Document:

Exhibit 10.1

SECOND
LOAN MODIFICATION AGREEMENT

This
Second Loan Modification Agreement (this “Loan Modification Agreement’) is
entered into as of December 8, 2004, by and between SILICON
VALLEY BANK, a
California-chartered bank, with its principal place of business at
3003 Tasman Drive, Santa Clara, California 95054 and with a loan production
office located at One Newton Executive Park, Suite 200, 2221 Washington Street,
Newton, Massachusetts 02462, doing business under the name “Silicon Valley East”
(“Bank”) and VOXWARE,
INC., a
Delaware corporation with its chief executive office located at 168 Franklin
Corner Road, Lawrenceville, New Jersey 08648 (“Borrower”).

1.    DESCRIPTION
OF EXISTING INDEBTEDNESS AND OBLIGATIONS. Among
other indebtedness and obligations which may be owing by Borrower to Bank,
Borrower is indebted to Bank pursuant to a loan arrangement dated as of December
29, 2003, evidenced by, among other documents, a certain Loan and Security
Agreement dated as of December 29, 2003, between Borrower and Bank, as amended
by a First Loan Modification Agreement dated as of May 28, 2004, by and between
Borrower and Bank (as amended, the “Loan Agreement”). Capitalized terms used but
not otherwise defined herein shall have the same meaning as in the Loan
Agreement.

2.    DESCRIPTION
OF COLLATERAL.
Repayment of the Obligations is secured by the Collateral as described in the
Loan Agreement and the Intellectual Property Collateral as described in a
certain Intellectual Property Security Agreement dated December 29, 2003 between
Borrower and Bank (together with any other collateral security granted to Bank,
the “Security Documents”).

Hereinafter,
the Security Documents, together with all other documents evidencing or securing
the Obligations shall be referred to as the “Existing Loan
Documents”.

3.    DESCRIPTION
OF CHANGE IN TERMS.

    A.    Modifications
to Loan Agreement. 

	 	
      1.
	
      The
      Borrower hereby acknowledges, confirms and agrees that no additional
      Credit Extensions shall be made to the Borrower under the Term
      Loan.

	 	
      2.
	
      The
      Loan Agreement shall be amended by deleting the following provision
      appearing in Section 6.2(a)(iii) thereof:

"(iii)
within five (5) days of filing, copies of all statements, reports and notices
made available to Borrower’s security holders or to any holders of Subordinated
Debt and all reports on Form 10-K, 10-Q and 8-K filed with the Securities and
Exchange Commission;"

and
inserting in lieu thereof the following:

"(iii)
within five (5) days of filing, Borrower will provide to Bank copies of or
electronic notice of links to all statements, reports and notices made available
to Borrower’s security holders or to any holders of Subordinated Debt and all
reports on Form 10-K, 10-Q and 8-K filed with the Securities and Exchange
Commission;"

	 	
      3.
	
      The
      Loan Agreement shall be amended by inserting the following to appear as
      Section 6.2(b) thereof:

"(b)
Within thirty (30) days after the last day of each month, Borrower shall deliver
to Bank with the monthly financial statements a Compliance Certificate signed by
a Responsible Officer in the form of Exhibit
C."

	 	
      4.
	
      The
      Loan Agreement shall be amended by deleting the following provision
      entitled "Inventory; Returns" appearing in Section 6.3
      thereof:

"6.3 Inventory;
Returns.
Borrower shall keep all Inventory in good and  marketable
condition, free from material defects. Returns and allowances between Borrower
and its account debtors shall follow Borrower’s customary practices as they
exist at the Closing Date. Borrower must promptly notify Bank of all returns,
recoveries, disputes and claims that involve more than Fifty Thousand Dollars
($50,000.00)."

and
inserting in lieu thereof the following:

"6.3Inventory;
Returns.
Borrower shall keep all Inventory in good and marketable condition, free from
material defects. Returns and allowances between Borrower and its account
debtors shall follow Borrower’s customary practices as they exist at the Closing
Date. Borrower must promptly notify Bank of all returns, recoveries, disputes
and claims that involve more than One Hundred Fifty Thousand Dollars
($150,000.00)."

	 	
      5.
	
      The
      Loan Agreement shall be amended by deleting the following definition
      appearing in Section 13.1 thereof:

"Prime
Rate" is the
greater of: (i) Bank's most recently announced "prime rate," even if it is not
Bank's lowest rate, and (ii) four percent (4.0%).

and
inserting in lieu thereof the following:

"Prime
Rate" is the
greater of: (i) Bank's most recently announced "prime rate," even if it is not
Bank's lowest rate, and (ii) four and one-half of one percent
(4.50%).

	 	
      6.
	
      The
      Loan Agreement shall be amended by deleting the following definition
      appearing in Section 13.1 thereof:

"Revolving
Line" is an
Advance or Advances of up to Five Hundred Thousand Dollars
($500,000.00).

and
inserting in lieu thereof the following:

"Revolving
Line" is an
Advance or Advances in an amount not to exceed Two Million Dollars
($2,000,000.00), minus the principal amount outstanding under the Term
Loan.

	 	
      7.
	
      The
      Loan Agreement shall be amended by deleting the following definition
      appearing in Section 13.1 thereof:

"Revolving
Maturity Date" is
December 28, 2004.

and
inserting in lieu thereof the following:

"Revolving
Maturity Date" is
December 27, 2005.

	 	
      8.
	
      The
      Compliance Certificate appearing as Exhibit
      C to
      the Loan Agreement is hereby replaced with the Compliance Certificate
      attached as Exhibit
      A
      hereto.

4.    FEES.
Borrower shall pay to Bank a modification fee equal to One Thousand Two Hundred
Dollars ($1,200.00), which fee shall be due on the date hereof and shall be
deemed fully earned as of the date hereof. The Borrower shall also reimburse
Bank for all reasonable legal fees and expenses incurred in connection with this
amendment to the Existing Loan Documents. 

 

5.    RATIFICATION
OF INTELLECTUAL PROPERTY SECURITY AGREEMENT.
Borrower hereby ratifies, confirms and reaffirms, all and singular, the terms
and conditions of a certain Intellectual Property Security Agreement dated as of
December 29, 2003, between Borrower and Bank, and acknowledges, confirms and
agrees that said Intellectual Property Security Agreement contains an accurate
and complete listing, in all material respects, of all Intellectual Property
Collateral as defined in said Intellectual Property Security Agreement, and
shall remain in full force and effect. 

6.    RATIFICATION
OF PERFECTION CERTIFICATE.
Borrower hereby ratifies, confirms and reaffirms, all and singular, the terms
and disclosures contained in a certain Perfection Certificate dated as of
December 29, 2003, between Borrower and Bank, and acknowledges, confirms and
agrees the disclosures and information above Borrower provided to Bank in the
Perfection Certificate has not changed in any material respect, as of the date
hereof. 

 

7.    CONSISTENT
CHANGES. The
Existing Loan Documents are hereby amended wherever necessary to reflect the
changes described above.

 

8.    RATIFICATION
OF LOAN DOCUMENTS.
Borrower hereby ratifies, confirms, and reaffirms all terms and conditions of
all security or other collateral granted to the Bank, and confirms that the
indebtedness secured thereby includes, without limitation, the
Obligations.

 

9.    NO
DEFENSES OF BORROWER.
Borrower hereby acknowledges and agrees that Borrower has no offsets, defenses,
claims, or counterclaims against Bank with respect to the Obligations, or
otherwise, and that if Borrower now has, or ever did have, any offsets,
defenses, claims, or counterclaims against Bank, whether known or unknown, at
law or in equity, all of them are hereby expressly WAIVED and Borrower hereby
RELEASES Bank from any liability thereunder.

 

10.    CONTINUING
VALIDITY.
Borrower understands and agrees that in modifying the existing Obligations, Bank
is relying upon Borrower’s representations, warranties, and agreements, as set
forth in the Existing Loan Documents. Except as expressly modified pursuant to
this Loan Modification Agreement, the terms of the Existing Loan Documents
remain unchanged and in full force and effect. Bank’s agreement to modifications
to the existing Obligations pursuant to this Loan Modification Agreement in no
way shall obligate Bank to make any future modifications to the Obligations.
Nothing in this Loan Modification Agreement shall constitute a satisfaction of
the Obligations. It is the intention of Bank and Borrower to retain as liable
parties all makers of Existing Loan Documents, unless the party is expressly
released by Bank in writing. No maker will be released by virtue of this Loan
Modification Agreement.

 

11.    COUNTERSIGNATURE. This
Loan Modification Agreement shall become effective only when it shall have been
executed by Borrower and Bank (provided, however, in no event shall this Loan
Modification Agreement become effective until signed by an officer of Bank in
California).

[The
remainder of this page is intentionally left blank]

This Loan
Modification Agreement is executed as a sealed instrument under the laws of the
Commonwealth of Massachusetts as of the date first written above.

	
      BORROWER:
	
      BANK:

	 	 
	
      VOXWARE,
      INC.
	
      SILICON
      VALLEY BANK,
      doing business as

      SILICON
      VALLEY EAST

	 	 
	
      By:       
      /s/ Paul
      Commons                                             
      
	
      By:       
      /s/ Kathlleen W.
      Coviello                        
      

	 	 
	
      Name: 
      Paul Commons
	
      Name: 
      Kathleen W. Coviello

	 	 
	
      Title: 
      CFO
	
      Title:  
       Vice President

	 	 
	 	
      SILICON
      VALLEY BANK

	 	 
	 	
      By:   
      /s/ Romil
      Randhawa                                       
      

	 	 
	 	
      Name: 
      Romil Randhawa

	 	 
	 	
      Title: 
      Operations Supervisor

	 	
              
      (signed in Santa Clara County, California)

 The
undersigned, EDISON VENTURE FUND V, L.P. ratifies, confirms and reaffirms, all
and singular, the terms and conditions of a certain Unlimited Guaranty dated
December29, 2003 (the “Guaranty”) and acknowledges, confirms and agrees that the
Guaranty shall remain in full force and effect and shall in no way be limited by
the execution of this Loan Modification Agreement, or any other documents,
instruments and/or agreements executed and/or delivered in connection
herewith.

	 	
      EDISON
      VENTURE FUND V, L.P.

	 	
      By:
      Edison Partners V, L.P., its general partner

	 	 
	 	
      /s/ 
      Joseph A.
      Allegra                          
      

	 	

The
undersigned, CROSS ATLANTIC TECHNOLOGY FUND II, L.P. ratifies, confirms and
reaffirms, all and singular, the terms and conditions of a certain Unlimited
Guaranty dated December 29, 2003 (the “Guaranty”) and acknowledges, confirms and
agrees that the Guaranty shall remain in full force and effect and shall in no
way be limited by the execution of this Loan Modification Agreement, or any
other documents, instruments and/or agreements executed and/or delivered in
connection herewith.

	 	
      CROSS
      ATLANTIC TECHNOLOGY FUND II, L.P.

	 	
      By:
      XATF Management II, L.P., its general partner

	 	
      By:
      Cross Atlantic Capital Partners III, Inc., its general
    parter

	 	 
	 	
      /s/
      Brian
      Adamsky                                   

The
undersigned, VERBEX ACQUISITION CORPORATION, a Delaware corporation
(“Guarantor”) hereby: (i) ratifies, confirms and reaffirms, all and singular,
the terms and conditions of (A) a certain Unlimited Guaranty of the obligations
of Borrower to Bank dated January 27, 2004 (the “Guaranty”), (B) a certain
Security Agreement by Guarantor in favor of Bank dated January 27, 2004 (the
“Security Agreement”);(ii) acknowledges, confirms and agrees that the Guaranty,
and Security Agreement shall remain in full force and effect and shall in no way
be limited by the execution of this Loan Modification Agreement or any other
documents, instruments and/or agreements executed and/or delivered in connection
herewith; and (iii) acknowledges, confirms and agrees that the obligations of
Borrower to Bank under the Guaranty include, without limitation, all Obligations
of Borrower to Bank under the Loan Agreement, as amended by this Loan
Modification Agreement.

 

		
      VERBEX
      ACQUISITION CORPORATION

	 	 
	 	
      /s/
      Paul
      Commons                                            
      

 

 

EXHIBIT
C

COMPLIANCE
CERTIFICATE

TO: SILICON
VALLEY BANK

FROM: VOXWARE,
INC.

The
undersigned authorized officer of Voxware, Inc., certifies that under the terms
and conditions of the Loan and Security Agreement between Borrower and Bank (the
“Agreement”), (i) Borrower is in complete compliance for the period ending
_______________ with all required covenants except as noted below and (ii) all
representations and warranties in the Agreement are true and correct in all
material respects on this date. Attached are the required documents supporting
the certification. The Officer certifies that these are prepared in accordance
with Generally Accepted Accounting Principles (GAAP) consistently applied from
one period to the next except as explained in an accompanying letter or
footnotes. The Officer acknowledges that no borrowings may be requested at any
time or date of determination that Borrower is not in compliance with any of the
terms of the Agreement, and that compliance is determined not just at the date
this certificate is delivered.

Please
indicate compliance status by circling Yes/No under “Complies”
column.

 

 

	
      Reporting
      Covenant
	
      Required
	
      Complies

	 	 	 
	
      Interim
      financial statements with CC
	
      Monthly
      within 30 days
	
      Yes    
      No

	
      Annual
      (CPA Audited) 
	
      FYE
      within 120 days
	
      Yes    
      No

	 	 	 

 

The
following Intellectual Property was registered after the Closing Date (if blank,
read “None”)

____________________________________________________________________________

____________________________________________________________________________

	 	 
	Comments
      Regarding Exceptions:
      See Attached.

       

      Sincerely,

      _____________________________

      SIGNATURE

      _____________________________

      TITLE 

      _____________________________

      DATE
	
       

      BANK
      USE ONLY

       

      Received
      by: _____________________

      AUTHORIZED
      SIGNER

      Date:
       _________________________

       

      Verified:
      ________________________

      AUTHORIZED
      SIGNER

      Date:
       ______________________

       

      Compliance
      Status: Yes    
       No

       

56120/796

 

863409.2Exhibit 4.1

FORM OF WARRANT

NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY.  THESE SECURITIES AND THE SECURITIES ISSUABLE UPON EXERCISE OF THESE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT
SECURED BY SUCH SECURITIES. 

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN, AND THE SHARES INTO WHICH THESE SECURITIES ARE EXERCISABLE WILL BE, ISSUED PURSUANT TO REGULATION S PROMULGATED UNDER THE ACT. NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE MAY BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OF A “U.S. PERSON” (AS THAT TERM IS DEFINED IN REGULATION S) UNTIL AFTER FEBRUARY _, 2006.

UNLESS PERMITTED UNDER SECURITIES LEGISLATION, THE HOLDER OF THIS SECURITY MUST NOT TRADE THIS SECURITY NOR THE SECURITIES ISSUABLE UPON EXERCISE THEREOF IN CANADA BEFORE THE DATE THAT IS 4 MONTHS AND A DAY AFTER THE LATER OF (I) FEBRUARY _, 2005, AND (B) THE DATE THE ISSUER BECAME A REPORTING ISSUER IN ANY PROVINCE OR TERRITORY OF CANADA.

CAPITAL GOLD CORPORATION

WARRANT

	
            Warrant No. 2005-__
 	
            Date of Original Issuance: February _, 2005
 

Capital Gold Corporation, a Nevada corporation (the “Company”), hereby certifies that, for value received,                                                            or its registered assigns (the “Holder”), is entitled to purchase from the Company up to a total of                             shares of common stock, $.001 par value (the “Common Stock”), of the Company (each such share, a “Warrant Share” and all such shares, the “Warrant Shares”) at an exercise price equal to U.S. $0.30 per share (as adjusted from time to time as provided in Section 9, the “Exercise Price”), at any time and from time to time from and after the date hereof and through and 

 

 

                                          
                                          
                                          
                                          
                                   

 

 

including the Second year anniversary of the issuance date hereof (the “Expiration Date”), and subject to the following terms and conditions:

This Warrant is one of a series of warrants issued in a private offering (“Offering”) pursuant to Subscription Agreements for the purchase of  Units consisting of one share of Common Stock and one Warrant to which the Company and the original Holder are parties (the “Subscription Agreement”).  The initial closing of the Offering was February 8, 2005.

1.              Definitions.  In addition to the terms defined elsewhere in this Warrant, capitalized terms that are not otherwise defined herein shall have the meanings given to such terms in the Subscription Agreement.

2.              Registration of Warrant.  The Company shall register this Warrant, upon records to be maintained by the Company for that purpose (the “Warrant Register”), in the name of the record Holder hereof from time to time.  The Company may deem and treat the registered Holder of this Warrant as the absolute owner hereof for the purpose of any exercise hereof or any distribution to the Holder, and for all other purposes, absent actual notice to the contrary.

3.              Registration of Transfers.  The Company shall register the transfer of any portion of this Warrant in the Warrant Register, upon surrender of this Warrant, with the Form of Assignment attached hereto duly completed and signed, to the Company at its address specified herein.  Upon any such registration or transfer, a new Warrant to purchase Common Stock, in substantially the form of this Warrant (any such new Warrant, a “New Warrant”), evidencing the portion of this Warrant so transferred shall be issued to the transferee and a New Warrant evidencing the remaining portion of this Warrant not so transferred, if any, shall be issued to the transferring Holder. The acceptance of the New
Warrant by the transferee thereof shall be deemed the acceptance by such transferee of all of the rights and obligations of a holder of a Warrant. Notwithstanding the foregoing, this Warrant is subject to the transfer restrictions set forth in the Legend at the top of this Warrant.

4.              Duration of Warrants.  This Warrant shall be exercisable by the registered Holder at any time and from time to time on or after the date hereof to and including the Expiration Date.  At 5:00 p.m., New York time on the Expiration Date, the portion of this Warrant not exercised prior thereto shall be and become void and of no value. 

	
            5.
 	
            Exercise of Warrant.
 

(a)            Number of Shares Issuable upon Exercise.  Subject to Section 10,  from and after the Original Issuance Date through and including the Expiration Date, the Holder shall be entitled to receive, upon exercise of this Warrant in whole in accordance with the terms of subsection b or upon exercise of this Warrant in part in accordance with subsection c, shares of Common Stock, subject to adjustment pursuant to Section 9.

(b)           Full Exercise.  This Warrant may be exercised in full by the Holder by delivery of an original or facsimile copy of the form of exercise notice attached as Exhibit A 

 

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hereto (the “Exercise Notice ”) duly executed by the Holder and surrender of the original Warrant to the Company at its principal office or at the office of its Warrant Agent (as provided hereinafter), accompanied by payment, in cash, wire transfer or by certified or official bank check payable to the order of the Company, in the amount obtained by multiplying the number of shares of Common Stock for which this Warrant is then exercisable by the Purchase Price then in effect. 

(c)            Partial Exercise.  This Warrant may be exercised in part (but not for a fractional share) by surrender of this Warrant in the manner and at the place provided in subsection b except that the amount payable by the Holder on such partial exercise shall be the amount obtained by multiplying (a) the number of whole shares of Common Stock designated by the Holder in the Exercise Notice by (b) the Purchase Price then in effect.  On any such partial exercise, the Company, at its expense, will forthwith issue and deliver to or upon the order of the Holder hereof a new Warrant of like tenor, in the name of the Holder hereof or as the Holder (upon payment by the Holder of any applicable transfer taxes) may request, the whole number of shares of
Common Stock for which such Warrant may still be exercised.

(d)           Company Acknowledgment. The Company will, at the time of the exercise of the Warrant, upon the request of the Holder hereof acknowledge in writing its continuing obligation to afford to the Holder any rights to which the Holder shall continue to be entitled after such exercise in accordance with the provisions of this Warrant. If the Holder shall fail to make any such request, such failure shall not affect the continuing obligation of the Company to afford to the Holder any such rights.

(e)            Delivery of Stock Certificates, etc. on Exercise. The Company agrees that the shares of Common Stock purchased upon exercise of this Warrant shall be deemed to be issued to the Holder hereof as the record owner of such shares as of the close of business on the date on which this Warrant shall have been surrendered and payment made for such shares as aforesaid. As soon as practicable after the exercise of this Warrant in full or in part, and in any event within three (3) days thereafter, the Company at its expense (including the payment by it of any applicable issue taxes) will cause to be issued in the name of and delivered to the Holder hereof, or as the Holder (upon payment by the Holder of any applicable transfer taxes) may direct in compliance
with applicable securities laws, a certificate or certificates for the number of duly and validly issued, fully paid and nonassessable shares of Common Stock to which the Holder shall be entitled on such exercise, together with any other stock or other securities and property (including cash, where applicable) to which the Holder is entitled upon such exercise. 

6.              Charges, Taxes and Expenses.  Issuance and delivery of certificates for shares of Common Stock upon exercise of this Warrant shall be made without charge to the Holder for any issue or transfer tax, transfer agent fee or other incidental tax or expense in respect of the issuance of such certificates, all of which taxes and expenses shall be paid by the Company; provided, however, that the Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the registration of any certificates for Warrant Shares or Warrants in a name other than that of the Holder.  The Holder shall be responsible for 

 

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all other tax liability that may arise as a result of holding or transferring this Warrant or receiving Warrant Shares upon exercise hereof.

7.              Replacement of Warrant.  If this Warrant is mutilated, lost, stolen or destroyed, the Company shall issue or cause to be issued in exchange and substitution for and upon cancellation hereof, or in lieu of and substitution for this Warrant, a New Warrant, but only upon receipt of evidence reasonably satisfactory to the Company of such loss, theft or destruction and customary and reasonable indemnity, if requested.  Applicants for a New Warrant under such circumstances shall also comply with such other reasonable regulations and procedures and pay such other reasonable third-party costs as the Company may prescribe.  If a New Warrant is requested as a result of a mutilation of this Warrant, then the Holder shall deliver such mutilated Warrant
to the Company as a condition precedent to the Company’s obligation to issue the New Warrant.

8.              Reservation of Warrant Shares.  The Company covenants that it will at all times reserve and keep available out of the aggregate of its authorized but unissued and otherwise unreserved Common Stock, solely for the purpose of enabling it to issue Warrant Shares upon exercise of this Warrant as herein provided, the number of Warrant Shares which are then issuable and deliverable upon the exercise of this entire Warrant, free from preemptive rights or any other contingent purchase rights of persons other than the Holder (taking into account the adjustments and restrictions of Section 9). The Company covenants that all Warrant Shares so issuable and deliverable shall, upon issuance and the payment of the applicable Exercise Price in accordance
with the terms hereof, be duly and validly authorized, issued and fully paid and nonassessable.

9.              Certain Adjustments.  The Exercise Price and number of Warrant Shares issuable upon exercise of this Warrant are subject to adjustment from time to time as set forth in this Section 9.

(a)            Stock Dividends and Splits.  If the Company, at any time while this Warrant is outstanding, (i) pays a stock dividend on its Common Stock or otherwise makes a distribution on any class of capital stock that is payable in shares of Common Stock, (ii) subdivides outstanding shares of Common Stock into a larger number of shares, or (iii) combines outstanding shares of Common Stock into a smaller number of shares, then in each such case the Exercise Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock outstanding immediately before such event and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event.  Any adjustment made pursuant to clause (i)
of this paragraph shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution, and any adjustment pursuant to clause (ii) or (iii) of this paragraph shall become effective immediately after the effective date of such subdivision or combination. If any event requiring an adjustment under this paragraph occurs during the period that an Exercise Price is calculated hereunder, then the calculation of such Exercise Price shall be adjusted appropriately to reflect such event.

(b)           Pro Rata Distributions.  If the Company, at any time while this Warrant is outstanding, distributes to all holders of Common Stock (i) evidences of its 

 

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indebtedness, (ii) any security (other than a distribution of Common Stock covered by the preceding paragraph), (iii) rights or warrants to subscribe for or purchase any security, or (iv) any other asset (in each case, “Distributed Property”),  then, at the request of any Holder delivered with the Holder’s exercise notice upon exercise of the Warrant, such Holder shall be entitled to receive, in addition to the Warrant Shares otherwise issuable upon such conversion, the Distributed Property that such Holder would have been entitled to receive in respect of such number of Warrant Shares had the Holder exercised the Warrant immediately prior to the record date fixed for determination of stockholders entitled to receive such distribution. 

(c)            Fundamental Transactions.  If, at any time while this Warrant is outstanding, (1) the Company effects any merger or consolidation of the Company with or into another Person, (2) the Company effects any sale of all or substantially all of its assets in one or a series of related transactions, (3) any tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Common Stock are permitted to tender or exchange their shares for other securities, cash or property, or (4) the Company effects any reclassification of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property (in any such case, a
“Fundamental Transaction”), then the Holder shall have the right thereafter to receive, upon exercise of this Warrant, the same amount and kind of securities, cash or property as it would have been entitled to receive upon the occurrence of such Fundamental Transaction if it had been, immediately prior to such Fundamental Transaction, the holder of the number of Warrant Shares then issuable upon exercise in full of this Warrant (the “Alternate Consideration”).  For purposes of any such exercise, the determination of the Exercise Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one share of Common Stock in such Fundamental Transaction, and the Company shall apportion the Exercise Price among the Alternate Consideration in a reasonable manner reflecting the relative value of
any different components of the Alternate Consideration.  If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any exercise of this Warrant following such Fundamental Transaction.  At the Holder’s request, any successor to the Company or surviving entity in such Fundamental Transaction shall, issue to the Holder a new warrant substantially in the form of this Warrant and consistent with the foregoing provisions and evidencing the Holder’s right to purchase the Alternate Consideration for the aggregate Exercise Price upon exercise thereof. The terms of any agreement pursuant to which a Fundamental Transaction is effected shall include terms requiring any such successor or surviving entity to comply with the provisions of this paragraph (c) and insuring that the Warrant (or any such replacement
security) will be similarly adjusted upon any subsequent transaction analogous to a Fundamental Transaction.

(d)           Number of Warrant Shares.  Simultaneously with any adjustment to the Exercise Price pursuant to paragraphs (a) of this Section, the number of Warrant Shares that may be purchased upon exercise of this Warrant shall be increased or decreased proportionately, so that after such adjustment the aggregate Exercise Price payable hereunder for the adjusted number of Warrant Shares shall be the same as the aggregate Exercise Price in effect immediately prior to such adjustment.

 

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(e)            Calculations.  All calculations under this Section 9 shall be made to the nearest cent or the nearest 1/100th of a share, as applicable.  The number of shares of Common Stock outstanding at any given time shall not include shares owned or held by or for the account of the Company, and the disposition of any such shares shall be considered an issue or sale of Common Stock.

(f)            Notice of Adjustments.  Upon the occurrence of each adjustment pursuant to this Section 9, the Company at its expense will promptly compute such adjustment in accordance with the terms of this Warrant and prepare a certificate setting forth such adjustment, including a statement of the adjusted Exercise Price and adjusted number or type of Warrant Shares or other securities issuable upon exercise of this Warrant (as applicable), describing the transactions giving rise to such adjustments and showing in detail the facts upon which such adjustment is based.  Upon written request, the Company will promptly deliver a copy of each such certificate to the Holder and to the Company’s Transfer Agent.

(g)           Notice of Corporate Events.  If the Company (i) declares a dividend or any other distribution of cash, securities or other property in respect of its Common Stock, (ii) authorizes or approves, enters into any agreement contemplating or solicits stockholder approval for any Fundamental Transaction or (iii) authorizes the voluntary dissolution, liquidation or winding up of the affairs of the Company, then, except if such notice and the contents thereof shall be deemed to constitute material non-public information, the Company shall deliver to the Holder a notice describing the material terms and conditions of such transaction, at least 20 calendar days prior to the applicable record or effective date on which a Person would need to hold Common Stock in order
to participate in or vote with respect to such transaction, and the Company will take all steps reasonably necessary in order to insure that the Holder is given the practical opportunity to exercise this Warrant prior to such time so as to participate in or vote with respect to such transaction; provided, however, that the failure to deliver such notice or any defect therein shall not affect the validity of the corporate action required to be described in such notice.  Until the exercise of this Warrant or any portion of this Warrant, the Holder shall not have nor exercise any rights by virtue hereof as a stockholder of the Company (including without limitation the right to notification of stockholder meetings or the right to receive any notice or other communication concerning the business and affairs of the Company other than as provided in this Section 9).

10.           Limitation on Exercise.  [Investors may individually elect to omit either or both of clauses (i) and (ii) of this Section 10 upon first issuance of the Warrant at Closing.]

(i)             [Notwithstanding the foregoing, the Company shall not effect the exercise of this Warrant and no holder of this Warrant shall have the right to exercise this Warrant to the extent that after giving effect to such exercise, such Person (together with such Person’s affiliates), would have acquired, through exercise of this Warrant or otherwise, beneficial ownership of a number of shares of Common Stock that, when added to the number of shares of Common Stock beneficially owned by such Person (together with such Person’s affiliates), exceeds 4.99% of the number of shares of Common Stock outstanding immediately after giving effect to such exercise.  For purposes of the foregoing sentence, the aggregate number of shares of Common Stock beneficially owned by such Person and its
affiliates shall 

 

- 6 -

 

 

 

include the number of shares of Common Stock issuable upon exercise of this Warrant with respect to which the determination of such sentence is being made, but shall exclude shares of Common Stock which would be issuable upon (i) exercise of the remaining, unexercised portion of this Warrant beneficially owned by such Person and its affiliates and (ii) exercise or conversion of the unexercised or unconverted portion of any other securities of the Company beneficially owned by such Person and its affiliates (including, without limitation, any convertible notes, debentures or preferred stock) subject to a limitation on conversion or exercise analogous to the limitation contained herein.  Except as set forth in the preceding sentence, for purposes of this paragraph, beneficial ownership shall be calculated in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended.  Upon the written
request of any Holder, the Company shall promptly, but in no event later than two (2) Business Days following the receipt of such notice, confirm in writing to any such holder the number of shares of Common Stock then outstanding.  In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the exercise of Warrants by such holder and its affiliates since the date as of which such number of outstanding shares of Common Stock was last reported.]

(ii)           [Notwithstanding the foregoing, the Company shall not effect the exercise of this Warrant and no holder of this Warrant shall have the right to exercise this Warrant to the extent that after giving effect to such exercise, such Person (together with such Person’s affiliates), would have acquired, through exercise of this Warrant or otherwise, beneficial ownership of a number of shares of Common Stock that, when added to the number of shares of Common Stock beneficially owned by such Person (together with such Person’s affiliates), exceeds 9.99% of the number of shares of Common Stock outstanding immediately after giving effect to such exercise.  For purposes of the foregoing sentence, the aggregate number of shares of Common Stock beneficially owned by such Person and its affiliates
shall include the number of shares of Common Stock issuable upon exercise of this Warrant with respect to which the determination of such sentence is being made, but shall exclude shares of Common Stock which would be issuable upon (i) exercise of the remaining, unexercised portion of this Warrant beneficially owned by such Person and its affiliates and (ii) exercise or conversion of the unexercised or unconverted portion of any other securities of the Company beneficially owned by such Person and its affiliates (including, without limitation, any convertible notes, debentures or preferred stock) subject to a limitation on conversion or exercise analogous to the limitation contained herein.  Except as set forth in the preceding sentence, for purposes of this paragraph, beneficial ownership shall be calculated in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended.  Upon the written request of any Holder, the Company shall promptly, but in no event later
than two (2) Business Days following the receipt of such notice, confirm in writing to any such holder the number of shares of Common Stock then outstanding.  In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the exercise of Warrants by such holder and its affiliates since the date as of which such number of outstanding shares of Common Stock was last reported.]

11.           No Fractional Shares.  No fractional shares of Warrant Shares will be issued in connection with any exercise of this Warrant.  In lieu of any fractional shares which would, otherwise be issuable, the Company shall pay cash equal to the product of such fraction 

 

- 7 -

 

 

 

multiplied by the closing price of one Warrant Share as reported by Bloomberg L.P. (or the successor to its function of reporting share prices) on the date of exercise.

12.           Exchange Act Filings.  The Holder agrees and acknowledges that it shall have sole responsibility for making any applicable filings with the U.S. Securities and Exchange Commission pursuant to Section 13 and 16 of the Securities Exchange Act of 1934, as amended, as a result of its acquisition of this Warrant and the Warrant Shares and any future retention or transfer thereof.

13.           Notices.  Any and all notices or other communications or deliveries hereunder (including, without limitation, any Exercise Notice) shall be in writing and shall be deemed given and effective on the earliest of (i) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number specified in the Subscription Agreement prior to 5:00 p.m. (New York time) on a Trading Day, (ii) the next Trading Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number specified in the Subscription Agreement on a day that is not a Trading Day or later than 5:00 p.m. (New York time) on any Trading Day, (iii) the Trading Day following the date of mailing, if sent by nationally
recognized overnight courier service, or (iv) upon actual receipt by the party to whom such notice is required to be given.  The addresses for such communications shall be:  (i) if to the Company, to the address set forth in the Subscription Agreement, or (ii) if to the Holder, to the address number appearing on the Warrant Register, the Facsimile number specified in the Subscription Agreement or such other address or facsimile number as the Holder may provide to the Company in accordance with this Section.  For purposes of this Warrant, “Trading Day” means (x) a day on which the Common Stock is traded on a National Exchange, the NASDAQ SmallCap Market, the Toronto Stock Exchange, or (y) if the Common Stock is not listed thereon, a day on which the Common Stock is traded in the over-the-counter market, as reported by the OTC Bulletin Board, or (z) if the Common Stock is not quoted on the OTC Bulletin Board, a day on which the Common Stock is quoted in the over-the-counter
market as reported by the Pink Sheets LLC (or any similar organization or agency succeeding to its functions of reporting prices); provided, that in the event that the Common Stock is not listed or quoted as set forth in (x), (y) and (z) hereof, then Trading Day shall mean a business day.

14.           Warrant Agent.  The Company shall serve as warrant agent under this Warrant.  Upon 30 days’ notice to the Holder, the Company may appoint a new warrant agent.  Any corporation into which the Company or any new warrant agent may be merged or any corporation resulting from any consolidation to which the Company or any new warrant agent shall be a party or any corporation to which the Company or any new warrant agent transfers substantially all of its corporate trust or shareholders services business shall be a successor warrant agent under this Warrant without any further act.  Any such successor warrant agent shall promptly cause notice of its succession as warrant agent to be mailed (by first class mail, postage prepaid) to the Holder at the
Holder’s last address as shown on the Warrant Register.

	
            15.
 	
            Miscellaneous.
 

(a)            This Warrant shall be binding on and inure to the benefit of the parties hereto and their respective successors and assigns.  Subject to the preceding sentence, 

 

- 8 -

 

 

 

nothing in this Warrant shall be construed to give to any Person other than the Company and the Holder any legal or equitable right, remedy or cause of action under this Warrant.  This Warrant may be amended in writing signed by the Company and the Holder and their successors and assigns and the Warrants issued pursuant to the Subscription Agreements, including this Warrant, may be amended in writing signed by the Company and the Holders of no less than a majority of the Warrant Shares issuable upon exercise of all such then outstanding Warrants. 

(b)           All questions concerning the construction, validity, enforcement and interpretation of this Warrant shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflicts of law thereof.  Each party agrees that all legal proceedings concerning the interpretations, enforcement and defense of this Warrant and the transactions herein contemplated (“Proceedings”) (whether brought against a party hereto or its respective Affiliates, employees or agents) may be commenced in the state and federal courts sitting in the State of New York (the “New York Courts”).  Each party hereto hereby
irrevocably submits to the non-exclusive jurisdiction of the New York Courts, located in the County of New York for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any Proceeding, any claim that it is not personally subject to the jurisdiction of any New York Court, or that such Proceeding has been commenced in an improper or inconvenient forum. Each party hereto hereby irrevocably waives personal service of process and consents to process being served in any such Proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Warrant and agrees that such service shall constitute good and sufficient service of process and notice thereof.  Nothing contained herein shall be deemed to limit in any way any right to serve
process in any manner permitted by law.  Each party hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Warrant or the transactions contemplated hereby.  If either party shall commence a Proceeding to enforce any provisions of this Warrant, then the prevailing party in such Proceeding shall be reimbursed by the other party for its attorney’s fees and other costs and expenses incurred with the investigation, preparation and prosecution of such Proceeding.

(c)            The headings herein are for convenience only, do not constitute a part of this Warrant and shall not be deemed to limit or affect any of the provisions hereof.

(d)           In case any one or more of the provisions of this Warrant shall be invalid or unenforceable in any respect, the validity and enforceability of the remaining terms and provisions of this Warrant shall not in any way be affected or impaired thereby and the parties will attempt in good faith to agree upon a valid and enforceable provision which shall be a commercially reasonable substitute therefor, and upon so agreeing, shall incorporate such substitute provision in this Warrant.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK,

SIGNATURE PAGE FOLLOWS]

 

- 9 -

 

 

 

 

IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed by its authorized officer as of the date first indicated above.

CAPITAL GOLD CORPORATION

 

	
            By:  
 	
                                                                 

	
            Name:  
 	
            Gifford Dieterle

	
            Title:  
 	
            President

 

 

 

 

 

Exhibit A

EXERCISE NOTICE

To Capital Gold Corporation:

The undersigned hereby irrevocably elects to purchase  _____________ shares of common stock, $.001 par value (“Common Stock”), of Capital Gold Corporation (the “Company”), pursuant to Warrant No. o, originally issued ____________, 2004 (the “Warrant”), and encloses herewith U.S.$________ in cash, certified or official bank check or checks or other immediately available funds, which sum represents the aggregate Exercise Price (as defined in the Warrant) for the number of shares of Common Stock to which this Exercise Notice relates, together with any applicable taxes payable by the undersigned pursuant to the Warrant.

By its delivery of this Exercise Notice, the undersigned represents and warrants to the Company that (i) the aforesaid shares of Common Stock are being acquired for the account of the undersigned for investment and not with a view to, or for resale in connection with, the distribution thereof and that the undersigned has no present intention of distributing or reselling such shares; (ii) the undersigned is aware of the Company’s business affairs and financial condition and has acquired sufficient information about the Company to reach an informed and knowledgeable decision regarding its investment in the Company; (iii) the undersigned is experienced in making investments of this type and has such knowledge and background in financial and business matters that the undersigned is capable of evaluating the merits and risks of this investment and protecting the undersigned’s own
interests; (iv) the undersigned is an “accredited investor” as defined in Regulation D under the Securities Act of 1933, as amended (the “Securities Act”); and (v) the undersigned understands that the shares of Common Stock issuable upon exercise of this Warrant have not been registered under the Securities, by reason of a specific exemption from the registration provisions of the Securities Act, which exemption depends upon, among other things, the bona fide nature of the investment intent as expressed herein, and, because such securities have not been registered under the Securities Act, they must be held indefinitely unless subsequently registered under the Securities Act or an exemption from such registration is available; (v) the undersigned is aware that the aforesaid shares of Common Stock may not be sold pursuant to Rule 144 adopted under the Securities Act unless certain conditions are met and until the
undersigned has held the shares for the number of years prescribed by Rule 144; and (vi) the undersigned agrees not to make any disposition of all or any part of the aforesaid shares of Common Stock unless and until there is then in effect a registration statement under the Securities Act covering such proposed disposition and such disposition is made in accordance with said registration statement, or the undersigned has provided the Company with an opinion of counsel satisfactory to the Company, stating that such registration is not required.

 

[By its delivery of this Exercise Notice, the undersigned represents and warrants to the Company that in giving effect to the exercise evidenced hereby the Holder will not beneficially own in excess of the number of shares of Common Stock (determined in accordance with Section 13(d) of the Securities Exchange Act of 1934) permitted to be owned under Section 10 of this Warrant to which this notice relates.]

 

 

                                          
                                          
                                          
                                          
                                   

 

 

 

(Exercise Notice Continued)

 

The undersigned requests that certificates for the shares of Common Stock issuable upon this exercise be issued in the name of the undersigned or in such other name as is specified below: 

 

	
             
	
            _______________________
 	
             

	
             
	
            (Please print name)
 	
             

	
             
	
            _______________________
 	
             

	
             
	
            _______________________
 	
             

	
             
	
            _______________________
 	
             

	
             
	
            (Please print address)
 	
             

	
             
	
            _______________________
 	
             

	
             
	
            (Please insert Social Security
 	
             

	
             
	
            or Tax Identification Number)
 
	
            Dated:
 	
            _______________, ____
 	
             

								

_______________________________________

	
            (Signature of Holder)
 

 

 

 

 

FORM OF ASSIGNMENT

[To be completed and signed only upon transfer of Warrant]

FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto ________________________________ the right represented by the within Warrant to purchase  ____________ shares of Common Stock of Capital Gold Corporation to which the within Warrant relates and appoints ________________ attorney to transfer said right on the books of [___________] with full power of substitution in the premises.

	
            Dated:
 	
            _______________, ____
 

_______________________________________

(Signature must conform in all respects to name of holder as specified on the face of the Warrant)

 

_______________________________________

Address of Transferee

 

_______________________________________

 

_______________________________________

 

In the presence of:

__________________________

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