Document:

EXHIBIT 10

 

EXHIBIT

10.2

 

NEITHER THIS WARRANT NOR THE

SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE BEEN REGISTERED UNDER

THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE LAW AND SUCH

SECURITIES MAY NOT BE SOLD OR TRANSFERRED UNLESS (A) THERE IS AN EFFECTIVE

REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE LAW COVERING SUCH

SECURITIES, OR (B) SUCH TRANSACTION IS EXEMPT FROM, AND NOT SUBJECT TO,

THE REGISTRATION REQUIREMENTS OF SUCH ACT AND APPLICABLE STATE SECURITIES LAWS

AND THE COMPANY RECEIVES AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE

COMPANY STATING THAT SUCH SALE OR TRANSFER IS EXEMPT FROM REGISTRATION, OR

(C) THE COMPANY OTHERWISE SATISFIES ITSELF THAT SUCH SALE OR TRANSFER IS

EXEMPT FROM REGISTRATION.

 

	

  No. W-L-      

  	

   

  	

  Warrant to purchase

  
	

  Issued:  February 8, 2002

  	

   

  	

                    shares of Common Stock

  
	

   

  	

   

  	

  (subject to adjustment)

  

 

CENTERSPAN

COMMUNICATIONS CORPORATION

 

COMMON

STOCK

PURCHASE

WARRANT

 

THIS CERTIFIES THAT, for value received,                      (the “Holder”) is

entitled to exercise this Warrant to purchase from the Company                              (                      ) fully paid and

nonassessable shares of the Company’s Common Stock, $0.01 par value per

share (the “Common Stock”), on the terms and subject to the conditions set

forth herein.  The shares of Common

Stock issuable upon the exercise of this Warrant are referred to herein as the

“Warrant Shares.”  The number of Warrant

Shares issuable upon exercise of this Warrant and the Exercise Price (as

defined below) are subject to adjustment as provided herein.  The term “Warrant” as used herein shall

include this Warrant and any warrants delivered in substitution hereof as

provided herein.

 

This Warrant is being issued in connection with the

transactions contemplated by the Unit Purchase Agreement dated as of

February 8, 2002 between the Company and                                   (the “Purchase Agreement”).

 

1.1          Term of Warrant

 

This Warrant may be exercised by the Holder at any

time prior to the third anniversary of the Closing Date (as defined in the

Purchase Agreement).

 

 

1.2          Exercise Price

 

The Exercise Price at which this Warrant may be

exercised shall be $10.67 per share of Common Stock, as adjusted from time to

time pursuant to Section 4 hereof.

 

1.3          Method of Exercise

 

1.3.1       Cash Exercise

 

This Warrant may be exercised by the Holder, in whole

or in part (but not for less than 10,000 shares at a time, or such lesser

amount then issuable upon the full exercise of this Warrant), by delivering to

the Company (a) this Warrant, (b) cash, a wire transfer of funds or a

check payable to the Company in the amount of the Exercise Price multiplied by

the number of shares for which this Warrant is being exercised (the “Purchase

Price”), and (c) the form of Election to Purchase attached hereto as

Annex A, duly completed and executed by the Holder.  This Warrant shall be deemed to have been

exercised immediately prior to the close of business on the date of its

surrender for exercise as provided above.

 

1.3.2       “Easy Sale” Exercise

 

In lieu of the payment method set forth above in this

Section 1.3, when permitted by law and applicable regulations (including

Nasdaq and NASD rules), the Holder may pay the Purchase Price through a “same

day sale” commitment from the Holder, whereby the Holder irrevocably elects to

exercise this Warrant and to sell a portion of the Warrant Shares so purchased

to pay for the Purchase Price and the Holder commits upon sale of such Shares

to forward the Purchase Price directly to the Company.

 

2.             Delivery

of Stock Certificates

 

Within five business days after the payment of the

Purchase Price following the exercise of this Warrant, the Company, at its

expense, shall issue in the name of the Holder (a) a certificate for the

number of fully paid and nonassessable Warrant Shares to which the Holder shall

be entitled upon such exercise and payment and (b) a new Warrant of like

tenor to purchase up to that number of Warrant Shares, if any, not previously

purchased by the Holder if this Warrant has not expired.

 

3.             Covenants

as to Warrant Shares

 

3.1          Reservation of Warrant Shares

 

The Company shall at all times have authorized and

reserve and keep available, free from preemptive rights, for the purpose of

enabling it to satisfy any obligation to issue Warrant Shares upon the exercise

of this Warrant, the number of Warrant Shares deliverable upon full exercise of

this Warrant.

 

3.2          Issuance of Warrant Shares

 

The Company covenants that all Warrant Shares shall,

upon issuance thereof in accordance with the terms of this Warrant, be

(a) duly authorized, validly issued, fully paid and nonassessable and

(b) free from all liens, pledges, charges and security interests created

by the Company.

 

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4.             Adjustments

 

4.1          Adjustments of Exercise Price and

Number of Warrant Shares

 

The Exercise Price and the number of Warrant Shares

issuable upon the exercise of this Warrant shall be subject to adjustment from

time to time as hereinafter provided in this Section 4.

 

4.2          Adjustment of Exercise Price Upon

Extraordinary Common Stock Event

 

Upon the happening of an Extraordinary Common Stock

Event (as defined below) after the issuance date of this Warrant, the Exercise

Price shall, simultaneously with the happening of such Extraordinary Common

Stock Event, be adjusted by multiplying the then effective Exercise Price by a

fraction, the numerator of which shall be the number of shares of Common Stock

outstanding immediately prior to such Extraordinary Common Stock Event and the

denominator of which shall be the number of shares of Common Stock outstanding

immediately after such Extraordinary Common Stock Event, and the product so

obtained shall thereafter be the Exercise Price.  The Exercise Price, as so adjusted, shall be readjusted in the

same manner upon the happening of any successive Extraordinary Common Stock

Event or Events.

 

Upon each adjustment of such Exercise Price pursuant

to this Section 4.2, this Warrant shall thereafter entitle the Holder to

purchase, at the Exercise Price resulting from such adjustment, the number of

Warrant Shares obtained by multiplying the Exercise Price in effect immediately

prior to such adjustment by the number of Warrant Shares issuable upon exercise

of this Warrant immediately prior to such adjustment, and dividing the product

thereof by the Exercise Price resulting from such adjustment.

 

“Extraordinary Common Stock Event” shall mean (x) the

issuance of additional shares of Common Stock (or other securities or rights

convertible into or entitling the holder thereof to receive additional shares

of Common Stock) as a dividend or other distribution on outstanding Common

Stock of the Company, (y) a split or subdivision of outstanding shares of

Common Stock into a greater number of shares of Common Stock, or (z) a

combination of outstanding shares of Common Stock into a smaller number of

shares of Common Stock.

 

4.3          Capital Reorganization or

Reclassification

 

If the Common Stock issuable upon the exercise of this

Warrant shall be changed into the same or a different number of shares of any

class or classes of stock of the Company, whether by capital reorganization,

reclassification or otherwise (other than an Extraordinary Common Stock Event),

then and in each such event the Holder shall have the right thereafter to

exercise this Warrant for the kind and amount of shares of stock and other

securities and property receivable upon such reorganization, reclassification

or other change by holders of the number of shares of Common Stock into which

this Warrant might have been converted immediately prior to such

reorganization, reclassification or change, all subject to adjustment as

provided herein.  In any such case,

appropriate adjustment shall be made in the application of the provisions of

this Section 4 with respect to the rights of the Holder after the

reorganization, recapitalization or change to the end that the provisions of

this Section 4 (including adjustment of the Exercise Price then in effect

and the number of shares issuable upon exercise of this Warrant) shall be

applicable after that event as nearly equivalent as may be practicable.

 

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4.4          Notice of Adjustment

 

Whenever the number of shares of Common Stock or other

stock or property issuable upon the exercise of this Warrant or the Exercise

Price is adjusted, then and in each such case the Company shall promptly

deliver a notice to the Holder, which notice shall state the Exercise Price

resulting from such adjustment and/or the increase or decrease, if any, in the

number of shares of Common Stock or other stock or property issuable upon the

exercise of this Warrant, setting forth in reasonable detail the method of

calculation and the facts upon which such calculation is based.

 

4.5          Other Notices

 

In the event that the Company shall propose at any

time:

 

(a)           to declare any dividend or

distribution upon its Common Stock, whether in cash, property, stock or other

securities, whether or not a regular cash dividend and whether or not out of

earnings or earned surplus;

 

(b)           to offer for subscription to the

holders of its Common Stock any additional shares of stock of any class or

series or other rights;

 

(c)           to effect any reclassification or

recapitalization of the shares of its Common Stock outstanding involving a

change in the Common Stock; or

 

(d)           to merge or consolidate with or into

any other corporation, to sell, lease or convey all or substantially all of its

property or business, to undertake any other Corporate Transaction, or to

liquidate, dissolve or wind up;

 

then, in connection with each such event, the Company

shall send to the Holder:

 

(i)            at least 20 days’ prior written

notice of the date on which a record shall be taken for such dividend,

distribution or subscription rights (and specifying the date on which the

holders of Common Stock shall be entitled thereto) or for determining rights to

vote in respect of the matters referred to in (c) and (d) above; and

 

(ii)           in the case of the matters referred

to in (c) and (d) above, at least 20 days’ prior written notice of the date

when the same shall take place (and, if applicable, specifying the date on

which the holders of the Common Stock shall be entitled to exchange their

shares of Common Stock for securities or other property deliverable upon the

occurrence of such events).

 

5.             Fractional

Shares

 

No fractional shares

shall be issued upon the exercise of this Warrant.  If any fraction of a Warrant Share would, except for the

provisions of this Section, be issuable on the exercise of this Warrant (or any

portion hereof), the Company shall pay to the Holder an amount of cash equal to

the then fair market value of a Warrant Share multiplied by such fraction,

computed to the nearest whole cent.  For

purposes of the above calculation, the fair market value of a Warrant Share

shall be deemed to be the average of the closing bid and asked prices of the

Company’s Common Stock as quoted on the Nasdaq National Market System or on any

exchange on which such Common Stock is

 

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then listed, whichever is applicable, for the five trading days prior

to the date of exercise of this Warrant.

 

6.             Transfers

 

6.1          Restrictions on Transfer

 

No Warrant Shares or any

interest therein may be transferred unless (a) such transfer is registered

under the Securities Act of 1933, as amended (the “Securities Act”),

(b) the Company has received an opinion of legal counsel for the Holder

reasonably satisfactory to the Company stating that the transfer is exempt from

the registration requirements of the Securities Act, or (c) the Company

otherwise satisfies itself that such transfer is exempt from registration.

 

6.2          Transfers

 

The Company shall

register on the books of the Company maintained at its principal office the

permitted transfer of this Warrant upon surrender to the Company of this

Warrant, with the form of Assignment attached hereto as Annex B duly

completed and executed by the Holder. 

Upon any such registration of transfer, a new Warrant, in substantially

the form of this Warrant, evidencing this Warrant so transferred shall be

issued, at the Company’s expense, to the transferee, and a new Warrant, in

substantially the form of this Warrant, evidencing the portion of this Warrant,

if any, not so transferred shall be issued, at the Company’s expense, to the

Holder.

 

7.             Legend

 

Legends setting forth or

referring to the applicable restrictions set forth in Section 6.1 may be

placed on this Warrant, any replacement hereof or any certificate representing

the Warrant Shares, and a stop transfer restriction or order shall be placed on

the books of the Company and with any transfer agent until such securities may

be sold or otherwise transferred in accordance with Section 6.1.

 

8.             Holder

as Owner

 

The Company may deem and

treat the holder of record of this Warrant as the absolute owner hereof for all

purposes regardless of any notice to the contrary.

 

9.             No

Shareholder Rights

 

This Warrant shall not

entitle the Holder to any voting rights or any other rights as a shareholder of

the Company or to any other rights whatsoever except the rights stated herein;

and no dividend or interest shall be payable or shall accrue in respect of this

Warrant or the Warrant Shares, until and to the extent that this Warrant shall

be exercised.

 

10.          Registration

Rights

 

(a)           Subject

to Section 10(b) below, the Company shall file, with respect to the shares of

Common Stock issuable under this Warrant, a registration statement on Form S-3

(or any successor form) on or before the date 60 days after the Closing Date

(as defined in the Purchase Agreement) to register the shares issuable upon the

exercise of this Warrant under the Securities Act.  Any such registration statement may also include other shares of

Common Stock issued to other investors by

 

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the Company.  The Company shall

use its best efforts to have the registration statement declared effective

within 120 days after the Closing Date and to maintain the effectiveness of

such registration statement (and maintain the current status of the prospectus

or prospectuses contained therein) until the earliest of (i) the fifth

anniversary of the Closing Date, (ii) the date all such shares have been

disposed of pursuant to such effective registration statement and

(iii) the date such shares are sold or otherwise transferred by the Holder

in a transaction in which the rights under this Section 10 are not

assigned in accordance with Section 15 hereof.  The Company shall respond to the SEC within 15 days after the

Company’s receipt of any SEC comments with respect to the registration

statement or any amendments thereto, subject to timely receipt from the Holder

and other holders of shares of Common Stock to be included in such registration

statement of information required to so respond to such comments.

 

(b)           The

Company shall not be obligated to effect any such registration pursuant to

Section 10(a):

 

(1)           if the offering is deemed by the SEC

to involve a primary offering by the Company and Form S-3 is not available for

such offering; or

 

(2)           in any particular jurisdiction in

which the Company would be required to qualify to do business or to execute a

general consent to service of process in effecting such registration.

 

(c)           The

Company shall notify the Holder in writing at least thirty (30) days prior to

filing any registration statement under the Securities Act for purposes of

effecting a public offering of securities of the Company (including, but not

limited to, registration statements relating to secondary offerings of

securities of the Company, but excluding registration statements relating to

any registration under Section 10(a) of this Warrant or to any employee

benefit plan or a corporate reorganization) and will afford the Holder an

opportunity to include in such registration statement all or any part of the

shares issuable upon the exercise of this Warrant, subject to the provisions of

Section 10(d) below.  If the Holder

wants to include in any such registration statement all or any part of the shares

issuable upon the exercise of this Warrant, the Holder shall within twenty (20)

days after receipt of the above-described notice from the Company, so notify

the Company in writing, and in such notice shall inform the Company of the

number of shares of Common Stock the Holder wishes to include in such

registration statement.

 

(d)           If

a registration statement under which the Company gives notice under Section

10(c) is for an underwritten offering, then the Company shall so advise the

Holder.  In such event, the right of the

Holder to include any of the shares issuable upon the exercise of this Warrant

in a registration pursuant to Section 10(c) shall be conditioned upon the

Holder’s participation in such underwriting and the inclusion of the Holder’s

shares of Common Stock in the underwriting on the same terms and conditions as

the other participants in such offering, including, without limitation,

entering into an underwriting agreement in customary form with the managing

underwriter or underwriters selected for such underwriting (including a market

stand-off agreement of up to 180 days if required by such underwriters).  Notwithstanding any other provision of this

Warrant, if the managing underwriter(s) determine(s) that marketing factors

require a limitation of the number of shares to be underwritten, then the

managing underwriter(s) may exclude shares from the registration and the

underwriting, and the number of shares that may be included in the registration

and the underwriting shall be allocated, first, to the Company, second,

to each holder of registration rights granted by the Company before the

issuance date of this Warrant that contractually require the

 

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Company to include such holder’s shares on a priority basis, and, third,

to the Holder and any other holder of registration rights granted by the

Company (excluding those covered above), on a pro rata basis based on the total

number of shares of Common Stock then sought to be included by each in such

offering.  If the Holder disapproves of

the terms of any such underwriting, the Holder may elect to withdraw therefrom

by written notice to the Company and the underwriter(s), delivered at least ten

(10) business days prior to the effective date of the registration

statement.  Any shares of Common Stock

excluded or withdrawn from such underwriting shall be excluded and withdrawn

from the registration.

 

(e)           The

Holder shall have no right to obtain or seek, nor shall the Holder obtain or

seek, an injunction restraining or otherwise delaying any registration as the

result of any controversy that might arise with respect to the interpretation

or implementation of this Agreement.

 

(f)            In

the event any Registrable Shares are included in a registration statement under

this Agreement or the terms of the Warrant:

 

(i)            To

the extent permitted by law, the Company will indemnify and hold harmless the

Holder and each person, if any, who controls the Holder within the meaning of

the Securities Act or the Securities Exchange Act of 1934, as amended (the

“1934 Act”), against any losses, claims, damages, or liabilities to which they

may become subject under the Securities Act, the 1934 Act or other federal or

state law, insofar as such losses, claims, damages, or liabilities (or actions

in respect thereof) arise out of or are based upon any of the following

statements, omissions or violations (collectively a “Violation”): (A) any

untrue statement or alleged untrue statement of a material fact contained in

such registration statement, including any preliminary prospectus or final

prospectus contained therein or any amendments or supplements thereto, (B) the

omission or alleged omission to state therein a material fact required to be

stated therein, or necessary to make the statements therein, in light of the

circumstances under which they were made, not misleading, or (C) any violation

or alleged violation by the Company of the Securities Act, the 1934 Act, any

state securities law or any rule or regulation promulgated under the Securities

Act, the 1934 Act or any state securities law in connection with such

registration and sale of securities; and the Company will pay to the Holder or

such controlling person, as incurred, any legal or other expenses reasonably

incurred by them in connection with investigating or defending any such loss,

claim, damage, liability, or action; provided, however, that the indemnity

agreement contained in this subsection 10(f)(i) shall not apply to amounts

paid in settlement of any such loss, claim, damage, liability, or action if

such settlement is effected without the consent of the Company (which consent

shall not be unreasonably withheld), nor shall the Company be liable in any

such case for any such loss, claim, damage, liability, or action to the extent

that it arises out of or is based upon a Violation that occurs in reliance upon

and in conformity with written information furnished expressly for use in

connection with such registration by the Holder or such controlling person or

their respective agents.

 

(ii)           To

the extent permitted by law, the Holder will indemnify and hold harmless the

Company, each of its directors, each of its officers who has signed the

registration statement, each person, if any, who controls the Company within

the meaning of the Securities Act, each agent and any underwriter, any other

person or entity selling securities in such registration statement and any

controlling person of any such underwriter or other person or entity, against

any losses, claims, damages, or liabilities (joint or several) to which any of

the foregoing persons may become subject, under the Securities Act, the 1934

Act or other federal or state law, insofar as such losses, claims, damages, or

liabilities (or actions in respect thereto) arise out of or are based upon any

Violation, in each case to the extent (and only to the extent) that such

Violation occurs in reliance upon and in

 

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conformity with written information furnished by the Holder or its agents

expressly for use in connection with such registration; and the Holder will

pay, as incurred, any legal or other expenses reasonably incurred by any person

intended to be indemnified pursuant to this subsection 10(f)(ii), in

connection with investigating or defending any such loss, claim, damage,

liability, or action; provided, however, that the indemnity agreement contained

in this subsection 10(f)(ii) shall not apply to amounts paid in settlement

of any such loss, claim, damage, liability or action if such settlement is

effected without the consent of the Holder (which consent shall not be

unreasonably withheld); and, provided further, that in no event shall any

indemnity under this subsection 10(f)(ii) exceed the net proceeds from the

offering received by the Holder.

 

(iii)          Promptly

after receipt by an indemnified party under this Section 10(f) of notice

of the commencement of any action (including any governmental action), such

indemnified party will, if a claim in respect thereof is to be made against any

indemnifying party under this Section 10(f), deliver to the indemnifying

party a written notice of the commencement thereof and the indemnifying party

shall have the right to participate in, and, to the extent the indemnifying

party so desires, jointly with any other indemnifying party similarly noticed,

to assume the defense thereof with counsel mutually satisfactory to the

parties; provided, however, that an indemnified party (together with all other

indemnified parties that may be represented without conflict by one counsel)

shall have the right to retain one separate counsel, with reasonable fees and

expenses to be paid by the indemnifying party, if representation of such

indemnified party by the counsel retained by the indemnifying party would be inappropriate

due to actual or potential differing interests between such indemnified party

and any other party represented by such counsel in such proceeding.  The failure to deliver written notice to the

indemnifying party within a reasonable time of the commencement of any such

action, if prejudicial to its ability to defend such action, shall relieve such

indemnifying party of any liability to the indemnified party under this

Section 10(f), but the omission so to deliver written notice to the indemnifying

party will not relieve it of any liability that it may have to any indemnified

party otherwise than under this Section 10(f).

 

(iv)          To

the extent the indemnification provided for in this Section 10(f) is held

by a court of competent jurisdiction to be unavailable to an indemnified party

with respect to any losses, claims, damages or liabilities referred to herein,

the indemnifying party, in lieu of indemnifying such indemnified party

hereunder, shall to the extent permitted by applicable law contribute to the

amount paid or payable by such indemnified party as a result of such loss,

claim, damage or liability in such proportion as is appropriate to reflect the

relative fault of the indemnifying party on the one hand and of the indemnified

party on the other, in connection with the Violation(s) that resulted in such

loss, claim, damage or liability, as well as any other relevant equitable

considerations.  The relative fault of

the indemnifying party and of the indemnified party shall be determined by a

court of law by reference to, among other things, whether the untrue or

allegedly untrue statement of a material fact or the omission to state a

material fact relates to information supplied by the indemnifying party or by

the indemnified party and the parties’ relative intent, knowledge, access to

information and opportunity to correct or prevent such statement or omission.

 

(v)           The

obligations of the Company and the Holder under this Section 10(f) shall

survive the completion of any offering of Registrable Shares in a registration

statement under Section 10, and otherwise.

 

(g)           Notwithstanding

the foregoing, without the prior written consent of the holders (the “Required

Holders”) of warrants (including this Warrant and similar warrants being sold

by the

 

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Company on or about the date hereof pursuant to the Purchase Agreement

and other Unit Purchase Agreements in substantially the same form as the

Purchase Agreement) exercisable for at least 75% of the aggregate number of

shares of Common Stock issuable upon the exercise of this Warrant and all such

other warrants (which consent shall not be unreasonably withheld), the Company

shall not file with the SEC any registration statement to register shares of

its capital stock until after the registration statement described in

Section 10(a) above has been declared effective, other than any

registration statements (a) relating to any employee benefit plan of the

Company or (b) required to be filed by the Company pursuant to

registration rights granted prior to the date of the Purchase Agreement;

provided, however, that the Company shall not be bound by the provisions of

this Section 10(g) if, at any time at least 30 days after the filing date

of the registration statement described in Section 10(a), such

registration statement has not been declared effective as a result of any

comments by the SEC, or refusal of the SEC to accept or review the registration

statement for reasons, relating to or directed at the Holder or any other

purchaser of Units of the Company with shares included in such registration

statement (or any assignee or affiliate of the Holder or any such other

purchaser), in connection with the registration statement.

 

(h)           Certificates

evidencing shares of Common Stock issued upon exercise of this Warrant shall

not contain any restrictive legend as long as the resale of such Warrant Shares

is covered by an effective registration statement and the holder thereof

represents in writing to the Company that such Warrant Shares (i) have

been or are being sold pursuant to such registration statement or pursuant to

Rule 144 under the Securities Act, or (ii) may be made pursuant to Rule

144(k) under the Securities Act, or any successor rule or provision.

 

11.          Governing

Law; Construction

 

The validity and interpretation of the terms and

provisions of this Warrant shall be governed by the laws of the State of

Oregon.  The descriptive headings of the

several sections of this Warrant are inserted for convenience only and shall

not control or affect the meaning or construction of any of the provisions

thereof.

 

12.          Lost

Warrant Certificate

 

Upon receipt by the

Company of satisfactory evidence of the loss, theft, destruction or mutilation

of this Warrant and either (in the case of loss, theft or destruction)

indemnification reasonably satisfactory to the Company or (in the case of

mutilation) the surrender of this Warrant for cancellation, the Company will

execute and deliver to the Holder, without charge, a new Warrant of like denomination.

 

13.          Waivers

and Amendments

 

This Warrant or any

provision hereof may be amended or waived only by a statement in writing signed

by the Company and the Holder; provided, however, that the provisions of

Section 10 hereof may be amended with the written consent of the Company

and the Required Holders, with any such consent being binding upon the Company

and the Holder.

 

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14.          Notices

 

Any notice required by the provisions of this Warrant

to be given to the Holder shall be deemed given two days after being deposited

in the United States mail, postage prepaid and addressed to such Holder’s

address appearing on the books of the Company.

 

Any notice required by the provisions of this Warrant

to be given to the Company shall be deemed given three business days after

being deposited in the United States mail, postage prepaid and addressed to

CenterSpan Communications Corporation, 7175 NW Evergreen Parkway, Suite 400,

Hillsboro, OR 97124, Attention: Chief Financial Officer, or at such other

address as specified in a notice delivered to the Holder as set forth above.

 

15.          Binding

Effect

 

This Warrant shall be binding upon the Company and its

successors and assigns, and shall inure to the benefit of and be enforceable by

the Holder and its successors and permitted assigns.  The rights to cause the Company to register shares of Common

Stock pursuant to Section 10 may be assigned by a Holder to a transferee

or assignee of such shares that acquires at least 50,000 shares

(appropriately adjusted for any stock dividend, stock split, or combination

applicable to the Common Stock), and who assumes the Holder’s obligations

hereunder; provided the Company is, within a reasonable time after such

transfer, furnished with written notice of the name and address of such

transferee or assignee and the shares with respect to which such registration

rights are being assigned; and, provided, further, that such assignment shall

be effective only if immediately following such transfer the further

disposition of such shares by the transferee or assignee is restricted under

the Securities Act.

 

16.          Investment

Intent, etc.

 

By accepting this Warrant, the Holder represents that

(a) the Holder is acquiring this Warrant and the Warrant Shares issuable

upon exercise hereof for investment and not with a view to, or for sale in

connection with, any distribution thereof; (b) the Holder can bear the

economic risk of an investment in the Warrant Shares (including possible

complete loss of such investment) for an indefinite period of time;

(c) the Holder understands that this Warrant and the Warrant Shares have

not been registered under the Securities Act, or under the securities laws of

any jurisdiction, by reason of reliance upon certain exemptions, and that the

reliance of the Company on such exemptions is predicated upon the accuracy of

the Holder’s representations in this Section; (d) the Holder is familiar

with Rule 144 under the Securities Act, as currently in effect, and

understands the resale limitations that are or would be imposed thereby and by

the Securities Act on this Warrant and the Warrant Shares to the extent such

securities are characterized as “restricted securities” under the United States

federal securities laws inasmuch as they are acquired from the Company in a

transaction not involving a public offering; (e) the Holder has received

and reviewed a copy of each SEC Document (as defined below) and the Holder

believes the Holder has been given access to full and complete information

regarding the Company and has utilized such access to the Holder’s satisfaction

for the purpose of obtaining information about the Company, particularly,

representatives of the Holder have had adequate opportunities to ask questions

of, and receive answers from, senior executives of the Company concerning the

Company and to obtain any additional information, to the extent reasonably

available, necessary to verify the accuracy of information provided to the

Holder about the Company; (f) the Holder is an “accredited investor” as such

term is defined in Rule 501(a) under the Securities Act and as defined

pursuant to the provisions of state securities laws applicable

 

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to the Holder providing for an exemption from registration or

qualification of the offer and sale of this Warrant and the Warrant Shares;

(g) the Holder has obtained, to the extent he or she deems necessary, his

or her own professional advice with respect to the risks inherent in the investment

in this Warrant and the Warrant Shares, the condition of the Company and the

suitability of the investment in this Warrant and the Warrant Shares in light

of the Holder’s financial condition and investment needs; and (h) the

Holder is a resident of the state (or if not a natural person, the Holder made

its investment decision with respect to this Warrant and the Warrant Shares

from its office located in such state) set forth on the signature page of this

Warrant.

 

As used herein, the term “SEC Documents” means,

collectively, the following documents of the Company filed with the SEC:  (i) its Annual Report on Form 10-K

for the fiscal year ended December 31, 2000, (ii) all Forms 8–K

filed after the date of such Form 10–K, if any, (iii) its Quarterly

Reports on Form 10-Q for the quarters ended March 31, June 30 and

September 30, 2001, and (iv) its Definitive Proxy Statement for the

annual meeting of the Company’s shareholders held in May 2001.

 

11

 

IN WITNESS WHEREOF, the

Company has executed this Warrant as of the date first written above.

 

	

   

  	

  CENTERSPAN COMMUNICATIONS CORPORATION

  
	

   

  	

   

  
	

   

  	

  By

  	

   

  	

   

  
	

   

  	

  Name:  Mark B. Conan

  
	

   

  	

  Title:  Vice President of

  Finance, Administration

  and Chief Financial Officer

  
	

   

  	

   

  
	

  The undersigned hereby confirms its

  acknowledgements and representations

  in Section 16 of this Warrant.

  	

   

  
	

   

  	

   

  
	

   

  	

   

  	

   

  
	

  [Name]

  	

   

  
	

   

  	

   

  
	

  Holder’s State of Residency:

  	

   

  	

   

  
						

 

12

 

ANNEX A

 

FORM OF

ELECTION TO PURCHASE

 

To CenterSpan Communications Corporation:

 

The undersigned hereby

elects to purchase                 

shares of Common Stock of CenterSpan Communications Corporation issuable

upon the exercise of the within Warrant, and requests that a certificate for

such shares shall be issued in the name of the undersigned holder and delivered

to the address indicated below and, if said number of shares shall not be all

the shares which may be purchased pursuant to the within Warrant, that a new

Warrant evidencing the right to purchase the balance of such shares be

registered in the name of, and delivered to, the undersigned at the

undersigned’s address stated below.

 

The undersigned hereby

certifies to the Company that the undersigned’s representations set forth in

Section 16 of the within Warrant are true and correct on the date hereof as if

made by the undersigned on the date hereof.

 

Payment enclosed in the

amount of $                          

 

	

  Dated:

  	

   

  	

   

  
	

   

  
	

  Name of holder of Warrant:

  	

   

  
	

   

  	

  (please print)

  
	

   

  	

  Address:

  	

   

  	 

	

   

  	

   

  	

   

  
	

   

  	

   

  	

   

  
	

   

  	

   

  	

   

  
	

   

  	

  Signature:

  	

   

  	 

						

 

 

ANNEX B

 

FORM OF ASSIGNMENT

 

FOR VALUE RECEIVED,                                  hereby

sells, assigns and transfers to the assignee set forth below all of the rights

of the undersigned in and to the number of Warrant Shares (as defined in and

evidenced by the foregoing Warrant) set opposite the name of such assignee

below and in and to the foregoing Warrant with respect to said Warrant Shares:

 

	

  Name of

  Assignee

  	

   

  	

  Address

  	

   

  	

  Number of Shares

  

 

 

 

If the total of said

Warrant Shares shall not be all such shares which may be purchased pursuant to

the foregoing Warrant, the undersigned requests that a new Warrant evidencing

the right to purchase the balance of such shares be issued in the name of, and

delivered to, the undersigned at the undersigned’s address stated below.

 

	

  Dated:

  	

   

  	

   

  	

   

  
	

   

  
	

  Name of holder

  of Warrant:

  	

   

  
	

   

  	

  (please print)

  
	

   

  	

  Address:

  	

   

  
	

   

  	

   

  	

   

  
	

   

  	

   

  	

   

  
	

   

  	

   

  	

   

  
	

   

  	

  Signature:

  	

   

  
							

 

 

Schedule to Exhibit 10.2

 

All Common Stock Purchase

Warrants are not required to be filed because each of them is substantially

identical to Exhibit 10.2, and the material details by which each such Common

Stock Purchase Warrant differs from Exhibit 10.2 are as follows:

 

	

  Investor

  	

   

  	

  Date of

  Warrant

  	

   

  	

  Warrant to

  Purchase

  Number of Shares of

  Common Stock

  	

   

  
	

  AIG DKR SoundShore Holdings Ltd.

  	

   

  	

  02/08/02

  	

   

  	

  23,600

  	

   

  
	

  AIG DKR

  SoundShore Opportunity Holding Fund Ltd.

  	

   

  	

  02/08/02

  	

   

  	

  18,700

  	

   

  
	

  AIG DKR

  SoundShore Private Investors Holding Fund Ltd.

  	

   

  	

  02/08/02

  	

   

  	

  44,600

  	

   

  
	

  AIG DKR

  SoundShore Strategic Holding Fund Ltd.

  	

   

  	

  02/08/02

  	

   

  	

  13,100

  	

   

  
	

  Louise G. Brooks

  IRA

  	

   

  	

  02/08/02

  	

   

  	

  6,000

  	

   

  
	

  Gryphon Master

  Fund, L.P.

  	

   

  	

  02/08/02

  	

   

  	

  166,667

  	

   

  
	

  Frank G.

  Hausmann, Jr.

  	

   

  	

  02/08/02

  	

   

  	

  5,000

  	

   

  
	

  Langley

  Partners, L.P.

  	

   

  	

  02/08/02

  	

   

  	

  100,000

  	

   

  
	

  Quantico

  Partners, L.P.

  	

   

  	

  02/08/02

  	

   

  	

  66,666

  	

   

  
	

  Steelhead

  Investments Ltd.

  	

   

  	

  02/08/02

  	

   

  	

  166,667

  	

   

  
	

  Synapse Fund II,

  LLC

  	

   

  	

  02/08/02

  	

   

  	

  41,667

  	

   

  
	

  TCMP3 Limited

  Partnership

  	

   

  	

  02/08/02

  	

   

  	

  10,000

  	

   

  
	

  AIG DKR

  SoundShore Holdings Ltd. (1)

  	

   

  	

  03/28/02

  	

   

  	

  39,333

  	

   

  
	

  AIG DKR

  SoundShore Opportunity Holding Fund Ltd. (1)

  	

   

  	

  03/28/02

  	

   

  	

  31,167

  	

   

  
	

  AIG DKR

  SoundShore Private Investors Holding Fund Ltd. (1)

  	

   

  	

  03/28/02

  	

   

  	

  74,334

  	

   

  
	

  AIG DKR

  SoundShore Strategic Holding Fund Ltd. (1)

  	

   

  	

  03/28/02

  	

   

  	

  21,833

  	

   

  
	

  Gryphon Master

  Fund L.P. (1)

  	

   

  	

  03/28/02

  	

   

  	

  83,333

  	

   

  
	

  Quantico

  Partners, L.P. (1)

  	

   

  	

  03/28/02

  	

   

  	

  83,333

  	

   

  
	

  BG Development

  Corp. Pension Fund (1)

  	

   

  	

  04/01/02

  	

   

  	

  5,000

  	

   

  
	

  Mark B. Conan

  (1)

  	

   

  	

  04/01/02

  	

   

  	

  1,000

  	

   

  
	

  Frank G.

  Hausmann, Jr. (1)

  	

   

  	

  04/01/02

  	

   

  	

  5,000

  	

   

  
	

  Alfred Lee (1)

  	

   

  	

  04/01/02

  	

   

  	

  1,000

  	

   

  
	

  G. Gerald Pratt

  (1)

  	

   

  	

  04/01/02

  	

   

  	

  10,000

  	

   

  

 

(1)    Section

7(a) differs as follows:

 

A.            CenterSpan is obligated to file a

registration statement on Form S-3 within 15 days of the Closing Date, as

opposed to 60 days.

 

B.            CenterSpan will use its best efforts

to have such registration statement declared effective within 75 days of the

Closing Date, as opposed to 120 days.

 

C.            CenterSpan will use its best efforts

to maintain the effectiveness of such registration statement until the earliest

of each of the events listed in the Unit Purchase Agreement filed as Exhibit

10.1 and the date the Investor is able to dispose of all Registrable Shares in

one three-month period pursuant to Rule 144 under the Securities Act of 1933,

as amended, without registration under such Act.AMENDED AND RESTATED EMPLOYMENT AGREEMENT

EXHIBIT

10.1

 

EMPLOYMENT

AGREEMENT

(Kerry D. Walbridge)

 

This Employment Agreement (the “Agreement”) by and between SOURCECORP, Incorporated, a Delaware

corporation, and SOURCECORP Management,

L.P., a Texas limited partnership and indirect wholly owned subsidiary of SOURCECORP, Incorporated (collectively,

the “Company”), and Kerry D. Walbridge (“Employee”) is hereby entered into

effective as of April 23, 2002 (the “Effective Date”).  This Agreement hereby supersedes any other

employment agreements or understandings, written or oral, between the Company

and Employee.

 

R E C I T A L S

 

The following

statements are true and correct:

 

As of the date of

this Agreement, the Company is engaged primarily in the business of providing

document and information management outsourcing solutions.

 

Employee is

employed hereunder by the Company in a confidential relationship wherein

Employee, in the course of his employment with the Company, has and will

continue to become familiar with and aware of information as to the Company’s

customers, specific manner of doing business, including the processes,

techniques and trade secrets utilized by the Company, and future plans with

respect thereto, all of which has been and will be established and maintained

at great expense to the Company; this information is a trade secret and

constitutes the valuable goodwill of the Company.  In consideration for Employee’s promises herein, the Company

agrees to provide Employee with such confidential information; in return,

Employee recognizes and acknowledges that such information must be maintained

in confidence, and to further such protection agrees to the provisions of

Section 3 of this Agreement.

 

Therefore, in

consideration of the mutual promises, terms, covenants and conditions set forth

herein and the performance of each, it is hereby agreed as follows:

 

A G R E E M E N T

S

 

1.             Employment and Duties.

 

(a)           The Company hereby employs Employee

as a Division President, with the makeup of such divisions as determined by the

Company from time to time.  As such,

Employee shall have responsibilities, duties and authority reasonably accorded

to and expected of a Division President and will report directly to the

Company’s Chief Operating Officer or such other officer designated by the

Company.  Employee hereby accepts this

employment upon the terms and conditions herein contained and, subject to

Section 1(b), agrees to devote his working time, attention and efforts to

promote and further the business of the Company.

 

 

(b)           Employee shall not, during the term

of his employment hereunder, be engaged in any other business activity pursued

for gain, profit or other pecuniary advantage except to the extent that such

activity (i) does not interfere with Employee’s duties and responsibilities

hereunder and (ii) does not violate Section 3 hereof.  The foregoing limitations shall not be construed as prohibiting

Employee from (A) serving on the boards of directors of other companies or

(B) making personal investments in such form or manner as will neither

require his services, other than to a minimal extent, in the operation or

affairs of the companies or enterprises in which such investments are made nor

violate the terms of Section 3 hereof.

 

2.             Compensation.  For all services rendered by Employee, the

Company shall compensate Employee as follows:

 

(a)           Base Salary.  The base salary payable to Employee shall be $250,000 per year,

payable on a regular basis in accordance with the Company’s standard payroll

procedures but not less than bi-weekly. 

Employee shall also be entitled to a supplemental salary opportunity of

$25,000 payable at such time and on such terms as agreed to by Employee and the

Company as part of the Company’s 2002 Compensation and Incentive Bonus Plan

(such base salary and supplemental salary opportunity are referred to herein as

the “Total Base Salary Opportunity.”

 

(b)           Incentive Bonus Plan.  Employee shall be eligible for a bonus

opportunity of up to 75% of his Total Base Salary Opportunity in accordance

with the Company’s Incentive Bonus Plan as modified from time to time, payable

in cash and/or equity of the Company (at the Company’s discretion).  The bonus payment and the Company’s targeted

performance shall be determined by the Board or the compensation committee

thereof.

 

(c)           Executive Perquisites, Benefits and Other

Compensation.  Employee shall

be entitled to receive additional benefits from the Company in such form and to

such extent as determined from time to time by the Company.

 

3.             Non-Competition

Agreement.

 

(a)           Subject

to Sections 5(d) and (e) and Section 12, Employee will not, during the period

of his employment by or with the Company, and for a period of two (2) years

immediately following the termination of his employment with the Company, for

any reason whatsoever, directly or indirectly, for himself or on behalf of or

in conjunction with any other person, company, partnership, corporation,

business or entity of whatever nature:

 

(i)            engage, as an officer, director,

shareholder, owner, partner, joint venturer, or in a managerial capacity,

whether as an employee, independent contractor, consultant or advisor, or as a

sales representative, in any business selling any products or services in

direct competition with the Company, within 100 miles of (i) the principal

executive offices of the Company or (ii) any place to which the Company

provides products or services or in which the Company (including the

subsidiaries thereof) is in the process of initiating business operations

during the term of this covenant (the “Territory”);

 

(ii)           call upon, hire, attempt to hire,

contact or solicit with respect to hiring (for

 

2

 

Employee or on

behalf of another) any person who is, at that time, or who has been within one

(1) year prior to that time, an employee of the Company (including the

subsidiaries thereof) in a managerial or sales capacity, provided that Employee

shall be permitted to call upon and hire any member of his immediate family;

 

(iii)          call upon, solicit, divert or take

away or attempt to call upon, solicit, divert or take away any person or entity

which is, at that time, or which has been, within one (1) year prior to that

time, a customer of the Company (including the subsidiaries thereof) for the

purpose of soliciting or selling products or services in direct competition

with the Company;

 

(iv)          call upon any prospective acquisition

candidate, on Employee’s own behalf or on behalf of any competitor, which

candidate was either called upon by the Company (including the subsidiaries

thereof) or for which the Company made an acquisition analysis, for the purpose

of acquiring such entity; or

 

(v)           disclose customers, whether in

existence or proposed, of the Company (or the subsidiaries thereof) to any

person, firm, partnership, corporation or business for any reason or purpose

whatsoever.

 

Notwithstanding

the above, the foregoing covenant shall not be deemed to prohibit Employee from

acquiring as an investment not more than three percent (3%) of the capital

stock of a competing business, whose stock is traded on a national securities

exchange or over-the-counter.

 

(b)           Because of the difficulty of

measuring economic losses to the Company as a result of a breach of the

foregoing covenant, and because of the immediate and irreparable damage that could

be caused to the Company for which it would have no other adequate remedy,

Employee agrees that the foregoing covenant may be enforced by the Company in

the event of breach by him by injunctions and restraining orders without the

necessity of posting any bond therefor.

 

(c)           In the course of Employee’s

employment with the Company, Employee will become exposed to certain of the

Company’s confidential information and business relationships, which the above

covenants are designed to protect.  It

is agreed by the parties that the foregoing covenants in this Section 3 impose

a reasonable restraint on Employee in light of the activities and business of

the Company (including the Company’s subsidiaries) on the date of the execution

of this Agreement and the current plans of the Company (including the Company’s

subsidiaries); but it is also the intent of the Company and Employee that such

covenants be construed and enforced in accordance with the changing activities,

business and locations of the Company (including the Company’s subsidiaries)

throughout the term of this covenant, whether before or after the date of

termination of the employment of Employee, subject to the following

paragraph.  For example, if, during the

Term of this Agreement, the Company (including the Company’s subsidiaries)

engages in new and different activities, enters a new business or established

new locations for its current activities or business in addition to or other

than the activities or business enumerated under the Recitals above or the

locations currently established therefor, then

 

3

 

Employee will be

precluded from soliciting the customers or employees of such new activities or

business or from such new location and from directly competing with such new

business within 100 miles of its then-established operating location(s) through

the term of this covenant.

 

It is further

agreed by the parties hereto that, in the event that Employee shall cease to be

employed hereunder, and shall enter into a business or pursue other activities

not in competition with the Company (including the Company’s subsidiaries), or

similar activities or business in locations the operation of which, under such

circumstances, does not violate clause (i) of this Section 3, and in any event

such new business, activities or location are not in violation of this Section

3 or of Employee’s obligations under this Section 3, if any, Employee shall not

be chargeable with a violation of this Section 3 if the Company (including the

Company’s subsidiaries) shall thereafter enter the same, similar or a

competitive (i) business, (ii) course of activities or (iii) location, as

applicable.

 

(d)           The covenants in this Section 3 are

severable and separate, and the unenforceability of any specific covenant shall

not affect the provisions of any other covenant.  Moreover, in the event any court of competent jurisdiction shall

determine that the scope, time or territorial restrictions set forth are

unreasonable, then it is the intention of the parties that such restrictions be

enforced to the fullest extent that the court deems reasonable, and the

Agreement shall thereby be reformed to such extent.

 

(e)           All of the covenants in this Section

3 shall be construed as an agreement independent of any other provision in this

Agreement, and the existence of any claim or cause of action of Employee

against the Company, whether predicated on this Agreement or otherwise, shall

not constitute a defense to the enforcement by the Company of such covenants.  It is specifically agreed that the period of

two (2) years following Employee’s employment set forth at the beginning of

this Section 3, during which the agreements and covenants of Employee made in

this Section 3 shall be effective, shall be computed by excluding from such

computation any time during which Employee is in violation of any provision of

this Section 3.

 

4.             ­Place of Performance.

 

(a)           Employee’s place of employment is the

Company’s headquarters in Dallas, Texas. 

Employee understands that he may be requested by the Board to relocate

from his present residence to another geographic location in order to more

efficiently carry out his duties and responsibilities under this Agreement or

as part of a promotion or other increase in duties and responsibilities.  In the event that Employee is requested to

relocate from Dallas and agrees to do so, the Company will pay all reasonable

relocation costs to move Employee, his immediate family and their personal

property and effects.  Such costs may include,

by way of example, but are not limited to, pre-move visits to search for a new

residence, investigate schools or for other purposes; temporary lodging and

living costs prior to moving into a new permanent residence; duplicate home

carrying costs; all closing costs on the sale of Employee’s present residence

and on the purchase of a comparable residence in the new location; and added

income taxes that Employee may incur, as a result of any payment hereunder, to

the extent any relocation costs are not deductible for tax purposes.  The general intent of the foregoing is that

Employee shall not personally bear any out-of-pocket cost as a result of the

relocation, with an understanding that

 

4

 

Employee will use his

best efforts to incur only those costs which are reasonable and necessary to

effect a smooth, efficient and orderly relocation with minimal disruption to

the business affairs of the Company and the personal life of Employee and his

family.

 

(b)           Notwithstanding the above, if

Employee is requested by the Board to relocate and Employee refuses, such

refusal shall not constitute “good cause” for termination of this Agreement

under the terms of Section 5(c).

 

5.             Term; Termination; Rights on

Termination.  The term of this

Agreement shall begin on the date hereof and continue through April 1, 2003

(the “Term”).  Any renewal or extension

of this Agreement must be in writing, signed by both parties hereto.  This Agreement and/or Employee’s employment

may be terminated earlier in any one of the following ways:

 

(a)           Death. 

The death of Employee shall immediately terminate the Agreement with no

severance compensation due to Employee’s estate.

 

(b)           Disability.  If, as a result of incapacity due to physical or mental illness

or injury, Employee shall have been absent from his full-time duties hereunder

for four (4) consecutive months, then thirty (30) days after receiving written

notice (which notice may occur before or after the end of such four (4) month

period, but which shall not be effective earlier than the last day of such four

(4) month period), the Company may terminate Employee’s employment hereunder

provided Employee is unable to resume his full-time duties at the conclusion of

such notice period.  Also, Employee may

terminate his employment hereunder if his health should become impaired to an

extent that makes the continued performance of his duties hereunder hazardous

to his physical or mental health or his life, provided that Employee shall have

furnished the Company with a written statement from a qualified doctor to such

effect and provided, further, that, at the Company’s request made within thirty

(30) days of the date of such written statement, Employee shall submit to an

examination by a doctor selected by the Company who is reasonably acceptable to

Employee or Employee’s doctor and such doctor shall have concurred in the

conclusion of Employee’s doctor.  In the

event this Agreement is terminated as a result of Employee’s disability,

Employee shall receive from the Company, in a lump sum payment due within ten

(10) days of the effective date of termination, the base salary, at the rate

then in effect for one (1) year.

 

(c)           Good Cause.  The Company may terminate the Agreement ten (10) days after written

notice to Employee for good cause, which shall be: (1) Employee’s material and

irreparable breach of this Agreement; (2) Employee’s gross negligence in the

performance or intentional nonperformance (continuing for ten (10) days after

receipt of written notice of same) of any of Employee’s material duties and

responsibilities hereunder, or Employee’s material failure to meet mutually

agreed-upon targets as set forth in Employee’s performance plan; (3) Employee’s

dishonesty, fraud, or misconduct with respect to the business or affairs of the

Company which materially and adversely affects the operations or reputation of

the Company; (4) Employee’s conviction of a felony crime; or (5) chronic

alcohol abuse or illegal drug abuse by Employee.  In the

 

5

 

event of a

termination for good cause, as enumerated above, Employee shall have no right

to any severance compensation.

 

(d)           Without Cause.  At any time after the commencement of employment, the Company

may, without cause, terminate this Agreement and Employee’s employment,

effective thirty (30) days after written notice is provided to the

Employee.  Should Employee be terminated

by the Company without cause, Employee shall receive from the Company, on or

before the effective date of termination, a standard Company executive

separation agreement providing for a gross lump-sum severance payment

(“Severance Pay”) equivalent to the base salary at the rate then in effect for

six (6) months or the remaining Term, whichever is longer.  Further, any termination without cause by

the Company shall operate to shorten the period set forth in Section 3(a) and

during which the terms of Section 3 apply to six (6) months or the remaining Term,

whichever is longer, from the date of termination of employment.  In the event Employee is terminated without

cause within six months following the expiration of the Term and this Agreement

has neither been renewed nor replaced with another employment agreement,

Employee shall receive from the Company, on or before the effective date of

termination, a standard Company executive separation agreement providing for a

gross lump-sum severance payment equivalent to the base salary at the rate then

in effect for six (6) months.

 

 (e)          Termination

by Employee for Good Reason. 

Employee may terminate his employment hereunder for “Good Reason.”  As used herein, “Good Reason” shall mean the

continuance of any of the following after ten (10) days’ prior written notice

by Employee to the Company, specifying the basis for such Employee’s having

Good Reason to terminate this Agreement:

 

(i)            the assignment to Employee of any

duties materially and adversely inconsistent with Employee’s position as

specified in Section 1 hereof.

 

(ii)           any material breach of this Agreement

by the Company that is not cured within the ten (10) day time period set forth

in Section 5(f) above, including the failure to pay Employee on a timely basis

the amounts to which he is entitled under this Agreement.

 

In the event of any

termination by the Employee for Good Reason, as determined by a court of

competent jurisdiction or pursuant to the provisions of Section 16 below, the

Company shall pay all amounts and damages (which damages shall not include

payment of salary for the then unexpired Term in light of the Severance Pay set

forth below), to which Employee may be entitled as a result of such breach,

including interest thereon and all reasonable legal fees and expenses and other

costs incurred by Employee to enforce his rights hereunder.  In addition, Employee shall be entitled to

receive Severance Pay from the Company, in a lump-sum payment due on the

effective date of termination, equal to the base salary then in effect for one

(1) year.  Further, none of the

provisions of Section 3 shall apply in the event this Agreement is terminated

by Employee for Good Reason.

 

6

 

(f)                                    Termination

by Employee Without Good Reason. 

If Employee resigns or otherwise terminates his employment without Good Reason

pursuant to Section 5(f), Employee shall receive no severance compensation.

 

(g)                                 Change of

Control.  Refer to Section

12, below.

 

Upon termination of this Agreement for any reason provided in clauses

(a) through (g) above, Employee shall be entitled to receive all compensation

earned and all benefits vested and reimbursements due through the effective

date of termination.  Additional

compensation subsequent to such a termination of this Agreement, if any, will

be due and payable to Employee only to the extent and in the manner expressly

provided above or in Section 16.  Except

as otherwise provided in this Section, all other rights and obligations of the

Company and Employee under this Agreement shall cease as of the effective date

of termination of this Agreement; however, the Company’s obligations under

Section 5(d) and Section 9 herein and Employee’s obligations under Sections 3,

6, 7, 8, 9 and 10 herein shall survive such termination in accordance with

their terms.

 

6.             Return of Company Property.  All records, designs, patents, business

plans, financial statements, manuals, memoranda, lists and other property

delivered to or compiled by Employee by or on behalf of the Company (including

the Company’s subsidiaries) or its representatives, vendors or customers which

pertain to the business of the Company (including the Company’s subsidiaries)

shall be and remain the property of the Company and be subject at all times to

its discretion and control.  Likewise,

all correspondence, reports, records, charts, advertising materials and other

similar data pertaining to the business, activities or future plans of the

Company (including the Company’s subsidiaries) that is collected by Employee

shall be delivered promptly to the Company without request by it upon termination

of Employee’s employment.

 

7.             Inventions.  Employee shall disclose promptly to the

Company any and all significant conceptions and ideas for inventions,

improvements and valuable discoveries, whether patentable or not, which are

conceived or made by Employee, solely or jointly with another, during the

period of employment or within one (1) year thereafter, and which are directly

related to the business or activities of the Company (including the Company’s

subsidiaries) and which Employee conceives as a result of his employment by the

Company.  Employee hereby assigns and

agrees to assign all his interests therein to the Company or its nominee.  Whenever requested to do so by the Company,

Employee shall execute any and all applications, assignments or other

instruments that the Company shall deem necessary to apply for and obtain

letters patent of the United States or any foreign country or to otherwise

protect the Company’s interest therein.

 

8.             Trade Secrets.  Employee agrees that he will not, during or

after the term of this Agreement with the Company, disclose the specific terms

of the Company’s (including the Company’s subsidiaries) relationships or

agreements with its significant vendors or customers or any other significant

and material trade secret of the Company (including the Company’s

subsidiaries), whether in existence or proposed, to any person, firm,

partnership, corporation or

 

7

 

business for any reason

or purpose whatsoever, except as is disclosed in the ordinary course of

business.

 

9.             Indemnification.  In the event Employee is made a party to any

threatened, pending or completed action, suit or proceeding, whether civil,

criminal, administrative or investigative (other than an action by the Company

against Employee), by reason of the fact that he is or was performing services

under this Agreement, then the Company shall indemnify Employee against all

expenses (including attorneys’ fees), judgments, fines and amounts paid in

settlement, as actually and reasonably incurred by Employee in connection

therewith.  In the event that both

Employee and the Company are made a party to the same third-party action,

complaint, suit or proceeding, the Company agrees to engage competent legal

representation, and Employee agrees to use the same representation, provided

that if counsel selected by the Company shall have a conflict of interest that

prevents such counsel from representing Employee, Employee may engage separate

counsel and the Company shall pay all attorneys’ fees of such separate

counsel.  Further, while Employee is

expected at all times to use his best efforts to faithfully discharge his

duties under this Agreement, Employee cannot be held liable to the Company for

errors or omissions made in good faith where Employee has not exhibited gross,

willful and wanton negligence and misconduct or performed criminal and

fraudulent acts which materially damage the business of the Company.

 

10.           No Prior Agreements.  Employee hereby represents and warrants to

the Company that the execution of this Agreement by Employee and his employment

by the Company and the performance of his duties hereunder will not violate or

be a breach of any agreement with a former employer, client or any other person

or entity.  Further, Employee agrees to

indemnify the Company for any claim, including, but not limited to, attorneys’

fees and expenses of investigation, by any such third party that such third

party may now have or may hereafter come to have against the Company based upon

or arising out of any non-competition agreement, invention or secrecy agreement

between Employee and such third party which was in existence as of the date of

this Agreement.

 

11.           Assignment; Binding Effect.  Employee understands that he has been

selected for employment by the Company on the basis of his personal

qualifications, experience and skills. 

Employee agrees, therefore, he cannot assign all or any portion of his

performance under this Agreement. 

Subject to the preceding two (2) sentences and the express provisions of

Section 12 below, this Agreement shall be binding upon, inure to the benefit of

and be enforceable by the parties hereto and their respective heirs, legal

representatives, successors and assigns.

 

8

 

12.           Change in Control.

 

(a)           Unless

he elects to terminate this Agreement pursuant to (c) below, Employee

understands and acknowledges that the Company may be merged or consolidated

with or into another entity and that such entity shall automatically succeed to

the rights and obligations of the Company hereunder.

 

(b)           In the event of a

pending Change in Control wherein the Employee has not received written notice

at least fifteen (15) business days prior to the anticipated closing date of

the transaction giving rise to the Change in Control from the successor to all

or a substantial portion of the Company’s business and/or assets that such

successor is willing as of the closing to assume and agree to perform the

Company’s obligations under this Agreement in the same manner and to the same

extent that the Company is hereby required to perform, such Change in Control

shall be deemed to be a termination of this Agreement by the Company and the

amount of the lump-sum severance payment due to Employee shall be 1.15 times

the sum of Employee’s annual salary plus maximum annual bonus opportunity

immediately prior to the Change in Control and the non-competition provisions

of Section 3 shall not apply whatsoever. 

Payment shall be made either at closing of the transaction if notice is

served at least five (5) days before closing or within ten (10) days of

Employee’s written notice.

 

(c)           In any Change in

Control situation in which Employee has received written notice from the

successor to the Company that such pending successor is willing to assume the

Company’s obligations hereunder or Employee receives notice after (or within

fifteen (15) days prior to) the Change in Control that Employee is being

terminated, Employee may nonetheless, at his sole discretion, elect to

terminate this Agreement by providing written notice to the Company at any time

prior to closing of the transaction and up to six (6) months after the closing

of the transaction giving rise to the Change in Control.  In such case, the amount of the lump-sum

severance payment due to Employee shall be 1.15 times the sum of Employee’s

annual salary and maximum annual bonus opportunity immediately prior to the

Change in Control and the non-competition provisions of Section 3 shall

all apply.  Payment shall be made either

at closing if notice is served at least five (5) days before closing or within

ten (10) days of written notice by Employee.

 

(d)           For purposes of

applying Section 5 under the circumstances described in (b) and (c) above, the

effective date of termination will be the later of the closing date of the

transaction giving rise to the Change in Control or Employee’s notice as

described above, and all compensation, reimbursements and lump-sum payments due

Employee must be paid in full by the Company at such time.  Further, Employee will be given sufficient

time in order to comply with then Securities and Exchange Commission’s

regulations to elect whether to exercise and sell all or any of his vested

options to purchase Common Stock of the Company, including any options with

accelerated vesting under the provisions of the Company’s stock option plan, as

amended (and as modified by the related option agreement/certificate in

accordance with such Plan) or any warrants, such that he may convert such

options or warrants to shares of Common Stock of the Company at or prior to the

closing of the transaction giving rise to the Change in Control, if he so

desires.

 

9

 

(e)           A

“Change in Control” shall be deemed to have occurred if:

 

(i)            any person, other than the Company

or an employee benefit plan of the Company, acquires directly or indirectly the

Beneficial Ownership (as defined in Section 13(d) of the Securities

Exchange Act of 1934, as amended) of any voting security of the Company and

immediately after such acquisition such Person is, directly or indirectly, the

Beneficial Owner of voting securities representing 30% or more of the total

voting power of all of the then-outstanding voting securities of the Company;

 

(ii)           the individuals (A) who, as of the

closing date of the Company’s initial public offering, constitute the Board of

Directors of the Company (the “Original Directors”) or (B) who thereafter are

elected to the Board of Directors of the Company and whose election, or

nomination for election, to the Board of Directors of the Company was approved

by a vote of at least two-thirds (2/3) of the Original Directors then still in

office (such directors becoming “Additional Original Directors” immediately

following their election) or (C) who are elected to the Board of Directors of

the Company and whose election, or nomination for election, to the Board of

Directors of the Company was approved by a vote of at least two-thirds (2/3) of

the Original Directors and Additional Original Directors then still in office

(such directors also becoming “Additional Original Directors” immediately

following their election), cease for any reason to constitute a majority of the

members of the Board of Directors of the Company;

 

(iii)          the consummation of a merger,

consolidation, recapitalization, or reorganization of the Company, a reverse

stock split of outstanding voting securities of the Company, or consummation of

any such transaction if stockholder approval is not sought or obtained, other

than any such transaction which would result in at least 75% of the total

voting power represented by the voting securities of the surviving entity

outstanding immediately after such transaction being Beneficially Owned by

holders of at least 75% of the outstanding voting securities of the Company

immediately prior to the transaction, with the voting power of each such

continuing holder relative to other such continuing holders not substantially

altered in the transaction; or

 

(iv)          the consummation of a plan of complete

liquidation of the Company or an agreement for the sale or disposition by the

Company of all or a substantial portion of the Company’s assets (i.e., 50% or

more of the total assets of the Company).

 

(f)            If any portion of the severance

benefits, Change in Control benefits or any other payment under this Agreement,

or under any other agreement with, or plan of the Company, including but not

limited to stock options, warrants and other long-term incentives (in the

aggregate “Total Payments”) would be subject to the excise tax imposed by

Section 4999 of the Code, as amended (or any similar tax that may

hereafter be imposed) or any interest or penalties with respect to such excise

tax (such excise tax, together with any such interest and penalties, are

hereinafter collectively referred to as the “Excise Tax”), then Employee shall

be entitled to receive from the Company an additional payment (the “Gross-up

Payment”) in an amount such that the net amount of Total Payments and Gross-up

Payment retained by the Employee, after the calculation and deduction of all

Excise Tax on the Total Payments and all federal, state and local

 

10

 

income tax,

employment tax and Excise Tax on the Gross-up Payment, shall be equal to the

Total Payments.

 

For purposes of this Section Employee’s

applicable Federal, state and local taxes shall be computed at the maximum

marginal rates, taking into account the effect of any loss of personal exemptions

resulting from receipt of the Gross-Up Payment.

 

All determinations

required to be made under this Section 12, including whether a Gross-Up

Payment is required under this Section, and the assumptions to be used in

determining the Gross-Up Payment, shall be made by the Company’s current

independent accounting firm, or such other firm as the Company may designate in

writing prior to a Change in Control (the “Accounting Firm”), which shall

provide detailed supporting calculations both to the Company and Employee

within twenty business days of the receipt of notice from Employee that there

will likely be a Change in Control, or such earlier time as is requested by the

Company.  In the event that the

Accounting Firm is serving as accountant or auditor for the party effecting the

Change in Control or is otherwise unavailable, Employee (together with all

other employees with comparable appointment rights in their respective

employment agreements such that all such employees may collectively select a

single accounting firm) may appoint another nationally recognized accounting

firm to make the determinations required hereunder (which accounting firm shall

then be referred to as the Accounting Firm hereunder).  All fees and expenses of the Accounting Firm

with respect to such determinations described above shall be borne solely by

the Company.

 

Employee agrees

(unless requested otherwise by the Company) to use reasonable efforts to

contest in good faith any subsequent determination by the Internal Revenue

Service that Employee owes an amount of Excise Tax greater than the amount

determined pursuant to this Section; provided, that Employee shall be

entitled to reimbursement by the Company (on an after tax basis) of all fees

and expenses reasonably incurred by Employee in contesting such

determination.  In the event the

Internal Revenue Service or any court of competent jurisdiction determines that

Employee owes an amount of Excise Tax that is greater than the amount

previously taken into account and paid under this Agreement (such additional

Excise Tax being the “Additional Excise Tax”), the Company shall promptly pay

to Employee the amount of such shortfall. 

In the case of any payment that the Company is required to make to Employee

pursuant to the preceding sentence (a “Later Payment”), the Company shall also

pay to Employee an additional amount such that after payment by Employee of all

of Employee’s applicable Federal, state and local taxes, including any interest

and penalties assessed by any taxing authority, on the Later Payment, Employee

will retain from the Later Payment an amount equal to the Additional Excise

Tax, which Employee shall use to pay the Additional Excise Tax.

 

13.           Complete Agreement.  This Agreement is not a promise of future

employment.  Employee has no oral

representations, understandings or agreements with the Company or any of its

officers, directors or representatives covering the same subject matter as this

Agreement.  This written Agreement is

the final, complete and exclusive statement and expression of the agreement

between the Company and Employee and of all the terms of this Agreement, and it

 

11

 

cannot be varied,

contradicted or supplemented and may only be amended by a written agreement executed

by each of the parties hereto.

 

14.           Notice.  Whenever any notice is required hereunder,

it shall be given in writing addressed as follows:

 

	

  To the Company:

  	

  SOURCECORP,

  Incorporated

  
	

   

  	

  3232 McKinney Avenue

  
	

   

  	

  Suite 1000

  
	

   

  	

  Dallas, Texas 75204

  
	

   

  	

  Attn:  Chief

  Operating Officer

  
	

   

  	

   

  
	

  with a copy to:

  	

  SOURCECORP,

  Incorporated

  
	

   

  	

  3232 McKinney Avenue

  
	

   

  	

  Suite 1000

  
	

   

  	

  Dallas, Texas 75204

  
	

   

  	

  Attn: 

  General Counsel

  
	

   

  	

   

  
	

  with a copy to:

  	

  Locke Liddell

  & Sapp LLP

  
	

   

  	

  2200 Ross Avenue

  
	

   

  	

  Suite 2200

  
	

   

  	

  Dallas, Texas 75201

  
	

   

  	

  Attn:  Charles C. Reeder, Esq.

  
	

   

  	

   

  
	

  To Employee:

  	

  Kerry D. Walbridge

  
	

   

  	

  5335 Willow Wood Lane

  
	

   

  	

  Dallas, Texas 75252

  

 

Notice shall be deemed

given and effective three (3) days after the deposit in the U.S. mail of a

writing addressed as above and sent first class mail, certified, return receipt

requested, or when actually received. 

Either party may change the address for notice by notifying the other

party of such change in accordance with this Section 14.

 

15.           Severability; Headings.  If any portion of this Agreement is held

invalid or inoperative in any circumstance, (i) such portion shall remain valid

and operative in all other circumstances; (ii) the other portions of this

Agreement shall be deemed valid and operative; and (iii) so far as is

reasonable and possible, effect shall be given to the intent manifested by the

portion held invalid or inoperative. 

The Section headings herein are for reference purposes only and are not

intended in any way to describe, interpret, define or limit the extent or

intent of the Agreement or of any part hereof.

 

16.           Arbitration.  Any unresolved dispute or controversy

arising under or in connection with this Agreement or Employee’s employment

shall be settled exclusively by arbitration, conducted before a panel of three

(3) arbitrators in Dallas, Texas, in accordance with the rules of the American

Arbitration Association then in effect. 

The arbitrators shall not have the authority

12

 

to add to, detract from,

or modify any provision hereof nor to award punitive damages to any injured

party.  The arbitrators shall have the

authority to order back-pay, severance compensation, vesting of options (or

cash compensation in lieu of vesting of options), reimbursement of costs,

including those incurred to enforce this Agreement, and interest thereon in the

event the arbitrators determine that Employee was terminated without disability

or good cause, as defined in Sections 5(b) and 5(c), respectively, or that the

Company has otherwise materially breached this Agreement.  A decision by a majority of the arbitration

panel shall be final and binding. 

Judgment may be entered on the arbitrators’ award in any court having

jurisdiction.  The costs of any

arbitration proceeding shall be borne by the party or parties not prevailing in

such proceeding determined by the arbitrators. 

This paragraph shall survive any termination of this Agreement.

 

17.           Governing Law.  This Agreement shall in all respects be

construed according to the laws of the State of Delaware.

 

[Balance of sheet intentionally left blank]

 

13

 

 

	

   

  	

  EMPLOYEE:

  
	

   

  	

   

  
	

   

  	

   

  
	

   

  	

  /s/ Kerry D. Walbridge

  
	

   

  	

  Kerry D. Walbridge

  
	

   

  	

   

  
	

   

  	

   

  
	

   

  	

  SOURCECORP,

  INCORPORATED

  
	

   

  	

   

  
	

   

  	

   

  
	

   

  	

  By:

  	

  /s/ Joe Rose

  
	

   

  	

  Title:

  	

  Chief Operating Officer

  
	

   

  	

   

  	

  Executive Vice President

  
	

   

  	

   

  
	

   

  	

   

  
	

   

  	

  SOURCECORP Management,

  L.P.

  
	

   

  	

   

  
	

   

  	

   

  
	

   

  	

  By: SRCP Management, Inc.,

  
	

   

  	

   

  	

  General Partner

  
	

   

  	

   

  
	

   

  	

   

  
	

   

  	

   

  	

  By:

  	

  /s/ Joe Rose

  
	

   

  	

   

  	

  Title:

  	

  Chief Operating Officer

  
					

 

14

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