EXHIBIT 4.2
THIS WARRANT AND ANY SECURITIES ACQUIRED UPON EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES
LAWS OF ANY STATE AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND
APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION TO THE
REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH LAWS. THIS WARRANT AND SUCH
SECURITIES MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT IN
COMPLIANCE WITH THE CONDITIONS SPECIFIED IN THIS WARRANT AND IN THE LOAN
AGREEMENT, DATED AS OF OCTOBER 30, 2003, BETWEEN SOURCE INTERLINK COMPANIES,
INC., AND EACH OF ITS SUBSIDIARIES PARTY THERETO AND HILCO CAPITAL LP OR ITS
AFFILIATE, COPIES OF WHICH WILL BE MADE AVAILABLE UPON REQUEST.
SOURCE INTERLINK COMPANIES, INC.
COMMON STOCK PURCHASE WARRANT
No. __ October 30, 2003
Warrant to Purchase 400,000
Shares of Common Stock
SOURCE INTERLINK COMPANIES, INC., a Missouri corporation (the
"Company"), for value received, hereby certifies that Hilco Capital LP, or its
registered assigns (the "Holder"), is entitled to purchase from the Company Four
Hundred Thousand (400,000) duly authorized, validly issued, fully paid and
nonassessable shares of Common Stock, par value $.01 per share, of the Company
(the "Common Stock"), at a purchase price per share equal to $8.04 (the
"Purchase Price"), at any time or from time to time but prior to 5:00 P.M., New
York City time, on the fifth anniversary of the date hereof (the "Expiration
Date"), all subject to the terms, conditions and adjustments set forth below in
this warrant (this "Warrant").
This Warrant (the "Warrant", such term to include any warrant
or warrants issued in substitution therefor) is issued pursuant to the terms of
a certain Loan Agreement, dated as of the date hereof (as amended or otherwise
modified from time to time, the "Loan Agreement"), between the Company and
certain of its subsidiaries, as Borrowers, the Holder and certain other lenders
from time to time named therein. Capitalized terms used herein and not otherwise
defined herein shall have the meanings assigned such terms in the Loan
Agreement.
1. Definitions. As used herein, unless the context
otherwise requires, the following terms shall have the meanings indicated:
"Additional Shares of Common Stock" shall mean all shares
(including treasury shares) of Common Stock issued or sold or, pursuant to
Section 3.3 or 3.4, deemed to be issued by the Company after the date hereof,
whether or not subsequently reacquired or retired by the Company, other than:
(a) (i) shares issued upon the exercise of this Warrant,
or (ii) such number of additional shares as may become issuable upon the
exercise of this Warrant by reason of adjustments required pursuant to the
anti-dilution provisions applicable to this Warrant as in effect on the date
hereof,
(b) (i) shares issued upon the exercise of options
granted or to be granted under the Company's stock option plans as in effect on
the date hereof or under any other employee stock option or purchase plan or
plans adopted or assumed after such date by the Company's Board of Directors and
approved by its stockholders; provided in each such case that the exercise or
purchase price for any such share shall not be less than 95% of the fair market
value (determined in good faith by the Company's Board of Directors) of the
Common Stock on the date of grant, and (ii) such additional number of shares as
may become issuable pursuant to the terms of any such plans by reason of
adjustments required pursuant to anti-dilution provisions applicable to such
securities in order to reflect any subdivision or combination of Common Stock,
by reclassification or otherwise, or any dividend on Common Stock payable in
Common Stock, and
(c) (i) shares issued upon the exercise or conversion of
options or any other securities convertible into or exchangeable for shares of
Common Stock outstanding as of the date hereof, including without limitation
shares issuable upon exercise of those securities on or prior to the date
hereof, (ii) such additional number of shares as may become issuable upon the
exercise of any such securities by reason of adjustments required pursuant to
anti-dilution provisions applicable to such securities as in effect on the date
hereof, but only if and to the extent that such adjustments are required as the
result of the original issuance of the Warrant, and (iii) such additional number
of shares as may become issuable upon the exercise of any such securities by
reason of adjustments required pursuant to anti-dilution provisions applicable
to such securities as in effect on the date hereof, in order to reflect any
subdivision or combination of Common Stock, by reclassification or otherwise, or
any dividend on Common Stock payable in Common Stock.
(d) (i) up to 150,000 shares of Common Stock issuable
upon the exercise or conversion of options which may be issued to Xxxxxx
Xxxxxxxx and (ii) up to 75,000 shares of Common Stock issuable upon the exercise
or conversion of options which may be issued in connection with the transactions
described in the DEYCO Letter of Intent in favor of an entity to be formed to
manage and/or acquire DEYCO as described in the DEYCO Letter of Intent.
"Appraised Fair Value" shall mean, with respect to any
security or other property, the fair value (as of a date which is within 20 days
of the date as of which the determination is to be made) determined in good
faith, by an independent investment banking firm selected jointly
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by the Company and the Holder or, if that selection cannot be made within ten
days, by an independent investment banking firm selected by the American
Arbitration Association in accordance with its rules, and provided further, that
the Company shall pay all of the fees and expenses of any third parties incurred
in connection with determining the Appraised Fair Value. Such independent
banking firm shall determine Appraised Fair Value assuming a sale between a
willing buyer and a willing seller, both of whom have full knowledge of all
relevant facts bearing on such decision, and neither of whom is under any
compulsion to sell or to buy. Such Appraised Fair Value determination, in the
case of any security issued or issuable by the Company, shall not be discounted
by virtue of the illiquid nature of such securities or the fact that such
securities do not constitute a majority of the Common Stock outstanding but
instead shall be deemed to have been sold as part of a transaction in which 100%
of the Common Stock outstanding on a Fully Diluted Basis has been sold to a
single purchaser.
"Business Day" shall mean any day other than a Saturday or a
Sunday or any day on which national banks are authorized or required by law to
close in Illinois. Any reference to "days" (unless Business Days are specified)
shall mean calendar days.
"Commission" shall mean the Securities and Exchange Commission
or any successor agency having jurisdiction to enforce the Securities Act.
"Common Stock" shall have the meaning assigned to it in the
introduction to this Warrant, such term to include any stock into which such
Common Stock shall have been changed or any stock resulting from any
reclassification of such Common Stock, and all other stock of any class or
classes (however designated) of the Company the holders of which have the right,
without limitation as to amount, either to all or to a share of the balance of
current dividends and liquidating dividends after the payment of dividends and
distributions on any shares entitled to preference.
"Company" shall have the meaning assigned to it in the
introduction to this Warrant, such term to include any corporation or other
entity which shall succeed to or assume the obligations of the Company hereunder
in compliance with Section 3.
"Convertible Securities" shall mean any evidences of
indebtedness, shares of stock (other than Common Stock) or other securities
directly or indirectly convertible into or exchangeable for Additional Shares of
Common Stock.
"Current Market Price" shall mean, on any date specified
herein, the average of the daily Market Price during the 10 consecutive trading
days commencing 15 trading days before such date, except that, if on any such
date the shares of Common Stock are not listed or admitted for trading on any
national securities exchange or quoted in the over-the-counter market, the
Current Market Price shall be the Market Price on such date.
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended from time to time, and the rules and regulations thereunder, or any
successor statute.
"Expiration Date" shall have the meaning assigned to it in the
introduction to this Warrant.
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"Fair Value" shall mean, on any date specified herein (i) in
the case of cash, the dollar amount thereof, (ii) in the case of a security, the
Current Market Price, and (iii) in all other cases, the fair value thereof (as
of a date which is within 20 days of the date as of which the determination is
to be made) determined jointly by the Company and the Holder; provided, however,
that if such parties are unable to reach agreement within a reasonable period of
time, the Fair Value shall be equal to Appraised Fair Value.
"Fully Diluted Basis" means all shares of Common Stock
outstanding and any shares of Common Stock issuable upon exercise or conversion
of Options or Convertible Securities (including, without limitation, this
Warrant), whether such right is exercisable or convertible immediately or only
after the passage of time.
"Holder" shall have the meaning assigned to it in the
introduction to this Warrant.
"Loan Agreement" shall have the meaning assigned to in the
introduction to this Warrant.
"Market Price" shall mean, on any date specified herein, the
amount per share of the Common Stock, equal to (i) the last reported sale price
of such Common Stock, regular way, on such date or, in case no such sale takes
place on such date, the average of the closing bid and asked prices thereof
regular way on such date, in either case as officially reported on the principal
national securities exchange on which such Common Stock is then listed or
admitted for trading, (ii) if such Common Stock is not then listed or admitted
for trading on any national securities exchange but is designated as a national
market system security by the NASD, the last reported trading price of the
Common Stock on such date, (iii) if there shall have been no trading on such
date or if the Common Stock is not so designated, the average of the closing bid
and asked prices of the Common Stock on such date as shown by the NASD automated
quotation system, or (iv) if such Common Stock is not then listed or admitted
for trading on any national exchange or quoted in the over-the-counter market,
the Appraised Fair Value of such Common Stock.
"NASD" shall mean the National Association of Securities
Dealers, Inc.
"Obligations" shall have the meaning set forth in the Loan
Agreement, in so far as such obligations are for the payment of money.
"Options" shall mean any rights, options or warrants to
subscribe for, purchase or otherwise acquire either Additional Shares of Common
Stock or Convertible Securities.
"Other Securities" shall mean any stock (other than Common
Stock) and other securities of the Company or any other Person (corporate or
otherwise) which the Holder of this Warrant at any time shall be entitled to
receive, or shall have received, upon the exercise of this Warrant, in lieu of
or in addition to Common Stock, or which at any time shall be issuable or shall
have been issued in exchange for or in replacement of Common Stock or other
Securities pursuant to Section 4 or otherwise.
"Person" shall mean any individual, firm, partnership,
corporation, trust, joint venture, association, joint stock company, limited
liability company, unincorporated organization
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or any other entity or organization, including a government or agency or
political subdivision thereof, and shall include any successor (by merger or
otherwise) of such entity.
"Proposed Offering" shall mean an underwritten public offering
of Common Stock by the Company occurring on or prior to February 28, 2004.
"Purchase Price" shall have the meaning assigned to it in the
introduction to this Warrant.
"Registration Rights Agreement" shall mean the Warrantholders
Rights Agreement dated as of the date hereof, as amended or otherwise modified
from time to time.
"Restricted Securities" shall mean (i) any Warrants bearing
the applicable legend set forth in Section 10.1, (ii) any shares of Common Stock
(or Other Securities) issued or issuable upon the exercise of this Warrant which
are (or, upon issuance, will be) evidenced by a certificate or certificates
bearing the applicable legend set forth in such Section, and (iii) any shares of
Common Stock (or Other Securities) issued subsequent to the exercise of any of
this Warrant as a dividend or other distribution with respect to, or resulting
from a subdivision of the outstanding shares of Common Stock (or Other
Securities) into a greater number of shares by reclassification, stock splits or
otherwise, or in exchange for or in replacement of the Common Stock (or Other
Securities) issued upon such exercise, which are evidenced by a certificate or
certificates bearing the applicable legend set forth in such Section.
"Rights" shall have the meaning assigned to it in Section
3.10.
"Securities Act" shall mean the Securities Act of 1933, as
amended from time to time, and the rules and regulations thereunder, or any
successor statute.
"Warrant" shall have the meaning assigned to it in the
introduction to this Warrant.
"Warrant Shares" shall mean any and all shares of Common Stock
issued upon exercise of this Warrant.
2. EXERCISE OF WARRANT.
2.1. Manner of Exercise; Payment of the Purchase Price. (a)
This Warrant may be exercised by the Holder hereof, in whole or in part, at any
time or from time to time prior to 5:00 p.m., New York City time, on the
Expiration Date, by surrendering to the Company at its principal office this
Warrant, with the form of Election to Purchase Shares attached hereto as Exhibit
A (or a reasonable facsimile thereof) duly executed by the Holder and
accompanied by payment of the Purchase Price for the number of shares of Common
Stock specified in such form.
(b) Payment of the Purchase Price may be made as follows
(or by any combination of the following): (i) in United States currency by cash
or delivery of a certified check or bank draft payable to the order of the
Company or by wire transfer to the Company, (ii) by cancellation of all or any
part of the unpaid principal amount of Loans held by the Holder in
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an amount equal to the Purchase Price, (iii) by cancellation of such number of
shares of Common Stock otherwise issuable to the Holder upon such exercise as
shall be specified in such Election to Purchase Shares, such that the excess of
the aggregate Current Market Price of such specified number of shares on the
date of exercise over the portion of the Purchase Price attributable to such
shares shall equal the Purchase Price attributable to the shares of Common Stock
to be issued upon such exercise, in which case such amount shall be deemed to
have been paid to the Company and the number of shares issuable upon such
exercise shall be reduced by such specified number, or (iv) by surrender to the
Company for cancellation certificates representing shares of Common Stock of the
Company owned by the Holder (properly endorsed for transfer in blank) having a
Current Market Price on the date of Warrant exercise equal to the Purchase
Price.
2.2. When Exercise Effective. Each exercise of this Warrant
shall be deemed to have been effected immediately prior to the close of business
on the Business Day on which this Warrant shall have been surrendered to, and
the Purchase Price shall have been received by, the Company as provided in
Section 2.1, and, to the extent permitted by law, at such time the Person or
Persons in whose name or names any certificate or certificates for Common Stock
(or Other Securities) shall be issuable upon such exercise as provided in
Section 2.3 shall be deemed to have become the holder or holders of record
thereof for all purposes.
2.3. Delivery of Stock Certificates, etc.; Charges, Taxes and
Expenses. (a) As soon as practicable after each exercise of this Warrant, in
whole or in part, and in any event within seven (7) Business Days thereafter,
the Company shall cause to be issued in the name of and delivered to the Holder
hereof or, subject to Section 10, as the Holder may direct,
(i) a certificate or certificates for the number of
shares of Common Stock (or Other Securities) to which the Holder shall
be entitled upon such exercise plus, in lieu of issuance of any
fractional share to which the Holder would otherwise be entitled, if
any, a check for the amount of cash equal to the same fraction
multiplied by the Exercise Price per share on the date of Warrant
exercise, and
(ii) in case such exercise is for less than all of the
shares of Common Stock purchasable under this Warrant, a new Warrant or
Warrants of like tenor, for the balance of the shares of Common Stock
purchasable hereunder.
(b) Issuance of certificates for shares of Common Stock
upon the exercise of this Warrant shall be made without charge to the initial
Holder hereof for any issue or transfer tax or other incidental expense, in
respect of the issuance of such certificates, all of which such taxes and
expenses shall be paid by the Company.
2.4. Exercise Disputes. In the case of any dispute with
respect to the number of shares to be issued upon exercise of this Warrant, the
Company shall promptly issue such number of shares of Common Stock that is not
disputed and shall submit the disputed determinations or arithmetic calculations
to the Holder via facsimile within five (5) Business Days of receipt of the
Holder's Election to Purchase Shares. If the Holder and the Company are unable
to agree as to the determination of the number of issuable shares within five
(5) Business Days of such disputed determination or arithmetic calculation being
submitted to the Holder,
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then the Company shall, in accordance with this Section, submit via facsimile
the disputed determination to an independent reputable accounting firm of
national standing, selected by the Company and reasonably acceptable to the
Holder. The Company shall cause such accounting firm to perform the
determinations or calculations and notify the Company and the Holder of the
results within forty-eight (48) hours from the time it receives the disputed
determinations or calculations. Such accounting firm's determination shall be
binding upon all parties absent manifest error. The Company shall, on the next
Business Day, issue certificate(s) representing the appropriate number of shares
of Common Stock in accordance with such accounting firm's determination and this
Section. All fees and expenses of such determinations and calculations shall be
borne by the Company.
2.5. Company to Reaffirm Obligations. The Company shall, at
the time of each exercise of this Warrant, upon the request of the Holder
hereof, acknowledge in writing its continuing obligation to afford to such
Holder all rights to which such Holder shall continue to be entitled after such
exercise in accordance with the terms of this Warrant, provided that if the
Holder of this Warrant shall fail to make any such request, such failure shall
not affect the continuing obligation of the Company to afford such rights to the
Holder.
2.6. Tax Basis. The Company and the Holder shall mutually
agree as to the tax basis of this Warrant for purposes of the Internal Revenue
Code of 1986, as amended, and the treatment of this Warrant under such Code by
each of the Company and the Holder shall be consistent with such agreement.
3. ADJUSTMENT OF COMMON STOCK ISSUABLE UPON EXERCISE.
3.1. Adjustment of Number of Shares. Upon each adjustment of
the Purchase Price as a result of the calculations made in this Section 3, this
Warrant shall thereafter evidence the right to receive, at the adjusted Purchase
Price, that number of shares of Common Stock (calculated to the nearest
one-hundredth) obtained by dividing (i) the product of the aggregate number of
shares covered by this Warrant immediately prior to such adjustment and the
Purchase Price in effect immediately prior to such adjustment of the Purchase
Price by (ii) the Purchase Price in effect immediately after such adjustment of
the Purchase Price.
3.2. Adjustment of Number of Shares.
3.2.1. Issuance of Additional Shares of Common Stock. In case
the Company at any time or from time to time after the date hereof shall issue
or sell Additional Shares of Common Stock (including Additional Shares of Common
Stock deemed to be issued pursuant to Section 3.3 or 3.4 but excluding
Additional Shares of Common Stock purchasable upon exercise of Rights referred
to in Section 3.10) without consideration or for a consideration per share less
than the Current Market Price in effect immediately prior to such issue or sale,
then, and in each such case, subject to Section 3.8, the Purchase Price shall be
reduced, concurrently with such issue or sale, to a price (calculated to the
nearest .001 of a cent) determined by multiplying such Purchase Price by a
fraction
(a) the numerator of which shall be the number of shares
of Common Stock outstanding immediately after such issue or sale,
provided that, for the purposes of this
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Section 3.2.1, (i) immediately after any Additional Shares of Common
Stock are deemed to have been issued pursuant to Section 3.3 or 3.4,
such Additional Shares shall be deemed to be outstanding, and (ii)
treasury shares shall not be deemed to be outstanding, and
(b) the denominator of which shall be the sum of (x) the
number of shares of Common Stock outstanding immediately prior to such
issue or sale and (y) the number of shares of Common Stock which the
aggregate consideration received by the Company for the total number of
such Additional Shares of Common Stock so issued or sold would purchase
at such Current Market Price.
Notwithstanding anything to the contrary contained herein, no adjustment to
Purchase Price shall be required for any sale of Additional Shares of Common
Stock pursuant to the Proposed Offering if the Purchase Price adjustment under
this section as a result of such sales pursuant to the Proposed Offering would
be less than an amount equal to ten percent of Market Price as computed on the
date of the initial sale of Common Stock pursuant to the Proposed Offering.
3.2.2. Extraordinary Dividends and Distributions. In case the
Company at any time or from time to time after the date hereof shall declare,
order, pay or make a dividend or other distribution (including, without
limitation, any distribution of other or additional stock or other securities or
property or Options by way of dividend or spin-off, reclassification,
recapitalization or similar corporate rearrangement) on the Common Stock other
than (a) a dividend payable in Additional Shares of Common Stock or (b) a
regularly scheduled cash dividend (at a rate not in excess of the rate of the
last regularly scheduled cash dividend theretofore paid) payable out of
consolidated earnings or earned surplus, determined in accordance with generally
accepted accounting principles, or (c) a dividend of Rights referred to in
Section 3.10 hereof, then, in each such case, subject to Section 3.8, the
Purchase Price in effect immediately prior to the close of business on the
record date fixed for the determination of holders of any class of securities
entitled to receive such dividend or distribution shall be reduced, effective as
of the close of business on such record date, to a price determined by
multiplying such Purchase Price by a fraction
(x) the numerator of which shall be the Current Market
Price in effect on such record date or, if the Common Stock trades on
an ex-dividend basis, on the date prior to the commencement of
ex-dividend trading, less the Fair Value of such dividend or
distribution applicable to one share of Common Stock, and
(y) the denominator of which shall be such Current Market
Price,
provided that, in the event that the amount of such dividend as so determined is
equal to or greater than 10% of such Current Market Price or in the event that
such fraction is less than 9/10ths, in lieu of the foregoing adjustment,
adequate provision shall be made so that the Holder shall receive, upon Warrant
exercise, a pro rata share of such dividend based upon the maximum number of
shares of Common Stock at the time issuable to the Holder (determined without
regard to whether the Warrant is exercisable at such time.)
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3.3. Treatment of Options and Convertible Securities. In case
the Company at any time or from time to time after the date hereof shall issue,
sell, grant or assume, or shall fix a record date for the determination of
holders of any class of securities of the Company entitled to receive, any
Options or Convertible Securities (whether or not the rights thereunder are
immediately exercisable, but exclusive of options or convertible securities
excluded from the definition of Additional Shares of Common Stock), then, and in
each such case, the maximum number of Additional Shares of Common Stock (as set
forth in the instrument relating thereto, without regard to any provisions
contained therein for a subsequent adjustment of such number) issuable upon the
exercise of such Options or, in the case of Convertible Securities and Options
therefor, the conversion or exchange of such Convertible Securities, shall be
deemed to be Additional Shares of Common Stock issued as of the time of such
issue, sale, grant or assumption or, in case such a record date shall have been
fixed, as of the close of business on such record date (or, if the Common Stock
trades on an ex-dividend basis, on the date prior to the commencement of
ex-dividend trading), provided that such Additional Shares of Common Stock shall
not be deemed to have been issued unless (i) the consideration per share
(determined pursuant to Section 3.5) of such shares would be less than the
Current Market Price in effect on the date of and immediately prior to such
issue, sale, grant or assumption or immediately prior to the close of business
on such record date (or, if the Common Stock trades on an ex-dividend basis, on
the date prior to the commencement of ex-dividend trading), as the case may be,
and (ii) such Additional Shares of Common Stock are not purchasable pursuant to
Rights referred to in Section 3.10, and provided, further, that in any such case
in which Additional Shares of Common Stock are deemed to be issued
(a) whether or not the Additional Shares of Common Stock
underlying such Options or Convertible Securities are deemed to be
issued, no further adjustment of the Purchase Price shall be made upon
the subsequent issue or sale of Convertible Securities or shares of
Common Stock upon the exercise of such Options or the conversion or
exchange of such Convertible Securities, except in the case of any such
Options or Convertible Securities which contain provisions requiring an
adjustment, subsequent to the date of the issue or sale thereof, of the
number of Additional Shares of Common Stock issuable upon the exercise
of such Options or the conversion or exchange of such Convertible
Securities by reason of (x) a change of control of the Company, (y) the
acquisition by any Person or group of Persons of any specified number
or percentage of the voting securities of the Company or (z) any
similar event or occurrence, each such case to be deemed hereunder to
involve a separate issuance of Additional Shares of Common Stock,
Options or Convertible Securities, as the case may be;
(b) if such Options or Convertible Securities by their
terms provide, with the passage of time or otherwise, for any increase
in the consideration payable to the Company, or decrease in the number
of Additional Shares of Common Stock issuable, upon the exercise,
conversion or exchange thereof (by change of rate or otherwise), the
Purchase Price computed upon the original issue, sale, grant or
assumption thereof (or upon the occurrence of the record date, or date
prior to the commencement of ex-dividend trading, as the case may be,
with respect thereto), and any subsequent adjustments based thereon,
shall, upon any such increase or decrease becoming effective, be
recomputed to reflect such increase or decrease insofar as it affects
such Options, or
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the rights of conversion or exchange under such Convertible Securities,
which are outstanding at such time;
(c) upon the expiration (or purchase by the Company and
cancellation or retirement) of any such Options which shall not have
been exercised or the expiration of any rights of conversion or
exchange under any such Convertible Securities which (or purchase by
the Company and cancellation or retirement of any such Convertible
Securities the rights of conversion or exchange under which) shall not
have been exercised, the Purchase Price computed upon the original
issue, sale, grant or assumption thereof (or upon the occurrence of the
record date, or date prior to the commencement of ex-dividend trading,
as the case may be, with respect thereto), and any subsequent
adjustments based thereon, shall, upon such expiration (or such
cancellation or retirement, as the case may be), be recomputed as if:
(i) in the case of Options for Common Stock or
Convertible Securities, the only Additional Shares of Common
Stock issued or sold were the Additional Shares of Common
Stock, if any, actually issued or sold upon the exercise of
such Options or the conversion or exchange of such Convertible
Securities and the consideration received therefor was the
consideration actually received by the Company for the issue,
sale, grant or assumption of all such Options, whether or not
exercised, plus the consideration actually received by the
Company upon such exercise, or for the issue or sale of all
such Convertible Securities which were actually converted or
exchanged, plus the additional consideration, if any, actually
received by the Company upon such conversion or exchange, and
(ii) in the case of Options for Convertible
Securities, only the Convertible Securities, if any, actually
issued or sold upon the exercise of such Options were issued
at the time of the issue or sale, grant or assumption of such
Options, and the consideration received by the Company for the
Additional Shares of Common Stock deemed to have then been
issued was the consideration actually received by the Company
for the issue, sale, grant or assumption of all such Options,
whether or not exercised, plus the consideration deemed to
have been received by the Company (pursuant to Section 3.5)
upon the issue or sale of such Convertible Securities with
respect to which such Options were actually exercised;
(d) no readjustment pursuant to subdivision (b) or (c)
above shall have the effect of increasing the Purchase Price by an
amount in excess of the amount of the adjustment thereof originally
made in respect of the issue, sale, grant or assumption of such Options
or Convertible Securities; and
(e) in the case of any such Options which expire by their
terms not more than 30 days after the date of issue, sale, grant or
assumption thereof, no adjustment of the Purchase Price shall be made
until the expiration or exercise of all such Options, whereupon such
adjustment shall be made in the manner provided in subdivision (c)
above.
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3.4. Treatment of Stock Dividends, Stock Splits, etc. In case
the Company at any time or from time to time after the date hereof shall declare
or pay any dividend on the Common Stock payable in Common Stock, or shall effect
a subdivision of the outstanding shares of Common Stock into a greater number of
shares of Common Stock (by reclassification or otherwise than by payment of a
dividend in Common Stock), then, and in each such case, Additional Shares of
Common Stock shall be deemed to have been issued (a) in the case of any such
dividend, immediately after the close of business on the record date for the
determination of holders of any class of securities entitled to receive such
dividend, or (b) in the case of any such subdivision, at the close of business
on the day immediately prior to the day upon which such corporate action becomes
effective.
3.5. Computation of Consideration. For the purposes of this
Section 3,
(a) the consideration for the issue or sale of any
Additional Shares of Common Stock shall, irrespective of the accounting
treatment of such consideration,
(i) insofar as it consists of cash, be computed
at the net amount of cash received by the Company, without
deducting any expenses paid or incurred by the Company or any
commissions or compensations paid or concessions or discounts
allowed to underwriters, dealers or others performing similar
services in connection with such issue or sale,
(ii) insofar as it consists of property
(including securities) other than cash, be computed at the
Fair Value thereof at the time of such issue or sale, and
(iii) in case Additional Shares of Common Stock
are issued or sold together with other stock or securities or
other assets of the Company for a consideration which covers
both, be the portion of such consideration so received,
computed as provided in clauses (i) and (ii) above, allocable
to such Additional Shares of Common Stock, such allocation to
be determined in the same manner that the Fair Value of
property not consisting of cash is to be determined as
provided in the definition of `Fair Value' herein;
(b) Additional Shares of Common Stock deemed to have been
issued pursuant to Section 3.3, relating to Options and Convertible
Securities, shall be deemed to have been issued for a consideration per
share determined by dividing
(i) the total amount, if any, received and
receivable by the Company as consideration for the issue,
sale, grant or assumption of the Options or Convertible
Securities in question, plus the minimum aggregate amount of
additional consideration (as set forth in the instruments
relating thereto, without regard to any provision contained
therein for a subsequent adjustment of such consideration to
protect against dilution) payable to the Company upon the
exercise in full of such Options or the conversion or exchange
of such Convertible Securities or, in the case of Options for
Convertible Securities, the exercise of such Options for
Convertible Securities and the conversion or exchange of such
11
Convertible Securities, in each case computing such
consideration as provided in the foregoing subdivision (a),
by
(ii) the maximum number of shares of Common Stock
(as set forth in the instruments relating thereto, without
regard to any provision contained therein for a subsequent
adjustment of such number to protect against dilution)
issuable upon the exercise of such Options or the conversion
or exchange of such Convertible Securities; and
(c) Additional Shares of Common Stock deemed to have been
issued pursuant to Section 3.4, relating to stock dividends, stock
splits, etc., shall be deemed to have been issued for no consideration.
3.6. Adjustments for Combinations, etc. In case the
outstanding shares of Common Stock shall be combined or consolidated, by
reclassification or otherwise, into a lesser number of shares of Common Stock,
the Purchase Price in effect immediately prior to such combination or
consolidation shall, concurrently with the effectiveness of such combination or
consolidation, be proportionately increased.
3.7. Dilution in Case of Other Securities. In case any Other
Securities shall be issued or sold or shall become subject to issue or sale upon
the conversion or exchange of any stock (or Other Securities) of the Company (or
any issuer of Other Securities or any other Person referred to in Section 4) or
to subscription, purchase or other acquisition pursuant to any Options issued or
granted by the Company (or any such other issuer or Person) for a consideration
such as to dilute, on a basis consistent with the standards established in the
other provisions of this Section 3, the purchase rights granted by this Warrant,
then, and in each such case, the computations, adjustments and readjustments
provided for in this Section 3 with respect to the Purchase Price and the number
of shares purchasable upon Warrant exercise shall be made as nearly as possible
in the manner so provided and applied to determine the amount of Other
Securities from time to time receivable upon the exercise of the Warrants, so as
to protect the holders of the Warrants against the effect of such dilution.
3.8. De Minimis Adjustments. If the amount of any adjustment
of the Purchase Price required pursuant to this Section 3 would be less than one
tenth (1/10) of one percent (1%) of the Purchase Price in effect at the time
such adjustment is otherwise so required to be made, such amount shall be
carried forward and adjustment with respect thereto made at the time of and
together with any subsequent adjustment which, together with such amount and any
other amount or amounts so carried forward, shall aggregate a change in the
Purchase Price of at least one tenth (1/10) of one percent (1%) of such Purchase
Price. All calculations under this Warrant shall be made to the nearest
one-hundredth of a share.
3.9. Abandoned Dividend or Distribution. If the Company shall
take a record of the holders of its Common Stock for the purpose of entitling
them to receive a dividend or other distribution (which results in an adjustment
to the Purchase Price under the terms of this Warrant) and shall, thereafter,
and before such dividend or distribution is paid or delivered to
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shareholders entitled thereto, legally abandon its plan to pay or deliver such
dividend or distribution, then any adjustment made to the Purchase Price and
number of shares of Common Stock purchasable upon Warrant exercise by reason of
the taking of such record shall be reversed, and any subsequent adjustments,
based thereon, shall be recomputed.
3.10. Shareholder Rights Plan. Notwithstanding the foregoing,
in the event that the Company shall distribute "poison pill" rights pursuant to
a "poison pill" shareholder rights plan (the "Rights"), the Company shall, in
lieu of making any adjustment pursuant to Section 3.2.1 or Section 3.2.2 hereof,
make proper provision so that each Holder who exercises a Warrant after the
record date for such distribution and prior to the expiration or redemption of
the Rights shall be entitled to receive upon such exercise, in addition to the
shares of Common Stock issuable upon such exercise, a number of Rights to be
determined as follows: (i) if such exercise occurs on or prior to the date for
the distribution to the holders of Rights of separate certificates evidencing
such Rights (the "Distribution Date"), the same number of Rights to which a
holder of a number of shares of Common Stock equal to the number of shares of
Common Stock issuable upon such exercise at the time of such exercise would be
entitled in accordance with the terms and provisions of and applicable to the
Rights; and (ii) if such exercise occurs after the Distribution Date, the same
number of Rights to which a holder of the number of shares into which the
Warrant so exercised was exercisable immediately prior to the Distribution Date
would have been entitled on the Distribution Date in accordance with the terms
and provisions of and applicable to the Rights.
4. CONSOLIDATION, MERGER, ETC.
4.1. Adjustments for Consolidation, Merger, Sale of Assets,
Reorganization, etc. In case the Company after the date hereof shall (a)
consolidate with or merge into any other Person and shall not be the continuing
or surviving corporation of such consolidation or merger, or (b) permit any
other Person to consolidate with or merge into the Company and the Company shall
be the continuing or surviving Person but, in connection with such consolidation
or merger, the Common Stock or Other Securities shall be changed into or
exchanged for stock or other securities of any other Person or cash or any other
property, or (c) transfer all or substantially all of its properties or assets
to any other Person, or (d) effect a capital reorganization or reclassification
of the Common Stock or Other Securities, (other than a capital reorganization or
reclassification resulting in the issue or Additional Shares of Common Stock for
which adjustment in the Purchase Price is provided in section 3.2.1 or 3.2.2),
then, and in the case of each such transaction, proper provision shall be made
so that, upon the basis and the terms and in the manner provided in this
Warrant, the Holder of this Warrant, upon the exercise hereof at any time after
the consummation of such transaction, shall be entitled to receive (at the
aggregate Purchase Price in effect at the time of such consummation for all
Common Stock or Other Securities issuable upon such exercise immediately prior
to such consummation), in lieu of the Common Stock or Other Securities issuable
upon such exercise prior to such consummation, the highest amount of securities,
cash or other property to which such Holder would actually have been entitled as
a shareholder upon such consummation if such Holder had exercised this Warrant
immediately prior thereto, subject to adjustments (subsequent to such
consummation) as nearly equivalent as possible to the adjustments provided for
in Sections 3 through 5, provided that if a purchase, tender or exchange offer
shall have been made to and accepted by the holders of more than 50% of the
outstanding shares of Common Stock, and if the Holder so designates in
13
a notice given to the Company on or before the date immediately preceding the
date of the consummation of such transaction, the Holder of this Warrant shall
be entitled to receive upon surrender of this Warrant the highest amount of
securities, cash or other property to which it would actually have been entitled
as a shareholder if the Holder of this Warrant had exercised this Warrant prior
to the expiration of such purchase, tender or exchange offer and accepted such
offer, subject to adjustments (from and after the consummation of such purchase,
tender or exchange offer) as nearly equivalent as possible to the adjustments
provided for in Sections 3 through 5.
4.2. Assumption of Obligations. Notwithstanding anything
contained in this Warrant or in the Loan Agreement to the contrary, the Company
shall not effect any of the transactions described in clauses (a) through (d) of
Section 4.1 unless, prior to the consummation thereof, each Person (other than
the Company) which may be required to deliver any stock, securities, cash or
property upon the exercise of this Warrant as provided herein shall assume, by
written instrument delivered to, and reasonably satisfactory to, the Holder of
this Warrant, (a) the obligations of the Company under this Warrant (and if the
Company shall survive the consummation of such transaction, such assumption
shall be in addition to, and shall not release the Company from, any continuing
obligations of the Company under this Warrant), (b) the obligations of the
Company to the Holder under the Registration Rights Agreement and (c) the
obligation to deliver to the Holder such shares of stock, securities, cash or
property as, in accordance with the foregoing provisions of this Section 4, the
Holder may be entitled to receive. Nothing in this Section 4 shall be deemed to
authorize the Company to enter into any transaction not otherwise permitted by
the Loan Agreement.
5. OTHER DILUTIVE EVENTS. In case any event shall occur
as to which the provisions of Section 3 or Section 4 hereof are not strictly
applicable or if strictly applicable would not fairly protect the purchase
rights represented by this Warrant in accordance with the essential intent and
principles of such Sections, then, in each such case, the Company shall appoint
a firm of independent certified public accountants of recognized national
standing (which shall be reasonably acceptable to the Holder), which shall give
their opinion on the adjustment, if any, on a basis consistent with the
essential intent and principles established in Section 3, necessary to preserve,
without dilution, the purchase rights represented by this Warrant. Upon receipt
of such opinion, the Company shall promptly mail a copy thereof to the Holder
and shall make the adjustments described therein.
6. NO DILUTION OR IMPAIRMENT. The Company shall not, by
amendment of its certificate of incorporation or through any consolidation,
merger, reorganization, transfer of assets, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms of this Warrant, but will at all times in
good faith assist in the carrying out of all such terms and in the taking of all
such action as may be necessary or appropriate in order to protect the rights of
the Holder of this Warrant against dilution or other impairment. Without
limiting the generality of the foregoing, the Company shall (a) not permit the
par value of any shares of stock receivable upon the exercise of this Warrant to
exceed the amount payable therefor upon such exercise, (b) take all such action
as may be necessary or appropriate in order that the Company may validly and
legally issue fully paid and nonassessable shares of stock, free from all liens,
security interests, encumbrances, taxes, preemptive rights and charges on the
exercise of the Warrants from time to
14
time outstanding, (c) not take any action which results in an increase of the
total number of shares of Common Stock (or Other Securities) issuable after the
action upon the exercise of this Warrant if that total number of issuable shares
would exceed the total number of shares of Common Stock (or Other Securities)
then authorized by the Company's certificate of incorporation and available for
the purpose of issue upon such exercise, and (d) shall not issue any capital
stock of any class which is preferred as to dividends or as to the distribution
of assets upon voluntary or involuntary dissolution, liquidation or winding-up,
unless the rights of the holders thereof shall be limited to a fixed sum or
percentage of par value or a sum determined by reference to a formula based on a
published index of interest rates, an interest rate publicly announced by a
financial institution or a similar indicator of interest rates in respect of
participation in dividends and to a fixed sum or percentage of par value in any
such distribution of assets.
7. CERTIFICATE AS TO ADJUSTMENTS. IN EACH case of any
adjustment or readjustment in the shares of Common Stock (or Other Securities)
issuable upon the exercise of this Warrant (e.g., by reason of the issuance of
Additional Shares of Common Stock or Convertible Securities), the Company at its
expense shall promptly compute such adjustment or readjustment in accordance
with the terms of this Warrant and prepare a certificate, signed by the Chairman
of the Board, President or one of the Vice Presidents of the Company, and by the
Chief Financial Officer, the Treasurer or one of the Assistant Treasurers of the
Company, setting forth such adjustment or readjustment and showing in reasonable
detail the method of calculation thereof and the facts upon which such
adjustment or readjustment is based, including a statement of (a) the
consideration received or to be received by the Company for any Additional
Shares of Common Stock issued or sold or deemed to have been issued, (b) the
number of shares of Common Stock outstanding or deemed to be outstanding on a
Fully Diluted Basis and (c) the Purchase Price in effect immediately prior to
such issue or sale and as adjusted and readjusted (if required by Section 3) on
account thereof. The Company shall forthwith mail a copy of each such
certificate to each holder of a Warrant and shall, upon the written request at
any time of any holder of a Warrant, furnish to such holder a like certificate.
The Company shall also keep copies of all such certificates at its principal
office and shall cause the same to be available for inspection at such office
during normal business hours by any holder of a Warrant or any prospective
purchaser of a Warrant designated by the holder thereof. The Company shall upon
the request in writing of the Holder (at the Company's expense), retain
independent public accountants of recognized national standing selected by the
Board of Directors of the Company to make any computation required in connection
with adjustments under this Warrant.
8. NOTICES OF CORPORATE ACTION. In the event of:
(a) any taking by the Company of a record of the holders
of any class of securities for the purpose of determining the holders thereof
who are entitled to receive any dividend or other distribution, or any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right, or
(b) any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the Company, any
consolidation or merger involving the Company and any other Person, any
transaction or series of transactions in which more than 50%
15
of the voting securities of the Company are transferred to another Person, or
any transfer, sale or other disposition of all or substantially all the assets
of the Company to any other Person, or
(c) any voluntary or involuntary dissolution, liquidation
or winding-up of the Company,
the Company shall mail to the Holder a notice specifying (i) the date or
expected date on which any such record is to be taken for the purpose of such
dividend, distribution or right, and the amount and character of such dividend,
distribution or right, and (ii) the date or expected date on which any such
reorganization, reclassification, recapitalization, consolidation, merger,
transfer, sale, disposition, dissolution, liquidation or winding-up is to take
place and the time, if any such time is to be fixed, as of which the holders of
record of Common Stock (or Other Securities) shall be entitled to exchange their
shares of Common Stock (or Other Securities) for the securities or other
property deliverable upon such reorganization, reclassification,
recapitalization, consolidation, merger, transfer, dissolution, liquidation or
winding-up. Such notice shall be mailed at least 45 days prior to the date
therein specified.
9. REGISTRATION OF COMMON STOCK. If any shares of Common
Stock required to be reserved for purposes of exercise of this Warrant require
registration with or approval of any governmental authority under any federal or
state law (other than the Securities Act) before such shares may be issued upon
exercise, the Company shall, at its expense and as expeditiously as possible,
use its best efforts to cause such shares to be duly registered or approved, as
the case may be. The Holder's rights regarding registration of the Warrant
Shares under the Securities Act shall be governed by the Registration Rights
Agreement.
10. RESTRICTIONS ON TRANSFER.
10.1. Restrictive Legends. Except as otherwise permitted by
this Section 10, this Warrant (including any Warrant issued upon the transfer of
this Warrant) shall be stamped or otherwise imprinted with a legend in
substantially the following form:
THIS WARRANT AND ANY SECURITIES ACQUIRED UPON EXERCISE OF THIS WARRANT
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR THE SECURITIES LAW OF ANY STATE AND MAY NOT BE SOLD, TRANSFERRED OR
OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR
PURSUANT TO AN APPLICABLE EXEMPTION TO THE REGISTRATION REQUIREMENTS OF
SUCH ACT AND SUCH LAWS. THIS WARRANT AND SUCH SECURITIES MAY NOT BE
SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT IN COMPLIANCE WITH
THE CONDITIONS SPECIFIED IN THIS WARRANT.
Except as otherwise permitted by this Section 10, each certificate for Common
Stock (or Other Securities) issued upon the exercise of this Warrant, and each
certificate issued upon the transfer of any such Common Stock (or Other
Securities), shall be stamped or otherwise imprinted with a legend in
substantially the following form:
16
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAW OF
ANY STATE, AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT
AND APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE
EXEMPTION TO THE REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH LAWS.
SUCH SECURITIES MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF
EXCEPT IN COMPLIANCE WITH THE CONDITIONS SPECIFIED IN CERTAIN COMMON
STOCK PURCHASE WARRANT ISSUED BY THE COMPANY PURSUANT TO THE LOAN
AGREEMENT, DATED AS OF OCTOBER 30, 2003, BETWEEN THE COMPANY AND
CERTAIN OF THE COMPANY'S SUBSIDIARIES, THE HOLDER AND CERTAIN OTHER
LENDERS FROM TIME TO TIME PARTY THERETO. THE SECURITIES REPRESENTED BY
THIS CERTIFICATE ARE ALSO SUBJECT TO AND HAVE THE BENEFIT OF A
WARRANTHOLDERS RIGHTS AGREEMENT DATED AS OF OCTOBER 30, 2003 AMONG
SOURCE INTERLINK COMPANIES, INC. AND THE HOLDER. COMPLETE AND CORRECT
COPIES OF SUCH WARRANT AND WARRANTHOLDERS RIGHTS AGREEMENT ARE
AVAILABLE FOR INSPECTION AT THE PRINCIPAL OFFICE AND WILL BE FURNISHED
TO THE HOLDER OF SUCH SECURITIES UPON WRITTEN REQUEST AND WITHOUT
CHARGE.
10.2. Transfer to Comply With the Securities Act.
Restricted Securities may not be sold, assigned, pledged, hypothecated,
encumbered or in any manner transferred or disposed of (a "Transfer"), in whole
or in part, except in compliance with the provisions of the Securities Act and
state securities or Blue Sky laws and the terms and conditions hereof.
10.3. Termination of Restrictions. The restrictions imposed
by this Section 10 on the transferability of Restricted Securities shall cease
and terminate as to any particular Restricted Securities (a) when a registration
statement with respect to the sale of such securities shall have been declared
effective under the Securities Act and such securities shall have been disposed
of in accordance with such registration statement, (b) when such securities are
sold pursuant to Rule 144 (or any similar provision then in force) under the
Securities Act, or (c) when, in the opinion of both counsel for the Holder and
counsel for the Company, such restrictions are no longer required or necessary
in order to protect the Company against a violation of the Securities Act upon
any sale or other disposition of such securities without registration
thereunder. Whenever such restrictions shall cease and terminate as to any
Restricted Securities, the Holder shall be entitled to receive from the Company,
without expense, new securities of like tenor not bearing the applicable legends
required by Section 9.1.
10.4. Exempt Transfers. The restrictions on the transfer of
this Warrant or the Warrant Shares set forth in this Section 10 shall not apply
to transfers to or from an affiliate of the Holder.
11. REPRESENTATIONS OF COMPANY.
17
11.1. Organization and Qualification. The Company is a
corporation duly organized and validly existing in good standing under the laws
of the jurisdiction in which it is incorporated, and has the requisite corporate
power to own its properties and to carry on its business as now being conducted.
The Company is duly qualified as a foreign corporation to do business and is in
good standing in every jurisdiction in which the nature of the business
conducted by it makes such qualification necessary, except where the failure to
so qualify is not reasonably likely to result in a Material Adverse Change.
11.2. Authorization; Enforcement; Compliance with Other
Instruments. (a) The Company has the requisite corporate power and authority to
enter into and perform its obligations under this Warrant and the Registration
Rights Agreement and to issue the Warrant Shares in accordance with this
Warrant, (b) the execution and delivery of this Warrant and the Registration
Rights Agreement by the Company and the consummation by it of the transactions
contemplated hereby and thereby, including, without limitation, the issuance of
this Warrant and the reservation for issuance and the issuance of the Warrant
Shares, upon exercise of this Warrant, have been duly authorized by the
Company's Board of Directors and no further consent or authorization is required
by the Company, its Board of Directors or its stockholders, (c) the Registration
Rights Agreement and this Warrant have been duly executed and delivered by the
Company, and (d) the Registration Rights Agreement and this Warrant constitute
the valid and binding obligations of the Company enforceable against the Company
in accordance with their terms, except as such enforceability may be limited by
general principles of equity or applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally, the enforcement of creditors' rights and remedies.
11.3. Capitalization. As of October 27, 2003, the
authorized capital stock of the Company consists of 40,000,000 shares of Common
Stock, par value $0.01 per share, of which as of such date, 18,770,391 shares
are issued and outstanding, and 2,000,000 shares of Preferred Stock, of which as
of such date hereof, zero (0) shares are issued and outstanding. The Warrant
represents approximately 2.131% of all issued and outstanding shares as of
October 27, 2003. All of the outstanding shares of capital stock have been
validly issued and are fully paid and nonassessable. No shares of capital stock
are subject to preemptive rights or any other similar rights or any liens or
encumbrances suffered or permitted by the Company. Except as contemplated by
this Warrant and for the securities listed on Schedule 11.3 attached hereto, as
of the date hereof, (i) there are no outstanding options, warrants, scrip,
rights to subscribe to, calls or commitments of any character whatsoever
relating to, or securities or rights convertible into, any shares of capital
stock of the Company or any of its subsidiaries, or contracts, commitments,
understandings or arrangements by which the Company or any of its subsidiaries
is or may become bound to issue additional shares of capital stock of the
Company or any of its subsidiaries or options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into, any shares of capital stock of the
Company or any of its subsidiaries, and (ii) there are no agreements or
arrangements under which the Company or any of its subsidiaries is obligated to
register the sale of any of their securities under the Securities Act (except
the Registration Rights Agreement and the Registration Rights Agreements listed
on Schedule 11.3 attached hereto). There are no securities or instruments
containing anti-dilution or similar provisions that will be triggered by the
issuance of this Warrant or, upon exercise of this Warrant, the issuance of
Warrant Shares, except for anti-
18
dilution provisions which have been validly waived on or prior to the date
hereof in respect of the issuance of this Warrant and, upon exercise of this
Warrant, the issuance of Warrant Shares.
11.4. Issuance of Warrants and Warrant Shares. This Warrant
is duly authorized and, upon issuance in accordance with the terms hereof, will
be validly issued, fully paid and non-assessable, free from all taxes, liens and
charges with respect to the issue thereof, and shall not be subject to
preemptive rights or other similar rights of stockholders of the Company. The
Warrant Shares have been duly authorized and reserved for issuance upon exercise
of this Warrant, and upon such exercise, will be validly issued, fully paid and
non-assessable, free from all taxes, liens and charges with respect to the issue
thereof, and will not be subject to preemptive rights or other similar rights of
stockholders of the Company.
11.5. No Conflicts. The execution, delivery and performance
of the Registration Rights Agreement and this Warrant by the Company, and the
consummation by the Company of the transactions contemplated hereby and thereby
(including, without limitation, the issuance of the Warrant Shares) will not (i)
result in a violation of any organizational documents governing the Company or
(ii) violate or conflict with, or result in a breach of any provision of, or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any material agreement, indenture or
instrument to which the Company or any of its subsidiaries is a party, or result
in a violation of any law, rule, regulation, order, judgment or decree
applicable to the Company or any of its subsidiaries or by which any property or
asset of the Company or any of its subsidiaries is bound or affected. The
Company is not required to obtain any consent, authorization or order of, or
make any filing or registration with, any court or governmental or regulatory or
self-regulatory agency in order for it to execute, deliver or perform any of its
obligations under or contemplated by the Registration Rights Agreement or this
Warrant in accordance with the terms hereof or thereof. All consents,
authorizations, orders, filings and registrations which the Company is required
to obtain pursuant to the preceding sentence have been obtained or effected on
or prior to the date hereof.
11.6. Investment Company Status. The Company is not and,
upon issuance of this Warrant or the Warrant Shares, will not be an "investment
company," a company controlled by an "investment company" or an "affiliated
person" of, or "promoter" or "principal underwriter" for, an "investment
company" as such terms are defined in the Investment Company Act of 1940, as
amended.
12. AVAILABILITY OF INFORMATION. So long as the Company
shall not have filed a registration statement pursuant to Section 12 of the
Exchange Act or a registration statement pursuant to the requirements of the
Securities Act, the Company shall, at any time and from time to time, upon the
request of any holder of Restricted Securities and upon the request of any
Person designated by such holder as a prospective purchaser of any Restricted
Securities, furnish in writing to such holder or such prospective purchaser, as
the case may be, a statement as of a date not earlier than 12 months prior to
the date of such request of the nature of the business of the Company and the
products and services it offers and copies of the Company's most recent balance
sheet and profit and loss and retained earnings statements, together with
similar financial statements for such part of the two preceding fiscal years as
the Company shall have been in operation, all such financial statements to be
audited to the extent
19
audited statements are reasonably available, provided that, in any event the
most recent financial statements so furnished shall include a balance sheet as
of a date less than 16 months prior to the date of such request, statements of
profit and loss and retained earnings for the 12 months preceding the date of
such balance sheet, and, if such balance sheet is not as of a date less than six
months prior to the date of such request, additional statements of profit and
loss and retained earnings for the period from the date of such balance sheet to
a date less than six months prior to the date of such request. If the Company
shall have filed a registration statement pursuant to the requirements of
Section 12 of the Exchange Act or a registration statement pursuant to the
requirements of the Securities Act, the Company shall timely file the reports
required to be filed by it under the Securities Act and the Exchange Act
(including but not limited to the reports under Sections 13 and 15(d) of the
Exchange Act referred to in subparagraph (c) of Rule 144 adopted by the
Commission under the Securities Act)) and will take such further action as any
holder of Restricted Securities may reasonably request, all to the extent
required from time to time to enable such holder to sell Restricted Securities
without registration under the Securities Act within the limitation of the
exemptions provided by (a) Rule 144 and Rule 144A under the Securities Act, as
such rules may be amended from time to time, or (b) any other rule or regulation
now existing or hereafter adopted by the Commission. Upon the request of any
holder of Restricted Securities, the Company will deliver to such holder a
written statement as to whether it has complied with such requirements.
13. RESERVATION OF STOCK, ETC. The Company shall at all
times reserve and keep available, solely for issuance and delivery upon exercise
of this Warrant, the number of shares of Common Stock (or Other Securities) from
time to time issuable upon exercise of this Warrant at the time outstanding. All
shares of Common Stock (or Other Securities) issuable upon exercise of this
Warrant shall be duly authorized and, when issued upon such exercise or
conversion, shall be validly issued and, in the case of shares, fully paid and
nonassessable, with no liability on the part of the holders thereof, and, in the
case of all securities, shall be free from all taxes, liens, security interests,
encumbrances, taxes, preemptive rights and charges. The transfer agent for the
Common Stock, which may be the Company ("Transfer Agent"), and every subsequent
Transfer Agent for any shares of the Company's capital stock issuable upon the
exercise of any of the purchase rights represented by this Warrant, are hereby
irrevocably authorized and directed at all times until the Expiration Date to
reserve such number of authorized and unissued shares as shall be requisite for
such purpose. The Company shall keep copies of this Warrant on file with the
Transfer Agent for the Common Stock and with every subsequent Transfer Agent for
any shares of the Company's capital stock issuable upon the exercise of the
rights of purchase represented by this Warrant. The Company shall supply such
Transfer Agent with duly executed stock certificates for such purpose. All
Warrants surrendered upon the exercise of the rights thereby evidenced shall be
canceled, and such canceled Warrants shall constitute sufficient evidence of the
number of shares of stock which have been issued upon the exercise of such
Warrants. Subsequent to the Expiration Date, no shares of stock need be reserved
by the Company in respect of any unexercised portion of this Warrant.
14. REGISTRATION AND TRANSFER OF WARRANTS.
14.1. Warrant Register; Ownership of Warrants. This Warrant
shall be numbered and shall be registered in a warrant register (the "Warrant
Register") as it is issued and
20
transferred, which Warrant Register shall be maintained by the Company at its
principal office or, at the Company's election and expense, by a warrant agent
or the Company's transfer agent. The Company shall be entitled to treat the
registered Holder of this Warrant on the Warrant Register as the owner in fact
thereof for all purposes and shall not be bound to recognize any equitable or
other claim to or interest in this Warrant on the part of any other Person, and
shall not be affected by any notice to the contrary, except that, if and when
this Warrant is properly assigned in blank, the Company may (but shall not be
obligated to) treat the bearer thereof as the owner of this Warrant for all
purposes. Subject to Section 10, a Warrant, if properly assigned, may be
exercised by a new holder without a new Warrant first having been issued.
14.2. Transfer of Warrants. Subject to compliance with
Section 10, if applicable, this Warrant and all rights hereunder are
transferable in whole or in part, without charge to the Holder hereof, upon
surrender of this Warrant with a properly executed Form of Assignment attached
hereto as Exhibit B at the principal office of the Company. Upon any partial
transfer, the Company shall at its expense issue and deliver to the Holder a new
Warrant of like tenor, in the name of the Holder, which shall be exercisable for
such number of shares of Common Stock with respect to which rights under this
Warrant were not so transferred.
14.3. Replacement of Warrants. On receipt by the Company of
evidence reasonably satisfactory to the Company of the loss, theft, destruction
or mutilation of this Warrant and, in the case of any such loss, theft or
destruction of this Warrant, on delivery of an indemnity agreement reasonably
satisfactory in form and amount to the Company or, in the case of any such
mutilation, on surrender of such Warrant to the Company at its principal office
and cancellation thereof, the Company at its expense shall execute and deliver,
in lieu thereof, a new Warrant of like tenor.
14.4. Adjustments To Purchase Price and Number of Shares.
Notwithstanding any adjustment in Purchase Price or the number or kind of shares
of Common Stock purchasable upon exercise of this Warrant, any Warrant
theretofore or thereafter issued may continue to express the same number and
kind of shares of Common Stock as are stated in this Warrant, as initially
issued.
14.5. Fractional Shares. Notwithstanding any adjustment
pursuant to Section 3 in the number of shares of Common Stock covered by this
Warrant or any other provision of this Warrant, the Company shall not be
required to issue fractions of shares upon exercise of this Warrant or to
distribute certificates which evidence fractional shares. In lieu of fractional
shares, the Company shall make payment to the Holder, at the time of exercise of
this Warrant as herein provided, in an amount in cash equal to such fraction
multiplied by the Current Market Price of a share of Common Stock on the date of
Warrant exercise.
15. PUT RIGHTS. At any time and from time to time after
(i) the occurrence of a Event of Default, (ii) the payment in full of the entire
principal balance of the Promissory Note or (iii) four (4) years from the
Closing Date, the Holder may deliver one or more written notices to the Company
(each, a "Put Notice") of its intention to require the Company to purchase for
cash a portion of the Warrant and the Warrant Shares then owned by the Holder
not to exceed an aggregate amount of 200,000 shares of Common Stock (the "Put
Portion"). Each Put Notice shall specify the exact number of shares to be
subject to such purchase request
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provided that the sum of all shares, when taken together with all prior shares
purchased by the Company in connection with any prior Put Notice, do not exceed
the Put Portion. Within thirty (30) days of receipt of such a Put Notice, the
Company shall purchase the portion of the Warrant and the Warrant Shares then
owned by the Holder specified in such Put Notice for a cash purchase price equal
to the "Redemption Price". As used herein, the "Redemption Price" shall be equal
to the greater of (a) the Current Market Price, determined as of the date of
delivery of such notice, of the number of shares of Common Stock represented by
the portion of the Warrant and Warrant Shares which are subject to the Put
Notice minus, without duplication, the unpaid Purchase Price for any previously
unissued Warrant Shares which are required to be purchased pursuant to the Put
Notice and (b) the Appraised Fair Value, determined as of the date of delivery
of such notice, of the portion of the Warrant and Warrant Shares subject to the
Put Notice minus, without duplication, the unpaid Purchase Price for any
previously unissued Warrant Shares which are required to be purchased pursuant
to the Put Notice. The Holder may exercise its rights under this Section at any
time and from time to time on or after the occurrence of any of the events
described in clauses (i), (ii) or (iii) above. If for any reason the Issuer
shall fail to pay its obligations under this Section when due, interest at a per
annum rate equal to four (4.0) percent above the interest rate that would
otherwise be applicable under Section 2.6 of the Loan Agreement, compounded
daily, shall accrue on the unpaid principal amount of such unpaid obligations
until paid in full in cash. Following any such default in payment, the Company
shall promptly issue to the Holder a demand note in the principal amount equal
to any unpaid amounts, bearing interest at a rate per annum equal to four (4.0)
percent above the interest rate that would be otherwise applicable under Section
2.6 of the Loan Agreement, compounded daily, with the Company required to use
any available cash to pay any accrued interest and unpaid principal on such
note. So long as any obligations shall remain outstanding under the Revolver
Loan Agreement, such note shall be subordinated to the payment and performance
of the obligations of Company under the Revolver Loan Agreement in such manner
as to constitute "Subordinated Indebtedness" under the Revolver Loan Agreement.
Such rights shall be in addition to all other rights and remedies available to
the Holder upon a breach by the Company of its obligations under this Section.
16. Call Right. At anytime following January 31, 2008, so
long as the Company has fully repaid all Obligations owing under the Loan
Agreement, the Company shall have the right to purchase from the Holder a
portion of the unexercised Warrant representing the lesser of (x) 200,000 shares
of Common Stock or (y) the remaining balance of the unexercised Warrant (such
lesser amount, the "Maximum Call Amount") by providing written notice to the
Holder (the "Call Notice"). The Company shall be entitled to only one Call
Notice and such Call Notice shall specify the number of shares of Common Stock
subject to such call right up to the Maximum Call Amount. Any exercise by the
Company of its call right shall be irrevocable. The closing of the purchase by
the Company, and the sale by the Holder, of the portion of the unexercised
Warrant specified in the Call Notice, following exercise by the Company of its
call right (the "Call Closing") shall be held at the principal office of Holder
or its legal counsel within 30 days of Holder's receipt of the Company's Call
Notice. At the Call Closing, Holder shall deliver the unexercised portion of the
Warrant to the Company against receipt from the Company of the aggregate Call
Price (as defined below) therefor in cash by wire transfer of immediately
available funds to Holder's designated account. To the extent that the Call
Notice is for less than the entire balance of the unexercised Warrant, the
Holder shall be entitled to receive an amended and restated warrant for the
unpurchased balance of the Warrant remaining after such call which
22
shall be on terms and conditions identical to this Warrant except for the
inclusion of any further call rights. As used herein: "Call Price" shall mean an
amount equal to the greater of (a) the Current Market Price, determined as of
the date of delivery of a Call Notice, of the number of shares of Common Stock
represented by the Call Notice minus, without duplication, the unpaid Purchase
Price for the unexercised portion of the Warrant represented by the Call Notice
and (b) the Appraised Fair Value, determined as of the date of delivery of a
Call Notice, of the number of shares of Common Stock represented by the Call
Notice minus, without duplication, the unpaid Purchase Price for the unexercised
portion of the Warrant represented by the Call Notice. If Holder tenders this
Warrant at the Call Closing and the Company fails to tender payment of the
required aggregate Call Price at the Call Closing, then the Company's call right
shall thereupon terminate and be of no force or effect, notwithstanding its
previous exercise thereof, and the Company shall indemnify Holder against all
costs, expenses (including without limitation reasonable attorneys' fees),
losses and damages paid, suffered or incurred by Holder as a result of the
Company's exercise of such call right and failure to tender such aggregate Call
Price.
17. REMEDIES; SPECIFIC PERFORMANCE. The Company
stipulates that there would be no adequate remedy at law to the Holder of this
Warrant in the event of any default or threatened default by the Company in the
performance of or compliance with any of the terms of this Warrant and
accordingly, the Company agrees that, in addition to any other remedy to which
the Holder may be entitled at law or in equity, the Holder shall be entitled to
seek to compel specific performance of the obligations of the Company under this
Warrant, without the posting of any bond, in accordance with the terms and
conditions of this Warrant in any court of the United States or any State
thereof having jurisdiction, and if any action should be brought in equity to
enforce any of the provisions of this Warrant, the Company shall not raise the
defense that there is an adequate remedy at law. Except as otherwise provided by
law, a delay or omission by the Holder hereto in exercising any right or remedy
accruing upon any such breach shall not impair the right or remedy or constitute
a waiver of or acquiescence in any such breach. No remedy shall be exclusive of
any other remedy. All available remedies shall be cumulative.
18. NO RIGHTS OR LIABILITIES AS SHAREHOLDER. Nothing
contained in this Warrant shall be construed as conferring upon the Holder
hereof any rights as a shareholder of the Company or as imposing any obligation
on the Holder to purchase any securities or as imposing any liabilities on the
Holder as a shareholder of the Company, whether such obligation or liabilities
are asserted by the Company or by creditors of the Company.
19. NOTICES. All notices and other communications (and
deliveries) provided for or permitted hereunder shall be made in writing by hand
delivery, telecopier, any nationally-recognized courier guaranteeing overnight
delivery or first class registered or certified mail, return receipt requested,
postage prepaid, addressed as follows:
If to the Company: Source Interlink Companies, Inc.
00000 Xxxxxxxxx Xxxxxx Xxxx.
Xxxxx 000
Xxxxxx Xxxxxxx, Xxxxxxx 00000
23
Attention: Chief Executive Officer
Fax: (000) 000-0000
with copies to: Xxxxx Xxxxx
000 Xxxxxxxxx Xxxxx Xxxxxx, 00xx Xxxxx
Xxxx Xxxxxxxxxx, Xxxxxxx 00000
Attention: Xxxxx X. Xxxxxxx
Fax: (000) 000-0000
If to Holder: Hilco Capital LP
One Northbrook Place
0 Xxxxxx Xxxxx, Xxxxx 000
Xxxxxxxxxx, Xxxxxxxx 00000
Attention: Portfolio Administrator
Fax: (000) 000-0000
with copies to: Xxxxxx & Xxxxxxx XXX
Xxxxx 0000, Xxxxx Xxxxx
000 X. Xxxxxx Xxxxx
Xxxxxxx, Xxxxxxxx 00000
Attn: Xxxxxx Xxxxxx
Fax No. (000) 000-0000
All such notices and communications (and deliveries) shall be
deemed to have been duly given: at the time delivered by hand, if personally
delivered; when receipt is acknowledged, if telecopied; on the next Business
Day, if timely delivered to a courier guaranteeing overnight delivery; and five
days after being deposited in the mail, if sent first class or certified mail,
return receipt requested, postage prepaid; provided, that the exercise of any
Warrant shall be effective in the manner provided in Section 2.
20. AMENDMENTS. This Warrant and any term hereof may not
be amended, modified, supplemented or terminated, and waivers or consents to
departures from the provisions hereof may not be given, except by written
instrument duly executed by the party against which enforcement of such
amendment, modification, supplement, termination or consent to departure is
sought.
21. DESCRIPTIVE HEADINGS, ETC. The headings in this
Warrant are for convenience of reference only and shall not limit or otherwise
affect the meaning of terms contained herein. Unless the context of this Warrant
otherwise requires: (1) words of any gender shall be deemed to include each
other gender; (2) words using the singular or plural number shall also include
the plural or singular number, respectively; (3) the words "hereof", "herein"
and "hereunder" and words of similar import when used in this Warrant shall
refer to this Warrant as a whole and not to any particular provision of this
Warrant, and Section and paragraph references are to the Sections and paragraphs
of this Warrant unless otherwise specified; (4) the word "including" and words
of similar import when used in this Warrant shall mean "including, without
limitation," unless otherwise specified; (5) "or" is not exclusive; and (6)
provisions apply to successive events and transactions.
24
22. GOVERNING LAW. This Warrant shall be governed by and
construed in accordance with the laws of the State of New York (without giving
effect to the conflict of laws principles thereof).
23. COSTS AND ATTORNEYS' FEES. In the event that any
action, suit or other proceeding is instituted concerning or arising out of this
Warrant by the Holder and the Holder is the prevailing party in such action,
suit or other proceeding, the Company shall pay all of the Holder's costs and
reasonable attorneys' fees incurred in each and every such action, suit or other
proceeding, including any and all appeals or petitions therefrom.
24. JUDICIAL PROCEEDINGS. Any legal action, suit or
proceeding brought against the Company with respect to this Warrant may be
brought in any federal court of the Southern District of New York or any state
court located in New York County, State of New York, and by execution and
delivery of this Warrant, the Company hereby irrevocably and unconditionally
waives any claim (by way of motion, as a defense or otherwise) of improper
venue, that it is not subject personally to the jurisdiction of such court, that
such courts are an inconvenient forum or that this Warrant or the subject matter
may not be enforced in or by such court. The Company hereby irrevocably and
unconditionally consents to the service of process of any of the aforementioned
courts in any such action, suit or proceeding by the mailing of copies thereof
by registered or certified mail, postage prepaid, at its address set forth or
provided for in Section 18, such service to become effective 10 days after such
mailing. Nothing herein contained shall be deemed to affect the right of any
party to serve process in any manner permitted by law or commence legal
proceedings or otherwise proceed against any other party in any other
jurisdiction to enforce judgments obtained in any action, suit or proceeding
brought pursuant to this Section.
25. REGISTRATION RIGHTS AGREEMENT. The shares of Common
Stock (and Other Securities) issuable upon exercise of this Warrant (or upon
conversion of any shares of Common Stock issued upon such exercise) shall
constitute Registrable Securities (as such term is defined in the Registration
Rights Agreement). Each holder of this Warrant shall be entitled to all of the
benefits afforded to a holder of any such Registrable Securities under the
Registration Rights Agreement and such holder, by its acceptance of this
Warrant, agrees to be bound by and to comply with the terms and conditions of
the Registration Rights Agreement applicable to such holder as a holder of such
Registrable Securities.
[Signature Page Follows]
25
IN WITNESS WHEREOF, the Company has caused this Warrant to be
executed and delivered as of the date first above written.
SOURCE INTERLINK COMPANIES, INC.
By: /s/ Xxxx Xxxxxxx
---------------------------
Name: Xxxx Xxxxxxx
Title: Chief Financial Officer
[Signature page to Common Stock Purchase Warrant]
EXHIBIT A to
Common Stock Purchase Warrant
ELECTION TO PURCHASE SHARES
The undersigned hereby irrevocably elects to exercise the
Warrant to purchase ____ shares of Common Stock, par value $_______ per share
("Common Stock"), of Source Interlink Companies, Inc. and hereby [makes payment
of $________ therefor] [or] [makes payment therefor by application pursuant to
Section 2.1(b)(ii) of the Warrant of $_______ aggregate principal amount of
Notes (as defined in the Warrant)] [or] [makes payment therefor by reduction
pursuant to Section 2.1(b)(iii) of the Warrant of the number of shares of Common
Stock otherwise issuable to the Holder upon Warrant exercise by ___ shares] [or]
[makes payment therefor by delivery of the following Common Stock Certificates
of the Company (properly endorsed for transfer in blank) for cancellation by the
Company pursuant to Section 2.1(b)(iv) of the Warrant, certificates of which are
attached hereto for cancellation [list certificates by number and amount]]. The
undersigned hereby requests that certificates for such shares be issued and
delivered as follows:
ISSUE TO:_______________________________________________________________________
(NAME)
________________________________________________________________________________
(ADDRESS, INCLUDING ZIP CODE)
________________________________________________________________________________
(SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER)
DELIVER TO:_____________________________________________________________________
(NAME)
________________________________________________________________________________
(ADDRESS, INCLUDING ZIP CODE)
If the number of shares of Common Stock purchased (and/or
reduced) hereby is less than the number of shares of Common Stock covered by the
Warrant, the undersigned requests that a new Warrant representing the number of
shares of Common Stock not so purchased (or reduced) be issued and delivered as
follows:
ISSUE TO:_______________________________________________________________________
(NAME OF HOLDER)
________________________________________________________________________________
(ADDRESS, INCLUDING ZIP CODE)
DELIVER TO:_____________________________________________________________________
(NAME OF HOLDER)
________________________________________________________________________________
(ADDRESS, INCLUDING ZIP CODE)
Dated: _____________, 200_ HOLDER
By _______________________
Name:
Title:
EXHIBIT B to
Common Stock Purchase Warrant
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and
transfers unto the Assignee named below all of the rights of the undersigned to
purchase Common Stock, par value $_____ per share ("Common Stock") of Source
Interlink Companies, Inc. represented by the Warrant, with respect to the number
of shares of Common Stock set forth below:
Name of Assignee Address No. of Shares
---------------- ------- -------------
and does hereby irrevocably constitute and appoint Source Interlink Companies,
Inc. to make such transfer on its books maintained for that purpose, with full
power of substitution in the premises.
Dated: _______________, 200_ HILCO CAPITAL LP
By ________________________
Name:
Title:
SCHEDULE 11.3
OUTSTANDING OPTIONS, WARRANTS, SCRIPTS, SUBSCRIPTION
COMMITMENT RIGHTS, AND COMMITMENTS
As of October 27, 2003, Source Interlink Companies, Inc. has outstanding options
issued under its stock based employee compensation plans for the purchase of
5,049,689 shares of its common stock.
As of October 27, 2003, Source Interlink Companies, Inc. has outstanding
warrants for the purchase of 33,644 shares of its common stock.
As of October 27, 2003, Source Interlink Companies, Inc. has outstanding
commitments to issue warrants for the purchase of 225,000 shares of its common
stock.
