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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, Inc. ("ModaCAD") reports its transaction with Intel Corporation
("Intel") pursuant to 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 Stock and Warrant Purchase and
Investor Rights Agreement between ModaCAD and Intel, 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 14, 1999 By: /s/ LEE FREEDMAN
---------------------------
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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MODACAD, INC.
STOCK AND WARRANT PURCHASE AND INVESTOR RIGHTS AGREEMENT
This Stock and Warrant Purchase and Investor Rights Agreement (this
"Agreement") is made and entered into as of April 7, 1999, by and between
ModaCAD, Inc., a California corporation (the "Company"), and Intel Corporation,
a Delaware corporation (the "Investor").
RECITALS
WHEREAS, the Company and the Investor entered into that certain Development
Agreement, dated as of November 12, 1997 (the "Development Agreement");
WHEREAS, pursuant to the terms hereof, the parties have agreed to terminate
the future royalty obligations under the Development Agreement, and, in
consideration thereof, the Company has agreed to grant to the Investor an equity
stake in the Company on the terms and conditions of this Agreement;
WHEREAS, the Company desires to sell to the Investor, and the Investor
desires to purchase from the Company, shares of Common Stock, no par value, of
the Company (the "Common Stock"), on the terms and conditions set forth in this
Agreement; and
WHEREAS, the Company has agreed to issue to the Investor three separate
warrants, in the forms attached hereto as Exhibits A-1, A-2 and A-3
(respectively, the "First Warrants," the "Second Warrants" and the "Third
Warrants" and, collectively, the "Warrants"), to purchase an aggregate of
538,673 shares of Common Stock (the "Warrant Shares"), subject to the terms
thereof and to the terms of this Agreement.
NOW, THEREFORE, in consideration of the foregoing recitals, the mutual
promises hereinafter set forth, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. AGREEMENT TO PURCHASE AND SELL STOCK AND WARRANTS
(a) Authorization. The Company's Board of Directors will, prior to the
Closing, authorize the issuance, pursuant to the terms and conditions of
this Agreement, of shares of Common Stock in an amount equal to the number
of Purchased Shares (as defined in Section 1(b)), and shall further reserve
for issuance the number of shares of Common Stock issuable upon exercise of
the Warrants.
(b) Agreement to Purchase and Sell Securities. The Company hereby
agrees to issue and sell to the Investor at the Closing (as defined below),
and the Investor hereby agrees to acquire from the Company at the Closing,
455,217 shares of Common Stock (collectively, the "Purchased Shares") at a
price per share of $10.9838 (the "Purchase Price"). The aggregate Purchase
Price for the Purchased Shares shall be $5,000,000, which amount shall be
deemed paid by the Investor upon execution of the Amendment.
(c) Issuance of Warrants. At the Closing, the Company shall execute
and deliver to the Investor the Warrants.
2. CLOSING. The purchase and sale of the Purchased Shares and the issuance
of the Warrants shall take place at the offices of Coudert Brothers, 1055 West
Seventh Street - 20th Floor, Los Angeles, CA 90017, on April 7, 1999 or at such
other time and place as the Purchaser and the Company may mutually agree upon
(which time and place are referred to in this Agreement as the "Closing"). At
the Closing, the Company will deliver to the Investor this Agreement, the
Warrants and certificates representing the Purchased Shares, in each case duly
executed by the Company, in addition to the documents required pursuant to
Section 6 below. Closing documents may be delivered by facsimile with original
signature pages sent by overnight courier. The date of the Closing is referred
to herein as the Closing Date.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants to the Investor that the statements in this Section 3
are true and correct, except as set forth in the Disclosure Letter (as defined
in Section 7(a)):
(a) Organization Good Standing and Qualification. The Company is a
corporation duly organized, validly existing and in good standing under the
laws of the State of California and has all corporate power and authority
required to (a) carry on its business as presently conducted, and (b) enter
into this Agreement, the Warrants and the other agreements, instruments and
documents contemplated hereby, and to consummate the transactions
contemplated hereby and thereby. The Company is qualified to do business
and is in good standing in each jurisdiction in which the failure to so
qualify would have a Material Adverse Effect. As used in this Agreement,
"Material Adverse Effect" means a material adverse effect on, or a material
adverse change in, or a group of such effects on or changes in, the
business, operations, financial condition, results of operations,
prospects, assets or liabilities of the applicable party and its
subsidiaries, taken as a whole.
(b) Capitalization. The capitalization of the Company, without giving
effect to the transactions contemplated by this Agreement, is as follows.
The authorized stock of the Company consists only of 15,000,000 shares of
Common Stock, of which 6,164,874 shares were issued and outstanding as of
April 6, 1999. All such shares of Common Stock have been duly authorized,
and all such issued and outstanding shares of Common Stock have been
validly issued, are fully paid and nonassessable and are free and clear of
all liens, claims and encumbrances, other than any liens, claims or
encumbrances created by or imposed upon the holders thereof. As of the date
hereof, the Company has also reserved 1,650,000 shares of Common Stock for
issuance upon exercise of options or other stock awards granted to
officers, directors, employees or independent contractors or affiliates of
the Company under the Company's stock incentive plans. All shares of Common
Stock subject to issuance as aforesaid, upon issuance on the terms and
conditions specified in the instruments pursuant to which they are
issuable, will be duly authorized, validly issued, fully paid and
nonassessable. There are no other equity securities, options, warrants,
calls, rights, commitments or agreements of any character to which the
Company is a party or by which it is bound obligating the Company to issue,
deliver, sell, repurchase or redeem, or cause to be issued, delivered,
sold, repurchased or redeemed, any shares of the capital stock of the
Company or obligating the Company to grant, extend or enter into any such
equity security, option, warrant, call, right, commitment or agreement. The
Company does not have any subsidiaries, nor does the Company own any
capital stock, assets comprising the business of, obligations of, or any
other interest (including any equity or partnership interest) in, or any
outstanding loan or advance to or from, any person or entity.
(c) Due Authorization. All corporate actions on the part of the
Company, its officers, directors and stockholders (other than the Nasdaq
Authorizations (as herein defined)) necessary for the authorization,
execution, delivery of, and the performance of all obligations of the
Company under this Agreement, the Amendment and the Warrants, and the
authorization, issuance, reservation for issuance and delivery of all of
the Purchased Shares being sold under this Agreement and all Common Stock
issuable upon exercise of the Warrants, have been or will be taken, and
this Agreement and the Warrants constitute the legal, valid and binding
obligations of the Company, enforceable against the Company in accordance
with their terms, except (a) as may be limited by (i) applicable
bankruptcy, insolvency, reorganization or others laws of general
application relating to or affecting the enforcement of creditors' rights
generally and (ii) the effect of rules of law governing the availability of
equitable remedies and (b) as rights to indemnity or contribution may be
limited under federal or state securities laws or by principles of public
policy thereunder.
(d) Valid Issuance of Stock.
(i) Valid Issuance. The shares of Common Stock to be issued
pursuant to this Agreement and upon the exercise of the Warrants will
be, upon payment therefor by the Investor in accordance with this
Agreement, or exercise in accordance with the Warrants, duly
authorized, validly issued, fully paid and non-assessable. The Board
of Directors of the Company has unanimously approved the issuance of
the Purchased 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
below) 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.
(ii) Compliance with Securities Laws. Assuming the correctness of
the representations made by the Investor in Section 4 hereof, the
Purchased Shares, the Warrants, and all shares of Common Stock
issuable upon exercise of the Warrants, will be issued to the Investor
in compliance with applicable exemptions from (i) the registration and
prospectus delivery requirements of the Securities Act of 1933, as
amended (the "Securities Act") and (ii) the registration and
qualification requirements of all applicable securities laws of the
states of California and Delaware.
(e) Governmental Consents. No consent, approval, order or
authorization of, or registration qualification, designation, declaration
or filing with, or notice to, any federal, state or local governmental
authority on the part of the Company is required in connection with the
issuance of the Purchased Shares and the Warrants to the Investor, or the
consummation of the other transactions contemplated by this Agreement and
the Warrants. As used herein, the term "HSR Requirements" means compliance
with the filing and other requirements of the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act").
(f) Non-Contravention. The execution, delivery and performance of this
Agreement, the Amendment and the Warrants by the Company, and the
consummation by the Company of the transactions contemplated hereby and by
the Amendment and the Warrants (including issuance of the Purchased Shares
and the Warrants, and issuance of shares of Common Stock upon exercise of
the Warrants), do not and will not (i) contravene or conflict with the
Articles of Incorporation or Bylaws of the Company; (ii) constitute a
violation of any provision of any federal, state, local or foreign law
binding upon or applicable to the Company; or (iii) constitute a default or
require any consent under, give rise to any right of termination,
cancellation or acceleration of, or to a loss of any benefit to which the
Company is entitled under, or result in the creation or imposition of any
lien, claim or encumbrance on any assets of the Company under, any contract
to which the Company is a party or any permit, license or similar right
relating to the Company or by which the Company may be bound or affected.
(g) Litigation. There is no action, suit, proceeding, claim,
arbitration or investigation ("Action") pending or, to the best of the
Company's knowledge, threatened: (a) against the Company, its activities,
properties or assets, or any officer, director or employee of the Company
in connection with such officer's, director's or employee's relationship
with, or actions taken on behalf of, the Company, or (b) that seeks to
prevent, enjoin, alter or delay the transactions contemplated by this
Agreement, the Amendment or the Warrants (including issuance of the
Purchased Shares or the Warrants). The Company is not a party to or subject
to the provisions of any order, writ, injunction, judgment or decree of any
court or government agency or instrumentality. No Action by the Company is
currently pending nor does the Company intend to initiate any Action that
is reasonably likely to be material to the Company.
(h) Compliance with Law and Charter Documents. The Company is not in
violation or default of any provisions of its Articles of Incorporation or
Bylaws, both as amended. The Company has complied in all material respects
and is in material compliance with all applicable statutes, laws, rules,
regulations and orders of the United States of America and all states
thereof, foreign countries and other governmental bodies and agencies
having jurisdiction over the Company's business or properties.
(i) SEC Documents.
(1) Reports. The Company has furnished to the Investor prior to
the date hereof a complete and correct list of all registration
statements, reports and proxy statements filed by the Company with the
SEC on or after December 31, 1997 (the Company's Annual Report on Form
10-KSB for the fiscal year ended December 31, 1997, its Quarterly
Reports on Form 10-QSB for the fiscal quarters ended March 31, June 30
and September 30, 1998, and all such other registration statements,
reports and proxy statements are collectively referred to herein as
the "SEC Documents"). Each of the SEC Documents, as of the respective
date thereof (or if amended or superseded by a filing prior to the
Closing Date, then on the date of such filing), did not, and each of
the registration statements, reports and proxy statements filed by the
Company with the SEC after the date hereof and prior to the Closing
will not, as of the date thereof (or if amended or superseded by a
filing after the date of this Agreement, then on the date of such
filing), contain any untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements made
therein, in light of the circumstances under which they were made, not
misleading. The Company is not a party to any material contract,
agreement or other arrangement that was required to have been filed as
an exhibit to the SEC Documents that was not so filed.
(2) Financial Statements. The Company has provided the Investor
with copies of its audited financial statements (the "Audited
Financial Statements") for the fiscal year ended December 31, 1998,
and its unaudited financial statements for the two-month period ended
February 28, 1999 (the "Balance Sheet Date"). Since the Balance Sheet
Date, the Company has duly filed with the SEC all registration
statements, reports and proxy statements required to be filed by it
under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and the Securities Act. The audited and unaudited consolidated
financial statements of the Company included in the SEC Documents
filed prior to the date hereof fairly present, in conformity with
generally accepted accounting principles ("GAAP") (except, in the case
of the Form 10-QSB's, as may otherwise be permitted by Form 10-QSB)
applied on a consistent basis (except as otherwise may be stated in
the notes thereto), the consolidated financial position of the Company
and its consolidated subsidiaries as at the dates thereof and the
consolidated results of their operations and cash flows for the
periods then ended (subject to normal year-end audit adjustments in
the case of unaudited interim financial statements).
(j) Absence of Certain Changes Since Balance Sheet Date. Since the
Balance Sheet Date, the business and operations of the Company have been
conducted in the ordinary course consistent with past practice, and there
has not been:
(i) any declaration, setting aside or payment of any dividend or
other distribution of the assets of the Company with respect to any
shares of capital stock of the Company or any repurchase, redemption
or other acquisition by the Company or any subsidiary of the Company
of any outstanding shares of the Company's capital stock;
(ii) any damage, destruction or loss, whether or not covered by
insurance, except for such occurrences, individually and collectively,
that are not material to the Company;
(iii) any waiver by the Company of a valuable right or of a
material debt owed to it, except for such waivers, individually and
collectively, that are not material;
(iv) any material change or amendment to, or any waiver of any
material right under a material contract or arrangement by which the
Company or any of its assets or properties is bound or subject, except
for changes, amendments or waivers that are expressly provided for or
disclosed in this Agreement;
(v) any change by the Company in its accounting principles,
methods or practices or in the manner it keeps its accounting books
and records, except any such change required by a change in GAAP; or
(vi) any other event or condition of any character, except for
such events and conditions that have not resulted, and could not
reasonably be expected to result, either individually or collectively,
in a Material Adverse Effect.
(k) Invention Assignment and Confidentiality Agreement. Each employee
and consultant or independent contractor of the Company whose duties
include the development of products or Intellectual Property (as defined
below), and each former employee and consultant or independent contractor
whose duties included the development of products or Intellectual Property,
has entered into and executed an invention assignment and confidentiality
agreement in customary form or an employment or consulting agreement
containing substantially similar terms.
(l) Intellectual Property.
(i) Ownership or Right to Use. The Company has sole title to and
owns, or is licensed or otherwise possesses legally enforceable rights
to use, all patents or patent applications, software, know-how,
registered or unregistered trademarks and service marks and any
applications therefor, registered or unregistered copyrights, trade
names, and any applications therefor, trade secrets or other
confidential or proprietary information ("Intellectual Property")
necessary to enable the Company to carry on its business as currently
conducted, except where any deficiency, or group of deficiencies,
would not have a Material Adverse Effect.
(ii) Licenses; Other Agreements. The Company is not currently the
licensee of any material portion of the Intellectual Property of the
Company. There are not outstanding any licenses or agreements of any
kind relating to any Intellectual Property owned by the Company,
except for agreements with customers of the Company entered into in
the ordinary course of the Company's business and other licenses and
agreements that, collectively, are not material. The Company is not
obligated to pay any royalties or other payments to third parties with
respect to the marketing, sale, distribution, manufacture, license or
use of any Intellectual Property, except as the Company may be so
obligated in the ordinary course of its business, as disclosed in the
Company's SEC Documents or where the aggregate amount of such payments
could not reasonably be expected to be material.
(iii) No Infringement. The Company has not violated or infringed
in any material respect, and is not currently violating or infringing
in any material respect, and the Company has not received any
communications alleging that the Company (or any of its employees or
consultants) has violated or infringed, any Intellectual Property of
any other person or entity.
(iv) Employees and Consultants. To the best of the Company's
knowledge, no employee of or consultant to the Company is in material
default under any term of any material employment contract, agreement
or arrangement relating to Intellectual Property of the Company or any
material non-competition arrangement, other contract or restrictive
covenant relating to the Intellectual Property of the Company. The
Intellectual Property of the Company (other than any Intellectual
Property duly acquired or licensed from third parties) was developed
entirely by the employees of or consultants to the Company during the
time they were employed or retained by the Company, and to the best
knowledge of the Company, at no time during conception or reduction to
practice of such Intellectual Property of the Company were any such
employees or consultants operating under any grant from a government
entity or agency or subject to any employment agreement or invention
assignment or non-disclosure agreement or any other obligation with a
third party that would materially and adversely affect the Company's
rights in the Intellectual Property of the Company. Such Intellectual
Property of the Company does not, to the best knowledge of the
Company, include any invention or other intellectual property of such
employees or consultants made prior to the time such employees or
consultants were employed or retained by the Company nor any
intellectual property of any previous employer of such employees or
consultants nor the intellectual property of any other person or
entity.
(v) Year 2000 Compliance.
(a) All of the Company's and its subsidiaries' material
products (including products currently under development) will
record, store, process and calculate and present calendar dates
falling on and after December 31, 1999, and will calculate any
information dependent on or relating to such dates in the same
manner and with the same functionality, data integrity and
performance as the products record, store, process, calculate and
present calendar dates on or before December 31, 1999, or
calculate any information dependent on or relating to such dates
(collectively, "Year 2000 Compliant"). Each of the Company's
Internet web sites and all of the Company's and its subsidiaries'
material products will lose no significant functionality with
respect to the introduction of records containing dates falling
on or after December 31, 1999. All of the Company's and its
subsidiaries' internal computer systems comprised of software,
hardware, databases or embedded control systems related to the
Company's and its subsidiaries' businesses (collectively, a
"Business System"), that constitutes any material part of, or is
used in connection with the use, operation or enjoyment of, any
material tangible or intangible asset or real property of the
Company and its subsidiaries, including its accounting systems,
are Year 2000 Compliant. The current versions of the Company's
and its subsidiaries' software and all other Intellectual
Property may be used prior to, during and after December 31,
1998, such that such software and Intellectual Property will
operate prior to, during and after such time period without error
caused by date data that represents or references different
centuries or more than one century.
(b) To the knowledge of the Company, all of the Company's
products and the conduct of the Company's business with customers
and suppliers will not be materially adversely affected by the
advent of the year 2000, the advent of the twenty-first century
or the transition from the twentieth century through the year
2000 and into the twenty-first century. To the knowledge of the
Company, neither the Company nor any of its subsidiaries is
reasonably likely to incur material expenses arising from or
relating to the failure of any of its Business Systems or any
products (including all products sold on or prior to the date
hereof) as a result of the advent of the year 2000, the advent of
the twenty-first century or the transition from the twentieth
century through the year 2000.
(m) Registration Rights. The Company is not currently subject to any
agreement providing any person or entity any rights (including piggyback
registration rights) to have any securities of the Company registered with
the SEC or registered or qualified with any other governmental authority.
(n) Title to Property and Assets. The properties and assets of the
Company are owned by the Company free and clear of all mortgages, deeds of
trust, liens, charges, encumbrances and security interests except for
statutory liens for the payment of current taxes that are not yet
delinquent and liens, encumbrances and security interests that arise in the
ordinary course of business and do not in any material respect affect the
properties and assets of the Company. With respect to the property and
assets it leases, the Company is in compliance with such leases in all
material respects.
(o) Tax Matters. The Company has filed all material tax returns
required to be filed, which returns are true and correct in all material
respects, and the Company has paid in full all taxes that have become due
on or prior to the date hereof (and will have paid when due all taxes that
become due after the date hereof and prior to the Closing), including
penalties and interest, assessments, fees and other charges, other than
those being contested in good faith and/or those for which adequate
reserves have been provided for.
(p) Full Disclosure. The information contained in this Agreement, the
Disclosure Letter (as defined in Section 7(a)) and the SEC Documents with
respect to the business, operations, assets, results of operations and
financial condition of the Company, are true and complete in all material
respects and do not omit to state any material fact or facts necessary in
order to make the statements therein, in light of the circumstances under
which they were made, not misleading.
(q) Finder's Fee. The Company neither is nor will be obligated for any
finder's or broker's fee or commission in connection with this transaction.
4. REPRESENTATIONS, WARRANTIES AND CERTAIN AGREEMENTS OF THE INVESTOR. The
Investor hereby represents and warrants to the Company, and agrees that:
(a) Organization Good Standing and Qualification. The Investor is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware and has all corporate power and authority
required to carry on its business as presently conducted.
(b) Authorization. The execution of this Agreement has been duly
authorized by all necessary corporate action on the part of the Investor.
This Agreement constitutes the Investor's legal, valid and binding
obligation, enforceable in accordance with its terms, except as may be
limited by (a) (i) applicable bankruptcy, insolvency, reorganization or
other laws of general application relating to or affecting the enforcement
of creditors' rights generally and (ii) the effect of rules of law
governing the availability of equitable remedies. The Investor has full
corporate power and authority to enter into this Agreement, except as
rights to indemnity or contribution may be limited under federal or state
securities laws or by principles of public policy thereunder.
(c) Governmental Consents. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration
or filing with, any federal, state or local governmental authority on the
part of the Investor is required in connection with the acquisition of the
Purchased Shares and the Warrants by the Investor.
(d) Non-Contravention. The execution, delivery and performance of this
Agreement by the Investor, and the consummation by the Investor of the
transactions contemplated hereby, do not and will not (i) contravene or
conflict with the Certificate of Incorporation or Bylaws of the Investor;
(ii) constitute a violation of any provision of any federal, state, local
or foreign law binding upon or applicable to the Investor; or (iii)
constitute a default or require any consent under, give rise to any right
of termination, cancellation or acceleration of, or to a loss of any
benefit to which the Investor is entitled under, or result in the creation
or imposition of any lien, claim or encumbrance on any assets of the
Investor under, any contract to which the Investor is a party or any
permit, license or similar right relating to the Investor or by which the
Investor may be bound or affected.
(e) Litigation. There is no Action pending against the Investor that
seeks to prevent, enjoin, alter or delay the transactions contemplated by
this Agreement.
(f) Purchase for Own Account. The Purchased Shares and the Warrant are
being acquired for investment for the Investor's own account, not as a
nominee or agent, and not with a view to the public resale or distribution
thereof within the meaning of the Securities Act, and the Investor has no
present intention of selling, granting any participation in, or otherwise
distributing the same. The Investor also represents that it has not been
formed for the specific purpose of acquiring the Purchased Shares or the
Warrants.
(g) Investment Experience. The Investor understands that the purchase
of the Purchased Shares and the Warrants involves substantial risk. The
Investor has experience as an investor in securities of companies and
acknowledges that it is able to fend for itself, can bear the economic risk
of its investment in the Purchased Shares and has such knowledge and
experience in financial or business matters that it is capable of
evaluating the merits and risks of this investment in the Purchased Shares
and protecting its own interests in connection with this investment.
(h) Accredited Investor Status. The Investor is an "accredited
investor" within the meaning of Regulation D promulgated under the
Securities Act.
(i) Restricted Securities. The Investor understands that the Purchased
Shares, the Warrants, and the shares of Common Stock issuable upon exercise
of the Warrants are characterized as "restricted securities" under the
Securities Act, inasmuch as they are being acquired from the Company in a
transaction not involving a public offering and that under the Securities
Act and applicable regulations thereunder such securities may be resold
without registration under the Securities Act only in certain limited
circumstances. The Investor is familiar with Rule 144 of the SEC, as
presently in effect, and understands the resale limitations imposed thereby
and by the Securities Act.
(j) Legends. The Investor agrees that the certificates for the
Purchased Shares and the shares of Common Stock issuable upon exercise of
the Warrants shall bear the following legend:
"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."
In addition, the Investor agrees that the Company may place stop transfer
orders with its transfer agents with respect to such certificates. The
appropriate portion of the legend and the stop transfer orders will be
removed promptly upon delivery to the Company of such satisfactory evidence
as reasonably may be required by the Company that such legend or stop
orders are not required to ensure compliance with the Securities Act.
(k) Finder's Fee. Investor neither is nor will be obligated for any
finder's or broker's fee or commission in connection with this transaction.
5. CONDITIONS TO THE INVESTOR'S OBLIGATIONS AT CLOSING. The obligations of
the Investor under Sections l and 2 of this Agreement are subject to the
fulfillment or waiver, on or before the Closing, of each of the following
conditions:
(a) Representations and Warranties True. Each of the representations
and warranties of the Company contained in Section 3 shall be true and
correct in all material respects on and as of the date of the Disclosure
Letter (as defined in Section 7(a) below) and on and as of the date of the
Closing, except as set forth in the Disclosure Letter, with the same effect
as though such representations and warranties had been made as of the
Closing.
(b) Performance. The Company shall have performed and complied with
all agreements, obligations and conditions contained in this Agreement that
are required to be performed or complied with by it on or before the
Closing and shall have obtained all approvals, consents and qualifications
necessary to complete the purchase and sale described herein.
(c) Securities Exemptions. The offer and sale of the Purchased Shares
and the Warrants to the Investor pursuant to this Agreement and the
Warrants shall be exempt from the registration requirements of the
Securities Act and the registration and/or qualification requirements of
all applicable state securities laws.
(d) Proceedings and Documents. All corporate and other proceedings in
connection with the transactions contemplated at the Closing and all
documents incident thereto shall be reasonably satisfactory in form and
substance to the Investor, and the Investor shall have received all such
counterpart originals and certified or other copies of such documents as it
may reasonably request. Such documents shall include but not be limited to
the following:
(i) Certified Charter Documents. A copy of (i) the Articles of
Incorporation certified as of a recent date by the Secretary of State
of California as a complete and correct copy thereof, and (ii) the
Bylaws of the Company (as amended through the date of the Closing)
certified by the Secretary of the Company as a true and correct copy
thereof as of the Closing.
(ii) Board Resolutions. A copy, certified by the Secretary of the
Company, of the resolutions of the Board of Directors of the Company
providing for the approval of this Agreement and the Warrants and the
issuance of the Purchased Shares and the shares of Common Stock
issuable upon exercise of the Warrants, and the other matters
contemplated hereby and thereby.
(iii) Registrar and Transfer Agent Certificate. A certificate,
executed by the Company's registrar and transfer agent certifying the
number of outstanding shares of Common Stock of the Company as of a
recent date reasonably acceptable to the Investor.
(e) Opinion of Company Counsel. The Investor will have received an
opinion on behalf of the Company, dated as of the date of the Closing, from
Coudert Brothers, counsel to the Company, in a form reasonably acceptable
to the Investor.
(f) No Material Adverse Effect. Between the date hereof and the
Closing, there shall not have occurred any Material Adverse Effect to the
Company.
(g) Nasdaq Requirements. All requirements of the Nasdaq National
Market in connection with the transactions contemplated by this Agreement
and the Warrants shall have been complied with by the Company. The
Purchased Shares and the shares of Common Stock issuable upon conversion of
the Warrants shall have been approved for quotation on the Nasdaq National
Market.
(h) Other Actions. The Company shall have executed such certificates,
agreements, instruments and other documents, and taken such other actions
as shall be customary or reasonably requested by the Investor in connection
with the transactions contemplated hereby.
6. CONDITIONS TO THE COMPANY'S OBLIGATIONS AT CLOSING. The obligations of
the Company to the Investor under this Agreement are subject to the fulfillment
or waiver, on or before the Closing, of each of the following conditions:
(a) Representations and Warranties True. The representations and
warranties of the Investor contained in Section 4 shall be true and correct
in all material respects on and as of the date hereof and on and as of the
date of the Closing with the same effect as though such representations and
warranties had been made as of the Closing.
(b) Performance. The Investor shall have performed and complied with
all agreements, obligations and conditions contained in this Agreement that
are required to be performed or complied with by it on or before the
Closing and shall have obtained all approvals, consents and qualifications
necessary to complete the purchase and sale described herein.
(c) Securities Exemptions. The offer and sale of the Purchased Shares
and the Warrants to the Investor pursuant to this Agreement shall be exempt
from the registration requirements of the Securities Act and the
registration and/or qualification requirements of all applicable state
securities laws.
(d) Proceedings and Documents. All corporate and other proceedings in
connection with the transactions contemplated at the Closing and all
documents incident thereto will be reasonably satisfactory in form and
substance to the Company and to the Company's legal counsel, and the
Company will have received all such counterpart originals and certified or
other copies of such documents as it may reasonably request.
(e) Other Actions. The Investor shall have executed such certificates,
agreements, instruments and other documents, and taken such other actions
as shall be customary or reasonably requested by the Company in connection
with the transactions contemplated hereby.
7. COVENANTS OF THE PARTIES.
(a) Disclosure Letter. At the Closing, the Company shall deliver to
the Investor a disclosure letter in a form agreed upon by each of the
Company and the Investor (the "Disclosure Letter"), which shall set forth
exceptions, if any, to the representations and warranties made by the
Company in Article 3 hereof. Such Disclosure Letter shall be organized such
that any exceptions specifically identify the representation and warranty,
by section, to which they relate, and shall clearly identify the nature of
the exception, to the Investor's reasonable satisfaction. In any
determination of whether the Investor is entitled to indemnification for
the breach of any representations or warranties set forth in this
Agreement, only the final form of the Disclosure Letter (i.e., the final
disclosure letter agreed upon by the Company and the Investor) shall be
relevant, and the identification of any matters on any drafts of the
Disclosure Letter shall not be introduced as evidence or otherwise used in
any manner in connection therewith.
(b) Election of Board of Directors. The Company hereby agrees to use
its best efforts to change the composition of Company's Board of Directors
(the "Board"), within three (3) months from the date hereof, so that the
Board shall consist of exactly seven (7) directors, with four (4) of such
directors being outside directors. The Company agrees that at its next
meeting of shareholders following the Closing, the Company shall make such
proposals and take all actions within its control and shall use its best
efforts to cause its shareholders to vote, to change the Company's Articles
of Incorporation and Bylaws, as appropriate, to (i) require that the
composition of the Board include at least a majority of outside directors,
and (ii) provide that the number of directors may not be changed to a
number greater than nine (9) except by amendment to the Company's Articles
of Incorporation and Bylaws.
(c) Registration Rights.
(i) Definitions. For purposes of this Section 7(c):
(A) Registration. The terms "register," "registered," and
"registration" refer to a registration effected by preparing and
filing a registration statement in compliance with the Securities
Act of 1933, as amended, (the "Securities Act"), and the
declaration or ordering of effectiveness of such registration
statement
(B) Registrable Securities. The term "Registrable
Securities" means: (y) the Purchased Shares and any shares of
Common Stock of the Company issued or issuable upon exercise of
the Warrants; and (z) any shares of Common Stock of the Company
or other securities of the Company issued as (or issuable upon
the conversion or exercise of any warrant, right or other
security that is issued as) a dividend or other distribution with
respect to, or in exchange for or in replacement of, any of the
securities described in the immediately preceding clause (y).
Notwithstanding the foregoing, "Registrable Securities" shall
exclude (i) any Registrable Securities sold by a person in a
transaction in which rights under this Section 7(c) are not
assigned in accordance with this Agreement or (ii) any
Registrable Securities sold in a public offering, whether sold
pursuant to Rule 144 promulgated under the Securities Act, or in
a registered offering, or otherwise.
(C) Registrable Securities Then Outstanding. The number of
shares of "Registrable Securities then outstanding" shall mean
the number of shares of Purchased Shares, shares of Common Stock
and other securities that are Registrable Securities and are then
issued and outstanding.
(D) Holder. For purposes of this Section 7(c), the term
"Holder" means any person owning of record Registrable Securities
that have not been sold to the public or pursuant to Rule 144
promulgated under the Securities Act or any permitted assignee of
record of such Registrable Securities to whom rights under this
Section 7(c) have been duly assigned in accordance with this
Agreement.
(E) Form S-3. The term "Form S-3" means such form under the
Securities Act as is in effect on the date hereof or any
successor registration form under the Securities Act subsequently
adopted by the SEC that permits inclusion or incorporation of
substantial information by reference to other documents filed by
the Company with the SEC.
(ii) Form S-3 Registration. Within the fifteen day period
following the Closing Date, the Company shall use best efforts to
cause to be filed and become effective with the SEC a Registration
Statement on Form S-3 relating to all of the Registrable Securities
(in the event such registration statement is not effective on such
date, the Company shall continue to use all reasonable commercial
efforts to cause it to become effective until it becomes effective),
such Registration Statement to be effected only for sales or other
transfers by the Investor in connection with offerings, sales and
transfers not constituting an underwritten public offering; provided,
however, that in the event Form S-3 is not available to the Company,
the Company shall file such other form as may be available if Holders
who hold Registrable Securities with a market value of at least One
Million Dollars ($1,000,000) deliver a written request to the Company
that the Company do so, where such market value is determined as of
the date of such written request. The Company shall also use its best
efforts to obtain any related qualifications, registrations or other
compliances that may be necessary under any applicable "blue sky" laws
in each jurisdiction reasonably requested by the Holders. In
connection with such registration, the Company will:
(A) Notice. Promptly give written notice to the Holders of
the proposed registration and any related qualification or
compliance; and
(B) Registration. Effect such registration and all such
qualifications and compliances and as would permit or facilitate
the sale and distribution of all or such portion of such Holders
or Holders' Registrable Securities within the timeframes set
forth in this Section 7(c)(ii); provided, however, that the
Company shall not be obligated to effect any such registration,
qualification or compliance pursuant to this Section 7(c)(ii) in
any particular jurisdiction in which the Company would be
required to qualify to do business or to execute a general
consent to service of process in effecting such registration,
qualification or compliance and shall be obligated to effect only
one such registration in any six (6) month period.
(C) Expenses. The Company shall pay all expenses incurred in
connection with the registration pursuant to this Section
7(c)(ii), excluding underwriters' or brokers' discounts and
commissions relating to shares sold by the Holders, including
federal and "blue sky" registration, filing and qualification
fees, printers' and accounting fees, and fees and disbursements
of counsel.
(D) Maintenance. The Company shall use best efforts to
maintain the effectiveness of the Form S-3 registration statement
filed under this Section 7(c)(ii) until the earlier of: (a) the
date on which all of the Registrable Securities have been sold;
and (b) the first anniversary of the effective date of such
registration statement; provided, however, that unless all of the
Registrable Securities held by the Investor as of such first
anniversary could then be sold in a single transaction in
accordance with Rule 144 under the Securities Act without
exceeding the volume limitations thereof, if the Company receives
written notice from the Investor that the Investor may be deemed
to be an "affiliate" of the Company for purposes of the
Securities Act, the date in this Clause (b) shall be extended
until the Investor advises the Company that it no longer believes
it may be deemed such an "affiliate."
(E) Effectiveness Failure Sale. If the Company fails to
cause any Registration Statement required to become effective
pursuant to this Section 7(c)(ii) to be filed before one hundred
eighty (180) days after the Closing, as to the shares of Common
Stock to be covered by that Registration Statement, each Holder
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 Common
Stock at a price per share equal to the greater of (i) one
hundred fifty percent (150%) of the Purchase Price and (ii) fair
market value for the Common Stock.
(F) Right to Sell. After any Registration Statement required
to be filed pursuant to this Section 7(c) 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 Holder 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
Purchase Price and (ii) fair market value for the Common Stock.
(G) Effecting a Sale. In order to effect an Effectiveness
Failure Sale, a Holder (a "Selling Holder") 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
Holder, the Company shall immediately send, via facsimile, a
confirmation to the Selling Holder 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 to be
sold hereunder, along with a copy of the Notice of Sale.
(H) Payments by the Company. The Company shall cause each
Registration Statement filed pursuant to Section 7(c)(ii) 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"). If any Registration Statement required to be filed by
the Company pursuant to Section 7(c)(ii) 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 Holders) (a "Registration
Suspension"), then the Company will make payments to the Holders
in such amounts and at such times as shall be determined pursuant
to this subsection (H) as partial relief for the damages to the
Holders 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 Holders an amount equal to (1) .02 times (2) the
aggregate Funded Amount times (3) 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 7(c)(ii) is declared effective by the SEC. In addition,
in the event of a Registration Suspension, the Company shall pay
to the Holders an amount equal to (4) .02 times (5) the
Applicable Funded Amount times (6) 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, "Applicable Funded
Amount" shall mean (7) Funded Amount times (8) the number of
Purchased Shares and Warrant Shares then owned by the Holders (or
issuable at that time as Warrant Shares upon full exercise of the
Warrants, without regard to any limitations on conversion
thereof) divided by (9) the number of Purchased Shares (and
Warrant Shares issuable upon full exercise of the Warrants
without regard to any limitations on conversion thereof)
originally purchased. Amounts to be paid pursuant to this Section
shall be paid pro rata to the Investor based upon the number of
Purchased Shares and Warrant Shares owned and Warrant Shares
issuable upon full conversion of the Warrants by each Holder, 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.
(iii) Obligations of the Company. In connection with the
Registration Statement filed pursuant to Section 7(c)(ii) above and
the registration of any other Registrable Securities under this
Agreement, the Company shall, as expeditiously as reasonably possible:
(A) Amendments and Supplements. Prepare and file with the
SEC such amendments and supplements to such registration
statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition
of all securities covered by such registration statement.
(B) Prospectuses. Furnish to the Holders such number of
copies of a prospectus, including a preliminary prospectus, in
conformity with the requirements of the Securities Act, and such
other documents as they may reasonably request in order to
facilitate the disposition of the Registrable Securities owned by
them that are included in such registration.
(C) Blue Sky. Use commercially reasonable efforts to
register and qualify the securities covered by such registration
statement under such other securities or Blue Sky laws of such
jurisdictions as shall be reasonably requested by the Holders,
provided that the Company shall not be required in connection
therewith or as a condition thereto to qualify to do business or
to file a general consent to service of process in any such
states or jurisdictions.
(D) Underwriting. In the event of any underwritten public
offering, enter into and perform its obligations under an
underwriting agreement in usual and customary form (including
customary indemnification of the underwriters by the Company),
with the managing underwriter(s) of such offering. Each Holder
participating in such underwriting shall also enter into and
perform its obligations under such an agreement; provided,
however, that it shall not be considered customary to require any
of the Holders to provide representations and warranties
regarding the Company or indemnification of the underwriters for
material misstatements or omissions in the registration statement
or prospectus for such offering.
(E) Notification. Notify each Holder of Registrable
Securities covered by such registration statement at any time
when a prospectus relating thereto is required to be delivered
under the Securities Act of the happening of any event as a
result of which the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a
material fact or omits to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading in the light of the circumstances then existing.
(F) Opinion and Comfort Letter. Furnish, at the request of
any Holder requesting registration of Registrable Securities, on
the date that such Registrable Securities are delivered to the
underwriters for sale, if such securities are being sold through
underwriters, or, if such securities are not being sold through
underwriters, on the date that the registration statement with
respect to such securities becomes effective, (i) an opinion,
dated as of such date, of the counsel representing the Company
for the purposes of such registration, in form and substance as
is customarily given to underwriters in an underwritten public
offering and reasonably satisfactory to a majority in interest of
the Holders requesting registration, addressed to the
underwriters, if any, and to the Holders requesting registration
of Registrable Securities and (ii) in the event that such
securities are being sold through underwriters, a "comfort"
letter dated as of such date, from the independent certified
public accountants of the Company, in form and substance as is
customarily given by independent certified public accountants to
underwriters in an underwritten public offering and reasonably
satisfactory to a majority in interest of the Holders requesting
registration, addressed to the underwriters and to the Holders
requesting registration of Registrable Securities.
(iv) Furnish Information. It shall be a condition precedent to
the obligations of the Company to take any action pursuant to Sections
7(c)(ii) that the selling Holders shall furnish to the Company such
information regarding themselves, the Registrable Securities held by
them, and the intended method of disposition of such securities as
shall be reasonably requested by the Company to timely effect the
registration of their Registrable Securities.
(v) Indemnification.
(A) By the Company. To the extent permitted by law, the
Company will indemnify and hold harmless each Holder, the
partners, officers, shareholders, employees, representatives and
directors of each Holder, any underwriter (as determined in the
Securities Act) for such Holder and each person, if any, who
controls such Holder or underwriter within the meaning of the
Securities Act or the Securities Exchange Act of 1934, as
amended, against any losses, claims, damages, or Liabilities
(joint or several) to which they may become subject under the
Securities Act, the Exchange Act or other federal or state law,
insofar as such losses, claims, damages, or liabilities (or
actions in respect thereof) arise out of or are based upon any of
the following statements, omissions or violations (collectively a
"Violation"):
(x) any untrue statement or alleged untrue statement of
a material fact contained in such registration statement,
including any preliminary prospectus or final prospectus
contained therein or any amendments or supplements thereto;
(y) the omission or alleged omission to state therein a
material fact required to be stated therein, or necessary to
make the statements therein not misleading, or
(z) any violation or alleged violation by the Company
of the Securities Act, the Exchange Act, any federal or
state securities law or any rule or regulation promulgated
under the Securities Act, the Exchange Act or any federal or
state securities law in connection with the offering covered
by such registration statement;
and the Company will reimburse each such Holder, partner,
officer, shareholder, employee, representative, director,
underwriter or controlling person for any legal or other
expenses reasonably incurred by them, as incurred, in
connection with investigating or defending any such loss,
claim, damage, liability or action; provided, however, that
the indemnity agreement contained in this subsection shall
not apply to amounts paid in settlement of any such loss,
claim, damage, liability or action if such settlement is
effected without the consent of the Company (which consent
shall not be unreasonably withheld), nor shall the Company
be liable in any such case for any such loss, claim, damage,
liability or action to the extent that it arises out of or
is based upon a Violation that occurs in reliance upon and
in conformity with written information furnished expressly
for use in connection with such registration by such Holder,
partner, officer, shareholder, employee, representative,
director, underwriter or controlling person of such Holder.
(B) By Selling Holders. To the extent permitted by law, each
selling Holder will indemnify and hold harmless the Company, each
of its directors, each of its officers who have signed the
registration statement, each person, if any, who controls the
Company within the meaning of the Securities Act, any underwriter
and any other Holder selling securities under such registration
statement or any of such other Holder's partners, officers,
shareholders, employees, representatives and directors and any
person who controls such Holder within the meaning of the
Securities Act or the Exchange Act, against any losses, claims,
damages or liabilities (joint or several) to which the Company or
any such officer or director, controlling person, underwriter or
other such Holder, partner, officer, shareholder, employee,
representative, director or controlling person of such other
Holder may become subject under the Securities Act, the Exchange
Act or other federal or state law, insofar as such losses,
claims, damages or liabilities (or actions in respect thereto)
arise out of or are 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 by such Holder expressly for use in connection with
such registration; and each such Holder will reimburse any legal
or other expenses reasonably incurred by the Company or any such
officer or director, controlling person, underwriter or other
Holder, partner, officer, shareholder, employee, representative,
director or controlling person of such other Holder in connection
with investigating or defending any such loss, claim, damage,
liability or action: provided, however, that the indemnity
agreement contained in this subsection shall not apply to amounts
paid in settlement of any such loss, claim, damage, liability or
action if such settlement is effected without the consent of the
Holder, which consent shall not be unreasonably withheld; and
provided further, that the total amounts payable in indemnity by
a Holder under this subsection or otherwise in respect of any and
all Violations shall not exceed in the aggregate the net proceeds
received by such Holder in the registered offering out of which
such Violations arise.
(C) Notice. Promptly after receipt by an indemnified party
under of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in
respect thereof is to be made against any indemnifying party
under this section, deliver to the indemnifying party a written
notice of the commencement thereof and the indemnifying party
shall have the right to participate in, and, to the extent the
indemnifying party so desires, jointly with any other
indemnifying party similarly noticed, to assume the defense
thereof with counsel mutually satisfactory to the parties;
provided, however, that an indemnified party shall have the right
to retain its own counsel, with the fees and expenses to be paid
by the indemnifying party, to the extent that representation of
such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or
potential conflict of interests between such indemnified party
and any other party represented by such counsel in such
proceeding. 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
liability except to the extent the indemnifying party is
prejudiced as a result thereof.
(D) Defect Eliminated in Final Prospectus. The foregoing
indemnity agreements of the Company and Holders are subject to
the condition that, insofar as they relate to any Violation made
in a preliminary prospectus but eliminated or remedied in the
amended prospectus on file with the SEC at the time the
registration statement in question becomes effective or the
amended prospectus filed with the SEC pursuant to SEC Rule 424(b)
(the "Final Prospectus"), such indemnity agreement shall not
inure to the benefit of any person if a copy of the Final
Prospectus was timely furnished to the indemnified party and was
not furnished to the person asserting the loss, liability, claim
or damage at or prior to the time such action is required by the
Securities Act.
(E) Contribution. In order to provide for just and equitable
contribution to joint liability under the Securities Act in any
case in which either (i) any Holder exercising rights under this
Agreement, or any controlling person of any such Holder, makes a
claim for indemnification pursuant to this section, but it is
judicially determined (by the entry of a final judgment or decree
by a court of competent jurisdiction and the expiration of time
to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding
the fact that this section provides for indemnification in such
case, or (ii) contribution under the Securities Act may be
required on the part of any such selling Holder or any such
controlling person in circumstances for which indemnification is
provided under this section; then, and in each such case, the
Company and such Holder will contribute to the aggregate losses,
claims, damages or liabilities to which they may be subject
(after contribution from others) in such proportion so that such
Holder is responsible for the portion represented by the
percentage that the public offering price of its Registrable
Securities offered by and sold under the registration statement
bears to the public offering price of all securities offered by
and sold under such registration statement, and the Company and
other selling Holders are responsible for the remaining portion;
provided, however, that, in any such case: (A) no such Holder
will be required to contribute any amount in excess of the public
offering price of all such Registrable Securities offered and
sold by such Holder pursuant to such registration statement; and
(B) no person or entity guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) will
be entitled to contribution from any person or entity who was not
guilty of such fraudulent misrepresentation.
(F) Survival. The obligations of the Company and Holders
under this Section 7(c)(v) shall survive until the fifth
anniversary of the completion of any offering of Registrable
Securities in a registration statement, regardless of the
expiration of any statutes of limitation or extensions of such
statutes.
(vi) No Registration Rights to Third Parties. Without the prior
written consent of the Investor, the Company covenants and agrees that
it shall not grant, or cause or permit to be created, for the benefit
of any person or entity any registration rights of any kind (whether
similar to the demand, "piggyback" or Form S-3 registration rights)
relating to shares of the Company's Common Stock or any other
securities of the Company that are superior to the rights granted
under this Section 7(c).
(vii) Suspension Provisions. Notwithstanding the foregoing
subsections of this Section 7(c), the Company shall not be required to
take any action with respect to the registration or the declaration of
effectiveness of the registration statement following written notice
to the Holders from the Company (a "Suspension Notice") of the
existence of any state of facts or the happening of any event
(including pending negotiations relating to, or the consummation of, a
transaction, or the occurrence of any event that the Company believes,
in good faith, requires additional disclosure of material, non-public
information by the Company in the registration statement that the
Company believes it has a bona fide business purpose for preserving
confidentiality or that renders the Company unable to comply with the
published rules and regulations of the SEC promulgated under the
Securities Act or the Securities Exchange Act, as in effect at any
relevant time (the "Rules and Regulations")) that would result in (1)
the registration statement, any amendment or post-effective amendment
thereto, or any document incorporated therein by reference containing
an untrue statement of a material fact or omitting to state a material
fact required to be stated therein or necessary to make the statements
therein not misleading, or (2) the prospectus issued under the
registration statement, any prospectus supplement, or any document
incorporated therein by reference including an untrue statement of
material fact or omitting to state a material fact necessary in order
to make the statements therein, in the light of the circumstances
under which they were made, not misleading, provided that the Company
(1) shall not issue a Suspension Notice more than once in any 12 month
period, (2) shall use its best efforts to remedy, as promptly as
practicable, but in any event within ninety (90) days of the date on
which the Suspension Notice was delivered, the circumstances that gave
rise to the Suspension Notice and deliver to the Holders notification
that the Suspension Notice is no longer in effect and (3) shall not
issue a Suspension Notice for any period during which the Company's
executive officers are not similarly restrained from disposing of
shares of the Company's Common Stock. Upon receipt of a Suspension
Notice from the Company, all time limits applicable to the Holders
under this Section 7(c) shall automatically be extended by an amount
of time equal to the amount of time the Suspension Notice is in
effect, the Holders will forthwith discontinue disposition of all such
shares pursuant to the registration statement until receipt from the
Company of copies of prospectus supplements or amendments prepared by
or on behalf of the Company (which the Company shall prepare
promptly), together with a notification that the Suspension Notice is
no longer in effect, and if so directed by the Company, the Holders
will deliver to the Company all copies in their possession of the
prospectus covering such shares current at the time of receipt of any
Suspension Notice.
(d) Obligations Regarding Confidential Information. Confidential
Information (as defined below) shall not be disclosed by any party hereto
to any third party except in accordance with the provisions set forth
below. For purposes of this Agreement, the term "Confidential Information"
refers to the following items: (i) the existence of this Agreement and the
Warrants, and (ii) the terms and provisions of this Agreement and the
Warrants, provided, however, that Confidential Information shall not
include any information that was (i) publicly known and generally available
in the public domain prior to its disclosure by the Company, (ii) becomes
publicly known and generally available in the public domain through no
action or inaction on the part of the Company or (iii) becomes publicly
known by written consent or other action of the Investor.
(i) Press Releases, Etc. No announcement regarding the
Confidential Information in a press release, conference,
advertisement, announcement, professional or trade publication, mass
marketing materials or otherwise may be made without the prior written
consent of each of the parties hereto.
(ii) Permitted Disclosures. Notwithstanding the foregoing, (i)
any party may disclose any of the Confidential Information to its
current or bona fide prospective investors, employees, investment
bankers, lenders, accountants and attorneys, in each case only where
such persons or entities are under appropriate nondisclosure
obligations (the Company shall be responsible for any failure of any
such person to comply with the provisions of this Section 7(d)); and
(ii) the Investor may disclose its investment in the Company and other
Confidential Information to third parties or to the public at its sole
discretion and, if it does so, the Company shall have the right to
disclose to third parties any such information disclosed in a press
release or other public announcement by the Investor.
(iii) Legally Compelled Disclosure. In the event that any party
is requested or becomes legally compelled (including without
limitation, pursuant to securities laws and regulations) to disclose
the existence of this Agreement or any of the Financing Terms hereof
in contravention of the provisions of this Section 7(d), such party
(the "Disclosing Party") shall provide the other parties (the
"Non-Disclosing Parties") with prompt written notice of that fact so
that the appropriate party may seek (with the cooperation and
reasonable efforts of the other parties) a protective order,
confidential treatment or other appropriate remedy. In such event, the
Disclosing Party shall furnish only that portion of the information
which is legally required and shall exercise reasonable efforts to
obtain reliable assurance that confidential treatment will be accorded
such information to the extent reasonably requested by any
Non-Disclosing Party.
(iv) Other Information. The provisions of this Section 7(d) shall
be in addition to, and not in substitution for, the provisions of any
separate nondisclosure agreement executed by any of the parties hereto
with respect to the transactions contemplated hereby. Additional
disclosures and exchange of confidential information between the
Company and Investor (including without limitation, any exchanges of
information with any Investor board observer) shall be governed by the
terms of the Corporate Non-Disclosure Agreement No. 96432, dated
9/25/97, executed by the Company and Investor, and any Confidential
Information Transmittal Records (CITR) provided in connection
therewith. The CITR that shall govern the exchanges of confidential
information with any Investor board observer shall be in the form
attached hereto as Exhibit B.
(v) All notices under this Section 7(d) shall be made pursuant to
Section 10(e) of this Agreement.
(e) Board and Committee Observer.
(1) So long as the Investor, together with its subsidiaries of
which the Investor beneficially owns, either directly or indirectly,
at least fifty percent (50%) of the voting securities (each a
"Majority Owned Subsidiary" and collectively, the "Majority Owned
Subsidiaries"), hold the equivalent of at least twenty-five percent
(25%) of the Purchased Shares and/or Warrant Stock (as defined in the
Warrant), such number to be proportionately adjusted for stock splits,
stock dividends and similar events, the Company will permit a
representative of the Investor (the "Observer"), to attend all
meetings of the Company's Board of Directors (the "Board") and all
committees of the Board (whether in person, telephonic or other) in a
non-voting, observer capacity and shall provide to the Investor,
concurrently with the members of the Board or such Board committee,
and in the same manner, notice of such meeting and a copy of all
materials provided to such members. Upon a good faith determination by
the Board and upon the advice of counsel, the Observer may be excluded
from any meeting if (A) deemed necessary to protect the
attorney-client privilege of the Company or (B) a conflict of interest
exists between the Observer or Intel and the Company with respect to
matters to be discussed by the Board or committee thereof.
(2) Exchanges of confidential and proprietary information between
the Company and the Investor Observer shall be governed by the terms
of the Corporate Non-Disclosure Agreement No. 96432, dated September
25, 1997, executed by the Company and the Investor, and any
Confidential Information Transmittal Records provided in connection
therewith. The Company acknowledges that the Observer may, from time
to time, have information that may be of interest to the Company
("Information") regarding a wide variety of matters including, by way
of example only, (a) the Investor's technologies, plans and services,
and plans and strategies relating thereto, (b) current and future
investments the Investor has made, may make, may consider or may
become aware of with respect to other companies and other
technologies, products and services, including, without limitation,
companies, technologies, products and services that may be competitive
with the Company's, and (c) developments with respect to the
technologies, products and services, and plans and strategies relating
thereto, of other companies, including companies that may be
competitive with the Company. The Company recognizes that a portion of
such Information may be of interest to the Company. Such Information
may or may not be known by the Observer. The Company, as a material
part of the consideration for this Agreement, agrees that the Investor
and its Observer shall have no duty to disclose any Information to the
Company or permit the Company to participate in any projects or
investments based on any Information, or to otherwise take advantage
of any opportunity that may be of interest to the Company if it were
aware of such Information, and hereby waives, to the extent permitted
by law, any claim based on the corporate opportunity doctrine or
otherwise that could limit the Investor's ability to pursue
opportunities based on such Information or that would require the
Investor, Observer to disclose any such Information to the Company or
offer any opportunity relating thereto to the Company.
(f) Rights of Participation.
(i) General. As used in this Agreement, the "Initial Rights
Period" means the period from the date hereof until the earlier of:
(1) such time as the Investor, together with its Majority Owned
Subsidiaries, no longer hold the equivalent of at least twenty percent
(20%) of the Purchased Shares, such number to be proportionately
adjusted for stock splits, stock dividends and similar events, or (2)
the third anniversary date of the Closing Date. During the Initial
Rights Period, the Investor and each other person or entity to whom
rights under this Section 7(f) have been duly assigned (each of the
Investor and each such assignee, a "Participation Rights Holder")
shall have a right of first refusal to purchase such Participation
Rights Holder's Pro Rata Share (as defined below) of all New
Securities (as defined below) that the Company may from time to time
issue during such period (such New Securities would be allocated among
the Participation Rights Holders who elect to exercise their right to
purchase such New Securities on a pro rata basis according to the
number of Purchased Shares held by each such Participation Rights
Holder (where any shares of Common Stock held as a result of the
exercise of the Warrants shall be deemed for these purposes to still
be Purchased Shares)). The rights described in the preceding sentence,
as further described in this Section 7(f), are referred to as the
"Right of Participation".
(ii) Pro Rata Share. "Pro Rata Share" means, with respect to each
Participation Rights Holder, the ratio of the following numbers
calculated immediately prior to the issuance of the New Securities
giving rise to the Right of Participation: (A) the Participant Share
Number (as defined below) for such Participation Rights Holder, to (B)
the difference between (1) the sum of (a) the total number of shares
of Common Stock and other voting capital stock of the Company then
outstanding, plus (b) the number of shares of voting capital stock
issuable upon the exercise, conversion or exchange of any other
security of the Company then outstanding and (2) the number of
Dilutive Securities issued since the last Notice Date excluding any
Maintenance Securities issued pursuant to the last Maintenance Notice.
(iii) New Securities. "New Securities" means any Common Stock,
Preferred Stock or other voting capital stock or security of the
Company, whether now authorized or not, and rights, options or
warrants to purchase such Common Stock or Preferred Stock or other
voting capital stock or security, and securities of any type
whatsoever that are, or may become, convertible into or exchangeable
or exercisable for Common Stock, Preferred Stock or other voting
capital stock or security; provided, however, that the term "New
Securities" shall not include:
(A) up to 2,500,000 shares of Common Stock (or options or
warrants therefor) issued to employees, officers, directors or
consultants of the Company pursuant to any stock purchase, stock
option, stock incentive and other employee benefit plans, and
agreements having similar purpose and effect, approved by the
Board, and any increase in such number that is unanimously
approved by the Board and approved by the shareholders of the
Company;
(B) the Purchased Shares issued under this Agreement;
(C) shares of Common Stock issued upon exercise of the
Warrants or any other convertible securities of the Company
outstanding on the date hereof;
(D) any securities issued in connection with any stock split
stock, dividend or other similar event in which all Participation
Rights Holders are entitled to participate on a pro rata basis;
(E) any securities issued upon the exercise, conversion or
exchange of any outstanding security if such outstanding security
constituted a New Security;
(F) any securities issued pursuant to the acquisition of
another Person, or subsidiary or division thereof, by the Company
by consolidation, merger, purchase of assets, or other
reorganization;
(G) up to 750,000 shares of Common Stock issued to strategic
investors in transactions that are unanimously approved by the
Board; or
(H) any shares of Common Stock or warrants, and any shares
of Common Stock issued upon exercise of such warrants, issued or
to be issued to certain institutional investors in a private
placement of securities by the Company which is being closed on
or about the date of the Closing hereunder.
(iv) Participant Share Number. "Participant Share Number", with
respect to a Participant Rights Holder, means the sum of (1) the
number of Purchased Shares held by such Participant, (2) the number of
shares of Common Stock issued upon exercise of the Warrants, (3) the
number of shares of other voting capital stock or security of the
Company held by such Participant, and (4) the number of shares of
Common Stock or other voting capital stock or security issuable upon
the exercise, conversion or exchange of any other security of the
Company held by such Participant (including the Warrants).
(v) Purchase Price. The purchase price paid by the Participant
Rights Holder for the New Securities shall equal the sales price of
the New Securities.
(vi) Procedures. If the Company proposes to undertake an issuance
of New Securities (in a single transaction or a series of related
transactions) in circumstances that entitled a Participation Rights
Holder to participate therein in accordance this Section 7(f), the
Company shall give to each Participation Rights Holder written notice
of its intention to issue New Securities (the "Participation Notice"),
describing the amount and the type of New Securities and the price and
the general terms upon which the Company proposes to issue such New
Securities. Each Participation Rights Holder shall have fifteen (15)
business days from the date of receipt of any such Participation
Notice to agree in writing to purchase up to the maximum number of
such New Securities that such Participation Rights Holder is entitled
to purchase for the purchase price specified in Section 7(f)(v) above
and upon the terms and conditions specified in the Participation
Notice by giving written notice to the Company and stating therein the
quantity of New Securities to be purchased (not to exceed such
maximum). If any Participation Rights Holder fails to so agree in
writing within such 15 business day period, then such Participation
Rights Holder shall forfeit the right hereunder to participate in such
sale of New Securities; provided, however, that until the expiration
of the Initial Rights Period, any Participation Rights Holders that
have elected to exercise their Right of Participation shall be
entitled to exercise such right with respect to any New Securities
where such right has been forfeited by such other Participation Rights
Holder(s), and the Company shall follow repeat the procedures set
forth in this Section 7(f) to ascertain whether the electing
Participation Rights Holders desire to purchase such other New
Securities. All sales hereunder shall be consummated concurrently with
the closing of the transaction triggering the Right of Participation.
(ix) Failure to Exercise. Upon the expiration of such fifteen
(15) business day period, the Company shall have one hundred twenty
(120) days thereafter, subject to extensions for regulatory
compliance, to sell the New Securities described in the Participation
Notice (with respect to which the Participation Rights Holders' rights
of first refusal hereunder were not exercised), or enter into an
agreement to do so within sixty (60) days thereafter (which agreement
must be consummated within one hundred twenty (120) days after its
execution, subject to extensions for regulatory compliance), at the
price (or a higher price) and upon non-price terms not materially more
favorable to the purchasers thereof than specified in the
Participation Notice. If the Company has not issued and sold such New
Securities within such 120-day period, or entered into an agreement to
do so within sixty (60) days thereafter (and consummated such
agreement within such 120-day period), then the Company shall not
thereafter issue or sell any New Securities without again first
offering such New Securities to the Participation Rights Holders
pursuant to this Section 7(f).
(g) Nasdaq National Market. The Company shall use its best efforts to
cause the Purchased Shares and shares of Common Stock issuable upon
exercise of the Warrants to be approved for quotation on the Nasdaq
National Market as promptly as practicable after the date hereof. In
addition, the Company agrees to maintain the listing of its Common Stock on
the Nasdaq National Market, Nasdaq Small Cap, New York Stock Exchange or
American Stock Exchange for at least three years after the Closing Date.
(h) Accounting. The Company hereby agrees to hire a Big 5 Accounting
firm no later than June 30, 1999 for the purpose of performing the
Company's regular audit and financial reporting requirements for all
activities beginning January 1, 1999. In addition, Company agrees that the
Company's accountants will engage Ernst & Young LLP for the purpose of
rendering an opinion on the appropriate accounting treatment of: (i) the
conversion of the Investor's future payment obligations under the
Development Agreement into an equity stake in the Company pursuant to the
Amendment and this Agreement; and (ii) the Company's next round of private
equity financing which is anticipated to be closed concurrently herewith or
within five (5) days hereof. Such opinions of Ernst & Young LLP will be
based on the terms of this Agreement. Furthermore, the Company hereby
agrees to provide a copy of the opinions of Ernst & Young LLP to the
Investor, and the Company agrees to abide by such opinions.
(i) Covenant Not to Sue. The Company hereby agrees that it shall not
assert in any way any patent or related rights against the Investor, its
subsidiaries or affiliates, or their customers, direct or indirect, agents
or contractors, for the manufacture, use, import, offer for sale, or sale
of Investor's products, to the extent that the claims of such rights to
Intellectual Property are asserted against any of Investor's general
purpose microprocessors and/or chipset products, either alone or in
combination with another product or products, for so long as Investor does
not assert a patent claim against the Company, its subsidiaries or
affiliates, or their customers, direct or indirect, agents and contractors
for the manufacture, use, import, offer for sale or sale of the Company's
products. If the Company assigns or attempts to assign ownership of any of
its patents to a third party not bound by this covenant not to sue (whether
directly or by operation of law), then effective upon such assignment or
attempted assignment, the Company agrees that Investor shall have a
nonexclusive, nontransferable license, without right of sublicense, under
such assigned patents to make, use and sell Investor's general purpose
microprocessor and chipset products.
(j) Certain Prohibited Issuances. Except pursuant to the Company's
stock option plans, management and/or director stock plans and "strategic"
investments from industry participants, the Company agrees not to issue any
discounted or variable priced equity or equity like securities issued in a
private placement for one year from the Closing Date of the Company's next
round of private equity financing.
(k) Certain Expenses. At the Closing, the Company shall pay to the
Investor a flat fee of $10,000 to cover the Investor's expenses (whether
external or internal) arising in connection with the transactions
contemplated by this Agreement.
(l) Termination of Royalty Obligations. Section 7 of the Development
Agreement is hereby terminated and of no further force or effect, and the
parties acknowledge that all future royalty obligations of the Company are
hereby released; provided, however, that the provisions of Section 7.5 of
the Development Agreement (regarding audit rights) shall remain in effect
with respect to royalty payments made prior to the date hereof.
(m) Vecchione and Freedman 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 first (1st) anniversary of the date of the Closing, or (ii) the
date on which Maurizio Vecchione ceases to be President or CEO of the
Company, the Company shall pay to the Investor an amount equal to (x) the
number of Purchased Shares and Warrant Shares then held by the Investor
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 or any other member of their
family (each a "Freedman") dispose of any stock beneficially owned by such
Freedman at any time during the period beginning on the date of the Closing
and ending on the date which is six (6) months following the Closing, the
Company shall pay to the Investor an amount equal to (x) the number of
Purchased Shares and Warrant Shares then held by the Investor 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.
(n) Share Authorization. The Company shall use its best efforts to
have Nasdaq confirm in writing that the Purchased 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
Purchased 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 the Investor 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 the Investor,
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, the Investor may, at its option, (the "Repurchase Option")
require the Company to purchase all or any portion of the First Warrant,
the Second Warrant and/or the Third Warrant held by the Investor for the
Repurchase Price (as herein defined), subject to the limitation on shares
set forth below. The "Repurchase Price" means a price equal to the number
of shares of Common Stock the Investor 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 amount equal to the excess of the closing bid price of the Common
Stock on the date of the Closing over the closing bid price of the Common
Stock on the date on which the Repurchase Option is elected. Such number of
shares may include all shares of Common Stock the Investor 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
the Investor the Repurchase 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 Repurchase
Price, in cash (the "Cash Portion") to the extent that the Company has
sufficient liquidity and in a promissory note (the "Repurchase Note") to
the Investor with a one-year term, interest equal to the then-current prime
rate and in principal amount equal to the difference between the Repurchase
Price and the Cash Portion. If the Company elects to deliver a Repurchase
Note, then the Company shall repay the outstanding principal and interest
on the Repurchase 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 repayment 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
repayment. If the Company delivers a Repurchase Note and during the
one-year term of such note, obtains Shareholder Approval as required by
this Section 7(n), the Company may, at its election, require the holder of
a Repurchase Note to exchange such Repurchase Note for a Warrant with
identical terms to the Warrant (or part thereof) which was repurchased 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 Repurchase Note
divided by (III) the original principal amount of the Repurchase Note, at
an exercise price equal to the exercise price of the Original Warrant at
the time of the repurchase (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 repurchase until the date
of exchange).
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.
8. INDEMNIFICATION.
(a) Agreement to Indemnify.
(i) Company Indemnity. The Investor, its Affiliates and
Associates, and each officer, director, shareholder, employer,
representative and agent of any of the foregoing (collectively, the
"Investor Indemnitees") shall each be indemnified and held harmless to
the extent set forth in this Section 8 by the Company with respect to
any and all Damages (as defined below) incurred by any Investor
Indemnitee as a proximate result of any inaccuracy or
misrepresentation in, or breach of, any representation, warranty,
covenant or agreement made by the Company in this Agreement (including
any exhibits and schedules hereto). Indemnification claims arising
from the registration of Purchased Shares under Federal and state
securities laws are covered by Section 7(b) and not this Section 8.
(ii) Investor Indemnity. The Company, its respective Affiliates
and Associates, and each officer, director, shareholder, employer,
representative and agent of any of the foregoing (collectively, the
"Company Indemnitees") shall each be indemnified and held harmless to
the extent set forth in this Section 8, by the Investor, in respect of
any and all Damages incurred by any Company Indemnitee as a proximate
result of any inaccuracy or misrepresentation in, or breach of, any
representation, warranty, covenant or agreement made by the Investor
in this Agreement. Indemnification claims arising from the
registration of Purchased Shares under Federal and state securities
laws are covered by Section 7(c) and not this Section 8.
(iii) Equitable Relief. Nothing set forth in this Section 8 shall
be deemed to prohibit or limit any Investor Indemnitee's or Company
Indemnitee's right at any time before, on or after the Closing, to
seek injunctive or other equitable relief for the failure of any
Indemnifying Party to perform or comply with any covenant or agreement
contained herein.
(b) Survival. All representations and warranties of the Investor and
the Company contained herein and all claims of any Investor Indemnitee or
Company Indemnitee in respect of any inaccuracy or misrepresentation in or
breach hereof, shall survive the Closing until the third anniversary of the
date of this Agreement, regardless of whether the applicable statute of
limitations, including extensions thereof, may expire. All covenants and
agreements of the Investor and the Company contained in this Agreement
shall survive the Closing in perpetuity (except to the extent any such
covenant or agreement shall expire by its terms). All claims of any
Investor Indemnitee or Company Indemnitee in respect of any breach of such
covenants or agreements shall survive the Closing until the expiration of
three years following the non-breaching party's obtaining actual knowledge
of such breach.
(c) Claims for Indemnification. If any Investor Indemnitee or Company
Indemnitee (an "Indemnitee") shall believe that such Indemnitee is entitled
to indemnification pursuant to this Section 8 in respect of any Damages,
such Indemnitee shall give the appropriate Indemnifying Party (which for
purposes hereof, in the case of an Investor Indemnitee, means the Company,
and in the case of a Company Indemnitee, means the Investor) prompt written
notice thereof. Any such notice shall set forth in reasonable detail and to
the extent then known the basis for such claim for indemnification. The
failure of such Indemnitee to give notice of any claim for indemnification
promptly shall not adversely affect such Indemnitee's right to indemnity
hereunder except to the extent that such failure adversely affects the
right of the Indemnifying Party to assert any reasonable defense to such
claim. Each such claim for indemnity shall expressly state that the
Indemnifying Party shall have only the twenty (20) business day period
referred to in the next sentence to dispute or deny such claim. The
Indemnifying Party shall have twenty (20) business days following its
receipt of such notice either (a) to acquiesce in such claim by giving such
Indemnitee written notice of such acquiescence or (b) to object to the
claim by giving such Indemnitee written notice of the objection. If the
Indemnifying Party does not object thereto within such twenty (20) business
day period, such Indemnitee shall be entitled to be indemnified for all
Damages reasonably and proximately incurred by such Indemnitee in respect
of such claim. If the Indemnifying Party objects to such claim in a timely
manner, the senior management of the Company and the Investor shall meet to
attempt to resolve such dispute. If the dispute cannot be resolved by the
senior management, either party may make a written demand for formal
dispute resolution and specify therein the scope of the dispute. Within
thirty (30) days after such written notification, the parties agree to meet
for one (1) day with an impartial mediator and consider dispute resolution
alternatives other than litigation. If an alternative method of dispute
resolution is not agreed upon within thirty days after the one day
mediation, either party may begin litigation proceedings. Nothing in this
section shall be deemed to require arbitration.
(d) Defense of Claims. In connection with any claim that may give rise
to indemnity under this Section 8 resulting from or arising out of any
claim or Proceeding against an Indemnitee by a person or entity that is not
a party hereto, the Indemnifying Party may (unless such Indemnitee elects
not to seek indemnity hereunder for such claim) but shall not be obligated
to, upon written notice to the relevant Indemnitee, assume the defense of
any such claim or Proceeding if the Indemnifying Party with respect to such
claim or Proceeding acknowledges to the Indemnitee the Indemnitee's right
to indemnity pursuant hereto to the extent provided herein (as such claim
may have been modified through written agreement of the parties) and
provides assurances, reasonably satisfactory to such Indemnitee, that the
Indemnifying Party will be financially able to satisfy such claim to the
extent provided herein if such claim or Proceeding is decided adversely;
provided, however, that nothing set forth herein shall be deemed to require
the Indemnifying Party to waive any crossclaims or counterclaims the
Indemnifying Party may have against the Indemnified Party for damages. The
Indemnified Party shall be entitled to retain separate counsel, reasonably
acceptable to the Indemnifying Party, if the Indemnified Party shall
determine, upon the written advice of counsel, that an actual or potential
conflict of interest exists between the Indemnifying Party and the
Indemnified Party in connection with such Proceeding. The Indemnifying
Party shall be obligated to pay the reasonable fees and expenses of such
separate counsel to the extent the Indemnified Party is entitled to
indemnification by the Indemnifying Party with respect to such claim or
Proceeding under this Section 8(d). If the Indemnifying Party assumes the
defense of any such claim or Proceeding, the Indemnifying Party shall
select counsel reasonably acceptable to such Indemnitee to conduct the
defense of such claim or Proceeding, shall take all steps necessary in the
defense or settlement thereof and shall at all times diligently and
promptly pursue the resolution thereof. If the Indemnifying Party shall
have assumed the defense of any claim or Proceeding in accordance with this
Section 8(d), the Indemnifying Party shall be authorized to consent to a
settlement of, or the entry of any judgment arising from, any such claim or
Proceeding, with the prior written consent of such Indemnitee, not to be
unreasonably withheld; provided, however, that the Indemnifying Party shall
pay or cause to be paid all amounts arising out of such settlement or
judgment concurrently with the effectiveness thereof; provided further,
that the Indemnifying party shall not be authorized to encumber any of the
assets of any Indemnitee or to agree to any restriction that would apply to
any Indemnitee or to its conduct of business; and provided further, that a
condition to any such settlement shall be a complete release of such
Indemnitee and its Affiliates, directors, officers, employees and agents
with respect to such claim, including any reasonably foreseeable collateral
consequences thereof. Such Indemnitee shall be entitled to participate in
(but not control) the defense of any such action, with its own counsel and
at its own expense. Each Indemnitee shall, and shall cause each of its
Affiliates, directors, officers, employees and agents to, cooperate fully
with the Indemnifying Party in the defense of any claim or Proceeding being
defended by the Indemnifying Party pursuant to this Section 8(d). If the
Indemnifying Party does not assume the defense of any claim or Proceeding
resulting therefrom in accordance with the terms of this Section 8(d), such
Indemnitee may defend against such claim or Proceeding in such manner as it
may deem appropriate, including settling such claim or Proceeding after
giving notice of the same to the Indemnifying Party, on such terms as such
Indemnitee may deem appropriate. If any Indemnifying Party seeks to
question the manner in which such Indemnitee defended such claim or
Proceeding or the amount of or nature of any such settlement, such
Indemnifying Party shall have the burden to prove by a preponderance of the
evidence that such Indemnitee did not defend such claim or Proceeding in a
reasonably prudent manner.
(e) Certain Definitions. As used in this Section 8, (a) "Affiliate"
means, with respect to any person or entity, any person or entity directly
or indirectly controlling, controlled by or under direct or indirect common
control with such other person or entity; (b) "Associate" means, when used
to indicate a relationship with any person or entity, (1) any other person
or entity of which such first person or entity is an officer, director or
partner or is, directly or indirectly, the beneficial owner of ten percent
(10%) or more of any class of equity securities, membership interests or
other comparable ownership interests issued by such other person or entity,
(2) any trust or other estate in which such first person or entity has a
ten percent (10%) or more beneficial interest or as to which such first
person or entity serves as trustee or in a similar fiduciary capacity, and
(3) any relative or spouse of such first person or entity who has the same
home as such first person or entity or who is a director or officer of such
first person or entity; (c) "Damages" means all demands, claims, actions or
causes of action, assessments, losses, damages, costs, expenses,
liabilities, judgments, awards, fines, response costs, sanctions, taxes,
penalties, charges and amounts paid in settlement, including (1) interest
on cash disbursements in respect of any of the foregoing at the prime rate
of Chase Manhattan Bank, as in effect from time to time, compounded
quarterly, from the date each such cash disbursement is made until the date
the party incurring such cash disbursement shall have been indemnified in
respect thereof, and (2) reasonable out-of-pocket costs, fees and expenses
(including reasonable costs, fees and expenses of attorneys, accountants
and other agents of, or other parties retained by, such party), and (d)
"Proceeding" means any action, suit, hearing, arbitration, audit,
proceeding (public or private) or investigation that is brought or
initiated by or against any federal, state, local or foreign governmental
authority or any other person or entity.
9. ASSIGNMENT. The rights of the Investor under Section 7(c) and
Section 7(f) shall be freely transferable. No assignment permitted by this
Section 9 shall be effective until the Company is given written notice by the
assigning party stating the name and address of the assignee and identifying the
securities of the Company as to which the rights in question are being assigned.
In all cases, any such assignee shall receive such assigned rights subject to
all the terms and conditions of this Agreement.
10. MISCELLANEOUS.
(a) Successors and Assigns. The terms and conditions of this Agreement
will inure to the benefit of and be binding upon the respective successors
and assigns of the parties.
(b) Governing Law. This Agreement will be governed by and construed
under the internal laws of the State of Delaware, without reference to
principles of conflict of laws or choice of laws.
(c) Counterparts. This Agreement may be executed in two or more
counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.
(d) Headings. The headings and captions used in this Agreement are
used for convenience only and are not to be considered in construing or
interpreting this Agreement. All references in this Agreement to sections,
paragraphs, exhibits and schedules will, unless otherwise provided, refer
to sections and paragraphs hereof and exhibits and schedules attached
hereto, all of which exhibits and schedules are incorporated herein by this
reference.
(e) Notices. Any notice required or permitted under this Agreement
shall be given in writing, shall be effective when received, and shall in
any event be deemed received and effectively given upon personal delivery
to the party to be notified or three (3) business days after deposit with
the United States Post Office, by registered or certified mail, postage
prepaid, or one (1) business day after deposit with a nationally recognized
courier service such as Fedex for next business day delivery under
circumstances in which such service guarantees next business day delivery,
or one (1) business day after facsimile with copy delivered by registered
or certified mail, in any case, postage prepaid and addressed to the party
to be notified at the address indicated for such party on the signature
page hereof or at such other address as the Investor or the Company may
designate by giving at least ten (10) days advance written notice pursuant
to this Section 10(e).
(f) No Finder's Fees. The Investor will indemnify and hold harmless
the Company from any liability for any commission or compensation in the
nature of a finders' or broker's fee for which the Investor or any of its
officers, partners, employees or consultants, or representatives is
responsible. The Company will indemnify and hold harmless the Investor from
any liability for any commission or compensation in the nature of a
finder's or broker's fee for which the Company or any of its officers,
employees or consultants or representatives is responsible.
(g) Amendments and Waivers. The provisions of Section 7(c), (f) and
(j) of this Agreement may be amended and the observance of any term of this
Agreement may be waived (either generally or in a particular instance and
either retroactively or prospectively), only with the written consent of
the Company, the Investor (so long as the Investor shall hold any of the
Purchased Shares or the shares of Common Stock into which the Purchased
Shares are convertible) and the holders of Purchased Shares representing at
least a majority of the total aggregate number of Purchased Shares then
outstanding. The remaining provisions of this Agreement (including the
provisions of Clauses (b), (d), (e), (g), (h), (i), (j) and (k) of
Section 7, and all of Section 8, may not be amended without the written
consent of the Company and the Investor, which may be withheld in either of
their sole and absolute discretions. Any amendment or waiver effected in
accordance with this Section 10(g) will be binding upon the Investor, the
Company and their respective successors and assigns.
(h) Severability. If any provision of this Agreement is held to be
unenforceable under applicable law, such provision will be excluded from
this Agreement and the balance of the Agreement will be interpreted as if
such provision were so excluded and will be enforceable in accordance with
its terms.
(i) Entire Agreement. This Agreement, together with all exhibits and
schedules hereto, constitutes the entire agreement and understanding of the
parties with respect to the subject matter hereof and supersedes any and
all prior negotiations, correspondence, agreements, understandings duties
or obligations between the parties with respect to the subject matter
hereof.
(j) Further Assurances. From and after the date of this Agreement upon
the request of the Company or the Investor, the Company and the Investor
will execute and deliver such instruments, documents or other writings, and
take such other actions, as may be reasonably necessary or desirable to
confirm and carry out and to effectuate fully the intent and purposes of
this Agreement.
(k) Meaning of Include and Including. Whenever in this Agreement the
word "include" or "including" is used, it shall be deemed to mean "include,
without limitation" or "including, without limitation," as the case may be,
and the language following "include" or "including" shall not be deemed to
set forth an exhaustive list.
(l) Fees, Costs and Expenses. Except as set forth in Section 7(k), all
fees, costs and expenses (including attorney's' fees and expenses) incurred
by either part hereto in connection with the preparation, negotiation and
execution of this Agreement and the Warrants and the consummation of the
transactions contemplated hereby and thereby (including the costs
associated with any filings with, or compliance with any of the
requirements of, any governmental authorities), shall be the sole and
exclusive responsibility of such party.
(m) Competition. Nothing set forth herein shall be deemed to preclude,
limit or restrict the Company's or the Investor's ability to compete with
the other.
(n) Cooperation in HSR Act Filings.
(i) In the event an exercise of any of the Warrants (or any other
action by the Investor with respect to any securities of the Company
held by the Investor) that would require a filing by the Investor
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the
"HSR Act"), the Investor and its respective affiliates (including any
"ultimate parent entity", as defined in the HSR Act), and the Company
and its respective affiliates (including any "ultimate parent entity",
as defined in the HSR Act), shall promptly prepare and make their
respective filings and thereafter shall make all required or requested
submissions under the HSR Act or any analogous applicable law, if
required. In taking such actions or making any such filings, the
parties hereto shall furnish information required in connection
therewith and seek timely to obtain any applicable actions, consents,
approvals or waivers of governmental authorities; provided, however,
that the parties hereto shall cooperate with each other in connection
with the making of all such filings to the extent permitted by
applicable law. Without limiting the generality of the foregoing, to
the extent permitted by applicable law and so long as the following
will not involve the disclosure of confidential or proprietary
information of one party hereto to another, each party shall cooperate
with the other by (a) providing copies of all documents to be filed to
the non-filing party and its advisors prior to filing and, if
requested, accepting reasonable additions, deletions or changes
suggested in connection therewith and (b) providing to each other
party copies of all correspondence from and to any governmental
authority in connection with any such filing.
(ii) Notwithstanding the foregoing, neither the Investor nor any
of its affiliates shall be under any obligation to comply with any
request or requirement imposed by the Federal Trade Commission (the
"FTC"), the Department of Justice (the "DofJ") or any other
governmental authority in connection with the compliance with the
requirements of the HSR Act, or any other applicable law, if the
Investor, in the exercise of its reasonable discretion, deems such
request or requirement unduly burdensome. Without limiting the
generality of the foregoing, the Investor shall not be obligated to
comply with any request by, or any requirement of, the FTC, the DofJ
or any other governmental authority: (i) to disclose information the
Investor deems it in its best interests to keep confidential; (ii) to
dispose of any assets or operations; or (iii) to comply with any
proposed restriction on the manner in which it conducts its
operations. In the event the Investor shall receive a second request
in respect of its HSR Filing determined by it to be unduly burdensome
and it shall prove unable to negotiate a means satisfactory to the
Investor for complying with such burdensome second request, or the
Federal Trade Commission or Department of Justice shall impose any
condition on the Investor or its affiliates in respect thereof deemed
unacceptable by the Investor, the Company and the Investor shall
cooperate in good faith to negotiate an alternative transaction that
provides the Investor with the economic benefits it would receive if
it converted the Purchased Shares (or took any such other action
referenced in the first parenthetical in the first sentence of
Clause (i)).
(o) Stock Splits, Dividends and other Similar Events. The provisions
of this Agreement (including the number of shares of Common Stock and other
securities described herein) shall be appropriately adjusted to reflect any
stock split, stock dividend, reorganization or other similar event that may
occur with respect to the Company after the date hereof.
[The balance of this page is intentionally left blank.]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date and year first above written.
MODACAD, INC. INTEL CORPORATION
By: By:
Name: Name:
Title: Title:
Address: 3861 Sepulveda Blvd. Address:2200 Mission College Boulevard
Culver City, CA 90230 Santa Clara, California 95052
Facsimile No:(310) 751-2120 Facsimile No.:(408) 765-6038
Attention: President Attn: Treasurer
with copies to: with copies to:
Coudert Brothers Intel Corporation
1055 West Seventh Street - 20th Floor Attention: General Counsel
Los Angeles, CA 90017 2200 Mission College Boulevard
Telecopy: (213) 689-4467 Santa Clara, California 95052
Attention: John A. St. Clair
and
Gibson, Dunn & Crutcher LLP
Attention: Gregory T. Davidson
1530 Page Mill Road
Palo Alto, California 94304
Telephone No.: (650) 849-5300
Facsimile No.: (650) 849-5333
{Signature page to Stock and Warrant Purchase and Investor Rights Agreement
between INTEL CORPORATION and MODACAD, INC.}
<PAGE>
EXHIBIT A-1
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 159,326 Shares of Common Stock
Date: April 7, 1999
MODACAD, INC.
STOCK PURCHASE WARRANT
THIS CERTIFIES THAT, for value received, Intel Corporation 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, One Hundred Fifty-Nine Thousand Three Hundred
Twenty-Five (159,325) fully paid and nonassessable shares of the Company's
common stock (the "Common Stock"), at an initial exercise price of $10.98 per
share (the "Exercise Price"), subject to adjustment as contained in Section 1(f)
hereof. This Warrant is being issued pursuant to that certain Stock and Warrant
Purchase and Investor Rights Agreement dated April 7, 1999 between the Company
and Holder (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.
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 the
value thereof, as agreed upon by the Company and the Holder; provided, however,
that if the Company and the Holder cannot agree on such value, such value 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 (ii) cancellation by the Holder of indebtedness of the Company to
the Holder, (iii) a combination of (i) and (ii), or (iv) if the Holder
elects to effect a Cashless Exercise (as defined in Section 12(c) below),
delivery to the Company of a written notice of an election to effect a
Cashless Exercise 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. In lieu of the payment methods set forth above,
when permitted by law and applicable regulations (including Nasdaq and NASD
rules), the Holder may pay the Exercise Price through a "same day sale"
commitment from the Holder (and if applicable a broker-dealer that is a
member of the National Association of Securities Dealers (a "NASD
Dealer")), whereby the Holder irrevocably elects to exercise this Warrant
and to sell a portion of the Shares so purchased to pay for the Exercise
Price and the Holder (or, if applicable, the NASD Dealer) commits upon sale
(or, in the case of the NASD Dealer, upon receipt) of such Warrant Shares
to forward the Exercise Price directly to the Company.
(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.
(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 Exercise Agreement) 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., Pacific Time on the
fifth (5th) anniversary of the date hereof (the "Exercise Period"). The Company
hereby acknowledges that exercise of this Warrant by Holder may subject the
Company and/or the Holder to the filing requirements of the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, (the "HSR Act") and that Holder
may be prevented from exercising this Warrant until the expiration or early
termination of all waiting periods imposed by the HSR Act ("HSR Act
Restrictions"). If on or before the end of the Exercise Period Holder has sent
the Notice of Exercise to Company and Holder has not been able to complete the
exercise of this Warrant prior to the end of the Exercise Period because of HSR
Act Restrictions, the Holder shall be entitled to complete the process of
exercising this Warrant, for a period of ten (10) business days following
termination of the HSR Act Restrictions, in accordance with the procedures
contained herein notwithstanding the fact that completion of the exercise of
this Warrant would take place after the end of 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 taxes, 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.
(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 the provisions 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.
(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.
(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.
(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.
(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 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 or 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 the registration rights
provisions of Section 7(c) of the Securities Purchase Agreement to assume
all of the Company's obligations thereunder. 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.
(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;
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 National Market System 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 value thereof, as
agreed upon by the Company and the Holder; provided, however, that if
the Company and the Holder cannot agree on such value, such value
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:
(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 Closing and ending on the earlier of
(i) the first (1st) anniversary of the date of the Closing, or
(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 beginning on the date of
the Closing and ending on the date which is six (6) months
following the Closing, 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. 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 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 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 Securities Purchase 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.
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 Warrants, 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.
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 Section 7(c) of the Securities
Purchase 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
Santa Clara 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.
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.
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.
e. Weekends, Etc. If the end of the Exercise Period falls on a
Saturday, Sunday or legal holiday, the end of the Exercise Period shall be
extended automatically until 5:00 p.m. the next business day.
* * *
<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
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 189,674 Shares of Common Stock
Date: April 7, 1999
MODACAD, INC.
STOCK PURCHASE WARRANT
THIS CERTIFIES THAT, for value received, Intel Corporation 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, One Hundred Eighty-Nine Thousand Six Hundred
Seventy-Four (189,674) 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". This Warrant is being issued pursuant to that
certain Stock and Warrant Purchase and Investor Rights Agreement dated April 7,
1999 between the Company and the Holder (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.
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 value thereof, as agreed upon by the Company and the Holder; provided,
however, that if the Company and the Holder cannot agree on such value, such
value 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. In lieu of the payment methods set forth
above, when permitted by law and applicable regulations (including Nasdaq
and NASD rules), the Holder may pay the Exercise Price through a "same day
sale" commitment from the Holder (and if applicable a broker-dealer that is
a member of the National Association of Securities Dealers (a "NASD
Dealer")), whereby the Holder irrevocably elects to exercise this Warrant
and to sell a portion of the Shares so purchased to pay for the Exercise
Price and the Holder (or, if applicable, the NASD Dealer) commits upon sale
(or, in the case of the NASD Dealer, upon receipt) of such Warrant Shares
to forward the Exercise Price directly to the Company.
(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.
(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., Pacific Time on the
first (1st) anniversary of the date hereof (the "Exercise Period"). The Company
hereby acknowledges that exercise of this Warrant by Holder may subject the
Company and/or the Holder to the filing requirements of the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, (the "HSR Act") and that Holder
may be prevented from exercising this Warrant until the expiration or early
termination of all waiting periods imposed by the HSR Act ("HSR Act
Restrictions"). If on or before the end of the Exercise Period Holder has sent
the Notice of Exercise to Company and Holder has not been able to complete the
exercise of this Warrant prior to the end of the Exercise Period because of HSR
Act Restrictions, the Holder shall be entitled to complete the process of
exercising this Warrant, for a period of ten (10) business days following
termination of the HSR Act Restrictions, in accordance with the procedures
contained herein notwithstanding the fact that completion of the exercise of
this Warrant would take place after the end of 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 taxes, 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.
(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 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.
(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.
(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.
(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.
(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 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 or 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 the registration rights
provisions of Section 7(c) of the Securities Purchase Agreement to assume
all of the Company's obligations thereunder. 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.
(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;
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 National Market System 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 value thereof, as agreed upon by the
Company and the Holder; provided, however, that if the Company
and the Holder cannot agree on such value, such value 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:
(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 Closing and
ending on the earlier of (i) the first (1st) anniversary of
the date of the Closing, or (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 beginning on the
date of the Closing and ending on the date which is six (6)
months following the Closing, 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.
(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 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 Securities Purchase 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.
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 Warrants, 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.
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 Section 7(c) of the Securities
Purchase 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
Santa Clara 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.
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].
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.
e. Weekends, Etc. If the end of the Exercise Period falls on a
Saturday, Sunday or legal holiday, the end of the Exercise Period shall be
extended automatically until 5:00 p.m. the next business day.
* * *
<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
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 189,674 Shares of Common Stock
Date: April 7, 1999
MODACAD, INC.
STOCK PURCHASE WARRANT
THIS CERTIFIES THAT, for value received, Intel Corporation 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, One Hundred Eighty-Nine Thousand Six Hundred
Seventy-Four (189,674) 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"). This Warrant is being issued pursuant to that
certain Stock and Warrant Purchase and Investor Rights Agreement dated April 7,
1999 between the Company and the Holder (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.
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 value thereof, as agreed upon by the Company and the Holder; provided,
however, that if the Company and the Holder cannot agree on such value, such
value 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. In lieu of the payment methods set forth
above, when permitted by law and applicable regulations (including Nasdaq
and NASD rules), the Holder may pay the Exercise Price through a "same day
sale" commitment from the Holder (and if applicable a broker-dealer that is
a member of the National Association of Securities Dealers (a "NASD
Dealer")), whereby the Holder irrevocably elects to exercise this Warrant
and to sell a portion of the Shares so purchased to pay for the Exercise
Price and the Holder (or, if applicable, the NASD Dealer) commits upon sale
(or, in the case of the NASD Dealer, upon receipt) of such Warrant Shares
to forward the Exercise Price directly to the Company.
(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.
(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").
The Company hereby acknowledges that exercise of this Warrant by Holder may
subject the Company and/or the Holder to the filing requirements of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, (the "HSR
Act") and that Holder may be prevented from exercising this Warrant until the
expiration or early termination of all waiting periods imposed by the HSR Act
("HSR Act Restrictions"). If on or before the end of the Exercise Period Holder
has sent the Notice of Exercise to Company and Holder has not been able to
complete the exercise of this Warrant prior to the end of the Exercise Period
because of HSR Act Restrictions, the Holder shall be entitled to complete the
process of exercising this Warrant, for a period of ten (10) business days
following termination of the HSR Act Restrictions, in accordance with the
procedures contained herein notwithstanding the fact that completion of the
exercise of this Warrant would take place after the end of 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 taxes, 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.
(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 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.
(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.
(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.
(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.
(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 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 or 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 the registration rights
provisions of Section 7(c) of the Securities Purchase Agreement to assume
all of the Company's obligations thereunder. 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.
(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;
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 National Market System 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 value thereof, as
agreed upon by the Company and the Holder; provided, however, that if
the Company and the Holder cannot agree on such value, such value
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:
(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 Closing and ending on the earlier of
(i) the first (1st) anniversary of the date of the Closing, or
(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 Closing, 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.
(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 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 Securities Purchase 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.
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 Warrants, 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. Redemption at Company's Option.
1. On the first (1st) anniversary of the date hereof and for five
(5) 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
representationss, 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 and the Warrants;
(b) the registration statement required to be filed by the Company
pursuant to the Securities Purchase Agreement covering the Purchased
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
Purchased Shares and Warrant Shares, is listed on the Nasdaq National
Market and trading in the Common Stock is not suspended by Nasdaq, the
Securities and Exchange Commission or other regulatory authority and
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 likely to
cause a Material Adverse Effect, and (e) the closing sale price of the
Common Stock on each of the fifteen (15) trading days immediately
preceding the first (1st) anniversary is greater than the Exercise
Price. For purposes of this Section 8(f), 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.
2. The Company shall effect the Redemption at Company's Option
under this Section 8(f) by delivering written notice thereof (the
"Optional Redemption Notice") on the first (1st) anniversary of the
date hereof or within five (5) 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 Section 7(c) of the Securities
Purchase 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
Santa Clara 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.
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].
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.
e. Weekends, Etc. If the end of the Exercise Period falls on a
Saturday, Sunday or legal holiday, the end of the Exercise Period shall be
extended automatically until 5:00 p.m. the next business day.
* * *
<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 B
CONFIDENTIAL INFORMATION TRANSMITTAL RECORD ("CITR")
CITR DATE:__________________ , 199 __________ CNDA # _______________________
(Date Disclosure(s) will commence) (Fill in Number from Executed CNDA)
Participant's Name: ___________________________________________________________
(Use Same Name as on CNDA)
___________________________________________________________________________
(Location of Disclosure)
___________________________________________________________________________
City State Zip Code
Intel and Participant agree that the Confidential Information described below
shall be kept confidential by the receiving party. This CITR incorporates all
the terms and conditions of the Corporate Non-Disclosure Agreement ("CNDA")
executed by the parties.
1. Describe Confidential Information disclosed by each party. (Be specific.
Include subject or product, any document title, drawing/document number,
date, rev., etc.) Identify visuals, foils, and verbal disclosures. (Use
additional sheets if necessary). Intel Confidential Information: All Intel
Confidential Information, including oral disclosures, disclosed by the
board observer representing Intel at any of Participant's board of
directors meetings where Intel's board observer was in attendance, as such
attendance is documented by the Participant's board of director meetings
minutes. Participant's Confidential Information: All Participant's
Confidential Information, including oral disclosures, pertaining to any of
Participant's board of directors meetings that is disclosed to Intel prior
to Participant's board meetings, all Participant's Confidential
Information, including oral disclosures, disclosed during any of
Participant's board of directors meetings for those portions of such
meetings where Intel's board observer was in attendance, as such attendance
is documented by the Participant's board of director meetings minutes, and
all other Participant's Confidential Information, including oral
disclosures, disclosed to Intel's board observer in their capacity as an
observer of Participant's board of directors.
2. This CITR covers the above described Confidential Information to be
conveyed commencing on the CITR Date stated above provided it is marked as
required under the CNDA.
3. Unless a shorter period is indicated below, the disclosing party will not
assert any claims of breach or misappropriation of trade secrets against
the receiving party arising from the receiving party's disclosure of the
disclosing party's Confidential Information under this CITR more than five
(5) years from the date when such information was disclosed. However,
unless at least one of the exceptions set forth in Section 4 of the CNDA
has occurred, the receiving party will continue to treat such Confidential
Information as the confidential information of the disclosing party and
only disclose any such Confidential Information to third parties under the
terms of a non-disclosure agreement.
If initialed and filled in below, the period after which the disclosing
party agrees not to assert claims against the receiving party with respect
to the Confidential Information disclosed under this CITR will be _____
months (not less than twenty-four (24) months nor more than sixty (60)
months). (_____/_____)
4. Either party may at any time request in writing the immediate return of all
or part of its Confidential Information disclosed hereunder, and all copies
thereof, and the receiving party shall promptly comply with such request.
5. All other terms and conditions of the executed CNDA shall remain in full
force and effect. Nothing contained herein shall be construed as amending
or modifying the terms of the CNDA referenced above.
6. Both parties understand and acknowledge that no license under any patent,
copyright, trade secret or other intellectual property right is granted to
or conferred upon either party in this Agreement or by the transfer of any
information by one party to the other party as contemplated hereunder,
either expressly, by implication, inducement, estoppel or otherwise, and
that any license under such intellectual property rights must be express
and in writing.
PARTICIPANT:________________________________
(Company Name, Division/Sub if applicable)
INTEL CORPORATION
2200 Mission College Blvd. ____________________________________________
Santa Clara, CA 95052-8119 Address
____________________________________________
City, State, Zip
