<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended October 31, 1997
or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from ______ to ______
COMMISSION FILE NUMBER 0-8485
Grip Technologies, Inc.
- --------------------------------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
California 95-1980894
- --------------------------------------------------------------------------------
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
10 Corporate Park, Suite 130
Irvine, California 92714 92606-1540
- --------------------------------------------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(714) 252-8500
- --------------------------------------------------------------------------------
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
_____ ______
The number of shares outstanding of the Registrant's Common Stock as of
December 12, 1997: 6,187,592
<PAGE>
INDEX
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION PAGE
<S> <C>
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets 3
Consolidated Statements of Operations 5
Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
PART II OTHER INFORMATION
Item 2. Changes in Securities 13
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 17
</TABLE>
2
<PAGE>
GRIP TECHNOLOGIES, INC. AND SUBSIDIARY
--------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
ASSETS
------
<TABLE>
<CAPTION>
October 31, 1997 July 31, 1997
---------------- -------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 400 $ 107,531
Accounts receivable, net of allowance for
doubtful accounts of $18,322 at October 31, 1997
and $70,070 at July 31, 1997 401,011 357,395
Inventories 512,582 493,466
Other current assets 38,612 38,231
--------------- -------------
Total current assets 952,605 996,623
PROPERTY AND EQUIPMENT, net of accumulated
depreciation of $867,489 at October 31, 1997
and $800,501 at July 31, 1997 716,073 721,021
INTANGIBLES, net of accumulated amortization
of $418,450 at October 31, 1997 and $1,123,066
at July 31, 1997 975,200 1,024,844
--------------- -------------
Total assets $ 2,643,878 $ 2,742,488
=============== =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
3
<PAGE>
GRIP TECHNOLOGIES, INC. AND SUBSIDIARY
--------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
----------------------------------------------
<TABLE>
<CAPTION>
October 31, 1997 July 31, 1997
------------------ ------------------
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES:
Current portion of long-term obligations $ 1,319,529 $ 1,326,019
Notes payable to stockholders 1,066,960 716,960
Short-term borrowings - 10,000
Accounts payable 433,074 515,262
Accrued liabilities 230,931 209,826
---------------- ----------------
Total current liabilities 3,050,494 2,778,067
LONG-TERM OBLIGATIONS NET OF CURRENT PORTION: 953,130 963,545
---------------- ----------------
Total liabilities 4,003,624 3,741,612
STOCKHOLDERS' EQUITY (DEFICIT):
Series A convertible preferred stock
Authorized -- 3,000,000 shares
Issued and outstanding -- 875,000 shares at October 31, 1997
and 887,500 shares at July 31, 1997 875,000 887,500
Common stock
Authorized -- 25,000,000 shares
Issued and outstanding -- 6,187,592 shares at October 31, 1997
and 6,061,092 shares at July 31, 1997 5,986,415 5,913,415
Accumulated deficit (8,221,161) (7,800,039)
---------------- ----------------
Total stockholders' equity (deficit) (1,359,746) (999,124)
---------------- ----------------
Total liabilities and stockholders' equity (deficit) $ 2,643,878 $ 2,742,488
================ ================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
4
<PAGE>
GRIP TECHNOLOGIES, INC. AND SUBSIDIARY
--------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
<TABLE>
<CAPTION>
Quarters Ended October 31,
--------------------------
1997 1996
------------ ------------
(Unaudited)
<S> <C> <C>
NET SALES $ 714,339 $ 1,066,926
COST OF SALES 600,332 789,754
------------ ------------
Gross profit 114,007 277,172
OPERATING EXPENSES:
Selling 146,041 173,258
General and administrative 177,597 172,896
Research and development 11,966 6,813
Depreciation 66,988 98,198
Amortization of intangibles 49,644 49,644
------------ ------------
Total operating expenses 452,236 500,809
------------ ------------
Loss from operations (338,229) (223,637)
INTEREST EXPENSE 82,493 37,783
------------ ------------
Loss before income taxes (420,722) (261,420)
PROVISION FOR INCOME TAXES 400 1,600
------------ ------------
Net loss $ (421,122) $ (263,020)
============ ============
Net loss per common share $ (0.07) $ (0.05)
============ ============
Weighted average common shares outstanding 6,079,690 5,581,925
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
5
<PAGE>
GRIP TECHNOLOGIES, INC. AND SUBSIDIARY
--------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
<TABLE>
<CAPTION>
Quarters Ended October 31,
--------------------------
1997 1996
----------------- ---------------
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (421,122) $ (263,020)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation 66,988 98,198
Amortization of intangibles 49,644 49,644
(Increase) decrease in accounts receivable (43,616) 114,373
Increase in inventories (19,116) (240,073)
Increase in other current assets (381) (18,479)
Increase (decrease) in accounts payable (31,688) 51,097
Increase (decrease) in accrued liabilities 21,105 (21,476)
----------- -----------
Net cash used in operating activities (378,186) (229,736)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (62,040) (97,303)
----------- -----------
Net cash used in investing activities (62,040) (97,303)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of notes payable to stockholder 350,000 -
Principal repayments of long-term obligations (16,905) (35,139)
Proceeds from issuance of long-term obligations - 400,000
Repayments of short-term borrowings - (20,000)
Net increase in amounts due stockholder - 14,200
----------- -----------
Net cash provided by financing activities 333,095 359,061
----------- -----------
NET INCREASE (DECREASE) IN CASH (107,131) 32,022
CASH, beginning of period 107,531 16,975
----------- -----------
CASH, end of period $ 400 $ 48,997
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
6
<PAGE>
GRIP TECHNOLOGIES, INC. AND SUBSIDIARY
--------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
<TABLE>
<CAPTION>
Quarters Ended October 31,
--------------------------
1997 1996
---------------------- ------------------
(Unaudited)
<S> <C> <C>
Cash paid for interest $ $
35,148 27,831
====================== ==================
Cash paid for income taxes $ $
- -
====================== ==================
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NONCASH OPERATING AND FINANCING ACTIVITIES:
During the first quarter of 1998, 114,000 shares of Common Stock were issued in
exchange for the cancellation of a $50,000 liability for endorsement fees and a
$10,500 liability for short-term borrowings and accrued interest.
During the first quarter of 1998, 12,500 shares of Series A Convertible
Preferred Stock were converted into 12,500 shares of Common Stock.
The accompanying notes are an integral part of these consolidated financial
statements
7
<PAGE>
GRIP TECHNOLOGIES, INC. AND SUBSIDIARY
--------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
OCTOBER 31, 1997
----------------
(Unaudited)
1. Basis of Presentation
---------------------
The accompanying unaudited consolidated financial statements include the
accounts of Grip Technologies, Inc. and its subsidiary (the Company). All
significant intercompany transactions have been eliminated. In the opinion
of the Company's Management, all adjustments (consisting only of normal
recurring adjustments) necessary to present fairly the Company's
consolidated financial position at October 31, 1997 and the consolidated
results of operations and cash flows for the quarters ended October 31,
1997 and 1996 have been included. The Company's fiscal year ends on July
31. References made throughout these notes to consolidated financial
statements to a year without a direct reference to a quarter are references
to the entire fiscal year.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to the rules of the
United States Securities and Exchange Commission (SEC). These unaudited
consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes to consolidated financial
statements for the year ended July 31, 1997 included as part of the
Company's Annual Report on Form 10-K (File No. 0-8485) filed with the SEC
on November 13, 1997.
The consolidated results of operations for the quarter ended October 31,
1997 are not necessarily indicative of the results to be expected for the
full year.
2. Net Loss Per Share Information
------------------------------
The net loss per share information included in the consolidated statements
of operations is presented in accordance with APB Opinion No. 15.
Accordingly, the weighted average number of shares does not include the
outstanding common stock equivalents such as Preferred Stock, stock options
and warrants as they are anti-dilutive.
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128 "Earnings per Share", which requires a basic earnings-per-share (EPS)
disclosure, rather than the primary EPS currently disclosed under APB
Opinion No. 15. The significant difference between the two calculations is
the inclusion, if dilutive, of common stock equivalents in the calculation
of primary EPS. This statement will be effective beginning with the second
quarter of 1998. The Company believes the adoption of the statement will
not have a material effect on its earnings per share information.
3. Going Concern
-------------
The Company has incurred significant net losses since its inception (August
1, 1993). As of October 31, 1997, the accumulated deficit was $8,221,161
and the stockholders' deficit was $1,359,746. The net loss for the first
quarter of 1998 was $421,122. For the three years ended July 31, 1997,
1996 and 1995 the net loss was $1,391,541, $1,574,981 and $3,444,745,
8
<PAGE>
respectively. The working capital deficit increased $316,445 to $2,097,889
and $340,896 to $1,781,444 for the first quarter of 1998 and fiscal year
1997, respectively. The net cash used in operating and investing activities
was $440,226 for the first quarter of 1998. The net cash used in operating
and investing activities was $777,699, $1,996,373 and $2,307,080 in 1997,
1996 and 1995, respectively. These factors, among others, raise substantial
doubt about the Company's ability to continue as a going concern. In order
to provide working capital to support its operations, the Company has
raised funds through trade credit, stock issuances and additional
borrowings, including loans from the Company's President, who is also a
major stockholder (the President).
The ability of the Company to meet its existing and ongoing obligations is
dependent upon raising additional capital from sources of funding, such as
private placements, public offerings, a merger or banks and other lenders.
The Company is currently pursuing all possible avenues it can identify to
obtain additional funding. The Company has retained the services of an
investment banking firm to advise and assist the Company regarding
financing alternatives, as well as potential mergers and acquisitions.
However, there can be no assurances that any of these transactions may be
consummated in a timely manner or on terms reasonably acceptable to the
Company. The Company plans to continue to develop and implement cost
effective strategies it believes will increase sales and gross margins,
reduce other operating expenses and eventually lead to profitability.
However, the Company continues to incur losses. The ability of the Company
to continue as a going concern is dependent on obtaining adequate financing
and ultimately achieving profitable operations. The accompanying
consolidated financial statements do not include any adjustments that might
be necessary should the Company be unable to continue as a going concern.
4. Financing Activities and Subsequent Events
------------------------------------------
Since July 31, 1997, the President has loaned the Company $550,000,
$100,000 of which was subsequent to October 31, 1997, for operating funds
in exchange for promissory notes. Under the terms of the promissory notes,
the President is currently entitled to demand repayment of $500,000. On
December 28, 1997, the President is entitled to demand repayment of the
remaining $50,000. The promissory notes bear interest at 10% which is being
accrued.
In October 1997, the Company granted to certain officers and employees,
stock options to purchase a total of 320,000 shares of Common Stock. The
exercise price of the options is $0.4375 per share. In November 1997, the
Company granted to certain directors, stock options to purchase a total of
220,000 shares of Common Stock. The exercise price of the options is
$0.5625 per share. The options vest over three years and expire in November
2002. Both exercise prices reflect the fair market value of the shares on
the respective dates of the grants.
In November 1997, the Company issued to the President a warrant to purchase
250,000 shares of Common Stock. The exercise price of the warrant is
$0.5625 per share. The warrant has a term of five years.
In November 1997, the Company issued to an investment banking firm a
warrant to purchase up to 600,000 shares of Common Stock. The exercise
price of the warrant is $1.50 per share. The warrant, a portion of which is
performance based, has a term of five years and vests over two years. The
warrant also includes certain anti-dilution provisions.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis should be read together with the
consolidated financial statements and notes to consolidated financial statements
included elsewhere in this Report.
Forward-Looking Statements
- --------------------------
From time to time, the Company may publish forward-looking statements relating
to such matters as anticipated financial performance, business prospects,
technological developments, new products, research and development activities
and similar matters. The Private Securities Litigation Reform Act of 1995
provides a safe harbor for forward-looking statements. Such statements are
subject to certain risks and uncertainties which could cause actual results to
differ materially from those projected. Readers are cautioned not to place
undue reliance on these forward-looking statements which speak only as of the
date hereof. The Company undertakes no obligation to republish revised forward-
looking statements to reflect events or circumstances after the date hereof or
to reflect the occurrence of unanticipated events. Readers are also urged to
carefully review and consider the various disclosures made by the Company in
this Report, as well as the Company's other periodic reports on Forms 10-K, 10-Q
and 8-K filed with the Securities and Exchange Commission. In order to comply
with the terms of the safe harbor, the Company notes that a variety of factors
could cause the Company's actual results and experience to differ materially
from the anticipated results or other expectations expressed in the Company's
forward-looking statements. The risks and uncertainties that may affect the
operations, performance, development and results of the Company's business
include, but are not limited to, those factors set forth under the caption
"Liquidity and Capital Resources" and "Notes to Consolidated Financial
Statements" included in this Report.
Financial Condition and Results of Operations
- ---------------------------------------------
The Company incurred a net loss of $421,122 or $0.07 per common share, during
the first quarter of 1998 compared to a net loss of $263,020 or $0.05 per common
share for the first quarter of 1997. While certain operating expenses have been
significantly reduced, lower net sales, delays in finishing tooling, product
processing inefficiencies, rework costs and higher labor costs contributed
significantly to the net loss. Also, interest expense increased $44,710, or
118%, in the first quarter of 1998 compared to the first quarter of 1997 as a
result of additional borrowings by the Company to fund operations.
Net sales for the first quarter of 1998 were $714,339, a 33% decrease compared
with net sales of $1,066,926 for the first quarter of 1997. Sales during the
first quarter of 1998 to Cobra Golf (Cobra) were $219,000, or 31% of net sales.
This is $367,000 less than sales to Cobra during the first quarter of 1997 which
were $587,000, or 55% of net sales. Lower sales to Cobra resulted from Cobra's
requirement to change the design of the golf grip on their major product lines,
resulting in delays in finishing the required new tooling. The Company has
finished the appropriate tooling and shipments to Cobra are returning to their
historical levels.
Cost of sales for the first quarter of 1998 was $600,332, or 84% of net sales
compared to $789,754, or 74% of net sales for the first quarter of 1997. Lower
net sales negatively affected the per unit fixed production costs. Also, the
Company experienced labor inefficiencies due to many factors including the
delays in obtaining the new Cobra golf grip, rework activities and increased
hourly rates for employees and temporary labor. The Company also incurred
higher than normal costs on purchases of the new Cobra golf grips from its
supplier as a result of the tooling delays. The
10
<PAGE>
costs of future purchases should return to historical levels as the appropriate
tooling has been finished and is in production at more efficient levels.
Operating expenses for the first quarter of 1998 decreased $48,573 to $452,236
compared to $500,809 for the first quarter of 1997. Selling expenses and
depreciation were reduced $27,217, or 16%, and $31,210, or 32%, respectively in
the first quarter of 1998 compared to the first quarter of 1997. Depreciation
decreased as more tooling has become fully depreciated than has been purchased.
The decrease in selling expenses was primarily attributable to the reduction of
advertising activities and sales staff. Since the middle of 1997, Management has
prioritized its expenditures from advertising to more critical areas due to cash
flow constraints. Also, the number of salespeople was reduced as the Company
redirected its sales and marketing efforts to the replacement market. The
Company has focused more on its marketing partnerships with catalog resellers
such as Golfsmith, the world's largest reseller of golf club components. During
the third quarter of 1997, the Company also initiated a new distributor program
to increase replacement market sales to retailers and other non-OEM customers.
Management believes that these programs will enable the Company to ultimately
increase sales to the replacement market while incurring less expense and risk
related to servicing the replacement market directly. Significant benefits from
these programs are not expected until 1998.
During the first quarter of 1998, the cost and accumulated amortization of
certain intangibles which were previously completely amortized due to having no
future value have been removed from the consolidated balance sheet at October
31, 1997.
Liquidity and Capital Resources
- -------------------------------
The Company had a significant working capital deficit of $2,097,889 at October
31, 1997. The working capital deficit at July 31, 1997 was $1,781,444. In
addition, the stockholders' deficit at October 31, 1997 was $1,359,746 compared
to $999,124 at July 31, 1997. The $316,445 increase in working capital deficit
is directly attributable to $440,226 of cash used in operating activities and
investments in property and equipment (tooling). Since the beginning of 1995,
the Company has borrowed, from various sources, approximately $3,100,000 in
short-term borrowings, notes payable and long-term obligations of which
approximately $716,000, including $535,000 of notes payable to the President,
has been converted into Common Stock. Also included in the $3,100,000 is
$550,000 loaned to the Company by the President since July 31, 1997, $100,000 of
which was subsequent to October 31, 1997, for operating funds. During this same
period, the Company received approximately $3,700,000 in proceeds from the
issuance of Common Stock through private placements.
Included in current liabilities at October 31, 1997 is approximately $1,300,000
of long-term obligations due in 1998 which are personally guaranteed and/or
collateralized by the personal assets of the President. Also, at October 31,
1997, $1,066,960 and $57,073 of the Company's current liabilities were notes
payable and accrued liabilities, respectively to the President and another
officer, who is also a stockholder. Of the $1,319,529 current portion of long-
term obligations, $1,180,000 is owed to a bank and matures on December 15, 1997.
Historically, the Company has been able to extend this obligation; however, to
date, the Company has not obtained any written commitment from the bank to
extend these loans and no assurance can be given that the obligations will be
extended past December 15, 1997, or that the Company will be able to obtain new
loan commitments from another lender to repay the $1,180,000. The notes payable
to the stockholders permit the stockholders to demand repayment at any time.
Historically, the stockholders have obliged the Company in deferring any amounts
owed to them. However, the Company cannot ensure the stockholders will continue
to accept deferral of any amounts owed to them. Additionally, the notes payable
to stockholders bear interest at 10%. Previously, the amounts owed to the
stockholders, which were included in amounts due stockholder and accrued
liabilities, did not bear interest. The Company is not expected to generate
sufficient cash from operations necessary to repay these obligations unless they
are
11
<PAGE>
extended or otherwise deferred until such time as cash from operations, if ever,
is sufficient to repay these obligations. It will be necessary to either extend
the maturities, sell additional shares of the Company's equity securities or
obtain alternative financing to repay them.
As a result of cash flow constraints, compounded by the increased operating cash
flow deficit, the Company had to prioritize its payments to vendors, debt
holders and others. Management has identified payroll, rent, utilities and
certain office expenses, suppliers, tooling and certain debt holders as the most
critical obligations. While Management tries to maximize credit opportunities
through trade payables, its major vendors (i.e. the grip manufacturers) have
stringent payment requirements. Since June of 1997, the Company has agreed to
formalized payment arrangements with certain vendors for amounts owed to them in
the normal course of business, totaling approximately $100,000.
Historically, the Company's first two quarters have resulted in lower net sales
compared to the last two quarters of each fiscal year, corresponding with the
golf industry's selling season. This seasonality places additional strains on
liquidity, as the Company is required to invest in tooling and build inventories
during its first two quarters in order to meet spring delivery schedules. The
Company must also support the corresponding increase in receivables during the
initial portion of the prime selling season. However, the Company has reduced
the average cost of tooling since 1996 by approximately 50% as the Company began
using a new tool maker who is able to make the tooling at a much lower cost. The
amount invested in tooling in the first quarter of 1998 decreased $35,263 to
$62,040 compared to the first quarter of 1997.
Management anticipates the Company will require additional funding of
approximately $200,000 through January 31, 1998 in addition to the $550,000
loaned to the Company since July 31, 1997 by the President and an additional
$500,000 through the remainder of 1998, to fund operating losses and projected
tooling requirements. In addition, if existing debt obligations can not be
extended or otherwise deferred, additional fundings of approximately $1,200,000
and $126,019 will be necessary by January 31, 1998, and the remainder of 1998,
respectively. Furthermore, Management estimates that the Company would require
an additional $500,000 through 1998 and beyond to make the appropriate
investments in machinery, marketing and advertising, research and development it
deems necessary to effectively compete with the Company's key competitors.
In November 1997, the Company retained the services of an investment banking
firm to advise and assist the Company regarding financing alternatives and
potential mergers and acquisitions. As a result, the Company is currently
pursuing a private placement through the investment banking firm. The Company
will continue to identify and pursue other opportunities to meet these
requirements. The Company is also seeking to obtain concessions and/or deferred
payment plans from vendors on amounts owed. Additional bank financing is not
expected to be an option unless credit enhancements, such as guarantees, are
available, or until such time the Company has at least one fiscal quarter of
profitability. None of these sources or alternatives may be available to the
Company and, if they become available, may not occur within the time frame
required by the Company or may require terms which Management finds
unacceptable. The continued losses, the existing debt obligations due in 1998
and the need for additional capital raises substantial doubt about the Company's
ability to continue operating as a going concern.
12
<PAGE>
PART II
ITEM 2. CHANGES IN SECURITIES
On August 27, 1997, the Company issued 12,500 shares of Common Stock upon the
conversion by one stockholder of 12,500 shares of the Company's Series A
Convertible Preferred Stock. These shares were issued in reliance upon the
exemptions under Section 4(2) and 4(6) of the Securities Act and the
representation of the investor as to her "accredited investor" status.
On September 12, 1997, the Company issued 14,000 shares of Common Stock at $.75
per share to a private investor in connection with the exercise of a Stock
Purchase Warrant and the cancellation of $10,500 of indebtedness owed by the
Company to the private investor. These shares were issued in reliance upon the
exemptions under Section 4(2) and 4(6) of the Securities Act and the
representation by the private investor as to his "accredited investor" status.
In October 1997, the Company granted stock options under its 1994 Stock Option
Plan to two officers and two key employees covering an aggregate of 320,000
shares, at an exercise price of $.4375 per share, the fair market value of the
shares on the date of the grant. These options have a five-year term and vest in
equal amounts over a three-year period.
On October 29, 1997, the Company issued 100,000 shares of Common Stock at $.50
per share, or an aggregate of $50,000, in cancellation of certain minimum
endorsement fees payable to a PGA Tour player due April 15, 1997 and October 15,
1997. These shares were issued in reliance upon the exemptions under Section
4(2) and 4(6) of the Securities Act and the PGA Tour player's representation of
his "accredited investor" status.
In November 1997, the Company granted to certain directors, stock options to
purchase a total of 220,000 shares of Common Stock. The exercise price of the
options is $0.5625 per share, the fair market value of the shares on the date of
the grant. The options vest over three years and expire in November 2002.
In November 1997, the Company issued to the President a warrant to purchase
250,000 shares of Common Stock. The exercise price of the warrant is $0.5625
per share. The warrant has a term of five years.
In November 1997, the Company issued to an investment banking firm a warrant to
purchase up to 600,00 shares of Common Stock. The exercise price of the warrant
is $1.50 per share. The warrant, a portion of which is performance based, has a
term of five years and vests over two years. The warrant also includes certain
anti-dilution provisions.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
---------
2.1 Agreement and Plan of Reorganization, dated September 20,
1995, by and among Registrant, USG Acquisition Corporation
and USGRIPS, Inc., as amended - incorporated by reference
from Exhibit 2.1 to Registrant's Form 10-K for its fiscal
year ended July 31, 1996
3.1(i) Restated Articles of Incorporation of Registrant -
incorporated by reference from Exhibit 3.1(i) to
Registrant's Form 10-K for its fiscal year ended July 31,
1996
13
<PAGE>
3.1(ii) Amended and Restated Bylaws of Registrant - incorporated by
reference from Exhibit 3.1(ii) to Registrant's Form 10-K for
its fiscal year ended July 31, 1996
4.1 Promissory Note, dated December 10, 1993, made payable by
Registrant to Kwang Soo Kim and In Ho Kim in the original
principal sum of $50,000 - incorporated by reference from
Exhibit 4.1 to Registrant's Form 10-K for its fiscal year
ended July 31, 1996
4.2 Loan documents for $780,000 loan from Wells Fargo Bank,
including Loan Commitment Note, dated January 14, 1997;
Addendum to Promissory, dated February 12, 1997; Third Party
Security Agreement: Securities Account, dated January 14,
1997; Addendum to Third Party Security Agreement: Securities
Account, dated February 12, 1997; and Securities Account
Control Agreement, dated February 12, 1997; and Securities
Account Control Agreement, dated February 14, 1997 -
incorporated by reference from Exhibit 4.1 to Registrant's
Form 10-Q for its fiscal quarter ended April 30, 1997
4.3 Loan extension letter, dated September 15, 1997, to
Registrant from Wells Fargo Bank extending that certain
$780,000 Promissory Note included in Item 4.2 above -
incorporated by reference from Exhibit 4.3 to Registrant's
Form 10-K for its fiscal year ended July 31, 1997
4.4 Revolving Line of Credit Note, dated September 23, 1996,
made payable by Registrant to Wells Fargo Bank N.A. in the
original principal sum of $400,000 - incorporated by
reference from Exhibit 4.4 to Registrant's Form 10-K for its
fiscal year ended July 31, 1996
4.5 Loan extension letter, dated September 15, 1997, to
Registrant from Wells Fargo Bank extending that certain
$400,000 Revolving Line of Credit Note included in Item 4.4
above - incorporated by reference from Exhibit 4.5 to
Registrant's Form 10-K for its fiscal year ended July 31,
1997
4.6 The attached form of Secured Promissory Note, made payable
by Registrant to Sam G. Lindsay in the following amounts on
the following dates - incorporated by reference from Exhibit
4.6 to Registrant's Form 10-K for its fiscal year ended July
31, 1997 :
$ 100,000 July 31, 1997 or thereafter on demand
$ 100,000 September 19, 1997, or thereafter on
demand
$ 50,000 October 16, 1997, or thereafter on demand
$ 200,000 October 20, 1997, or thereafter on demand
$ 50,000 November 7, 1997, or thereafter on demand
$ 50,000 November 28, 1997, or thereafter on
demand
4.7 Promissory Note, dated July 31, 1997, made payable by
Registrant to Sam G. Lindsay in the principal amount of
$421,679 -incorporated by reference from Exhibit 4.7 to
Registrant's Form 10-K for its fiscal year ended July 31,
1997
14
<PAGE>
4.8 Convertible Promissory Note, dated March 12, 1997, made
payable by Registrant to the Caroline Companies LLC in the
principal amount of $137,500 and accrued interest of
$4,726 - incorporated by reference from Exhibit 4.8 to
Registrant's Form 10-K for its fiscal year ended July 31,
1997
4.9 The attached form of Convertible Note issued by Registrant
in May 1997 to the following lenders in the following
amounts - incorporated by reference from Exhibit 4.9 to
Registrant's Form 10-K for its fiscal year ended July 31,
1997:
$ 21,000 Z-Fund, a Maryland limited partnership
$ 500,000 Third Century II, a Colorado general
partnership
4.10 Promissory Note, dated July 31, 1997, made payable by
Registrant to James E. McCormick III in the principal amount
of $195,281.02 - incorporated by reference from Exhibit 4.10
to Registrant's Form 10-K for its fiscal year ended July 31,
1997
10.1 1994 Stock Option Plan - incorporated by reference from
Exhibit 10.1 to Registrant's Form 10-K for its fiscal year
ended July 31, 1996
10.2 Amendment No. 1 to Stock Option Plan - incorporated by
reference from Exhibit 10.8 to Registrant's Form 10-Q for
its fiscal quarter ended January 31, 1997
10.3 Noncompetition Agreement, dated September 22, 1995, between
Registrant and J. Barrie Ogilvie - incorporated by reference
from Exhibit 10.3 to Registrant's Form 10-K for its fiscal
year ended July 31, 1996
10.4 Security Agreement, dated July 31, 1995, between Registrant
and Sam G. Lindsay - incorporated by reference from Exhibit
10.4 to Registrant's Form 10-K for its fiscal year ended
July 31, 1996
10.5 Amendment No. 1 to Security Agreement, dated July 31, 1997,
between Registrant and Sam G. Lindsay - incorporated by
reference from Exhibit 10.5 to Registrant's Form 10-K for
its fiscal year ended July 31, 1997
10.6 Request to Convert and Investment Letter, dated July 31,
1996, between Registrant and Sam G. Lindsay - incorporated
by reference from Exhibit 10.6 to Registrant's Form 10-K for
the fiscal year ended July 31, 1996
10.7 Agreement, dated September 22, 1995, between Registrant and
ARC Equipment, Inc. - incorporated by reference from Exhibit
10.7 to Registrant's Form 10-K for its fiscal year ended
July 31, 1996
10.8 Employment Agreement, dated September 26, 1997, between
Registrant and Victor Afable - incorporated by reference
from Exhibit 10.8 to Registrant's Form 10-K for its fiscal
year ended July 31, 1997
10.9 Financial Advisor Agreement, dated November 14, 1997, and
Indemnification Agreement, dated November 14, 1997, between
Registrant and Christman, Peters & Madden
15
<PAGE>
10.10 Warrant For the Purchase of Shares of Common Stock, dated
November 14, 1997, issued by Registrant to Christman, Peters
& Madden
21.1 Subsidiaries of Registrant - incorporated by reference from
Exhibit 21.1 to Registrant's Form 10-K for its fiscal year
ended July 31, 1996
27 Financial data schedule
(b) Reports on Form 8-K
-------------------
No reports on Form 8-K were filed with the Securities and
Exchange Commission during the Registrant's fiscal quarter
ended October 31, 1997
16
<PAGE>
SIGNATURES
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 thereunto duly authorized.
Grip Technologies, Inc.
--------------------------
(Registrant)
Date: December 12, 1997 /s/ Sam G. Lindsay
--------------------------
Sam G. Lindsay
President and
Chief Executive Officer
Date: December 12, 1997 /s/ Robert W. Taylor
---------------------------
Robert W. Taylor
Chief Operations and Financial
Officer
17
<PAGE>
CHRISTMAN, PETERS & MADDEN
1285 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019
__________
(212) 554-4242
EXHIBIT 10.9
November 14, 1997
Board of Directors
Grip Technologies, Inc.
10 Corporate Park
Suite 130
Irvine, CA 92714
Attention: Mr. Sam G. Lindsay
President and Chief Executive Officer
Gentlemen:
The purpose of this letter is to confirm that Christman, Peters & Madden has
been retained to act as exclusive financial advisor for Grip Technologies, Inc.
(the "Company") for a period of twelve (12) months from the date hereof,
including in connection with a proposed and contemplated financing by the
Company in an amount totalling between approximately $2,000,000 and $3,000,000.
The structure of such financing and the form of the securities are yet to be
determined.
The Company's engagement of CPM shall be pursuant to the following terms and
conditions:
(1) As part of CPM's services hereunder, in connection with any debt or equity
financing required by the Company (outlined above), CPM will seek to
arrange, on a best efforts basis, a private placement of debt or equity
securities (the "Securities") as required, and as approved by the Company.
CPM understands that the Company believes it has an immediate requirement
for an equity financing. The Company will prepare and furnish CPM with a
business plan and private placement memorandum (and any amendments or
supplements which, together with the appendices and exhibits thereto, are
herein referred to as the "Offering Materials") relating to the Securities.
The Offering Materials will be in final form, approved by the Company,
prior to circulation or distribution to prospective purchasers of the
Securities. No Offering Materials shall be transmitted to prospective
purchasers in draft form, or in the form of interim documentation. CPM will
assist in the preparation of the Company's Offering Materials and may
assist in the structuring, negotiation, documentation and closing (the
"Closing") of the sale of Securities for sales to be made directly by the
Company to purchasers pursuant to purchase agreements to be entered into
between the Company and each purchaser.
1
<PAGE>
Grip Technologies, Inc.
November 14, 1997
Page 2
The Company authorizes CPM to transmit the Offering Materials to
prospective purchasers of the Securities, and represents and warrants that
the Offering Materials, at all times through the Closing, will not contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements contained
therein, in light of the circumstances under which they were made, not
misleading. The Company will also cause to be furnished to CPM, at the
Closing, copies (addressed to CPM if requested) of such agreements,
opinions, certificates and other documents delivered at the Closing as CPM
may reasonably request.
(2) The Company will pay CPM a non-refundable cash retainer fee of $25,000,
payable upon execution of this letter agreement. Any cash retainer fees
paid to CPM will be credited against any reimbursement paid by the Company
to CPM for out-of-pocket expenses incurred by CPM pursuant to CPM's
engagement hereunder, as outlined below in Section (3).
(3) The Company will reimburse CPM from time to time, promptly upon demand, for
all reasonable expenses (including fees and disbursements of CPM's legal
counsel, and all of CPM's travel and other expenses) incurred by CPM in
connection with this engagement; provided, however, that in no event will
the out-of-pocket expenses incurred by CPM pursuant to this engagement
exceed $25,000 without the prior written consent of the Company.
(4) As compensation for CPM's services, upon execution of this letter agreement
the Company agrees to grant and issue to CPM a warrant (the "Warrant") to
purchase up to 600,000 shares of the Company's common stock. The Warrant
will be exercisable for a period of five years commencing from the date of
issuance upon terms and conditions acceptable to CPM. A copy of the warrant
is attached hereto.
(5) Upon execution of this letter agreement, the Company agrees to nominate and
support for election a designee of CPM to the Company's Board of Directors
for a period of three (3) years from the date hereof. CPM has not yet
designated a candidate for election to the Board of Directors of the
Company.
(6) No advice given by CPM in connection with the services rendered by CPM
hereunder will be quoted, nor will any such advice or the name of CPM be
referred to, in any report, document, release or other communication,
whether written (including, without limitation, the Offering Materials) or
oral, prepared, issued or transmitted by the Company or any affiliate,
director, officer, employee, agent or representative of any thereof,
without, in each instance, CPM's prior written consent.
2
<PAGE>
Grip Technologies, Inc.
November 14, 1997
Page 3
(7) The Company has not taken, and will not take any action, directly or
indirectly, so as to cause the securities transactions contemplated by this
agreement to fail to be entitled to exemption from the registration
requirements of the Securities Act of 1933, including pursuant to Section
4(2) thereof.
(8) Each party hereto represents and warrants to the other that this letter
agreement has been duly authorized, executed and delivered by it.
(9) Because CPM will be acting on behalf of the Company in connection with
CPM's engagement hereunder, the Company and CPM have entered into a
separate letter agreement in the form attached hereto, dated the date
hereof, providing for indemnification of CPM in connection with CPM's
engagement.
(10) This agreement shall be governed by and construed in accordance with
the laws of the State of New York without regard to principles of conflicts
of laws.
If the foregoing correctly sets forth the understanding of the Company, please
so indicate and confirm by signing and returning to the undersigned one of the
enclosed duplicates of this letter and the Warrant, along with a check for
$25,000, representing the cash retainer, whereupon this letter shall constitute
a binding agreement.
We are delighted to accept this engagement and look forward to working with the
Company on this assignment.
Very truly yours,
CHRISTMAN, PETERS & MADDEN
/s/ Geoffrey S.P. Madden
------------------------------
By: Geoffrey S.P. Madden
Title: General Partner
ACCEPTED AND AGREED:
Grip Technologies, Inc.
/s/ Sam G. Lindsay
- -----------------------------
By: Mr. Sam G. Lindsay
Title: President and Chief Executive Officer
3
<PAGE>
November 14, 1997
Christman, Peters & Madden
35th Floor
1285 Avenue of the Americas
New York, New York 10019
In connection with activities of Christman, Peters & Madden ("CPM") pursuant to
a letter agreement, dated as of the date hereof, between Grip Technologies, Inc.
("the Company") and CPM, as the same may be amended from time to time, including
without limitation any activities of CPM in connection with any transaction
contemplated by such letter agreement, whether occurring before, at or after the
date hereof, the Company agrees to defend, indemnify and hold harmless CPM and
its affiliates, the respective limited and general partners, directors,
officers, agents and employees of CPM and its affiliates and each other person,
if any, controlling CPM or any of its affiliates (hereinafter collectively
referred to as the "indemnified parties"), to the full extent lawful, from and
against any losses, damages, liabilities, expenses or claims (or actions in
respect thereof, including without limitation shareholder and derivative
actions) related to or otherwise arising out of such engagement or CPM's role in
connection therewith, or any breach by the Company of such letter agreement, and
will reimburse any indemnified party for any legal or other expense incurred by
such indemnified party in connection with investigating, preparing or defending
any claim, action, proceeding or investigation (whether or not such indemnified
party is itself a defendant in or target of, the action, proceeding or
investigation in respect of which indemnity or reimbursement may be sought and
whether or not such action involves a third party). The Company will not,
however, be responsible for any damages, liabilities, expenses or claims which
are finally judicially determined by a court of competent jurisdiction to have
resulted solely from CPM's bad faith, gross negligence or willful misconduct.
The Company also agrees that no indemnified party will have any liability
(whether direct or indirect, in contract, tort or otherwise) to the Company or
any of its officers, directors, agents, counsel or controlling persons for or in
connection with such engagement except for any such liability for losses,
damages, liabilities, expenses or claims incurred by the Company that are
finally judicially determined by a court of competent jurisdiction to have
resulted solely from CPM's bad faith, gross negligence or willful misconduct.
Promptly after commencement of any action or proceeding with respect to which
indemnification is being sought hereunder such person will notify the Company in
writing of such complaint or of the commencement of such action or proceeding
but failure to so notify the Company will not relieve the Company from
<PAGE>
Christman, Peters & Madden
November 14, 1997
Page 2
any liability which the company may have hereunder or otherwise, except to the
extent that such failure materially prejudices the Company's rights.
The Company shall be entitled to participate with counsel of its choice in the
defense of any such action, proceeding, complaint or investigation. The Company
shall, upon the request of any indemnified party, assume the defense of such
indemnified party with counsel reasonably satisfactory to such indemnified
party, provided that the fees and expenses of such counsel shall be paid by the
Company. Notwithstanding the foregoing, each indemnified party will be entitled
to employ counsel separate from counsel for the Company and from any other
party in such action, proceeding, complaint or investigation and to participate
in the action, proceeding, complaint or investigation, and the Company shall
bear the fees and expenses of such separate counsel (and shall pay such fees and
expenses as and when incurred), only if either (i) such indemnified party shall
have reasonably concluded that there may be one or more legal defenses available
to it or another indemnified party which are different from or additional to
those available to the Company, (ii) the Company shall not have employed counsel
reasonably satisfactory to represent such indemnified party within a reasonable
time after the Company shall have notice of the institution of any such action,
proceeding, complaint or investigation, or (iii) the Company shall authorize, in
writing, such indemnified party to employ separate counsel at the expense of the
Company. Counsel for each indemnified party will cooperate with the Company in
the defense of any action, proceeding, complaint or investigation to the extent
consistent with its professional responsibilities. The Company shall not be
liable for the settlement by any indemnified party of any action, proceeding,
complain or investigation effected without its consent, which consent will not
be unreasonably withheld. The Company agrees that it will not, without the prior
written consent of CPM, settle or compromise or consent to the entry of any
judgment with respect to any pending or threatened claim, action, suit or
proceeding in respect of which indemnification or contribution may be sought
hereunder (whether or not CPM or any other indemnified party is an actual or
potential party to such claim or action) unless such settlement, compromise or
consent includes an unconditional release of CPM and all other indemnified
parties from all liability arising out of such claim, action, suit or
proceeding.
In the event that the foregoing indemnification is unavailable to any
indemnified party for any reason or insufficient to hold any indemnified party
harmless, then the Company agrees to contribute to any such losses, damages,
liabilities, expenses, claims or actions and will do so in such proportion as is
appropriate to reflect the relative benefits received (or anticipated to be
received) by, and the relative fault of, the indemnified parties, on the one
hand, and the Company and the Company's securityholders, on the other, as well
as any other relevant equitable considerations, from any actual or proposed
transactions. The Company and CPM agree that it would not be just and equitable
if contribution were determined by pro rata allocation or any other method of
allocation which does not take account of the equitable considerations referred
to above. No party found liable for a fraudulent misrepresentation shall
<PAGE>
Christman, Peters & Madden
November 14, 1997
Page 3
be entitled to contribution from any party who is not also found liable for such
fraudulent misrepresentation.
The foregoing agreement shall be in addition to any rights that any indemnified
party may have at common law or otherwise, and shall be in addition to any
liability which the Company may otherwise have. This Agreement shall remain in
full force and effect following the completion or termination of CPM's
engagement and shall be binding upon and inure to the benefit of any successors,
assigns, heirs and personal representatives of the Company and any indemnified
party.
Very truly yours,
GRIP TECHNOLOGIES, INC.
/s/ Sam G. Lindsay
--------------------------------
By: Mr Sam G. Lindsay
Title: President and Chief Executive Officer
ACCEPTED:
CHRISTMAN, PETERS & MADDEN
/s/ Geoffrey S.P. Madden
- -------------------------------
By: Geoffrey S.P. Madden
Title: General Partner
<PAGE>
EXHIBIT 10.10
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR UNDER THE SECURITIES LAWS OF
ANY STATE. ANY TRANSFER OF SUCH SECURITIES WILL BE INVALID UNLESS A REGISTRATION
STATEMENT UNDER THE SECURITIES ACT AND AS REQUIRED BY BLUE SKY LAWS IS IN EFFECT
AS TO SUCH TRANSFER OR IN THE OPINION OF COUNSEL SATISFACTORY TO THE COMPANY
SUCH REGISTRATION IS UNNECESSARY IN ORDER FOR SUCH TRANSFER TO COMPLY WITH THE
SECURITIES ACT AND BLUE SKY LAWS.
GRIP TECHNOLOGIES, INC.
WARRANT FOR THE PURCHASE
OF SHARES OF COMMON STOCK
Series 1997B No. 1 November 14, 1997
GRIP TECHNOLOGIES Inc., a California corporation (the "COMPANY"), hereby
certifies that, for value received, CHRISTMAN, PETERS & MADDEN or any transferee
who has received this warrant (the "WARRANT") in compliance with applicable law
and the terms hereof (the "HOLDER"), is entitled, on the terms set forth below,
to purchase from the Company, on or before the Expiration Time (as defined in
SECTION 18 below) six hundred thousand (600,000) shares of Common Stock, no par
value per share, of the Company at a price of one dollar and fifty cents ($1.50)
per share, subject to adjustment as provided below (the "EXERCISE PRICE").
1. LETTER AGREEMENT. This Warrant is the "Warrant" referred to in Section
4 of that certain Letter Agreement dated as of November 14, 1997, by and between
the Company and Christman, Peters & Madden (the "LETTER AGREEMENT"). Any
capitalized term used but not defined herein shall have the meaning ascribed to
it in the Letter Agreement.
2. EXERCISE OF WARRANT.
(A) INITIAL VESTING. The Holder may exercise this Warrant, in whole
or in part, at any time or from time to time on any business day prior to the
Expiration Time, for fifty thousand (50,000) shares of Common Stock.
(B) SUBSEQUENT VESTING. On any business day beginning 30 days after
the end of each Measurement Period (as defined below) and prior to the
Expiration Time, the Holder may exercise this Warrant, in whole or in part, at
any time or from time to time, as to an additional fifty thousand (50,000)
shares of Common Stock, up to a total of three hundred fifty thousand (350,000)
additional shares of Common Stock, subject to adjustment as provided in SECTION
3 below. For the purposes of this Warrant, "MEASUREMENT PERIOD" shall mean the
90 day period commencing on the date of this Warrant and each succeeding 90 day
period thereafter prior to the Termination Date. Further, upon the closing of a
sale of securities in an amount
1.
<PAGE>
totalling at least $2,000,000 prior to November 14, 1998, pursuant to the
financing outlined in the Letter Agreement, the Holder may exercise this Warrant
for an additional two hundred thousand (200,000) shares of Common Stock, subject
to adjustment as provided below in SECTION 3 below. Notwithstanding the
preceding, in no event shall this Warrant be exercisable for more than six
hundred thousand (600,000) shares of Common Stock, subject to adjustment as
provided in SECTION 3 below.
(C) MECHANICS OF EXERCISE. The Holder may exercise any shares then
exercisable by surrendering this Warrant to the Company at its principal office,
with a duly executed Subscription Form (in substantially the form attached
hereto), together with payment of the sum obtained by multiplying the number of
shares of Common Stock to be purchased by the Exercise Price then in effect.
Promptly after such exercise, the Company shall issue and deliver to or upon the
order of the Holder a certificate or certificates for the number of shares of
Common Stock issuable upon such exercise, and the Company will pay all issue or
transfer taxes in connection with the issue thereof. To the extent permitted by
law, this Warrant shall be deemed to have been exercised immediately prior to
the close of business on the date of its surrender for exercise as provided
herein, even if the Company's stock transfer books are at that time closed, and
the Holder shall be treated for all purposes as the holder of record of the
Common Stock to be issued upon such exercise as of the close of business on such
date. Upon any partial exercise, the Company will issue to or upon the order of
the Holder a new Warrant for the number of shares of Common Stock as to which
this Warrant has not been exercised.
(D) NET ISSUE EXERCISE. Notwithstanding any provisions herein to the
contrary, if the fair market value of one share of the Common Stock subject to
this Warrant is greater than the Exercise Price (at the Date of Determination,
as defined below), in lieu of exercising this Warrant for cash, the Holder may
elect to receive shares equal to the value (as determined below) of this Warrant
(or the portion thereof being canceled) by surrender of this Warrant at the
principal office of the Company together with the properly endorsed Form of
Subscription and notice of such election (the date of such delivery being
referred to herein as the "DATE OF DETERMINATION") in which event the Company
shall issue to the Holder a number of shares of Common Stock computed using the
following formula:
X = Y (A-B)
-------
A
Where X = the number of shares of Common Stock to be issued to the
Holder
Y = the number of shares of Common Stock purchasable under the
Warrant or, if only a portion of the Warrant is being
exercised, the portion of the Warrant being canceled (at the
Date of Determination)
A = the fair market value of one share of the Common Stock at
the Date of Determination)
2.
<PAGE>
B = Exercise Price (as adjusted to the Date of Determination)
For purposes of the above calculation, fair market value of one share of Common
Stock shall be the average of the closing prices of the Company's Common Stock
quoted on the Nasdaq National Market or on the primary securities exchange on
which the Common Stock is then listed, whichever is applicable, as published in
the Wall Street Journal for the ten (10) trading days prior to the Date of
Determination.
3. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES. The
Exercise Price and the number of shares of Common Stock subject to this Warrant
(and all other adjustment to exercise price and shares herein as appropriate)
shall be subject to adjustment from time to time as follows;
(A) ADJUSTMENT FOR CHANGE IN CAPITAL STOCK. If at any time the
Company:
(I) pays a dividend or makes a distribution on its Common
Stock in shares of its Common Stock;
(II) subdivides its outstanding shares of Common Stock into a
greater number of shares;
(III) combines its outstanding shares of Common Stock into a
smaller number of shares;
(IV) makes a distribution on its Common Stock in shares of its
capital stock other than Common Stock; or
(V) issues by reclassification of its Common Stock any shares
of its capital stock;
then the Exercise Price in effect immediately prior to such action shall be
adjusted so that the Holder may receive upon exercise of the Warrant and payment
of the same aggregate consideration the number of shares of capital stock of the
Company which the Holder would have owned immediately following such action if
the Holder had exercised the Warrant immediately prior to such action.
The adjustment shall become effective immediately after the record date in
the case of a dividend or distribution and immediately after the effective date
in the case of a subdivision, combination or reclassification.
(B) ADJUSTMENTS FOR CERTAIN DILUTING ISSUES.
(I) SPECIAL DEFINITIONS. For purposes of this Warrant and this
SECTION 3(B), the following definitions apply:
3.
<PAGE>
(A) "Option" shall mean rights, options, or warrants to
subscribe for, purchase or otherwise acquire either Common Stock or Convertible
Securities (defined below).
(B) "Original Issue Date" shall mean the date on which
this Warrant was first issued.
(C) "Convertible Securities" shall mean any evidences of
indebtedness, shares (other than Common Stock and Series A Preferred Stock) or
other securities convertible into or exchangeable for Common Stock.
(D) "Additional Shares of Common Stock" shall mean all
shares of Common Stock issued (or, pursuant to SECTION (3)(B)(III), deemed to be
issued) by the Company after the Original Issue date, other than shares of
Common Stock issued or issuable (hereinafter referred to as "Excluded Grants and
Issuances"):
a. upon conversion of shares of the Series A
Preferred Stock, no par value per share, of the Company (the "Series A
Preferred Stock");
b. to officers, directors or employees of, or
consultants to, the Company pursuant to stock options, stock purchase plans
or agreements, or stock purchase warrants (including endorsement contracts
or agreements by and between the Company and professional athletes, or
other individuals or organizations, pursuant to the advertising, marketing
and sale of the Company's products), on terms approved by the Board of
Directors;
c. as a dividend or distribution on Series A
Preferred Stock;
d. for which adjustment of the Series A Preferred
Stock Conversion Price is made pursuant to SECTION 3(A);
e. Upon the closing of an Initial Offering (as
defined below in SECTION 4) of the Company's Common Stock, on a firmly and
fully underwritten basis, in an aggregate offering price, net of
underwriting discounts and commissions, of at least $5,000,000;
f. in connection with an acquisition of another
company on terms approved by the Board of Directors of the Company.
(II) NO ADJUSTMENT OF THE EXERCISE PRICE AND NUMBER OF WARRANT
SHARES. Any provisions herein to the contrary notwithstanding, no adjustment in
the Exercise Price and Number of Warrant Shares, as referenced in this SECTION 3
and this Warrant, shall be made in respect of the grant or issuance of
Additional Shares of Common Stock unless the
4.
<PAGE>
consideration per share (determined pursuant to SECTION 3(B)(VI) hereof) for an
Additional Share of Common Stock issued or deemed to be issued by the Company is
less than the Exercise Price in effect on the date of, and immediately prior to,
such issue.
(III) DEEMED ISSUE OF ADDITIONAL SHARES OF COMMON STOCK. In the
event the Company at any time or from time to time after the Original Issue Date
shall issue any Options or Convertible Securities or shall fix a record date for
the determination of holders of any class of securities then entitled to receive
any such Options or Convertible Securities, other than Excluded Grants and
Issuances, then the maximum number of shares (as set forth in the instrument
relating thereto without regard to any provisions contained therein designed to
protect against dilution) of Common Stock issuable upon the exercise of such
Options or, in the case of Convertible Securities and Options therefor, the
conversion or exchange of such Convertible Securities, shall be deemed to be
Additional Shares of Common Stock issued as of the time of such issue or, in
case such a record date shall have been fixed, as of the close of business on
such record date, provided that in any such case in which Additional Shares of
Common stock are deemed to be issued:
(A) no further adjustments in the Exercise Price and
Number of Warrant Shares shall be made upon the subsequent issue of Convertible
Securities or shares of Common Stock upon the exercise of such Options or
conversion or exchange of such Convertible Securities;
(B) if such Options or Convertible Securities by their
terms provide, with the passage of time or otherwise, for any increase or
decrease in the consideration payable to the Company, or decrease or increase in
the number of shares of Common Stock issuable, upon the exercise, conversion or
exchange thereof, the Exercise Price and Number of Warrant Shares computed upon
the original issue thereof (or upon the occurrence of a record date with respect
thereto), and any subsequent adjustments based thereon, shall, upon any such
increase or decrease becoming effective, be recomputed to reflect such increase
or decrease insofar as it affects such Options or the rights of conversion or
exchange under such Convertible Securities (provided, however, that no such
adjustment of the Exercise Price and Number of Warrant Shares shall affect
Common Stock previously issued upon exercise of this Warrant);
(C) upon the expiration of any such Options or any rights
of conversion or exchange under such Conversion Securities which shall not have
been exercised, Exercise Price and Number of Warrant Shares computed upon the
original issue thereof (or upon the occurrence of a record date with respect
thereto), and any subsequent adjustments based thereon, shall, upon such
expiration, be recomputed as if:
a. in the case of Convertible Securities or Options
for Common Stock, the only Additional Shares of Common Stock issued were the
shares of Common Stock, if any, actually issued upon the exercise of such
Options or the conversion or exchange of such Convertible Securities and the
consideration received therefor was the consideration actually received by the
Company for the issue of all such Options, whether or not
5.
<PAGE>
exercised, plus the consideration actually received by the Company upon such
exercise, or for the issue of all such Convertible Securities as the additional
consideration, if any, actually received by the Company upon such conversion or
exchange; and
b. in the case of Options for Convertible
Securities, only the Convertible Securities, if any, actually issued upon the
exercise thereof were issued at the time of issue of such Options, and the
consideration received by the Company for the Additional Shares of Common Stock
deemed to have been then issued was the consideration actually received by the
Company for the issue of all such Options, whether or not exercised, plus the
consideration deemed to have been received by the Company (determined pursuant
to this SECTION 3(B) upon the issuance of the Convertible Securities with
respect to which such Options were actually exercised;
(D) no readjustment pursuant to clause (B) or (C) above
shall have the effect of increasing the Exercise Price to an amount which
exceeds the lower of a. the Exercise Price on the original adjustment date, or
b. the Exercise Price that would have resulted from any issuance of Additional
Shares of Common Stock between the original adjustment date and such
readjustment date;
(E) no readjustment pursuant to clause (B) or (C) above
shall have the effect of increasing the number of shares of Common Stock
issuable pursuant to exercise to this Warrant to an amount which exceeds the
lower of a. the number of shares of Common Stock issuable pursuant to exercise
of this Warrant on the original adjustment date, or b. the number of shares of
Common Stock issuable pursuant to exercise of this Warrant that would have
resulted from any issuance of Additional Shares of Common Stock between the
original adjustment date and such readjustment date;
(F) in the case of any Options which expire by their
terms not more than 30 days after the date of issue thereof, no adjustment of
Exercise Price and Number of Warrant Shares shall be made until the expiration
or exercise of all such Options whereupon such adjustment shall be made in the
same manner provided in clause (C) above.
(IV) ADJUSTMENT OF EXERCISE PRICE UPON ISSUANCE OF ADDITIONAL
SHARES OF COMMON STOCK. In the event the Company, at any time after the Original
Issue Date, shall issue Additional Shares of Common Stock (including Additional
Shares of Common Stock deemed to be issued pursuant to SECTION 3, but not
including Excluded Grants and Issuances) without consideration or for a
consideration per share less than the Exercise Price in effect on the date of
and immediately prior to such issue, then and in such event, the Exercise Price
shall be reduced, concurrently with such issue, to a price (calculated to the
nearest cent) determined by multiplying the Exercise Price by a fraction, the
numerator of which shall be the number of shares of Common Stock outstanding
immediately prior to such issue plus the number of shares of Common Stock which
the aggregate consideration received by the Company for the total number of
Additional Shares of Common Stock so issued would purchase at such Exercise
Price in effect immediately prior to such issuance, and the denominator of which
shall be the number
6.
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of shares of Common Stock outstanding immediately prior to such issue plus the
number of such Additional Shares of Common Stock so issued. For the purpose of
the above calculation, the number of shares of Common Stock outstanding
immediately prior to such issue shall be calculated on a fully diluted basis, as
if all accrued shares of this Warrant had been fully exercised, all Convertible
Securities had been fully converted into shares of Common Stock immediately
prior to such issuance and any outstanding Options had been fully exercised
immediately prior to such issuance (and the resulting securities fully converted
into shares of Common Stock, if so convertible) as of such date, but not
including in such calculation any additional shares of Common Stock issuable
with respect to shares of this Warrant, Convertible Securities, or outstanding
Options, solely as a result of the readjustment of the Exercise Price (or other
conversion ratio) resulting from the issuance of the Additional Shares of Common
Stock causing the adjustment in question.
(V) ADJUSTMENT OF THE NUMBER OF WARRANT SHARES UPON ISSUANCE
OF ADDITIONAL SHARES OF COMMON STOCK. In the event that the Company at any time
after the Original Issue Date, shall issue Additional Shares of Common Stock
(including Additional Shares of Common Stock deemed to be issued pursuant to
SECTION 3, but not including Excluded Grants and Issuances) without
consideration or for a consideration per share less than the Exercise Price in
effect on the date of and immediately prior to such issue, then and in such
event, the number of shares of Common Stock issuable pursuant to the exercise of
this Warrant shall be increased, concurrently with such issue, to a number of
shares of Common Stock determined by multiplying the number of shares of Common
Stock issuable pursuant to exercise of this Warrant immediately prior to such
issuance rate by a factor, the numerator of which shall be the number of shares
of Common Stock outstanding immediately prior to such issue plus the number of
such Additional Shares of Common Stock so issued, and the denominator of which
shall be the number of shares of Common Stock outstanding immediately prior to
such issue plus the number of Shares of Common Stock which the aggregate
consideration received by the Company for the total number of Additional Shares
of Common Stock so issued would purchase at such Exercise Price in effect
immediately prior to such issuance. For the purpose the above calculations, the
number of shares of Common Stock outstanding immediately prior to such issue
shall be calculated on a fully diluted basis, as if all accrued shares of this
Warrant had been fully exercised, all Convertible Securities had been fully
converted into share of Common Stock immediately prior to such issuance and any
outstanding Options had been fully exercised immediately prior to such issuance
(and the resulting securities fully converted into shares of Common Stock, if so
convertible) as of such date, but not including in such calculation any
additional shares of Common Stock issuable with respect to shares of this
Warrant, Convertible Securities, or outstanding Options, solely as a result of
the adjustment of the number of shares of Common Stock issuable pursuant to the
Exercise of this Warrant (or other conversion ratio) resulting from the issuance
of the Additional Shares of Common Stock causing the adjustment in question.
(VI) DETERMINATION OF CONSIDERATION. For purpose of this
SECTION 3(B), the consideration received by the Company for the issuance of any
Additional Shares of Common Stock shall be computed as follows:
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(A) CASH AND PROPERTY. Such consideration shall:
a. Insofar as it consists of cash, be computed at
the aggregate amount of cash received by the Company excluding amounts paid or
payable for accrued interest or accrued dividends;
b. insofar as it consists of property other than
cash, be computed at the fair value thereof at the time of such issue, as
determined in good faith by the Board of Directors; and
c. in the event Additional Shares of Common Stock
are issued together with other stock or securities or other assets of the
Company for consideration which convert both, be the proportion of such
consideration so received, computed as provided in clauses (a) and (b) above, as
determined in good faith by the Board of Directors.
(B) OPTIONS AND CONVERTIBLE SECURITIES. The consideration
per share received by the Company for Additional Shares of Common Stock deemed
to have been issued pursuant to SECTION 3(B)(III), relating to Options and
Convertible Securities shall be determined by dividing:
a. the total amount, if any, received or receivable
by the Company as consideration for the issue of such Options or Convertible
Securities, plus the minimum aggregate amount of additional consideration (as
set forth in the instruments relating thereto, without regard to any provision
contained therein designed to protect against dilution) payable to the Company
upon the exercise of such Options or the conversion or exchange of such
Convertible Securities, or in the case of Options for exchange of such
Convertible Securities, or in the case of Options for Convertible Securities,
the exercise of such Options for Convertible Securities and the conversion or
exchange of such Convertible Securities by
b. the maximum number of shares of Common Stock (as
set forth in the instruments relating hereto, without regard to any provision
contained therein designed to protect against the dilution) issuable upon the
exercise of such Options or conversion or exchange of such Convertible
Securities.
(C) REORGANIZATION, CONSOLIDATION OR MERGER. In the event of any
consolidation or merger of the Company with or into another corporation (other
than a merger in which merger the Company is the continuing corporation and that
does not result in any reclassification, capital reorganization or other change
of outstanding shares of Common Stock issuable upon exercise of this Warrant) or
in the event of any sale, lease, transfer or conveyance to another corporation
of the property and assets of the Company as an entirety or substantially as an
entirety, the Company shall cause effective provisions to be made so that the
Holder shall have the right thereafter, by exercising this Warrant, to purchase
the kind and amount of shares of stock and other securities and property
(including cash) receivable upon such capital reorganization and other change,
consolidation, merger, sale, lease, transfer or conveyance by
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a holder of the number of shares of Common Stock that might have been received
upon exercise of this Warrant immediately prior to such capital reorganization,
change, consolidation, merger, sale, lease, transfer or conveyance. Any such
provision shall include provisions for adjustments in respect of such shares of
stock and other securities and property that shall be as nearly equivalent as
may be practicable to the adjustments provided for in this Warrant. The
foregoing provisions of this SECTION 3(C) shall similarly apply to successive
capital reorganizations and changes of shares of Common Stock and to successive
consolidations, mergers, sales, leases, transfers or conveyances. In the event
that in connection with any such capital reorganization, or change,
consolidation, merger, sale, lease, transfer or conveyance, additional shares of
Common Stock shall be issued in exchange, conversion, substitution or payment,
in whole or in part, for, or of, a security of the Company other than Common
Stock, any such issue shall be treated as an issue of Common Stock covered by
the provisions of SECTION 3(A) and SECTION 3(B) hereof.
(D) MINIMAL ADJUSTMENTS. No adjustment in the Exercise Price and/or
the number of shares of Common Stock subject to this Warrant need be made if
such adjustment would result in a change in the Exercise Price of less than one
percent (1%) or the Exercise Price (the "ADJUSTMENT THRESHOLD AMOUNT") or a
change in the number of subject shares of less than one (1) share. Any
adjustment which is less than the Adjustment Threshold Amount and not made shall
be carried forward and shall be made, together with any subsequent adjustments,
at the time when (i) the aggregate amount of all such adjustments is equal to at
least the Adjustment Threshold Amount or (ii) the Warrant is exercised.
(E) DEFERRAL OF ISSUANCE OF PAYMENT. In any case in which an event
covered by this SECTION 3 shall require that an adjustment in the Exercise Price
be made effective as of a record date, the Company may elect to defer until the
occurrence of such event (i) issuing to the Holder, if this Warrant is exercised
after such record date, the shares of Common Stock and other capital stock of
the Company, if any, issuable upon such exercise over and above the shares of
Common Stock or other capital stock of the Company, if any, issuable upon such
exercise on the basis of the Exercise Price in effect prior to such adjustment,
and (ii) paying to the holder by check any amount in lieu of the issuance of
fractional shares pursuant to SECTION 7 hereof.
(F) WHEN NO ADJUSTMENT REQUIRED. No adjustment need be made for a
change in the par value or no par value of the Common Stock. To the extent the
Warrants become exercisable into cash, no adjustment need be made thereafter as
to the cash, and interest will not accrue on the cash.
(G) CERTIFICATE AS TO ADJUSTMENTS. Upon the occurrence of each
adjustment or readjustment of the Exercise Price pursuant to this SECTION 3, the
Company shall promptly compute such adjustment or readjustment in accordance
with the terms hereof, and cause independent certified public accountants
selected by the Company to verify such computation and prepare and furnish to
each Holder a certificate setting forth such adjustment or readjustment and
showing in detail the facts upon which such adjustment or readjustment is based.
The
9.
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Company shall, upon written request at any time of the Holder, furnish or cause
to be furnished to the Holder a like certificate setting forth (i) such
adjustments and readjustments, (ii) the then effective Exercise Price and number
of shares of Common Stock subject to the Warrant, and (iii) the then effective
amount of securities (other than Common Stock) and other property, if any, which
would be received upon exercise of the Warrant. All reasonable costs associated
with preparation and furnishing of each certificate shall be borne by the
Holders, on a pro-rata basis with respect to their shares of Common Stock
pursuant to this Warrant.
4. REGISTRATION RIGHTS. Shares of the Company's Common Stock issued or
issuable pursuant to the exercise of this Warrant shall be deemed to be
"Registrable Securities" for purpose of this Warrant and SECTION 4, as may be
subsequently amended or restated or consolidated with other similar agreements
granting registrations rights in the securities of the Company, as may be agreed
to by and between the Company and Holders pursuant to SECTION 15 of this
Warrant.
(A) SPECIAL DEFINITIONS. For purposes of this Warrant and this
SECTION 4(A), the following definitions apply:
(i) "1934 Act" means the Securities Exchange Act of 1934.
(ii) "Equity Securities" means (A) any stock or similar
security of the Company, (B) any security convertible, with or without
consideration, into any stock or similar security (including any option to
purchase such a convertible security), (C) any security carrying any warrant or
right to subscribe to or purchase any stock or similar security or (D) any such
warrant or right.
(iii) "Family Member" means a Holder's spouse, children,
stepchildren and grandchildren.
(iv) "Final Prospectus" means an amended prospectus filed with
the SEC pursuant to SEC Rule 424(b) of the Securities Act.
(v) "Holder" means any person owning of record Registrable
Securities.
(vi) "Initial Offerings" means the first fully underwritten
public offering of the Company's securities after the Original Issue Date of
this Warrant.
(vii) "Initiating Holders" means the Holder or Holders of at
least forty percent (40%) of the Registrable Securities then outstanding.
(viii) "Register," "registered," and "registration" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of
effectiveness by the SEC of such registration statement or document.
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(ix) "Registrable Securities" means (A) Common Stock of the
Company issued or issuable upon exercise of the Warrant; and (B) any Common
Stock of the Company issued as (or issuable upon the conversion or exercise of
any warrant, right or other security which is issued as) a dividend or other
distribution with respect to, or in exchange for or in replacement of, such
above-described securities. Notwithstanding the foregoing, Registrable
Securities shall not include any securities sold by a person to the public
either pursuant to a registration statement or Rule 144 or sold in a private
transaction in which the transferror's rights under SECTION 19 of this Warrant
are not assigned.
(x) "Securities Act" shall mean the Securities Act of 1933, as
amended.
(xi) "Shares" shall mean the Company's Common Stock issuable or
issued upon exercise of this Warrant.
(xii) "Form S-3" means such form under the Securities Act as in
effect on the date hereof or any successor registration form under the
Securities Act subsequently adopted by the SEC which permits inclusion or
incorporation of substantial information by reference to other documents filed
by the Company with the SEC.
(xiii) "SEC" or "Commission" means the Securities and Exchange
Commission.
(B) PIGGYBACK REGISTRATIONS.
(i) The Company shall notify all Holders in writing at least
thirty (30) days prior to the filing of any registration statement under the
Securities Act for purposes of a public offering of securities of the Company
(including, but not limited to, registration statements relating to secondary
offerings of securities of the Company, but excluding registration statements
relating to the Initial Offering, employee benefit plans and corporate
reorganizations) and will afford each such Holder who would have been unable to
sell all of such Registrable Securities on an unrestricted basis pursuant to
Rule 144 promulgated under the Securities Act, during the four-week period
immediately preceding the effective date of the registration statement, an
opportunity to include in such registration statement all or part of such
Registrable Securities held by such Holder. Each Holder desiring to include in
any such registration statement all or any part of the Registrable Securities
held by it shall, within twenty (20) days after receipt of the above-described
notice from the Company, so notify the Company in writing. Such notice shall
state the intended method of disposition of the Registrable Securities by such
Holder. If a Holder decides not to include all of its Registrable Securities in
any registration statement thereafter filed by the Company, such Holder shall
nevertheless continue to have the right to include any Registrable Securities in
any subsequent registration statement or registration statements as may be filed
by the Company with respect to offerings of its securities, all upon the terms
and conditions set forth herein. Notwithstanding anything to the contrary, the
foregoing shall not apply to any registrations pursuant to this SECTION 4(B)
occurring on or after the later of the expiration of this Warrant or the second
anniversary of the Initial Offering.
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(ii) If the registration statement under which the Company
gives notice under this SECTION 4(B) is for an underwritten offering, the
Company shall so advise the Holders. In such event, the right of any such Holder
to be included in a registration pursuant to this SECTION 4(B) shall be
conditioned upon such Holder's participation in such underwriting and the
inclusion of such Holder's Registrable Securities in the underwriting to the
extent provided herein. All Holders proposing to distribute their Registrable
Securities through such underwriting shall enter into an underwriting agreement
in customary form with the underwriter or underwriters selected by the Company
for such underwriting. Notwithstanding any other provision of the Agreement, if
the underwriter determines in good faith that marketing factors require a
limitation of the number of shares to be underwritten, the number of shares that
may be included in the underwriting shall be allocated, first, to the Company;
second, to the Holders of Registrable Securities pursuant to this Warrant and
all other holders of common stock, options, warrants or convertible securities
with piggyback registration rights pursuant to securities agreements or other
agreements with the Company as of the date hereof, on a pari passu, pro-rata
basis based on the total number of Registrable Securities and all other
securities with piggyback registration rights collectively held by,
respectively, the Holders and all other holders of common stock, options,
warrants or convertible securities with piggyback registration rights pursuant
to securities agreements or other agreements with the company as of the date
hereof; and third, to any other stockholder of the Company on a pro-rata basis.
No such reduction shall reduce the securities being offered by the Company for
its own account to be included in the registration and underwriting, except that
in no event shall the amount of securities of the selling Holders included in
the registration be reduced below twenty percent (20%) of the total amount of
securities included in such registration, unless such offering is the Initial
Offering and such registration does not include shares of any other selling
stockholders, in which event any or all of the Registrable Securities of the
Holders may be excluded in accordance with the immediately preceding sentence.
In no event will shares of any other selling stockholder be included in such
registration which would reduce the number of shares which may be included by
Holders without the written consent of Holders of not less than fifty percent
(50%) of the Registrable Securities proposed to be sold in the offering.
(iii) The Company shall bear all fees and expenses incurred in
connection with any registration under this SECTION 4(B) (excluding
underwriters' discounts and commissions, which shall be paid by the selling
Holders pro-rata with respect to their included shares), including without
limitation all registration, filing, qualification, printers' and accounting
fees, fees and disbursements of counsel to the Company, and the reasonable fees
and disbursements of a single counsel to the selling Holders (which counsel
shall also be counsel to the Company unless counsel to the Company has a
conflict of interest with respect to the representation of any selling Holder or
the underwriters object to the selling Holders representation by Company
counsel).
(C) FORM S-3 REGISTRATION. In case the Company shall receive from
the Holders at least ten percent (10%) of the Registrable Securities a written
request or requests that the Company effect a registration on Form S-3 and any
related qualification or compliance with respect to all or a part of the
Registrable Securities owned by such Holder or Holders, the Company will:
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(i) promptly give written notice of the proposed registration,
and any related qualification or compliance, to all other Holders of Registrable
Securities; and
(ii) as soon as practicable, effect such registration and all
such qualifications and compliances as may be so requested and as would permit
or facilitate the sale and distribution of all or such portion of such Holder's
or Holders' Registrable Securities as are specified in such request, together
with all or such portion of the Registrable Securities of any other Holder or
Holders joining in such request as are specified in a written request given
within fifteen (15) days after receipt of written notice from the Company
pursuant to SECTION 4(C)(I), provided, however, that the Company shall not be
obligated to effect any such registration, qualification or compliance pursuant
to this SECTION 4(C): (A) if Form S-3 is not available under the Securities Act
or rules or regulations promulgated thereunder for such offering by the Holders;
(B) if the Holders, together with the holders of any other securities of the
Company entitled to inclusion in such registration, propose to sell Registrable
Securities and such other securities (if any) at an aggregate price to the
public of less than $500,000; (C) if the Company shall furnish to the Holders a
certificate signed by the President of the Company stating that in the good
faith judgment of the Board of Directors of the Company, it would be seriously
detrimental to the Company and its stockholders for such Form S-3 Registration
to be effected at such time, in which event the Company shall have the right to
defer the filing of the Form S-3 registration statement for a period of not more
than ninety (90) days after receipt of the request of the Holder or Holders
under this SECTION 4(C), provided that, such right to defer the filing may be
exercised by the Company no more than once in any one-year period; (D) if the
Company has, within the six (6) month period preceding the date of such request,
already effected one (1) registration on Form S-3 for the Holders pursuant to
this SECTION 4(C); or (E) 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.
(iii) Subject to the foregoing, the Company shall file a Form S-
3 registration statement covering the Registrable Securities and other
securities so requested to be registered as soon as practicable after receipt of
the request or requests of the Holders. All such expenses incurred in connection
with registrations requested pursuant to this SECTION 4(C) shall be paid by the
selling Holders (and any other selling stockholders pro-rata with respect to
their included shares), including without limitation all registration, filing,
qualification, printers' and accounting fees, fees and disbursements of counsel
for the Company, and the reasonable fees and disbursements of a single counsel
for the selling Holder or Holders.
(iv) Notwithstanding anything to the contrary, the foregoing
shall not apply to any registrations pursuant to this SECTION 4(C) occurring on
or after the later of the expiration of this Warrant or the second anniversary
of the Initial Offering.
(D) OBLIGATIONS OF THE COMPANY. Whenever required to effect the
registration of any Registrable Securities, the Company shall, as expeditiously
as reasonably possible:
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(i) Prepare and file with the SEC a registration statement
with respect to such Registrable Securities and use its best efforts to cause
such registration statement to become effective, and, upon the request of the
Holders of a majority of the Registrable Securities registered thereunder, keep
such registration statement effective for up to ninety (90) days.
(ii) 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.
(iii) 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 Registrable
Securities owned by them.
(iv) Use its best efforts to register and qualify the
securities covered by such registration statement under such other securities or
state 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.
(v) In the event of any underwritten public offering, enter
into and perform its obligations under an underwriting agreement, in usual and
customary form, 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.
(vi) 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.
(vii) Furnish, at the request of a majority of the Holders
participating in the registration, 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, (A) 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 interest of the Holders
requesting registration, addressed to the underwriters, if any, and to the
Holders requesting registration of Registrable Securities and (B) a letter dated
as of such date, from the independent certified public accountants of the
Company, in form and substance as is
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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 underwriter,
if any, and to the Holders requesting registration of Registrable Securities.
(E) FURNISH INFORMATION. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to SECTIONS 4(B) or 4(C)
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 required to effect the registration
of their Registrable Securities.
(F) DELAY OF REGISTRATION. No Holder shall have any right to obtain
or seek an injunction restraining or otherwise delaying any such registration as
the result of any controversy that might arise with respect to the
interpretation or implementation of this SECTION 4.
(G) INDEMNIFICATION. In the event any Registrable Securities are
included in a registration statement under SECTIONS 4(B) OR 4(C):
(i) To the extent permitted by law, the Company will
indemnify and hold harmless each Holder, the partners, officers and directors of
each Holder, any identified underwriter (as defined in this 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 1934 Act, against any losses,
claims, damages, or liabilities (joint or several) to which they may become
subject under the Securities Act, the 1934 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") by the Company: (A) 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, (B) 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
(C) any violation or alleged violation by the Company of the Securities Act, the
1934 Act, any state securities law or any rule or regulation promulgated under
the Securities Act, the 1934 Act or any state securities law in connection with
the offering covered by such registration statement; and the Company will
reimburse each such Holder, partner, officer or director, identified underwriter
or controlling person for any legal or other expenses reasonably incurred by
them in connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the indemnity agreement contained
in this SECTION 4(G)(I) 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 which occurs in reliance upon and in conformity with
written information furnished to the Company expressly for use in connection
with such registration by such Holder, partner, officer, director, underwriter
or controlling person of such Holder.
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(ii) To the extent permitted by law, each selling Holder will
indemnify and hold harmless the Company, each of its directors, each of its
officers, each person, if any, who controls the Company within the meaning of
the Securities Act, the Company's attorney, any underwriter and any other Holder
selling securities under such registration statement or any of such other
Holder's partners, directors or officers or any person who controls such Holder,
against any losses, claims, damages or liabilities (joint or several) to which
the Company or any such director, officer, controlling person, underwriter or
other such Holder, or partner, director, officer or controlling person of such
other Holder may become subject under the Securities Act, the 1934 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 to the
Company 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 director, officer, controlling person,
attorney, underwriter or other Holder, or partner, officer, director or
controlling person of such other Holder in connection with investigating or
defending any such loss, claim, damage, liability or action if it is finally
judicially determined by a court of competent jurisdiction that there was such a
Violation; provided, however, that the indemnity agreement contained in this
SECTION 4(G)(II) 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;
provided further, that in no event shall any indemnity under this SECTION 4(G)
exceed the proceeds from the offering received by such Holder.
(iii) Promptly after receipt by an indemnified party under this
SECTION 4(G) of notice of the commencement of any action (including any
governmental action) as to which indemnity may be sought, such indemnified party
will, if a claim in respect thereof is to be made against any indemnifying party
under this SECTION 4(G), 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,
than an indemnified party shall have the right to retain its own counsel, with
the fees and expenses to be paid by the indemnifying party, if representation of
such indemnified party by the counsel retained by the indemnifying party would
be inappropriate due to actual or potential differing 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, if materially
prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this SECTION
4(G), but the omission so to deliver written notice to the indemnifying party
will not relieve it of any liability that it may have to any indemnified party
otherwise than under this SECTION 4(G).
(iv) If the indemnification provided for in this SECTION 4(G)
is held by a court of competent jurisdiction to be unavailable to an indemnified
party with respect to any losses, claims, damages or liabilities referred to
herein, the indemnifying party, in lieu of
16.
<PAGE>
indemnifying such indemnified party thereunder, shall to the extent permitted by
applicable law contribute to the amount paid or payable by such indemnified
party as a result of such loss, claim, damage or liability in such proportion as
is appropriate to reflect the relative fault of indemnifying party on the one
hand and of the indemnified party on the other in connection with the
Violation(s) that resulted in such loss, claim, damage or liability, as well as
any other relevant equitable considerations. The relative fault of the
indemnifying party and of the indemnified party shall be determined by a court
of law by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission to state a material fact relates to
information supplied by the indemnifying party or by the indemnified party and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission; provided that, in no event
shall any contribution by a Holder hereunder exceed the proceeds from the
offering received by such Holder.
(v) 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 Final Prospectus, such indemnity agreement
shall not inure to the benefit of any person obligated under the Securities Act
to furnish to the person asserting the loss, liability, claim or damage a copy
of the Final Prospectus if a copy of the Final Prospectus was 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.
(vi) The obligations of the Company and Holders under this
SECTION 4(G) shall survive the completion of any offering of Registrable
Securities pursuant to a registration statement, or otherwise.
(H) ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause the
Company to register Registrable Securities pursuant to this SECTION 4 may be
assigned by a Holder to a transferee or assignee of Registrable Securities;
provided, however, that no such transferee or assignee shall be entitled to
registration rights under SECTIONS 4(B) or 4(C) hereof unless such transferee or
assignee: (i)(A) is a Holder, (B) holds after such transfer or assignment at
least fifty thousand (50,000) shares of Registrable Securities (as adjusted for
stock dividends, splits and combinations); or (C) is a Family Member or a
subsidiary, parent, general partner, "affiliate" (as defined under the 1934
Act), or limited partner of a Holder and (ii) agrees in writing prior to such
transfer or assignment to be bound by the terms of this Agreement respecting
registration rights. In each such case, the Company shall, within twenty (20)
days after such transfer, be furnished with written notice of the name and
address of such transferee or assignee and the securities with respect to which
such registration rights are being assigned.
(I) AMENDMENT OF REGISTRATION RIGHTS. Any provision of this SECTION 4
may be amended and the observance thereof may be waived (either generally or in
a particular instance and either retroactively or prospectively), only with the
written consent of the Company and the Holders of more than fifty percent (50%)
of the Registrable Securities. Any amendment
17.
<PAGE>
or waiver effected in accordance with this SECTION 4(I) shall be binding upon
each Holder and the Company. By acceptance of any benefits under this SECTION 4,
each Holder hereby agrees to be bound by the provisions hereunder.
(J) "MARKET STAND-OFF" AGREEMENT. If requested by the Company and an
underwriter of Common Stock (or other securities) of the Company, the Holder
shall not sell or otherwise transfer or dispose of any Common Stock (or other
securities) of the Company held by such Holder (other than those included in the
registration) for a period specified by the underwriters not to exceed one
hundred eighty (180) days following the effective date of a registration
statement of the Company filed under the Securities Act, provided that all
officers and directors of the Company and all holders of at least five percent
(5%) of the Company's voting securities enter into similar agreements. The
obligations described in this SECTION 4(J) shall not apply to a registration
relating solely to employee benefit plans on Form S-1 or Form S-8 or similar
forms that may be promulgated in the future, or a registration relating solely
to a Commission Rule 145 transaction on Form S-4 or similar forms that may be
promulgated in the future. The Company may impose stop-transfer instructions
with respect to the shares (or securities) subject to the foregoing restriction
until the end of said one hundred eighty (180)day period.
5. RIGHTS OF THE HOLDER. The Holder shall not, solely by virtue of this
Warrant, be entitled to any rights of a stockholder in the Company, either at
law or equity, and the rights of the Holder are limited to those expressed in
this Warrant. Nothing contained in this Warrant shall be construed as conferring
upon the Holder hereof the right to vote or to consent or to receive notice as a
stockholder of the Company on any matters or with respect to any rights
whatsoever as a stockholder of the Company. No dividends or interest shall be
payable or accrued in respect of this Warrant or the interest represented hereby
or the shares of Common Stock purchasable hereunder until, and only to the
extent that, this Warrant shall have been exercised in accordance with its
terms.
6. NO IMPAIRMENT. The Company will not, by any voluntary action, avoid or
seek to avoid the observance or performance of any of the terms of this Warrant,
but will at all times in good faith assist in the carrying out of all such terms
and in the taking of all such action as may be necessary or appropriate in order
to protect the rights of the Holder against dilution or other impairment.
7. NO FRACTIONAL SHARES. No fractional share shall be issued upon
exercise of this Warrant. The Company shall, in lieu of issuing any fractional
share, pay the Holder entitled to such fraction a sum in cash equal to the fair
market value of such fraction on the date of exercise. The fair market value of
a fraction of a share is determined by multiplying the fair market price of a
full share as defined in SECTION 2(D) by the fraction of a share, rounded to the
nearest cent.
8. RESERVATION OF STOCK ISSUABLE ON EXERCISE OF WARRANT. The Company will
at all times reserve and keep available, solely for issuance and delivery upon
the exercise of this
18.
<PAGE>
Warrant, all such shares of Common Stock or other shares of capital stock, from
time to time issuable upon the exercise of this Warrant. If at any time the
number of authorized but unissued shares of Common Stock shall not be sufficient
to effect the exercise of this Warrant, the Company will use its best efforts to
take such corporate action as may, in the opinion of its counsel, be necessary
to increase its authorized but unissued shares of Common Stock to such number of
shares as shall be sufficient for such purposes. All shares that may be issued
upon exercise of the rights represented by this Warrant and payment of the
Exercise Price, all as set forth herein, will be free from all taxes, liens and
charges in respect of the issue of such shares (other than taxes in respect of
any transfer occurring contemporaneously with such exercise and payment or
otherwise specified herein). All such shares shall be duly authorized and when
issued, sold and delivered in accordance with the terms of the Warrant for the
consideration expressed herein, will be duly and validly issued, fully paid and
nonassessable, and will be free of restrictions on transfer other than
restrictions on transfer set forth in this Warrant and applicable state and
federal securities laws.
9. COVENANTS OF THE COMPANY.
(A) BASIC FINANCIAL INFORMATION AND REPORTING.
(i) The Company will maintain true books and records of
account in which full and correct entries will be made of all its business
transactions pursuant to a system of accounting established and administered in
accordance with generally accepted accounting principles consistently applied,
and will set aside on its books all such proper accruals and reserves as shall
be required under generally accepted accounting principles consistently applied.
(ii) As soon as practicable after the end of each fiscal year
of the Company, and in any event within 90 days thereafter or, simultaneously
with the filing of the Company's annual report on Form 10-K with the SEC, the
Company will furnish each Holder a consolidated balance sheet of the Company, as
at the end of such fiscal year, and a consolidated statement of income and a
consolidated statement of cash flows of the Company for such year, all prepared
in accordance with generally accepted accounting principles and setting forth in
each case in comparative form the figures for the previous fiscal year, all in
reasonable detail. Such financial statements shall be accompanied by a report
and opinion thereon by independent public accountants of national standing
selected by the Company's Board of Directors.
(iii) As soon as practicable after the end of each fiscal
quarter of the Company, and in any event within thirty days thereafter or,
simultaneously with the filing of the Company's reports on Form 10-Q with the
SEC, the Company will furnish each Holder a consolidated balance sheet of the
Company, as at the end of such fiscal quarter, and a consolidated statement of
income and a consolidated statement of cash flows of the Company for such
quarter, prepared and presented in a manner consistent with the financial
statements described in SECTION 9(A)(II). Such statement shall be accompanied by
a certificate signed by the President and Chief Financial Officer of the Company
stating that the preparation and
19.
<PAGE>
presentation of such statements is consistent with the financial statements
described in SECTION 9(A)(II).
(iv) So long as a Holder (with its "affiliates," as defined
under the 1934 Act) shall own a Warrant to purchase not less than 50,000 shares
of Common Stock, subject to adjustment pursuant to SECTION 3(A) and 3(B), the
Company will furnish such Holder a consolidated balance sheet of the Company, as
at the end of each calendar month, and a consolidated statement of income and a
consolidated statement of cash flows of the Company for such month, prepared and
presented in a manner consistent with the financial statements described in
SECTION 9(A)(II). Such statements shall be furnished as soon as practicable
after the end of each month and in any event within ten (10) days thereafter and
shall be accompanied by a certificate signed by the President and Chief
Financial Officer of the Company stating that the preparation and presentation
of such statements is consistent with the financial statements described in
SECTION 9(A)(II). Prior to August 1st of each year, the Company shall furnish
such Holders an annual budget for the Company for the following twelve month
period, broken down by month. The Company's obligations under this SECTION
9(A)(IV) shall terminate upon the Initial Offering.
(B) INSPECTION RIGHTS. So long as a Holder (with its "affiliates," as
defined under the 1934 Act) shall own a Warrant to purchase not less than 50,000
shares of Common Stock, subject to adjustment pursuant to SECTION 3(A) and 3(B),
each such Holder shall have the right to visit and inspect any of the properties
of the Company or any of its subsidiaries, and to discuss the affairs, finances
and accounts of the Company or any of its subsidiaries with its officers, at all
such reasonable times and as often as may be reasonably requested; provided,
however, that the Company shall not be obligated under this SECTION 9(B) with
respect to a competitor of the Company or with respect to information which the
Board of Directors determines in good faith is confidential, and/or is not
publicly available, and should not, therefore, be disclosed.
(C) CONFIDENTIALITY OF RECORDS. Each Holder agrees to use, and to use
its best efforts to insure that its authorized representatives use, the same
degree of care as such Holder uses to protect its own confidential information
to keep confidential any information furnished to it which the Company
identifies as being confidential or proprietary (so long as such information if
not in the public domain), except that such Holder may disclose such proprietary
or confidential information to any partner, subsidiary, "affiliate" (as defined
under the 1934 Act) or parent of such Holder for the purpose of evaluating its
investment in the Company as long as such partner, subsidiary or parent is
advised of the confidentiality provisions of this SECTION 9(C).
10. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company hereby represents and warrants to and for the benefit of the
Holder as follows:
20.
<PAGE>
(A) ORGANIZATION, GOOD STANDING, QUALIFICATION. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the state of California. The Company has full power and authority to own and
operate its properties and assets, and to carry on its business as currently
conducted and as currently proposed to be conducted. The Company is duly
qualified and is authorized to do business and is in good standing as a foreign
corporation in all jurisdictions in which the nature of its activities and of
its properties (both owned and leased) makes such qualification necessary,
except for those jurisdictions in which failure to do so would not have a
material adverse effect on the Company or its business.
(B) AUTHORIZATION. All corporate action on the part of the Company,
its directors and its stockholders necessary for the authorization, execution,
issuance and delivery by the Company of this Warrant and the performance of
the Company's obligations hereunder has been completed. This Warrant, when
executed and delivered by the Company, shall constitute a valid and binding
obligation of the Company enforceable in accordance with its terms. The shares
of Common Stock issuable upon exercise of this Warrant, when issued in
compliance with the provisions of this Warrant and the Company's Articles of
Incorporation, will be validly issued, fully paid and nonassessable and free of
any liens or encumbrances.
(C) MATERIAL CONTRACTS. All material contracts, agreements and
instruments to which the Company is a party are in full force and effect in all
material respects, and are valid, binding and enforceable by the Company in
accordance with their respective terms, subject to the effect of applicable
bankruptcy and other similar laws affecting the rights of creditors generally,
and rules of law concerning equitable remedies and no event of default, and no
event which, with the passing of time or the giving of notice, or both, would
constitute an event of default has occurred or is continuing under any such
contract, agreement or instrument.
(D) COMPLIANCE WITH OTHER INSTRUMENTS. The Company is not in
violation of any term of its Articles of Incorporation, By-Laws or, to the best
of the Company's knowledge, any statute, rule or regulation applicable to the
Company. The execution, delivery and performance of this Agreement, the creation
and issuance of this Warrant and the issuance of the shares of Common Stock
pursuant to an exercise of the Warrant in accordance with the Amended Articles
of Incorporation will not result in any such violation, or be in conflict with
or constitute a default under any such term, or result in the creation of any
mortgage, pledge, lien, encumbrance, or charge upon any of the properties or
assets of the Company or contravene any provision of, or constitute a default
under, any indenture, mortgage, contract or other instrument to which it is a
party or by which it is bound.
(E) GOVERNMENTAL CONSENTS. All consents, approvals, orders, or
authorizations of, or registrations, qualifications, designations, declarations,
or filings with, any governmental authority, required on the part of the Company
in accordance with the valid execution, delivery, offer, sale or issuance of
this Warrant and the capital stock issuable upon exercise of the Warrant, have
been obtained, except for the filing of notices pursuant to Regulation D under
the Securities Act, and any filing required under applicable state securities
laws which will be effective by the time required thereby
21.
<PAGE>
(F) LITIGATION. There are no actions, suits, audits, investigations
or proceedings pending or, to the knowledge of the Company, threatened against
or affecting the Company in any court or before any governmental commission,
board or authority (other than those already disclosed in the correspondence,
dated September 12, 1997 and September 18, 1997, respectively, delivered to the
Company by the Company's independent certified public accountants, Arthur
Andersen LLP), which, if adversely determined, will have a material adverse
effect on business, financial condition or prospects of the Company or the
ability of the Company to perform its obligations under this Agreement.
(G) OFFERING. Assuming the accuracy of the representations and
warranties of the Holder contained in SECTION 19 hereof, the offer, issue, and
sale of the Warrant are and will be exempt from the registration and prospectus
delivery requirements of the Securities Act, and have been registered or
qualified (or are exempt from registration and qualification) under the
registration, permit, or qualification requirements of all applicable state
securities laws.
11. NOTICES OF RECORD DATE. Upon (a) any taking by the Company of a record
of the holders of any class of securities for the purpose of determining the
holders thereof who are entitled to receive any dividend or other distribution
or (b) any capital reorganization of the Company, any reclassification or
recapitalization of the capital stock of the Company, any merger or
consolidation of the Company with or into any other corporation, or any transfer
of all or substantially all the assets of the Company to any other person, or
any voluntary or involuntary dissolution, liquidation or winding up of the
Company, the Company shall mail to the Holder at least ten (10) days, or such
longer period as is required by law, prior to the record date, a notice
specifying (i) the date on which any such record is to be taken for the purpose
of such dividend or distribution and a description of such dividend or
distribution, (ii) the date on which any such reorganization, reclassification,
transfer, consolidation, merger, dissolution, liquidation or winding up is
expected to become effective, and (iii) the date, if any, that is to be fixed as
to when the holders of record of Common Stock (or other capital stock at that
time receivable upon exercise of the Warrant) shall be entitled to exchange
their shares of Common Stock (or such other stock or securities) for securities
or other property deliverable upon such reorganization, reclassification,
transfer, consolidation, merger, dissolution, liquidation or winding up.
12. EXCHANGES OF WARRANT. Upon surrender for exchange of this Warrant (in
negotiable form, if not surrendered by the Holder named on the face hereof) to
the Company at its principal office, the Company, at its expense, will issue and
deliver a new Warrant or Warrants calling in the aggregate for the same number
of shares of Common Stock, in the denomination or denominations requested, to or
on the order of such Holder upon payment by such Holder of any applicable
transfer taxes; provided that any transfer of the Warrant shall be subject to
the conditions on transfer set forth herein.
13. REPLACEMENT OF WARRANT. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant, and (in the case of loss, theft or destruction) upon delivery of
an indemnity agreement in such reasonable amount
22.
<PAGE>
as the Company may determine, or (in the case of mutilation) upon surrender and
cancellation hereof, the Company, at its expense, shall issue a replacement.
14. NOTICES. Any and all notices required or permitted hereunder shall
be deemed effectively given: (a) upon personal delivery to the party to be
notified, (b) upon receipt after having been deposited with the United States
Postal Service to be sent by registered or certified mail, return receipt
requested, postage prepaid; or (c) one (1) business day after deposit with a
nationally recognized overnight courier, specifying next day delivery, with
written verification of receipt. All communications shall be sent to the Company
at 10 Corporate Park, Suite 130, Irvine, California 92714 and to the Holder at
1285 Avenue of the Americas, Suite 3500, New York, New York 10019 Attention:
Geoffrey S.P. Madden, or at such other address as the Company or the Holder may
designate by ten (10) days' advance written notice to the other party hereto.
15. AMENDMENT; MODIFICATION; WAIVER. Except as otherwise expressly
provided for in this Warrant, no amendment or modification of any provision of
this Warrant shall be effective unless by and upon written consent of the
Company and Holders of the Warrant with the right to exercise and acquire more
than 50% of the accrued and issuable shares of Common Stock subject to this
Warrant. Except as otherwise expressly provided for in this Warrant, the
obligations of the Company and the rights of the Holders may be waived, or
consent to departure therefrom shall be effective only with the written consent
of the Company and the Holders of the Warrant with the right to exercise and
acquire more than 50% of the accrued and issuable shares of Common Stock subject
to this Warrant.
16. TITLES AND SUBTITLES. The titles and subtitles used in this Warrant
are used for convenience only and are not to be considered in construing or
interpreting this Warrant.
17. GOVERNING LAW. This Warrant shall be construed in accordance with and
governed by and under the laws of the State of New York as applied to contracts
among New York residents entered into and to be performed entirely within the
State of New York.
18. EXPIRATION TIME. This Warrant will be wholly void and of no effect
after 5:00 p.m. (New York time) November 14, 2002 ("the EXPIRATION TIME").
19. TRANSFER RESTRICTIONS. The Company is relying upon an exemption from
registration of this Warrant and the shares of Common Stock issuable upon
exercise hereof under the Securities Act and applicable state securities laws.
The Holder by acceptance hereof represents that the Holder understands that
neither this Warrant nor the Common Stock issuable upon exercise hereof has been
registered with the SEC nor under any state securities laws. By acceptance
hereof, the Holder represents and warrants that (a) it is acquiring the Warrant
(and the shares of Common Stock or other securities issuable upon exercise
hereof) for its own account for investment purposes and not with a view to
distribution, (b) has received all such information as the Holder deems
necessary and appropriate to enable the Holder to evaluate the financial risk
inherent in making an investment in the Company, and satisfactory and complete
23.
<PAGE>
information concerning the business and financial condition of the Company in
response to all inquiries in respect thereof, (c) the Holder's acquisition of
shares upon exercise hereof will be a highly speculative investment, (d) the
Holder is able, without impairing its financial condition, to hold such shares
for an indefinite period of time and to suffer a complete loss of the Holder's
investment, and (e) the Holder has such knowledge and experience in financial
and business matters that it is capable of evaluating the merits and risks of
acquisition of this Warrant and the shares issuable upon exercise hereof and of
making an informed investment decision with respect thereto.
This Warrant may not be exercised and neither this Warrant nor any of the
shares of Common Stock issuable upon exercise of the Warrant, nor any interest
in either, may be sold, assigned, pledged, hypothecated, encumbered or in any
other manner transferred or disposed of, in whole or in part, except in
compliance with applicable United States federal and state securities or Blue
Sky laws and the terms and conditions hereof. Each Warrant or each certificate
representing shares of Common Stock or other securities issued upon exercise of
this Warrant shall have conspicuously endorsed on its face at the time of its
issuance, such legends as counsel to the Company deems necessary or appropriate,
including without limitation the legend set forth on the top of the first page
of this Warrant. Any certificate for any securities issued at any time in
exchange or substitution for any certificate for any shares of Common Stock
bearing such legend shall also bear such legend unless, in the opinion of
counsel for the Company, the securities represented thereby need no longer be
subject to the restriction contained herein.
Without in any way limiting the foregoing, the Holder agrees not to make
any disposition of all or any portion of the Securities unless and until:
a. There is then in effect a Registration Statement under the
Securities Act covering such proposed disposition and such disposition is made
in accordance with such Registration Statement; or
b. (i) The Holder shall have notified the Company of the proposed
disposition and shall have furnished the Company with a detailed statement of
the circumstances surrounding the proposed disposition, and (ii) if reasonably
requested by the Company, the Holder shall have furnished the Company with an
opinion of counsel, reasonably satisfactory to the Company, that such
disposition will not require registration under the Securities Act.
c. Notwithstanding the provisions of paragraphs a. and b. above, no
such registration statement or opinion of counsel shall be necessary for a
transfer by the Holder to (i) an underwriter acceptable to the Company for
immediate exercise by such underwriter in connection with a fully underwritten
public offering of the Company's Common Stock underlying this Warrant (ii) a
partner (or retired partner) or "affiliate" (as defined under the 1934 Act) of
Christman, Peters & Madden or (iii) transfers by gift, will or intestate
succession to any Family Member or lineal descendants or ancestors of any such
partner, retired partner or affiliate, if all transferees agree in writing to be
subject to the terms hereof to the same extent as if they were a purchaser
hereunder.
24.
<PAGE>
20. SURVIVAL. The representations, warranties, covenants, and agreements
made herein shall survive any investigation made by any Holder and the issuance
of the Warrant contemplated hereby. All statements as to factual matters
contained in any certificate or other instrument delivered by or on behalf of
the Company pursuant hereto in connection with the Warrant contemplated hereby
shall be deemed to be representations and warranties by the Company hereunder
solely as of the date of such certificate or instrument.
21. SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided herein,
the provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors, and administrators of the parties hereto
and shall inure to the benefit of and be enforceable by each person who shall be
a Holder of the Warrant from time to time; provided, however, that prior to the
receipt by the Company of adequate written notice of the transfer of any Warrant
specifying the full name and address of the transferee, the Company may deem and
treat the person listed as the Holder of such Warrant in its records as the
absolute owner and Holder of such Warrant for all purposes.
22. SEPARABILITY. In case any provision of the Warrant shall be invalid,
illegal, or unenforceable, the validity, legality, and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby.
23. DELAYS OR OMISSIONS. It is agreed that no delay or omission to
exercise any right, power, or remedy accruing to any Holder, upon any breach,
default or noncompliance of the Company under this Warrant shall impair any such
right, power, or remedy, nor shall it be construed to be a waiver of any such
breach, default or noncompliance, or any acquiescence therein, or of any similar
breach, default or noncompliance thereafter occurring. It is further agreed that
any waiver, permit, consent, or approval of any kind or character on any
Holder's part of any breach, default or noncompliance under this Warrant or any
waiver on such Holder's part of any provisions or conditions of this Warrant
must be in writing and shall be effective only to the extent specifically set
forth in such writing. All remedies, either under this Warrant, by law, or
otherwise afforded to Holders, shall be cumulative and not alternative.
24. ATTORNEYS' FEES. If legal action is brought to enforce or interpret
this Warrant, the prevailing party shall be entitled to recover its reasonable
attorneys' fees and legal costs in connection therewith.
25. COUNTERPARTS. This Warrant may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
25.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed
and delivered on the date first set forth above.
GRIP TECHNOLOGIES, INC.
By: /s/ Sam G. Lindsay
-------------------------
Name: Mr. Sam G. Lindsay
Title: President and Chief Executive Officer
WARRANT
26.
<PAGE>
SUBSCRIPTION FORM
-----------------
[To be executed if holder desires to exercise the Warrant]
The undersigned, holder of this Warrant, (1) hereby irrevocably elects to
exercise the right of purchase represented by this Warrant for, and to purchase
thereunder, ______ full shares of the Common Stock of Grip Technologies, Inc.
provided for therein, (2) makes payment in full (as permitted in Section 2 of
the Warrant) of the purchase price of such shares, (3) requests that
certificates for such shares be issued in the name of
________________________________________________________________________________
(Please print name and address)
________________________________________________________________________________
(Please insert social security or other identifying number)
and (4) if said number of shares shall not be all the shares purchasable
thereunder, requests that a new Warrant for the unexercised portion of this
Warrant be issued in the name of and delivered to:
________________________________________________________________________________
________________________________________________________________________________
(Please print name and address)
Dated.______________________ _______________________
By:____________________
_______________________
Title
27.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE OCTOBER
31, 1997 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-31-1998
<PERIOD-START> AUG-01-1997
<PERIOD-END> OCT-31-1997
<CASH> 400
<SECURITIES> 0
<RECEIVABLES> 419,333
<ALLOWANCES> 18,322
<INVENTORY> 512,582
<CURRENT-ASSETS> 952,605
<PP&E> 1,583,562
<DEPRECIATION> 867,489
<TOTAL-ASSETS> 2,643,878
<CURRENT-LIABILITIES> 3,050,494
<BONDS> 0
0
875,000
<COMMON> 5,986,415
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 2,643,878
<SALES> 714,339
<TOTAL-REVENUES> 714,339
<CGS> 600,332
<TOTAL-COSTS> 600,332
<OTHER-EXPENSES> 452,236
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 82,493
<INCOME-PRETAX> (420,722)
<INCOME-TAX> 400
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<CHANGES> 0
<NET-INCOME> (421,122)
<EPS-PRIMARY> (0.07)
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</TABLE>
