WARRANT AGREEMENT DATED AS OF OCTOBER 25, 2004

 

Exhibit 10.46

 

WARRANT AGREEMENT

 

DATED AS OF OCTOBER 25, 2004

 

between

 

PW EAGLE, INC.

 

and

 

CHURCHILL CAPITAL PARTNERS IV, L.P.

 

 

TABLE OF CONTENTS

 

 

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WARRANT AGREEMENT dated as of October 25, 2004, between PW EAGLE, INC., a Minnesota corporation (the “ Company ”), and Churchill Capital Partners IV, L.P., a Delaware limited partnership (the “ Initial Holder ”).

 

PREAMBLE

 

The Company is entering into (i) a Senior Subordinated Note Purchase Agreement dated as of the date hereof with the Initial Holder (as amended, restated, supplemented or otherwise modified from time to time, the “ Senior Subordinated Note Purchase Agreement ”), and (ii) a Junior Subordinated Note Purchase Agreement dated as of the date hereof with the Initial Holder (as amended, restated, supplemented or otherwise modified from time to time, the “ Junior Subordinated Note Purchase Agreement ”). Pursuant to the Senior Subordinated Note Purchase Agreement (and subject to the satisfaction of the conditions set forth therein), the Company will issue and sell to the Initial Holder, and the Initial Holder will purchase from the Company, a Senior Subordinated Note of the Company in the original principal amount of $16,000,000 (together with any note or notes issued in substitution or exchange therefor, and as the same may be amended, restated, supplemented or otherwise modified from time to time, the “ Senior Subordinated Notes ”). Pursuant to the Junior Subordinated Note Purchase Agreement (and subject to the satisfaction of the conditions set forth therein), the Company will issue and sell to the Initial Holder, and the Initial Holder will purchase from the Company, a Junior Subordinated Note of the Company in the original principal amount of $8,000,000 (together with any note or notes issued in substitution or exchange therefor, and as the same may be amended, restated, supplemented or otherwise modified from time to time, the “ Junior Subordinated Notes ”). The Senior Subordinated Note Purchase Agreement and the Junior Subordinated Note Purchase Agreement are herein collectively called the “ Note Purchase Agreements ” and individually called a “ Note Purchase Agreement ”. The Senior Subordinated Notes and the Junior Subordinated Notes are herein collectively called the “ Notes ” and individually called a “ Note ”. It is a condition to closing the transactions contemplated by the Note Purchase Agreements that the Company enter into this Agreement and issue to the Initial Holder hereunder warrants to subscribe for and purchase from the Company, at the price specified below (subject to adjustment as noted below) such number of fully paid and nonassessable shares of Common Stock (as hereinafter defined) as is specified below (subject to adjustment as noted below). This Agreement sets forth the terms and conditions applicable to such warrants.

 

NOW, THEREFORE, the parties to this Agreement hereby agree as follows:

 

ARTICLE I

DEFINITIONS

 

1.1	DEFINITIONS.

 

As used in this Agreement, the following terms shall have the following meanings:

 

“ Accruing Liability ” has the meaning given to such term in Section 6.4(b)(iii).

 

“ Affiliate ” means, with respect to any specified Person, any other Person that directly or indirectly through one or more intermediaries Controls, is Controlled by, or is under common Control with, such Person.

 

“ Allocable Number ” has the meaning given to such term in Section 4.2.

 

“ Applicable Law ” means all provisions of laws, statutes, ordinances, rules, regulations, permits, certificates or orders of any Governmental Authority applicable to the Person in question or any of its assets or property, and all judgments, injunctions, orders and decrees of all courts and arbitrators in proceedings or actions in which the Person in question is a party or by which any of its assets or properties are bound.

 

“ Assignment Form ” means the assignment form attached as Annex C to a Warrant.

 

“ Board ” means the board of directors of the Company.

 

“ Business Day ” means any day other than a Saturday, Sunday or a day on which banks are authorized or required to be closed in the State of Minnesota; provided, however, that any determination of a Business Day relating to a securities exchange or other securities market means a Business Day on which such exchange or market is open for trading.

 

“ Change of Control ” has the meaning given to such term in the Note Purchase Agreements, as in effect on the date hereof.

 

“ Class B Common Stock ” means the Class B Common Stock, par value $.01 per share, of the Company.

 

“ Closing Date ” has the meaning given to such term in the Note Purchase Agreements, as in effect on the date hereof.

 

“ Code ” has the meaning given to such term in the Note Purchase Agreements, as in effect on the date hereof.

 

“ Commission ” means the Securities and Exchange Commission (or a successor thereto).

 

“ Common Stock ” means (a) the Voting Common Stock, (b) the Class B Common Stock, and (c) any other class of capital stock of the Company hereafter authorized that is not limited to a fixed sum or percentage of par or stated or liquidation value with respect to the rights of the holders thereof to participate in dividends or in the distribution of assets upon any liquidation, dissolution or winding up of the Company; provided, however, that the shares issuable upon exercise of the Warrants in accordance with Section 4.1 or upon exchange of the Warrants in accordance with Section 4.2 shall be shares of Voting Common Stock or, in the

 

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case of any reorganization, reclassification, consolidation, merger or sale subject to Section 5.5, the stock, other securities, cash or other property provided for in Section 5.5.

 

“ Company ” has the meaning given to such term in the introductory paragraph of this Agreement.

 

“ Company Notice Date ” has the meaning given to such term in Section 6.4(a)(ii).

 

“ Control ” means, with respect to any Person, the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by contract or otherwise.

 

“ Convertible Securities ” has the meaning given to such term in Section 5.3(b)(i).

 

“ Delivery Date ” has the meaning given to such term in Section 4.3(a).

 

“ Effected Warrant Shares ” has the meaning given to such term in Section 6.4(b)(ii).

 

“ Effected Warrants ” has the meaning given to such term in Section 6.4(b)(ii).

 

“ Event of Default ” has the meaning given to such term in the Note Purchase Agreements, as in effect on the date hereof.

 

“ Exchange Act ” means the Securities Exchange Act of 1934, as amended.

 

“ Exchange Form ” means the exchange form attached as Annex B to a Warrant.

 

“ Exercisability Date ” means the Closing Date.

 

“ Exercise Form ” means the exercise form attached as Annex A to a Warrant.

 

“ Exercise Price ” means $.01 per Warrant Share, subject to adjustment from time to time in the manner provided in Article V.

 

“ Expiration Time ” means 5:00 p.m., Central time, on October 25, 2014.

 

“ Financing ” means the borrowing of money by the Company or any Subsidiary (including in connection with any refinancing of existing Indebtedness of the Company or any Subsidiary), the sale or issuance by the Company of capital stock, a recapitalization of the Company, a revaluation of the assets of the Company or any Subsidiary (to the extent permitted under applicable law and GAAP), transfers by the Company from its capital to its surplus accounts, effecting the sale of the Warrants and/or the Warrant Shares required to be purchased by the Company under Section 6.4 to one or more third parties or any other transaction (other than a sale of a majority of the assets of the Company and its Subsidiaries,

 

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taken as a whole) pursuant to which the Company makes available funds in an amount sufficient to satisfy in cash all its obligations under Section 6.4.

 

“ Fully Diluted Basis ” means, with respect to the Common Stock at any time of determination, the number of shares of Common Stock that would be issued and outstanding at such time, assuming full conversion, exercise and exchange of all issued and outstanding Convertible Securities and Options that, at such time, are exercisable or exchangeable for, or convertible into, Common Stock, including the Warrants, except that the number of shares of Common Stock outstanding on a Fully Diluted Basis shall not include the number of shares of Common Stock issuable upon exercise, conversion or exchange of Options or Convertible Securities that, at the time of determination, are Out of the Money.

 

“ GAAP ” means generally accepted accounting principles in the United States of America in effect from time to time.

 

“ Governmental Authority ” means any federal, state, municipal or other government, governmental department, commission, board, bureau, agency or instrumentality, or any court, in each case whether of the United States of America or any political subdivision thereof, or of any other country.

 

“ Holder ” means any Holder of a Warrant or Warrant Shares, as set forth in the Warrant Register or the stock record books of the Company, as the case may be.

 

“ Indebtedness ” has the meaning given to such term in the Note Purchase Agreements, as in effect on the date hereof.

 

“ Initial Holder ” has the meaning given to such term in the introductory paragraph of this Agreement.

 

“ Junior Subordinated Note Purchase Agreement ” has the meaning given to such term in the Preamble.

 

“ Junior Subordinated Notes ” has the meaning given to such term in the Preamble.

 

“ Junior Subordination Agreement ” has the meaning given to such term in the Note Purchase Agreements, as in effect on the date hereof.

 

“ Lien ” has the meaning given to such term in the Note Purchase Agreements, as in effect on the date hereof.

 

“ Market Price ” means, for any security as of any date of determination:

 

(a) if such security is Publicly Traded as of the date of determination, the price determined by computing the average, over a period consisting of the most recent 21 Business Days occurring prior to the date of determination, of the applicable price set forth

 

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below (but excluding any trades or quotations that are not bona fide, arm’s length transactions):

 

(i) if on any Business Day such security is listed on one or more domestic securities exchanges, the average of the closing sales prices for such security on such Business Day on all domestic securities exchanges on which such security may be listed or, if there have been no sales on any such exchange on such Business Day, the average of the highest bid and lowest asked prices for such security on all such exchanges at the end of such Business Day, or

 

(ii) if on any Business Day such security is not listed on one or more domestic securities exchanges but is quoted on the Nasdaq National Market or Nasdaq Small-Cap Market, the closing sales price for such security on such Business Day on the Nasdaq National Market or Nasdaq Small-Cap Market or, if there have been no sales in either such market on such Business Day, the average of the representative bid and asked prices for such security quoted on the Nasdaq National Market or Nasdaq Small-Cap Market as of 4:00 P.M., New York time, on such Business Day, or

 

(iii) if on any Business Day such security is not listed on any domestic securities exchange or quoted on the Nasdaq National Market or Nasdaq Small-Cap Market, the average of the highest bid and lowest asked prices for such security on such Business Day in the domestic over-the-counter market as reported by the National Quotation Bureau, Incorporated, or any similar successor organization.

 

(b) if such security is not Publicly Traded as of the date of determination, (i) in the case of the Common Stock, the Market Value Per Share as of such date, determined in accordance with the Valuation Procedure, and (ii) in the case of any other security, the fair market value of one share or other applicable unit of such security as of such date, determined in accordance with the Valuation Procedure, except that if the Market Price of the Common Stock is being determined for purposes of Section 4.3(c), such determination shall be made in good faith by the Board exercising reasonable business judgment.

 

“ Market Value ” means the highest price that would be paid for the entire common equity interest in the Company on a going-concern basis in a single arm’s-length transaction between a willing buyer and a willing seller (neither acting under compulsion), using valuation techniques then prevailing in the securities industry and assuming full disclosure of all relevant information and a reasonable period of time for effectuating such sale. For purposes of determining Market Value, (a) the exercise price of Options to acquire Common Stock that are then exercisable and not Out of the Money shall be deemed to have been received by the Company and (b) the liquidation preference or indebtedness, as the case may be, represented by Convertible Securities that are then convertible or exchangeable and not Out of the Money shall be deemed to have been eliminated or cancelled.

 

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“ Market Value Per Share ” means the price per share of Common Stock obtained by dividing (a) the Market Value by (b) the number of shares of Common Stock outstanding (on a Fully-Diluted Basis) at the time of determination.

 

“ Material Adverse Effect ” has the meaning given to such term in the Note Purchase Agreements, as in effect on the date hereof.

 

“ Note Purchase Agreements ” has the meaning given to such term in the Preamble.

 

“ Notes ” has the meaning given to such term in the Preamble.

 

“ Observer ” has the meaning given to such term in Section 7.4.

 

“ Options ” has the meaning given to such term in Section 5.3(b)(i).

 

“ Organizational Documents ” means, with respect to any Person, each instrument or other document that (a) defines the existence of such Person, including its articles or certificate of incorporation as filed or recorded with an applicable Governmental Authority, or (b) governs the internal affairs of such Person, including its by-laws

 

“ Other Equity Documents ” means the warrants, options, securities and other agreements described on Schedule 2.4(g) hereto.

 

“ Out of the Money ” means, at any date of determination (a) in the case of an Option, that the aggregate fair market value as of such date of the shares of Common Stock issuable upon the exercise of such Option is less than the aggregate exercise price payable upon such exercise and (b) in the case of a Convertible Security, that the quotient resulting from dividing the fair market value as of such date of such Convertible Security by the number of shares issuable as of such date upon conversion or exchange of such Convertible Security is greater than the fair market value of a share of Common Stock.

 

“ Person ” shall be construed as broadly as possible and includes a natural person, corporation, limited liability company, partnership, joint venture, trust, unincorporated association or other organization and a Governmental Authority.

 

“ Public Offering ” means an offering of securities under an effective registration statement under the Securities Act.

 

“ Public Sale ” means a sale of securities pursuant to a Public Offering or to the public through a broker, dealer or market maker (pursuant to the provisions of Rule 144 or otherwise).

 

“ Publicly Traded ” means, with respect to any security, that such security is (a) listed on a domestic securities exchange, (b) quoted on Nasdaq National Market or Nasdaq Small-Cap Market or (c) traded in the domestic over-the-counter market, which trades are

 

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reported by the National Quotation Bureau, Incorporated, or any similar successor organization.

 

“ Put Closing Date ” has the meaning given to such term in Section 6.4(b)(i).

 

“ Put Event ” means the earlier of:

 

(a) October 25, 2010;

 

(b) prepayment in full of the Notes;

 

(c) any time at which the Common Stock ceases to be listed on the NASDAQ National Market, a national securities exchange or other national market or interdealer quotation system (including, without limitation, the NADSAQ Small-Cap Market and the OTC Bulletin Board); or

 

(d) the failure by the Company to make timely filings of such reports as are required to be filed by it with the Commission so that Rule 144 ceases to be available to the shareholders of the Company who are otherwise able to take advantage of the provisions of such rule, which failure has not been cured prior to the later of (A) the fifteenth day following the earlier of the date the Company is first notified of such failure by any Holder or the date upon which any executive officer of the Company first became aware, or with the exercise of reasonable diligence, should have become aware, of such failure, and (B) the delivery of a Put Notice.

 

“ Put Notice ” has the meaning given to such term in Section 6.4(a)(ii).

 

“ Put Notice Date ” has the meaning given to such term in Section 6.4(a)(ii).

 

“ Put Postponement ” has the meaning given to such term in Section 6.4(b)(iii).

 

“ Put Price Per Share ” means, as at any date, the Market Price for a share of Common Stock as of such date.

 

“ Put Reactivation Date ” has the meaning given to such term in Section 6.4(b)(iii).

 

“ Put Response Notice ” has the meaning given to such term in Section 6.4(b)(ii).

 

“ Put Right ” means the right of a Holder to require the Company to purchase Warrants and Warrant Shares pursuant to, and in accordance with, Section 6.4.

 

“ Put Withdrawal Notice ” has the meaning given to such term in Section 6.4(b)(ii).

 

“ PW Poly Spinoff ” has the meaning given to such term in the Note Purchase Agreements, as in effect on the date hereof.

 

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“ Registration Rights Agreement ” means the Registration Rights Agreement between the Company and the Initial Holder dated as of the Closing Date.

 

“ Requisite Holders ” means, as of any date of determination, (a) Holders holding Warrants or Warrant Shares representing at least 51% of the Warrant Shares (i) previously issued or (ii) issuable upon exercise of Warrants then outstanding, or (b) at the option of the Initial Holder exercised by written notice given to the Company at any time after the date hereof, (i) Holders holding Warrants or Warrant Shares representing at least 51% of the Warrant Shares (A) previously issued upon exercise of the Warrants originally allocated to the Senior Subordinated Notes (as shown on Schedule 2.2 hereto), or (B) issuable upon exercise of any such Warrants then outstanding, and (ii) Holders holding Warrants or Warrant Shares representing at least 51% of the Warrant Shares (A) previously issued upon exercise of the Warrants originally allocated to the Junior Subordinated Notes (as shown on Schedule 2.2 hereto), or (B) issuable upon exercise of any such Warrants then outstanding.

 

“ Rule 144 ” means Rule 144 promulgated by the Commission under the Securities Act, as such rule may be amended from time to time, or any similar or successor rule then in force.

 

“ Securities Act ” means the Securities Act of 1933, as amended.

 

“ Senior Credit Agreement ” has the meaning given to such term in the Note Purchase Agreements, as in effect on the date hereof.

 

“ Senior Debt ” has the meaning given to such term in the Note Purchase Agreements, as in effect on the date hereof.

 

“ Senior Subordinated Debt ” means the Indebtedness and other obligations incurred under the Senior Subordinated Note Purchase Agreement or any of the other Note Documents referred to therein.

 

“ Senior Subordinated Note Purchase Agreement ” has the meaning given to such term in the Preamble.

 

“ Senior Subordinated Notes ” has the meaning given to such term in the Preamble.

 

“ Senior Subordination Agreement ” has the meaning given to such term in the Note Purchase Agreements, as in effect on the date hereof.

 

“ Subsidiary ” means, with respect to any Person, any other Person of which more than 50% of the shares of stock or other interests entitled to vote in the election of directors or comparable Persons performing similar functions (excluding shares or other interests entitled to vote only upon the failure to pay dividends thereon or other contingencies) are at the time owned or controlled, directly or indirectly through one or more Subsidiaries, by such Person.

 

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Notwithstanding the foregoing, USPoly Company, f/k/a PW Poly Corp., shall not be deemed to be a Subsidiary of the Company.

 

“ Transfer ” means any sale, transfer, assignment, or other disposition, with or without consideration, of any interest in any security, including any disposition of any security or of any interest therein which would constitute a sale thereof within the meaning of the Securities Act.

 

“ Valuation Procedure ” means, with respect to the determination of any amount or value required to be determined in accordance with such procedure (the “valuation amount”), a determination (which shall be final and binding on the Company and the Holders) made (a) by agreement among the Company and the Requisite Holders or (b) in the absence of such an agreement, by an Appraiser (as defined below) selected in accordance with the further provisions of this definition. If the Company and the Requisite Holders have not agreed on the valuation amount within 30 days following the event requiring the determination thereof, then either the Company or the Requisite Holders may demand the selection of an Appraiser. In the event any such demand is made, the Appraiser will be selected by agreement among the Company and the Requisite Holders, provided that if the Company and the Requisite Holders are unable to agree upon an acceptable Appraiser within ten days after the date either party demands that one be selected, the Appraiser will be selected by an arbitrator located in Minneapolis, Minnesota, chosen by the American Arbitration Association (or if such organization ceases to exist, the arbitrator shall be chosen by a court of competent jurisdiction). The arbitrator shall select the Appraiser (within ten days of his or her appointment) from a list, jointly prepared by the Company and the Requisite Holders, of not more than six Appraisers of reputable standing in the United States, of which no more than three may be named by the Company and no more than three may be named by the Requisite Holders. The arbitrator may consider, within the ten-day period allotted, arguments from the parties regarding which Appraiser to choose, but the selection by the arbitrator shall be made in its sole discretion from the list of six. The Company and the Requisite Holders shall submit to the Appraiser their respective determinations of the valuation amount, and any supporting arguments and other data as they may desire, within ten days of the appointment of the Appraiser, and the Appraiser shall as soon as practicable thereafter make its own determination of the valuation amount. The final valuation amount for purposes hereof shall be the average of the two valuation amounts closest together, as determined by the Appraiser, from among the valuation amounts submitted by the Company and the Requisite Holders and the valuation amount calculated by the Appraiser. The Company shall pay the fees and expenses of the Appraiser and arbitrator (if any) used to determine the valuation amount. If required by any Appraiser or arbitrator, the Company shall execute a retainer and engagement letter containing reasonable terms and conditions, including, without limitation, customary provisions concerning the rights of indemnification and contribution by the Company in favor of such Appraiser or arbitrator and its officers, directors, managers, partners, employees, shareholders, members, agents and Affiliates. As used herein, “Appraiser” means (i) with respect to a determination of Market Value or the fair market value of any security, an investment banking firm and (ii) with respect to a

 

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determination of other valuation required hereunder, a firm of the type generally considered to be qualified in making determinations of the type required.

 

“ Voting Common Stock ” means the Common Stock, par value $.01 per share, of the Company.

 

“ Warrants ” means each warrant issued under this Agreement, together with any warrant or warrants issued in substitution or exchange therefor (except any such warrant theretofore disposed of in a Public Sale or transferred to the Company or a Subsidiary of the Company).

 

“ Warrant Register ” has the meaning given to such term in Section 3.1(b).

 

“ Warrant Shares ” means (a) the shares of Common Stock issued or issuable upon exercise of a Warrant in accordance with Section 4.1 or upon exchange of a Warrant in accordance with Section 4.2, (b) all other securities or other property issued or issuable upon any such exercise or exchange in accordance with this Agreement and (c) any securities of the Company distributed with respect to the securities referred to in the preceding clauses (a) and (b) or with respect to any previously distributed securities referred to in this clause (c) (except, in each case, any such shares, securities or property theretofore disposed of in a Public Sale or transferred to the Company or a Subsidiary of the Company). As used in this Agreement, the phrase “Warrant Shares then held” by any Holder or Holders means Warrant Shares held at the time of determination by such Holder or Holders and Warrant Shares issuable upon exercise of Warrants held at the time of determination by such Holder or Holders.

 

1.2	ACCOUNTING TERMS AND DETERMINATIONS.

 

Except as otherwise may be expressly provided herein, all accounting terms used herein shall be interpreted, and all financial statements and certificates and reports as to financial matters required to be delivered to the Holders hereunder and under the Warrants shall be prepared, in accordance with GAAP. All calculations made for the purposes of determining compliance with the terms of this Agreement and the Warrants shall (except as otherwise may be expressly provided herein) be made by application of GAAP, to the extent applicable.

 

ARTICLE II

PURCHASE AND SALE OF WARRANTS

 

2.1	AUTHORIZATION AND ISSUANCE OF SHARES AND WARRANTS.

 

The Company has authorized (a) the issuance of the Warrants to the Initial Holder pursuant to this Agreement and (b) the issuance of such number of shares of Common Stock as shall be necessary to permit the Company to comply with its obligations, as of the date hereof, to issue Warrant Shares pursuant to the Warrants.

 

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2.2	ISSUANCE OF THE WARRANTS.

 

(a) Issuance . On the Closing Date, the Company shall (i) issue to the Initial Holder Warrants representing the right to acquire an aggregate of Three Hundred Sixty-Six Thousand Six Hundred Fifty-One (366,651) shares of Common Stock, (ii) deliver to the Initial Holder certificates for the Warrants registered in the name of the Initial Holder and in the denominations shown on Schedule 2.2 hereto, except that if the Initial Holder shall notify the Company in writing prior to such issuance that it desires certificates for Warrants to be issued in other denominations or registered in the name or names of any Affiliate, nominee or nominees of the Initial Holder for its or their benefit, then certificates for Warrants for the Initial Holder shall be issued to the Initial Holder in the denominations and registered in the name or names specified in such notice, and (iii) deliver to the Initial Holder a legal opinion from counsel to the Company in form and substance satisfactory to the Initial Holders. The Warrants shall be initially allocated between the Senior Subordinated Notes and the Junior Subordinated Notes as set forth on Schedule 2.2 , provided that the Warrants are detachable and may be transferred, in whole or in part, either alone or together with any Note or Notes (whether or not initially allocated to such Note or Notes), as the Holder thereof shall determine in its sole discretion (subject only to the provisions of Section 3.3 hereof).

 

(b) Tax Value . The Initial Holder and the Company hereby acknowledge and agree that the Notes are part of an “investment unit” within the meaning of Section 1273(c)(2) of the Code, which includes the Warrants. The Initial Holder and the Company hereby further acknowledge and agree that, notwithstanding anything to the contrary contained herein or in the Note Purchase Agreements, solely for United States federal income tax purposes the aggregate “issue price” of the Notes and Warrants under Section 1273(b) of the Code (and for purposes of comparable state and local income tax laws) shall equal the respective amounts set forth on Schedule 2.2 hereto. The Initial Holder and the Company hereby agree to use the foregoing issue prices for all income tax purposes with respect to this transaction.

 

2.3	REPRESENTATIONS AND WARRANTIES OF THE INITIAL HOLDER.

 

The Initial Holder represents and warrants to the Company as follows:

 

(a) Purchase for its Own Account . The Initial Holder is purchasing the Warrants for its own account, without a view to the distribution thereof in violation of the Securities Act, all without prejudice, however, to the right of the Initial Holder at any time, in accordance with this Agreement or the Registration Rights Agreement, lawfully to sell or otherwise to dispose of all or any part of the Warrants or the Warrant Shares held by it.

 

(b) Accredited Investor . The Initial Holder is an “accredited investor” within the meaning of Regulation D under the Securities Act.

 

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(c) Authority, Etc . The Initial Holder has the limited partnership power and authority to enter into and perform this Agreement and the execution and performance hereof have been duly authorized by all proper and necessary limited partnership action on the part of the Initial Holder. This Warrant Agreement constitutes the valid and legally binding obligation of the Initial Holder, enforceable against it in accordance with its terms, subject to the effects of bankruptcy, insolvency, reorganization, moratorium and other similar laws relating to or affecting creditors’ rights generally and general equitable principles (regardless of whether enforcement is sought in equity or at law).

 

(d) Securities Act Compliance . The Initial Holder understands that the Company has not registered the Warrants or the Warrant Shares under the Securities Act, and the Initial Holder agrees that neither the Warrants nor the Warrant Shares shall be sold or transferred or offered for sale or transfer by it without registration under the Securities Act or the availability of an exemption therefrom, all as more fully provided in Section 3.3.

 

2.4	REPRESENTATIONS AND WARRANTIES OF THE COMPANY.

 

As a material inducement to the Initial Holder to accept the Warrants, the Company represents and warrants as follows:

 

(a) Existence; Qualification . Each of the Company and its Subsidiaries is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization. Each of the Company and its Subsidiaries is duly qualified, licensed or admitted to do business and is in good standing as a foreign corporation in every jurisdiction where the failure to be so qualified, licensed or admitted and in good standing would have a Material Adverse Effect and has all requisite corporate power and authority to transact its business as now conducted or presently proposed to be conducted.

 

(b) No Breach . The execution, delivery and performance of this Agreement, the Warrants and the Registration Rights Agreement by the Company and the consummation by it of the transactions contemplated hereby and thereby will not (i) violate the articles of incorporation or by-laws of the Company, (ii) violate, result in a breach of or default under, give rise to any termination or right of termination of, or result in any material penalty under, any other instrument or agreement to which the Company is a party or by which the Company is bound, (iii) violate any judgment, order, injunction, decree or award against or binding upon the Company, (iv) result in the creation of any Lien upon any of the properties or assets of the Company, or (v) violate any law, rule or regulation relating to the Company.

 

(c) Corporate Action . The Company has all necessary corporate power and authority to execute, deliver and perform its obligations under this Agreement, the Warrants and the Registration Rights Agreement. The execution, delivery and performance by the Company of this Agreement, the Warrants and the Registration Rights Agreement have been duly authorized by all necessary corporate action (including any shareholder action) on the part of the Company. This Agreement, the Warrants and the Registration

 

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Rights Agreement have been duly executed and delivered by the Company and constitute the legal, valid and binding obligations of the Company, enforceable against the Company in accordance with their respective terms, subject to the effects of bankruptcy, insolvency, reorganization, moratorium and other similar laws relating to or affecting creditors’ rights generally and general equitable principles (regardless of whether enforcement is sought in equity or at law). The shares of Common Stock constituting the Warrant Shares initially covered by the Warrants have been duly and validly authorized and reserved for issuance and, when issued and delivered in accordance with the Warrants, will be duly and validly issued, fully paid and nonassessable and free and clear of any Liens, charges and other encumbrances or restrictions on sale (except to the extent of any applicable provisions set forth in this Agreement or the Registration Rights Agreement). None of the Warrants or the Warrant Shares have been or will be issued in violation of any preemptive or similar rights of any Person.

 

(d) Approvals . Except in connection with the registration of the Warrant Shares pursuant to the Registration Rights Agreement and relevant securities law filings (which have been or will be made on a timely basis), no authorizations, approvals or consents of, and no notices to, and no filings or registrations with, any Governmental Authority or any other Person are necessary for the execution, delivery or performance by the Company of this Agreement, the Warrants or the Registration Rights Agreement, or for the validity or enforceability thereof.

 

(e) Investment Company Act . The Company is not an “investment company,” or a company “controlled by” an “investment company,” within the meaning of the Investment Company Act of 1940, as amended.

 

(f) Public Utility Holding Company Act . The Company is not a “holding company,” or an “affiliate” of a “holding company” or a “subsidiary company” of a “holding company,” within the meaning of the Public Utility Holding Company Act of 1935, as amended.

 

(g) Capitalization .

 

(i) Immediately after giving effect to the issuance of the Warrants, (A) the authorized, issued and outstanding capital stock of the Company will be as set forth on Schedule 2.4(g) hereto, (B) all of the outstanding shares of capital stock of the Company will be duly authorized, validly issued, fully paid and nonassessable, and (C) the Company will not have any outstanding warrants, options, securities or other rights exercisable or exchangeable for or convertible into any shares of capital stock of the Company, nor shall it have outstanding any other agreements providing for the issuance (contingent or otherwise) of any capital stock of the Company, other than (1) the Warrants to be issued pursuant to this Agreement, and (2) as described on Schedule 2.4(g) hereto. Schedule 2.4(g) correctly sets forth, for each warrant, option, security or other right or agreement listed thereon, the class and number of shares of

 

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capital stock of the Company issuable upon exercise, conversion or exchange thereof and the per share exercise, conversion or exchange price therefor, in each case immediately after giving effect to the issuance of the Warrants and any anti-dilution adjustments resulting therefrom. True and correct copies of all such warrants, options, securities and other rights and agreements have been provided to the Initial Holder.

 

(ii) Except as set forth on Schedule 2.4(g) , there is not in effect on the date hereof any agreement by the Company pursuant to which any holders of securities of the Company have a right to cause the Company to register such securities under the Securities Act or any agreement to which the Company or (to its knowledge) any of its shareholders is a party relating to the voting, transfer or sale of any shares of capital stock of the Company, other than this Agreement and the Registration Rights Agreement. True and complete copies of all such agreements have been provided to the Initial Holder.

 

(iii) Except as set forth in Schedule 2.4(g) , there is not in effect on the date hereof any agreement by the Company or any of its Subsidiaries to repurchase or otherwise acquire or retire any shares of capital stock of the Company or any warrants, options, securities or other rights exercisable or exchangeable for or convertible into any capital stock of the Company, other than this Agreement. True and complete copies of all such agreements have been provided to the Initial Holder.

 

(h) Private Offering . Assuming the truth and accuracy of the Initial Holder’s representations and warranties contained in Section 2.3 hereof, the issuance of the Warrants to the Initial Holder hereunder is exempt from the registration and prospectus delivery requirements of the Securities Act. The Company represents and agrees that neither the Company nor any Person acting on its behalf has offered or will offer the Warrants or Warrant Shares or any part thereof or any similar securities for issuance or sale to, or has solicited or will solicit any offer to acquire any of the same from, any Person so as to bring the issuance and sale of the Warrants or Warrant Shares within the provisions of the registration and prospectus delivery requirements of the Securities Act.

 

(i) No Litigation . There is no action, suit, proceeding or investigation pending or, to the best of the Company’s knowledge after due inquiry, threatened against the Company or any of its Subsidiaries by or before any Governmental Authority with respect to or seeking to enjoin the transactions contemplated by this Agreement, the Warrants or the Registration Rights Agreement.

 

(j) Listing and Maintenance Requirements . The outstanding shares of Common Stock of the Company are listed for trading on the NASDAQ National Market. The Company has not, since the inclusion of its Common Stock for listing on the NASDAQ

 

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National Market, received notice from such market to the effect that the Company is not in compliance with the listing or maintenance requirements of such market.

 

(k) Eligibility for Form S-3 . Since October 1, 2003, the Company has timely filed all reports, schedules, forms, statements and other documents required to be filed by it with the Commission pursuant to the reporting requirements of the Exchange Act, except as described on Schedule 2.4(k) hereto. But for any delinquent filings described in Schedule 2.4(k) , the Company would be currently eligible to register securities for resale in a secondary offering on Form S-3 promulgated under the Securities Act.

 

ARTICLE III

FORM; REGISTER; EXCHANGE FOR WARRANTS; TRANSFER

 

3.1	FORM OF WARRANT; REGISTER.

 

(a) Form . Each Warrant issued hereunder shall be in the form of Exhibit A and shall be executed on behalf of the Company by its Chairman or its Chief Executive Officer and by its Chief Financial Officer, its Secretary, its Assistant Secretary, its Treasurer or its Assistant Treasurer, except that a Warrant need not bear any legend appearing on the first page of such form from and after such time as such legend is permitted to be removed or omitted pursuant to Section 3.3. Upon initial issuance, each Warrant shall be dated as of the date of signature thereof by the Company.

 

(b) Register . Each Warrant issued, exchanged or transferred hereunder shall be registered in a warrant register (the “ Warrant Register ”). The Warrant Register shall set forth the number of each Warrant, the name and address of the Holder thereof and the original number of Warrant Shares purchasable upon the exercise thereof. The Warrant Register will be maintained by the Company and will be available for inspection by any Holder at the principal office of the Company or such other location as the Company may designate to the Holders in the manner set forth in Section 8.1. The Company shall be entitled to treat the Holder of any Warrant as the owner in fact thereof for all purposes and shall not be bound to recognize any equitable or other claim to or interest in such Warrant on the part of any other Person.

 

3.2	EXCHANGE OF WARRANTS FOR WARRANTS.

 

(a) Exchange . A Holder may exchange any Warrant or Warrants issued hereunder for another Warrant or Warrants of like kind and tenor representing in the aggregate the right to purchase the same number of Warrant Shares that could be purchased pursuant to the Warrant or Warrants being so exchanged. In order to effect an exchange permitted by this Section 3.2, the Holder thereof shall deliver to the Company such Warrant or Warrants accompanied by a written request signed by such Holder specifying the number and denominations of Warrants to be issued in such exchange and the names in which such Warrants are to be issued. As promptly as practicable, but in any event within ten Business

 

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Days of receipt of such a request, the Company shall, without charge, issue, register and deliver to the Holder thereof each Warrant to be issued in such exchange.

 

(b) Replacement . Upon receipt of evidence reasonably satisfactory to the Company (an affidavit of the Holder being satisfactory) of the ownership and the loss, theft, destruction or mutilation of any Warrant, and in the case of any such loss, theft or destruction, upon receipt of an indemnity reasonably satisfactory to the Company (if the Holder is the Initial Holder or a financial institution or other institutional investor, its own agreement being satisfactory) or, in the case of any such mutilation, upon surrender of such Warrant, the Company shall, without charge, issue, register and deliver in lieu of such Warrant a new Warrant of like kind and tenor representing the same rights represented by and dated the date of such lost, stolen, destroyed or mutilated Warrant. Any such new Warrant shall constitute an original contractual obligation of the Company, whether or not the allegedly lost, stolen, mutilated or destroyed Warrant shall be at any time enforceable by any Person.

 

(c) Expenses . The Company shall pay all expenses and taxes (other than any applicable income or similar taxes payable by a Holder of a Warrant) attributable to an exchange of a Warrant pursuant to this Section 3.2; provided, however, that the Company shall not be required to pay any tax that may be payable in respect of any transfer involved in the issuance of any Warrant in a name other than that of the Holder of the Warrant being exchanged.

 

3.3	TRANSFER OF WARRANT.

 

(a) Transfer . Subject to the further provisions of this Section 3.3 (which are intended to ensure compliance with the Securities Act), each Warrant may be transferred, in whole or in part, by the Holder thereof by delivering to the Company such Warrant accompanied by a properly completed, duly executed, Assignment Form. As promptly as practicable, but in any event within ten Business Days of receipt of such Assignment Form, the Company shall, without charge, issue, register and deliver to the Holder thereof a new Warrant or Warrants of like kind and tenor representing in the aggregate the right to purchase the same number of Warrant Shares that could be purchased pursuant to the Warrant being transferred. In all cases of transfer by an attorney, the original power of attorney, duly approved, or a copy thereof, duly certified, shall be deposited and remain with the Company. In case of transfer by executors, administrators, guardians or other legal representatives, duly authenticated evidence of their authority shall be produced and may be required to be deposited and remain with the Company in its discretion. The Company shall not be liable for complying with a request by a fiduciary or nominee of a fiduciary to register a transfer of any Warrant which is registered in the name of such fiduciary or nominee, unless made with the actual knowledge that such fiduciary or nominee is committing a breach of trust in requesting such registration of transfer, or with knowledge of such facts that the Company’s participation therein amounts to bad faith.

 

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(b) Legend . Each certificate for Warrants or Warrant Shares shall (unless otherwise permitted by the further provisions of this Section 3.3) be stamped or otherwise imprinted with a legend in substantially the following form:

 

“THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR THE SECURITIES LAWS OF ANY STATE. THESE SECURITIES MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM. IN ADDITION, THE TRANSFER OF THESE SECURITIES IS SUBJECT TO THE CONDITIONS SPECIFIED IN SECTION 3.3 OF THE WARRANT AGREEMENT DATED AS OF OCTOBER 25, 2004, AS AMENDED OR SUPPLEMENTED FROM TIME TO TIME, BETWEEN THE ISSUER OF THESE SECURITIES AND THE INITIAL HOLDER NAMED THEREIN. NO TRANSFER OF THESE SECURITIES SHALL BE VALID OR EFFECTIVE UNTIL SUCH CONDITIONS HAVE BEEN FULFILLED. A COPY OF THE WARRANT AGREEMENT IS ON FILE AND MAY BE INSPECTED AT THE PRINCIPAL EXECUTIVE OFFICE OF THE ISSUER. THE HOLDER OF THIS CERTIFICATE, BY ACCEPTANCE OF THIS CERTIFICATE, AGREES TO BE BOUND BY THE PROVISIONS OF THE WARRANT AGREEMENT.”

 

(c) Opinion . Each Holder shall, prior to any Transfer of any Warrants or Warrant Shares (other than pursuant to an effective registration statement under the Securities Act), give written notice to the Company of such Holder’s intention to effect such Transfer and to comply in all other respects with the provisions of this Section in making such proposed Transfer. Each such notice shall describe the manner and circumstances of the proposed Transfer. Upon reasonable request by the Company, the Holder delivering such notice shall deliver a written opinion, addressed to the Company, of counsel for such Holder (which may be one of its internal counsels), stating that in the opinion of such counsel (which opinion shall be reasonably satisfactory to the Company) such proposed Transfer does not involve a transaction requiring registration of such Warrants or Warrant Shares under the Securities Act. Such Holder shall be entitled to Transfer Warrants or Warrant Shares, as the case may be, in accordance with the terms of the notice delivered to the Company, if the Company does not reasonably request such opinion within ten days after delivery of such notice or, if the Company does reasonably request such opinion, upon its receipt thereof. Each certificate or other instrument evidencing the securities issued upon the Transfer of any Warrants or Warrant Shares (and each certificate or other instrument evidencing any untransferred balance of such Warrants or Warrant Shares) shall bear the legend set forth in Section 3.3(b) above unless (i) such opinion of counsel is to the effect that registration of any future Transfer is not required by the applicable provisions of the Securities Act or (ii) the Company shall have waived the requirement of such legend.

 

(d) Removal of Restrictions . Notwithstanding the foregoing provisions of this Section 3.3, the restrictions imposed by this Section 3.3 upon the transferability of any Warrants or Warrant Shares shall cease and terminate when (i) any such Warrants or Warrant Shares are sold or otherwise disposed of pursuant to an effective registration statement under

 

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the Securities Act or as otherwise contemplated by paragraph (c) above in a manner that does not require that the Warrants or Warrant Shares so transferred continue to bear the legend set forth in Section 3.3(b) above, or (ii) the holder of such Warrants or Warrant Shares has met the requirements for Transfer of such Warrants or Warrant Shares under Rule 144(k). Whenever the restrictions imposed by this Section shall terminate, upon the written request of the Holder of any Warrants or Warrant Shares as to which such restrictions have terminated, as promptly as practicable, but in any event within ten Business Days of receipt of such request, the Company shall, without charge, issue, register and deliver a new certificate or instrument not bearing the restrictive legend set forth in Section 3.3(b) above and not containing any other reference to the restrictions imposed by this Section.

 

(e) Financial Information . The Company shall provide (and authorize any Holder to provide) any readily-available financial and other information concerning the Company and its Subsidiaries to any prospective purchaser of the Warrants or Warrant Shares owned by such Holder as such purchaser may reasonably request; provided, however, that, upon request of the Company, such purchaser shall enter into a confidentiality agreement, in a form reasonably requested by the Company, with res