copy of this Agreement
bearing the signature of the party so delivering this Agreement.
<PAGE>
11.9 Each party shall do and perform, or cause to be done and performed,
all such further acts and things, and shall execute and deliver all such other
agreements, certificates, instruments and documents, as the other party may
reasonably request in order to carry out the intent and accomplish the purposes
of this Agreement and the consummation of the transactions contemplated hereby.
11.10 Amounts set forth or provided for herein with respect to payments,
conversion and the like (and the computation thereof) shall be the amounts to be
received by each Purchaser and shall not, except as expressly provided herein,
be subject to any other obligation of the Company (or the performance thereof).
The Company acknowledges that a breach by it of its obligations hereunder will
cause irreparable harm to the Purchasers and that the remedy at law for any such
breach may be inadequate.
11.11 The initial number of Registrable Securities included on any
Registration Statement and each increase to the number of Registrable Securities
included thereon shall be allocated pro rata among the Purchasers based on the
number of Registrable Securities held by each Purchaser at the time of such
establishment or increase, as the case may be. In the event a Purchaser shall
sell or otherwise transfer any of such holder's Registrable Securities, each
transferee shall be allocated a pro rata portion of the number of Registrable
Securities included on a Registration Statement for such transferor. Any shares
of Common Stock included on a Registration Statement and which remain allocated
to any person or entity which does not hold any Registrable Securities shall be
allocated to the remaining Purchasers, pro rata based on the number of shares of
Registrable Securities then held by such Purchasers. Without implication that
the contrary would otherwise be true, for purposes of this paragraph, all
Warrants then outstanding shall be assumed exercised for Registrable Securities
(without giving effect to any limitations on exercise contained therein).
11.12 Payment of Cash; Defaults. Whenever the Company is required to make
any cash payment to a Purchaser under this Agreement, such cash payment shall be
due on the date (the "Cash Due Date") that such Purchaser delivers written
notice from the Purchaser to the Company. Such cash payment shall be made to the
Purchaser by the method (by certified or cashier's check or wire transfer of
immediately available funds) elected by such Holder. If such payment is not
delivered within two (2) days of the Cash Due Date, such Purchaser shall
thereafter be entitled to interest on the unpaid amount at a per annum rate
equal to the lower of eighteen percent (18%) and the highest interest rate
permitted by applicable law until such amount is paid in full to the Holder.
11.13 If any provision of this Agreement shall be invalid or unenforceable,
such invalidity or unenforceability shall not affect the validity or
enforceability of the remainder of this Agreement.
* * *
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed
as of the date first above written.
MODACAD, INC.
By: /s/ Joyce Freedman
_________________________________
Name: Joyce Freedman
Title: Chief Executive Officer
Initial Purchasers:
PURCHASER:
CASTLE CREEK TECHNOLOGY PARTNERS LLC
By: Castle Creek Partners, L.L.C.
Its: Investment Manager
By: /s/ John D. Ziegelman
_________________________________
Name: John D. Ziegelman
Title: Managing Member
Address: 77 W. Wacker Drive, Suite 4040
Chicago, Illinois 60601
Facsimile Number: (312) 499-6999
with a copy to:
Altheimer & Gray
10 S. Wacker Drive, Suite 4000
Chicago, Illinois 60606
Attention: Peter H. Lieberman
Facsimile Number: (312) 715-4800
<PAGE>
PURCHASER:
MARSHALL CAPITAL MANAGEMENT, INC.
By: /s/ Allan Weine
_____________________________________
Name: Allan Weine
Title: President
Address: c/o Credit Suisse First Boston
11 Madison Ave., Third Floor
New York, NY 10010
Facsimile Number: (312) 750-1031
with a copy to:
c/o Credit Suisse First Boston
227 W. Monroe Street, 41st Floor
Chicago, IL 60606
PURCHASER:
WINFIELD CAPITAL CORP.
By: /s/ Paul A. Perlin
_______________________________________
Name: Paul A. Perlin
Title: Chief Executive Officer
Address:
Facsimile Number:
with a copy to:
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
<PAGE>
PURCHASER:
SPINNER ASSET MANAGEMENT CO.
By:___________________________________
Name:_________________________________
Title:________________________________
Address:
Facsimile Number:
with a copy to:
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
<PAGE>
EXHIBIT 1
to Registration
Rights Agreement
[Date]
[Name and address
of transfer agent]
RE: ModaCAD, Inc.
Ladies and Gentlemen:
We are counsel to ModaCAD, Inc., a California corporation (the "Company"),
and we understand that [Name of Purchaser] (the "Holder") has purchased from the
Company shares of the Company's common stock (the "Common Stock"). The Common
Stock was purchased by the Holder pursuant to a Securities Purchase Agreement,
dated as of April 7, 1999, by and among the Company and the signatories thereto
(the "Agreement"). Pursuant to a Registration Rights Agreement, dated as of
April 7, 1999, by and among the Company and the signatories thereto (the
"Registration Rights Agreement"), the Company agreed with the Holder, among
other things, to register the Registrable Securities (as that term is defined in
the Registration Rights Agreement) under the Securities Act of 1933, as amended
(the "Securities Act"), upon the terms provided in the Registration Rights
Agreement. In connection with the Company's obligations under the Registration
Rights Agreement, on April __, 1999, the Company filed a Registration Statement
on Form S-3 (File No. 333- __________) (the "Registration Statement") with the
Securities and Exchange Commission (the "SEC") relating to the Registrable
Securities, which names the Holder as a selling stockholder thereunder.
[Other customary introductory and scope of examination language to be
inserted, in each case as reasonably acceptable to Holders.]
Based on the foregoing, we are of the opinion that the resale of
Registrable Securities have been registered under the Securities Act.
[Other appropriate customary language to be included, in each case as
reasonably acceptable to Holders.]
Very truly yours,
cc: Castle Creek Technology Partners LLC
Marshall Capital Management, Inc.
Winfield Capital Corp.
Spinner Asset Management Co.
