EXHIBIT 10.21
WARRANT
THE TRANSFER, SALE OR OTHER DISPOSITION OF THE SECURITIES REPRESENTED BY THIS
CERTIFICATE AND THE SECURITIES WHICH MAY BE ACQUIRED ON THE EXERCISE HEREOF ARE
SUBJECT TO THE CONDITIONS SPECIFIED IN THE SECURITIES PURCHASE AGREEMENT, THE
STOCKHOLDERS AGREEMENT AND THE REGISTRATION RIGHTS AGREEMENT, EACH DATED AS OF
OCTOBER 24,1997 AND AMONG DIGITAL THEATER SYSTEMS, INC., A DELAWARE CORPORATION
(THE "ISSUER"), AND THE PARTIES IDENTIFIED THEREIN, AS SUCH AGREEMENTS MAY BE
MODIFIED AND SUPPLEMENTED AND IN EFFECT FROM TIME TO TIME, AND NO TRANSFER OF
THE SECURITIES REPRESENTED BY THIS CERTIFICATE SHALL BE VALID OR EFFECTIVE UNTIL
SUCH CONDITIONS HAVE BEEN FULFILLED. COPIES OF SUCH AGREEMENTS ARE ON FILE AND
MAY BE INSPECTED AT THE PRINCIPAL EXECUTIVE OFFICE OF THE ISSUER. THE HOLDER OF
THIS CERTIFICATE, BY ACCEPTANCE OF THIS CERTIFICATE, AGREES TO BE BOUND BY THE
PROVISIONS OF SUCH AGREEMENTS.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE AND THE SECURITIES WHICH MAY BE
ACQUIRED ON THE EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS, AND, ACCORDINGLY,
SUCH SECURITIES MAY NOT BE TRANSFERRED, SOLD OR OTHERWISE DISPOSED OF EXCEPT IN
COMPLIANCE WITH THE REGISTRATION OR QUALIFICATION PROVISIONS OF APPLICABLE
FEDERAL AND STATE SECURITIES LAWS OR APPLICABLE EXEMPTIONS THEREFROM.
No. of Shares Warrant No. ________
of Common Stock: _________
WARRANT
to Purchase Common Stock of
DIGITAL THEATER SYSTEMS, INC.
THIS IS TO CERTIFY THAT ________________, or his registered assigns, is
entitled to purchase in whole or in part from time to time from Digital Theater
Systems, Inc., a Delaware corporation (the "Issuer"), at any time on and after
the Effective Date (as hereinafter defined), but not later than 5:00 p.m., New
York time, on December 31, 2007 (the "Expiration Date"), ________ shares of
Common Stock (as hereinafter defined) at a purchase price of $0.01 per share
(the "Exercise Price"), subject to the terms and conditions provided herein and
in the Transaction Documents (as hereinafter defined). The number of shares of
Common Stock for which this Warrant shall be exercisable and the Exercise Price
are subject to adjustment from time to time as provided herein.
This Warrant is issued pursuant to the Securities Purchase Agreement
dated as of October 24, 1997 (as modified and supplemented and in effect from
time to time, the "Purchase
Agreement") among the Issuer and the Purchasers identified therein (the
"Purchasers") and is subject to the provisions of the Purchase Agreement, the
Stockholders Agreement (as hereinafter defined) and the Registration Rights
Agreement (as hereinafter defined).
SECTION 1. Certain Definitions. (a) each capitalized term used herein
without definition shall have the meaning assigned thereto (or incorporated by
reference) in the Purchase Agreement and in the Exhibits thereto.
(b) As used herein, the following terms shall have the following
meanings (all terms defined in this Section 1 or in other provisions of this
Warrant in the singular to have the same meanings when used in the plural and
vice versa):
"Affiliate" means, with respect to any specified Person, any other
Person that, directly or indirectly, controls, is under common control with, or
is owned or controlled by, such specified Person. For purposes of this
definition, (i) "control" means, with respect to any specified Person, the power
to direct the management or policies of the specified Person through the
ownership of voting securities, by contract, voting agreement or otherwise, and
(ii) the terms "controlling", "control with" and "controlled by", etc. shall
have meanings correlative to the foregoing.
"Appraisal Procedure," if applicable, shall mean the following
procedure to determine the fair market value, as to any security, for purposes
of the definition of "Current Market Price" or the fair market value, as to any
other property (in either case, the "valuation amount"). The valuation amount
shall be determined in good faith jointly by the Board and the Majority Holders;
provided, however, that if such parties are not able to agree on the valuation
amount within a reasonable period of time (not to exceed twenty (20) Business
Days) the valuation amount shall be determined by an investment banking firm of
national recognition, which firm shall be reasonably acceptable to the Board and
the Majority Holders. If the Board and the Majority Holders are unable to agree
upon an acceptable investment banking firm within ten (10) Business Days after
the date either party proposed that one be selected, the investment banking firm
will be selected by an arbitrator located in New York City, New York, selected
by the American Arbitration Association (or if such organization ceases to
exist, the arbitrator shall be chosen by a court of competent jurisdiction). The
arbitrator shall select the investment banking firm (within ten (10) days of his
appointment) from a list, jointly prepared by the Board and the Majority
Holders, of not more than six investment banking firms of national standing in
the United States, of which no more than three may be named by the Board and no
more than three may be named by the Majority Holders. The arbitrator may
consider, within the ten-day period allotted, arguments from the parties
regarding which investment banking firm to choose, but the selection by the
arbitrator shall be made in its sole discretion from the list of six. The Board
and the Majority Holders shall submit to the investment banking firm their
respective determinations of the valuation amount, and any supporting arguments
and other data as they may desire, within ten (10) days of the appointment of
the investment banking firm, and the investment banking firm shall as soon as
practicable thereafter make its own determination of the valuation amount. The
final valuation amount for purposes hereof shall be the average of the two
valuation amounts closest together, as determined by the investment banking
firm, from among the valuation amounts submitted by the Issuer and the Majority
Holders and the valuation amount calculated by the investment banking firm. Such
determination of the final valuation amount by such investment banking firm
shall be final and binding upon the parties. The fees and expenses of
-2-
the investment banking firm and arbitrator (if any) used to determine the
valuation amount shall be paid by the Issuer or the applicable Warrant Holders
(on a pro rata basis), whichever party's valuation amount is excluded from the
average referred to above, unless the investment banking firm's valuation amount
is excluded from the average, in which case such fees and expenses will be
divided evenly between the Issuer and such Warrant Holders. If required by any
such investment banking firm or arbitrator, the Issuer shall execute a retainer
and engagement letter containing reasonable terms and conditions, including,
without limitation, customary provisions concerning the rights of
indemnification and contribution by the Issuer in favor of such investment
banking firm or arbitrator and its officers, directors, partners, employees,
agents and Affiliates.
"Board" shall mean the Board of Directors of the Issuer.
"Business Day" shall mean any weekday that is not a nationally-observed
holiday.
"By-laws" shall mean the by-laws of the Issuer, as in effect at the
time in question.
"Certificate of Designations" shall mean the Certificate of
Designations for Series A Convertible Preferred Stock of Digital Theater
Systems, Inc., filed with the Secretary of State of the State of Delaware on or
about October 24, 1997.
"Certificate of Incorporation" shall mean the Certificate of
Incorporation of the Issuer as in effect at the time in question.
"Change of Control" shall mean (i) any consolidation or merger of the
Issuer, other than any merger or consolidation resulting in the holders of the
capital stock of the Issuer entitled to vote for the election of directors
holding a majority of the capital stock of the surviving or resulting entity
entitled to vote for the election of directors, (ii) any person or entity that
is not a stockholder on the date hereof becoming the holder of a majority of the
capital stock of the Issuer entitled to vote for the election of directors, or
(iii) any sale or other disposition by the Issuer of all or substantially all of
its assets to a third party.
"Common Stock" shall mean the Issuer's Common Stock, par value $.0001
per share.
"Convertible Securities" shall have the meaning given to such term in
Section 4(d).
"Current Market Price" shall mean, as to any security, the average of
the closing prices of such security's sales on all domestic securities exchanges
on which such security may at the time be listed, or, if there have been no
sales on any such exchange on any day, the average of the highest bid and lowest
asked prices on all such exchanges at the end of such day, or, if on any day
such security is not so listed, the average of the representative bid and asked
prices quoted in the NASDAQ System as of 4:00 P.M., New York City time, on such
day, or, if on any day such security is not quoted in the NASDAQ System, the
average of the highest bid and lowest asked prices on such day in the domestic
over-the-counter market as reported by the National Quotation Bureau,
Incorporated, or any similar or successor organization (and in each such case
(i) averaged over a period of 21 days consisting of the day immediately
preceding the day as of which "Current Market Price" is being determined and the
20 consecutive Business Days prior to such immediately preceding day and (ii)
excluding any trades that are not bona fide, arm's length
-3-
transactions). If at any time such security is not listed on any domestic
securities exchange or quoted in the NASDAQ System or the domestic
over-the-counter market, the "Current Market Price" of such security shall be
the fair market value thereof as determined in accordance with the Appraisal
Procedure, using an appropriate valuation method, assuming an arms-length sale
to an independent party, but shall never be less than the Series A Conversion
Price then in effect (as defined in the Certificate of Designations). In
determining the fair market value of the Common Stock, a sale of all of the
issued and outstanding Common Stock of the Issuer will be assumed, without
giving regard to the lack of liquidity of such stock due to any restrictions
(contractual or otherwise) applicable thereto or any discount for minority
interests and assuming the conversion or exchange of all securities then
outstanding that are convertible into or exchangeable for Common Stock and are
"in the money" and the exercise of all rights and warrants (including the
Warrants) then outstanding and exercisable to purchase shares of such stock or
securities convertible into or exchangeable for shares of such stock and are "in
the money." Common Stock issued in an underwritten public offering shall be
deemed to be issued for fair market value.
"Effective Date" shall mean January 1, 2000.
"Excluded Stock" shall mean (i) any options issued or issuable pursuant
to the Stock Option Plans and any shares of Common Stock issuable upon the
exercise of any options granted pursuant to the Stock Option Plans; provided
that any Common Stock issuable thereunder shall not exceed 1,660,466 shares in
the aggregate, (ii) stock issued upon the conversion of Convertible Securities
issued on or before the date hereof, (iii) any shares of Common Stock issuable
upon exercise of any Warrants, (iv) any shares of Common Stock or Preferred
Stock issuable upon exercise of the Existing Shareholder Warrants, the H&Q
Warrants, the Imperial Bank Warrants, the Xxxxxxxxx Warrants, or the Universal
Warrants, and (v) Series A Preferred Stock issued pursuant to a Strategic
Investment (as defined in the Stockholders Agreement).
"Exercise Condition" shall have the meaning assigned to it in Section 2
hereof.
"Exercise Notice" shall have the meaning assigned to such term in
Section 2 hereof.
"Exercise Price" shall have the meaning assigned to such term in the
first paragraph of this Warrant.
"Expiration Date" shall have the meaning assigned to such term in the
first paragraph of this Warrant.
"Fundamental Documents" shall mean the documents by which any Person
(other than an individual) establishes its legal existence or which govern its
internal affairs. The Fundamental Documents of the Issuer are the Certificate of
Incorporation and By-laws.
"Holder" shall mean any Person who acquires Warrants or Warrant Stock
pursuant to the provisions of the Purchase Agreement or any Warrant, including
any transferees of Warrants or Warrant Stock.
"include" and "including" shall be construed as if followed by the
phrase, "without being limited to,".
-4-
"Initial Public Offering" shall mean the initial public offering of the
common Stock of the Issuer registered pursuant to the Securities Act.
"Issuer" shall have the meaning assigned to such term in the first
paragraph of this Warrant.
"Majority Holders" shall mean those Holders holding (or having the
right to receive upon exercise of Warrants) Warrant Stock representing a
majority of the total amount of Warrant Stock held by, or issuable to, all
Holders.
"NASDAQ System" shall mean the National Association of Securities
Dealers Automated Quotation System.
"Options" shall have the meaning given to such term in Section 4(d).
"Person" shall be construed in its broadest possible sense and shall
include any individual, corporation, general or limited partnership, joint
venture, association, limited liability company, joint stock company, trust,
business trust, bank, trust company, estate (including any beneficiaries
thereof), unincorporated organization, cooperative, association or governmental
branch, authority, agency or political subdivision thereof.
"Purchase Agreement" shall have the meaning assigned to such term in
the second paragraph of this Warrant.
"Purchasers" shall have the meaning assigned to such term in the second
paragraph of this Warrant.
"Qualified Public Offering" shall mean an Initial Public Offering
underwritten on a firm commitment basis which results in aggregate gross cash
proceeds to the Issuer of not less than $20,000,000 at an offering price per
share of Common Stock equal to or greater than 300% of the Series A Conversion
Price (as defined in the Certificate of Designations) then in effect.
"Qualified Sale Transaction" shall mean any sale in which the holders
of the Series A Preferred Stock receive, in respect of such shares, or the
shares of common stock received upon conversion thereof, cash or marketable
securities in a per share amount equal to at least 300% of the Series A
Conversion Price then in effect.
"Registration Rights Agreement" shall mean the Registration Rights
Agreement dated as of October 24, 1997 between the Issuer and the Purchasers, as
modified and supplemented and in effect from time to time.
"Securities Act" shall mean the Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder.
"Series A Preferred Stock" shall mean the Issuer's Series A Convertible
Preferred Stock, par value $.0001 per share.
-5-
"Stockholders Agreement" shall mean the Stockholders Agreement dated as
of October 24, 1997 among the Issuer, the Purchasers and the other signatories
thereto, as modified and supplemented and in effect from time to time.
"Stock Option Plans" shall mean any stock option plans adopted by the
Issuer and any other grants of stock options made by the Issuer, in each case
granted to employees, directors and independent contractors of the Issuer or its
subsidiaries.
"Transaction Documents" shall mean the Purchase Agreement, the
Stockholders Agreement and the Registration Rights Agreement.
"Warrant" shall mean this Warrant and all other warrants originally
issued by the Issuer pursuant to the Purchase Agreement and all warrants issued
upon transfer, division, or combination of, or in substitution for, this Warrant
or any such other warrant. All Warrants shall be substantially in the form of
Exhibit B attached to the Purchase Agreement except that the Warrants need not
bear the legends appearing on the first page of this Warrant from and after such
time as the restrictions set forth therein no longer apply.
"Warrant Stock" shall mean (a) all shares of Common Stock issued or
issuable from time to time upon exercise of this Warrant, (b) all other
securities or other property issued or issuable upon any such exercise and (c)
any securities distributed with respect to the securities referred to in the
preceding clauses (a) and (b); provided, however, that the term "Warrant Stock"
shall not include shares of Common Stock or other securities following the time
such shares or other securities have been sold in a public offering registered
under the Securities Act or sold under Rule 144 promulgated thereunder. As used
in this Warrant, the phrase "Warrant Stock then held" shall mean Warrant Stock
held at the time of determination by the Holder, and shall include Warrant Stock
issuable upon exercise of any Warrants held at the time of determination by such
Xxxxxx.
SECTION 2. Exercise of Warrant. (a) On and after the Effective Date and
until 5:00 p.m., New York City time, on the Expiration Date, the Holder may
exercise this Warrant, on one or more occasions, on any Business Day, in whole
or in part, by delivering to the Issuer, at its office maintained for such
purpose pursuant to Section 5 hereof, (i) a written notice of the Holder's
election to exercise this Warrant, which notice shall be substantially in the
form of Annex A attached hereto and shall be properly completed (the "Exercise
Notice"), (ii) payment of the Exercise Price (payable as set forth in Section
2(b) below) for the Warrant Stock as to which this Warrant is being exercised,
and (iii) this Warrant. Except to the extent necessary to cause the number of
shares of Common Stock deliverable as provided in Section 2(b) to be a whole
number of shares, this Warrant shall be exercisable in part only for a whole
number of shares.
(b) At the option of the Holder, the Exercise Price shall be
payable (i) in cash or by certified or official bank check payable to the order
of the Issuer or (ii) by exchange of this Warrant in accordance with the further
provisions of this Section 2(b). In exchange for the portion of this Warrant
that is being exercised at such time, the Holder shall receive the number of
shares of Common Stock determined by multiplying (A) the number of shares of
Common Stock for which this Warrant is being exercised at such time by (B) a
fraction, (1) the numerator
-6-
of which shall be the difference between (x) Current Market Price per share of
Common Stock at such time and (y) the Exercise Price per share of Common Stock,
and (2) the denominator of which shall be the Current Market Price per share of
Common Stock at such time. The Issuer shall issue a new Warrant for the portion,
if any, of this Warrant not being exercised as provided in Section 2(f).
(c) Subject to the provisions of Section 2(d), upon receipt of an
Exercise Notice, the aggregate Exercise Price payable and this Warrant, the
Issuer shall, as promptly as practicable and in any event within five (5)
Business Days thereafter, issue to the Holder one or more stock certificates
representing the aggregate number of shares of Common Stock to which the Holder
is entitled and transfer to the Holder of this Warrant appropriate evidence of
ownership of other securities or property (including any cash) to which the
Holder is entitled, in such denominations, and registered or otherwise placed
in, or payable to the order of, such name or names, as may be directed in
writing by the Holder (subject to restrictions on transfer contained in the
Transaction Documents), and shall deliver such stock certificates, evidence of
ownership and any other securities or property (including any cash) to the
Person or Persons entitled to receive the same, together with an amount in cash
in lieu of any fraction of a share (or fractional interest in any other
security), as hereinafter provided. The Issuer shall pay all expenses in
connection with, and any and all documentary, stamp or similar issue or transfer
taxes of the United States or any state thereof payable in respect of, the issue
or delivery of the Warrant Stock upon exercise of this Warrant. However, the
Issuer shall not be required to pay any tax or other charge imposed in
connection with any assignment or transfer involved in the issue of any
certificate or other evidence of ownership of Warrant Stock.
(d) The Holder's election to exercise this Warrant may, in the
sole discretion of the Holder, be conditioned upon, and in such event, the
exercise shall be subject in all respects to a Change of Control, the
consummation of a sale of the Issuer, any public offering of the Issuer's Common
Stock registered under the Securities Act or other similar transaction involving
the Issuer (collectively referred to herein as the "Exercise Conditions"), as
specified in the Exercise Notice, and the Issuer shall provide the Holder with
written notice no less than 20 business days prior to the occurrence of an
Exercise Condition (or such shorter period of time as is practicable under the
circumstances). If any exercise of this Warrant is so conditioned, then, subject
to delivery of the items required by Section 2(b), the Issuer shall deliver the
certificates and other evidence of ownership of other securities or other
property in such manner as the Holder shall direct as required in connection
with the consummation of the transaction upon which the exercise is conditioned.
At any time that the Issuer shall give notice to the Holder that such
transaction has been abandoned or the Issuer has withdrawn from participation in
such transaction, the Issuer shall return the items delivered pursuant to
Section 2(c) and the Holder's election to exercise this Warrant shall be deemed
rescinded.
(e) Notwithstanding anything to the contrary contained herein,
this Warrant may not be exercised by the Holder hereof and shall be canceled,
rescinded and of no force or effect against the Issuer if the Issuer consummates
a Qualified Public Offering or Qualified Sale Transaction before the Effective
Date. Further, to the extent that any shares of the Series A Preferred Stock
issued to the initial Holder hereof are converted to Common Stock before the
Effective Date, there shall be a proportional reduction in the number of shares
of Warrant Stock exercisable hereunder. If upon or after the consummation of a
Qualified Public Offering or
-7-
Qualified Sale Transaction before the Effective Date the Issuer requests that
the original hereof be marked "canceled" and returned to the Issuer, the Holder
hereof agrees to honor such request.
(f) The stock certificate or certificates or other evidence of
ownership of Warrant Stock to be delivered pursuant to Section 2(c) hereof shall
be deemed to have been issued, and the Holder or any other Person so designated
to be named therein shall, to the extent permitted by law and the Purchase
Agreement, be deemed to have become a holder of record of the Warrant Stock
represented thereby, including having the right to vote any voting securities
included therein or to consent or to receive notice as a shareholder, as of the
date on which the last of the Exercise Notice, payment of the Exercise Price and
this Warrant is received by the Issuer as aforesaid (subject, in the case of an
exercise to which Section 2(d) applies, to the transaction upon which such
exercise is conditioned), notwithstanding that the transfer books of the Issuer
shall then be closed or that such certificates or other evidence of ownership
shall not then actually have been delivered to the Holder.
(g) If this Warrant shall have been exercised only in part, the
Issuer shall, at the time of delivery of the certificate or certificates or
other evidence of ownership of Warrant Stock, execute and deliver to the Holder,
without charge, a new Warrant evidencing the rights of the Holder to purchase
the unpurchased Warrant Stock called for by this Warrant, which new Warrant
shall in all other respects be identical to this Warrant, or, at the request of
the Holder, appropriate notation may be made on this Warrant and the same
returned to the Holder.
(h) The Issuer shall not be required to issue any fractional share
of Common Stock (or fractional interest in any other security) upon exercise of
this Warrant. As to any fraction of a share (or fractional interest in any other
security) that the Holder would otherwise be entitled to receive upon such
exercise, the Issuer shall pay a cash adjustment in respect of such fraction in
an amount equal to the same fraction of the Current Market Price per share of
Common Stock (and/or other security) on the date of exercise; provided, however,
that in the event that the Issuer undertakes a reduction in the number of shares
of Common Stock or other securities outstanding, it shall be required to issue
fractional shares or fractional interests in such other securities to the Holder
if the Holder exercises all or any part of this Warrant, unless the Holder shall
have consented in writing to such reduction and provided the Issuer with a
written waiver of its right to receive fractional shares or interests in
accordance with this paragraph. If the Holder shall exercise more than one
Warrant in the same transaction, any payment in respect of fractional shares (or
other fractional interests) shall be based on the final fraction resulting from
aggregating all such exercises.
(i) The Issuer hereby agrees at all times to keep reserved for
issuance and delivery upon exercise of this Warrant such number of its
authorized but unissued shares (or treasury shares) of Common Stock or other
securities of the Issuer from time to time issuable upon exercise of this
Warrant as will be sufficient to permit the exercise in full of this Warrant.
All such shares and other securities shall be duly authorized and, when issued
upon such exercise, shall be validly issued, fully paid and non-assessable, free
and clear of all liens, security interests, charges and other encumbrances or
restrictions on sale (except to the extent of any applicable provisions set
forth in the Purchase Agreement, Stockholders Agreement, Registration Rights
Agreement or the Issuer's Fundamental Documents) and free and clear of all
preemptive or similar rights.
-8-
(j) If the issuance of any shares of Common Stock or other
securities required to be reserved for purposes of the exercise of this Warrant
requires the registration with, or approval of, any governmental authority or
requires listing on any national securities exchange or national market system
before such shares or other securities may be so issued, the Issuer shall at its
expense use its best efforts to cause such shares to be duly registered,
approved or listed, as the case may be, so that such shares or other securities
may be issued in accordance with the terms hereof; provided, however, that this
provision shall not obligate the Issuer to register such shares or other
securities under the Securities Act or qualify them under state securities or
blue sky laws.
SECTION 3. Transfer, Division and Combination. (a) This Warrant, all
rights hereunder and any Warrant Stock issued or issuable upon exercise hereof
are assignable and transferable, at any time in whole or in part to any Person
or Persons, subject in all cases to the provisions of the Transaction Documents
(including the requirement that, where applicable, a joinder to any such
document be executed). Subject to the provisions of the Transaction Documents,
any such transfer shall not require the consent of any security holder of the
Issuer.
(b) Upon a transfer permitted by Section 3(a), this Warrant shall
be transferable upon surrender of this Warrant to the Issuer, together with a
written assignment of this Warrant substantially in the form of Xxxxx X attached
hereto, duly executed by the Holder hereof or such Xxxxxx's agent or attorney.
Upon such surrender, the Issuer shall, without charge, execute and deliver a new
Warrant or Warrants in the name of the assignee or assignees (and, if the
Holder's entire interest is not being assigned, in the name of the Holder), and
in the denominations specified in such instrument of assignment, and this
Warrant shall promptly be canceled.
(c) This Warrant may be exchanged for, or combined with, other
Warrants upon presentation of this Warrant and any other Warrants with which
this Warrant is to be combined to the Issuer, together with a written notice
specifying the denominations in which a new Warrant or Warrants are to be
issued, signed by the Holder. The Issuer shall execute and deliver a new Warrant
or Warrants to the Holder in exchange for the Warrant or Warrants to be divided
or combined in accordance with such notice.
(d) The Issuer shall maintain books for the registration and
transfer of the Warrants, and shall allow each Warrant Holder to inspect such
books at such reasonable times as such holder shall request.
SECTION 4. Adjustments.
(a) Dividends and Distributions. If at any time on or after the
Effective Date the Issuer shall pay any dividend or make any other distribution
to holders of its Common Stock of any cash, evidence of indebtedness or other
property (including any rights or warrants to purchase any securities of the
Issuer) of any nature whatsoever (other than as contemplated by subsections (b),
(c)(i)(A) and (d)(i)(A) of this Section 4), the Issuer shall at the same time
pay or distribute to the Holder (whether or not the Holder exercises this
Warrant) the cash, evidence of indebtedness or other property the Holder would
have been entitled to receive if such Holder had exercised this Warrant
immediately prior to the record date for such dividend or distribution.
-9-
(b) Subdivisions and Combinations. If at any time the Issuer shall
(i) take a record of the holders of its Common Stock for
the purpose of entitling them to receive a dividend or other
distribution of Common Stock;
(ii) subdivide, split or reclassify its outstanding shares
of Common Stock into a larger number of shares of Common Stock; or
(iii) combine its outstanding shares of Common Stock into a
smaller number of shares of Common Stock;
then immediately after the occurrence of any such event (A) the number of shares
of Common Stock issuable upon exercise of this Warrant shall be adjusted so as
to equal the number of shares of Common Stock such holder would have held
immediately after the occurrence of such event (in the case of an event referred
to in clause (i), after giving effect to such dividend or distribution) if such
holder had exercised this Warrant immediately prior to the occurrence of such
event and (B) the Exercise Price shall be adjusted to be equal to (x) the
Exercise Price immediately prior to the occurrence of such event multiplied by
(y) a fraction (1) the numerator of which is the number of shares of Common
Stock issuable upon exercise of this Warrant immediately prior to the adjustment
in clause (A) and (2) the denominator of which is the number of shares of Common
Stock issuable upon exercise of this Warrant immediately after the adjustment in
clause (A).
(c) Issuance of Common Stock. If at any time prior to the full
redemption of the Series A Preferred Stock, the Issuer (i) shall (A) take a
record of the holders of its Common Stock for the purpose of entitling them to
subscribe for or purchase shares of any class or series of Common Stock or (B)
otherwise sell or issue any shares of any class or series of Common Stock (other
than Excluded Stock) and (ii) the consideration per share of Common Stock paid
or to be paid upon such subscription, purchase, sale or issuance is less than
the Current Market Price per share of Common Stock immediately before such
record date or immediately before the date of such sale or issuance, as the case
may be, then the number of shares of Common Stock issuable upon exercise of this
Warrant shall be adjusted to be that number determined by multiplying (x) the
number of shares of Common Stock issuable upon exercise of this Warrant
immediately prior to such record date or sale or issuance date, as the case may
be, by (y) a fraction (not to be less than one) (i) the numerator of which shall
be equal to the product of (A) the number of shares of Common Stock outstanding
(determined on a fully-diluted basis) after giving effect to such subscription,
purchase, sale or issuance (and assuming all such subscription or purchase
offers are exercised) and (B) the Current Market Price per share of Common Stock
determined immediately before such record date or sale or issuance date, as the
case may be, and (ii) the denominator of which shall be equal to the sum of (A)
the product of (1) the number of shares of Common Stock outstanding (determined
on a fully-diluted basis) immediately before such record date or sale or
issuance date, as the case may be, and (2) the Current Market Price per share of
Common Stock determined immediately before such record date or sale or issuance
date, as the case may be, and (B) the aggregate consideration received or to be
received by the Issuer for the total number of shares of Common Stock to be
subscribed for or purchased, sold or issued. Simultaneously with the adjustment
in the preceding sentence, the Exercise Price shall be adjusted to be equal to
(x) the Exercise Price immediately prior to the occurrence of such
-10-
event multiplied by (y) a fraction (1) the numerator of which is the number of
shares of Common Stock issuable upon exercise of this Warrant immediately prior
to the adjustment in the preceding sentence and (2) the denominator of which is
the number of shares of Common Stock issuable upon exercise of this Warrant
immediately after the adjustment in the preceding sentence.
(d) Issuance of Convertible Securities or Options. If at any time
prior to the full redemption of the Series A Preferred Stock (i) the Issuer
shall (A) take a record of the holders of its Common Stock for the purpose of
entitling them to subscribe for or purchase options to purchase or rights to
subscribe for Common Stock, securities directly or indirectly convertible into
or exchangeable for Common Stock ("Convertible Securities") or options or rights
with respect to Convertible Securities (options or rights with respect to Common
Stock or Convertible Securities being referred to as "Options") or (B) otherwise
issue or sell any Options or Convertible Securities (other than Options
exercisable for Excluded Stock) and (ii) the consideration per share paid or to
be paid for the Common Stock deliverable upon exercise of such Options and/or
conversion or exchange of such Convertible Securities (determined by dividing
(x) the total amount received or receivable by the Issuer in consideration of
the subscription, purchase, sale or issuance of such Options or Convertible
Securities plus any amount payable to the Issuer upon such exercise and/or
conversion or exchange, by (y) the total maximum number of shares of Common
Stock necessary to effect the exercise and/or conversion or exchange of all such
Options or Convertible Securities) shall be less than the Current Market Price
per share of Common Stock on such record date or sale or issuance date, as the
case may be, then the number of shares of Common Stock issuable upon exercise of
this Warrant shall be adjusted to be that number determined by multiplying the
number of shares of Common Stock issuable upon exercise of this Warrant
immediately prior to such date by a fraction (not to be less than one) (i) the
numerator of which shall be equal to the product of (A) the total maximum number
of shares of Common Stock outstanding (determined on a fully diluted basis)
after giving effect to the assumed exercise and/or conversion of all such
Options or Convertible Securities and (B) the Current Market Price per share of
Common Stock determined immediately before such record date or sale or issuance
date, as the case may be, and (ii) the denominator of which shall be equal to
the sum of (A) the product of (1) the number of shares of Common Stock
outstanding (determined on a fully-diluted basis) immediately before such record
date or sale or issuance date, as the case may be, and (2) the Current Market
Price per share of the Common Stock determined immediately before such record
date or sale or issuance date, as the case may be, and (B) the aggregate
consideration for which Common Stock is deliverable upon exercise and/or
conversion or exchange for such Options or Convertible Securities.
Simultaneously with the adjustment in the preceding sentence, the Exercise Price
shall be adjusted to be equal to (x) the Exercise Price immediately prior to the
occurrence of such event multiplied by (y) a fraction (1) the numerator of which
is the number of shares of Common Stock issuable upon exercise of this Warrant
immediately prior to the adjustment in the preceding sentence and (2) the
denominator of which is the number of shares of Common Stock issuable upon
exercise of this Warrant immediately after the adjustment in the preceding
sentence. The adjustment of the exercise price of an Option shall not be deemed
to be the issuance or sale of an Option at less than the Current Market Price
per share of Common Stock if the exercise price as adjusted is not less than the
Current Market Price per share of Common Stock on the date of such adjustment.
-11-
(e) Superseding Adjustment. If, at any time after any adjustment
in the number of shares of Common Stock issuable upon exercise of this Warrant
shall have been made on the basis of the issuance of any Options or Convertible
Securities:
(i) any such Options shall expire prior to exercise or
the right to convert or exchange any such Convertible Securities shall
terminate prior to conversion or exchange; or
(ii) the consideration per share for which shares of
Common Stock are issuable pursuant to the terms of such Options or
Convertible Securities shall be increased or decreased;
then such previous adjustment shall be rescinded and annulled (without affecting
any other adjustments resulting from any other events). Thereupon, a
recomputation shall be made of the adjustment in the number of shares of Common
Stock issuable upon exercise of this Warrant on the basis of
(A) treating the number of shares of Common Stock, if
any, theretofore actually issued or issuable pursuant
to the previous exercise, conversion or exchange of
such Options or Convertible Securities as having been
issued on the date or dates of such exercise and/or
conversion or exchange and for the consideration
actually received and receivable therefor, and
(B) treating any such Options or Convertible Securities
that then remain outstanding as having been granted
or issued immediately after the time of such increase
or decrease for the consideration per share for which
shares of Common Stock are issuable upon exercise
and/or conversion or exchange of such Options or
Convertible Securities,
which new adjustment shall supersede the previous adjustment so rescinded and
annulled. For purposes of the computation of such new adjustment, the Current
Market Price shall be deemed to be the Current Market Price used in computing
the previous adjustment.
(f) Other Provisions Applicable to Adjustments under this Section.
The following provisions shall be applicable to the making of adjustments of the
number of shares of Common Stock issuable upon exercise of this Warrant:
(i) The sale or other disposition of any issued shares of
Common Stock owned or held by or for the account of the Issuer shall be
deemed to be an issuance thereof for purposes of this Section.
(ii) In computing adjustments under this Section,
fractional interests in Common Stock shall be taken into account to the
nearest one-thousandth of a share.
(iii) If the Issuer shall take a record of the holders of
its Common Stock for the purpose of entitling them to receive a
dividend or distribution or subscription or purchase rights and shall
thereafter and before the payment of such dividend or distribution or
the granting of such subscription or purchase rights, legally abandon
its plan to pay or deliver
-12-
such dividend, distribution, subscription or purchase rights, then
thereafter no adjustment shall be required by reason of the taking of
such record and any such adjustment previously made in respect thereof
shall be rescinded and annulled.
(iv) Aggregate consideration for purposes of Sections 4(c)
and 4(d) shall be determined as follows: In case any Common Stock,
Options, or Convertible Securities shall be issued or sold, or be
exercisable, convertible or exchangeable for cash, the consideration
received therefor shall be deemed to be the amount payable to the
Issuer therefor, after deduction therefrom of any expenses incurred or
any underwriting commissions or concessions or discounts or, in the
case of a private placement thereof, finders' fees or commissions paid
or allowed by the Issuer in connection therewith. In case any such
Common Stock, Options, or Convertible Securities shall be issued or
sold, or be exercisable, convertible or exchangeable for a
consideration other than cash payable to the Issuer, the consideration
received therefor shall be deemed to be the fair market value of such
consideration (as determined in accordance with the Appraisal
Procedure), after deduction therefrom of any expenses incurred or any
underwriting commissions or concessions or discounts paid or allowed by
the Issuer in connection therewith. In case any such Common Stock, or
Options, Convertible Securities shall be issued or sold, or be
exercisable, convertible or exchangeable in connection with any merger
of another corporation into the Issuer, the amount of consideration
therefor shall be deemed to be the fair market value (as determined in
accordance with the Appraisal Procedure) of such portion of the assets
of such merged corporation as the Board shall reasonably determine
(such determination to be reasonably acceptable to the Majority
Holders) in good faith to be attributable to such options, rights or
securities.
(g) Merger, Consolidation or Disposition of Assets. If the Issuer
shall merge, consolidate or effect a share exchange with another entity, or
shall sell, transfer or otherwise dispose of all or substantially all of its
assets to another entity and pursuant to the terms of such merger,
consolidation, share exchange or disposition of assets, cash, shares of Common
Stock or other securities of the successor or acquiring entity, or property of
any nature is to be received by or distributed to the holders of Common Stock of
the Issuer, then the Holder shall be entitled to receive upon the exercise of
this Warrant in accordance with its terms, in respect of the Warrant Stock
issuable upon exercise of this Warrant, and upon delivery to the Issuer or the
Issuer's successor, as applicable, of this Warrant for cancellation, the amount
of cash, shares of Common Stock, other securities or other property that it
would have been entitled to receive if such Holder had exercised this Warrant in
fun immediately prior to the occurrence of such merger, consolidation, share
exchange or disposition of assets. In the case of any such merger,
consolidation, share exchange or disposition of assets, the successor or
acquiring entity (and any Affiliate thereof issuing securities) shall expressly
assume the due and punctual observance and performance of each and every
covenant and condition of this Warrant to be performed and observed by the
Issuer and all of the obligations and liabilities hereunder, subject to such
modifications as may be deemed appropriate (as determined by resolution of the
Board and reasonably acceptable to the Majority Holders) in order to provide for
adjustments of the Warrant Stock issuable upon exercise of this Warrant that
shall be as nearly equivalent as practicable to the adjustments provided for in
this Section 4. The foregoing provisions shall similarly apply to successive
mergers, consolidations, share exchanges and dispositions of assets.
-13-
(h) Capital Reorganization or Capital Reclassification. If the
Issuer shall effect any capital reorganization or any reclassification of its
capital stock (other than a change in par value or from par value to no par
value or from no par value to par value or as a result of a stock dividend or
subdivision, split-up or combination of shares), then in each case the Issuer
shall cause effective provision to be made so that this Warrant shall be
exercisable for the kind and number of shares of stock, other securities, cash
or other property to which a holder of the Warrant Stock deliverable upon
exercise of this Warrant would have been entitled upon such reorganization or
reclassification and any such provision shall include adjustments in respect of
such stock, securities or other property that shall be as nearly equivalent as
may be practicable to the adjustments provided for in this Section 4 with
respect to this Warrant.
(i) Other Action Affecting Common Stock. If at any time or from
time to time the Issuer shall take any action affecting its Common Stock, other
than any action described in this Section 4, then, unless such action will not
have an adverse effect upon the Holder's rights, the number of shares of Warrant
Stock issuable upon exercise of this Warrant and the Exercise Price shall be
adjusted in such manner and at such time as the Board shall in good faith
determine (such determination to be reasonably acceptable to the Majority
Holders) to be equitable in the circumstances, but no such adjustment shall
decrease the number of shares of Warrant Stock issuable upon exercise of this
Warrant or increase the Exercise Price.
(j) Notice of Adjustments. Whenever the number of shares of
Warrant Stock issuable upon exercise of this Warrant shall be adjusted pursuant
to this Agreement, the Issuer shall forthwith obtain a certificate signed by a
firm of independent accountants of recognized national standing selected by the
Issuer setting forth, in reasonable detail, the event requiring the adjustment,
the method by which such adjustment was calculated and specifying the number of
shares of Warrant Stock issuable upon exercise of this Warrant after giving
effect to such adjustment (except in the case of adjustments pursuant to Section
4(i) in which event a certificate shall be obtained on December 31 and June 30).
The Issuer shall promptly cause a signed copy of such certificate to be
delivered to the Holder. The Issuer shall keep at its office copies of all such
certificates and cause the same to be available for inspection at said office
during normal business hours by the Holder or any prospective purchaser of a
Warrant designated by the registered Holder hereof.
(k) Notice of Certain Corporate Action. If the Issuer shall
propose (i) to pay any dividend to the holders of its Common Stock or to make
any other distribution to the holders of its Common Stock, (ii) to offer to the
holders of its Common Stock rights to subscribe for or to purchase any
additional shares of Common Stock or any Options or Convertible Securities;
(iii) to effect any reorganization or reclassification of its Common Stock; (iv)
to otherwise issue any Common Stock, Options, or Convertible Securities; (v) to
effect any other capital reorganization; (vi) to effect any consolidation,
merger or share exchange on any sale, transfer or other disposition of all or
substantially all of its assets; or (vii) to effect the liquidation, dissolution
or winding up of the Issuer, then, in each such case, the Issuer shall give to
the Holder a notice of such proposed action, which shall specify the date on
which a record is to be taken for the purposes of such dividend, distribution or
rights offer, or the date on which such reclassification, issuance,
reorganization, consolidation, merger, share exchange, sale, transfer
disposition, liquidation, dissolution or winding up is to take place and the
date of participation therein by the holders of Common Stock, if any such date
is to be fixed, and shall also set forth such facts with
-14-
respect thereto as shall be reasonably necessary to indicate the effect of such
action on the Common Stock, and the number of shares of Warrant Stock that are
issuable upon exercise of this Warrant after giving effect to any adjustment
that will be required as a result of such action. Such notice shall be so given
in the case of any action covered by clause (i) or (ii) above at least 10 days
prior to the record date for determining holders of the Common Stock for
purposes of such action, and in the case of any other such action, at least 10
days prior to the date of the taking of such proposed action.
(l) No Impairment. The Issuer will not, by amendment of its
Certificate of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, 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 to be observed or performed hereunder by the Issuer, but will at all
times in good faith assist in the carrying out of all the provisions of this
Section 4 and in the taking of all such action as may be necessary or
appropriate in order to protect the exercise rights of the Holder against
impairment.
(m) Miscellaneous. The computations of all amounts under this
Section 4 shall be made assuming all other anti-dilution or similar adjustments
to be made to the terms of all other securities resulting from the transaction
causing an adjustment pursuant to this Section 4 have previously been made so as
to maintain the relative economic interest of this Warrant vis a vis all other
securities issued by the Issuer.
SECTION 5. Miscellaneous.
(a) Office of Issuer. So long as this Warrant remains outstanding,
the Issuer shall maintain an office in the continental United States where the
Warrants may be presented for exercise, transfer, division or combination as
provided in this Warrant. Such office shall be at its principal executive
offices unless and until the Issuer shall designate and maintain some other
office for such purposes and give notice thereof to the Holder.
(b) Notices Generally. Any notices and other communications
pursuant to the provisions hereof shall be sent in accordance with the
provisions of Section 10.6 of the Purchase Agreement.
(c) Governing Law. This Warrant shall be governed by and construed
in accordance with the laws of the State of New York without regard to its
conflicts of laws rules. The Issuer agrees that it may be served with process in
the State of New York and any action for breach of this Warrant may be
prosecuted against it in the courts of such State or any Federal court located
in such State.
(d) Limitation of Liability. Except as otherwise provided herein,
this Warrant does not entitle the Holder to any voting rights or other rights of
a shareholder of the Issuer, as a shareholder. No provision hereof, in the
absence of affirmative action by the Holder to purchase shares of Common Stock,
and no mere enumeration herein of the rights or privileges of the Holder, shall
give rise to any liability of the Holder for the Exercise Price or as a
shareholder of the Issuer, whether such liability is asserted by the Issuer, by
any creditor of the Issuer or any other Person.
-15-
(e) Loss or Destruction of Warrant. Upon receipt by the Issuer of
evidence satisfactory to it (in the exercise of its reasonable discretion) of
the loss, theft, destruction or mutilation of this Warrant and (in the case of
loss, theft or destruction), if requested by the Issuer, of reasonably
satisfactory indemnification (if the Holder is a nationally-chartered financial
institution or an Affiliate thereof, its own agreement being satisfactory), or
(in the case of mutilation) upon surrender and cancellation of this Warrant, the
Issuer shall, without charge, execute and deliver a new Warrant exercisable for
the same amount of Warrant Stock; provided, however, that (in the case of loss,
theft or destruction) no indemnity bond shall be required unless the Issuer has
a class of securities registered pursuant to the Securities Exchange Act of
1934, as amended, and the Issuer's transfer agent requires such indemnity bond
as a condition to the issuance of a new Warrant.
(f) Amendments and Waivers. Amendments and waivers to Warrants
issued pursuant to the Purchase Agreement shall be effective and binding on all
holders of the Warrants if agreed to in writing by the Issuer and Holders of 80%
in interest of the Warrants issued pursuant to the Purchase Agreement.
Otherwise, any provision of this Warrant may be amended or waived if, and only
if, such amendment or waiver is in writing and signed, in the case of an
amendment, by the Issuer and the Holders and in the case of a waiver, by the
party against whom the waiver is to be effective. No failure or delay by either
party in exercising any right, power or privilege hereunder shall operate as a
waiver thereof nor shall any single or partial exercise thereof preclude any
other or further exercise thereof or the exercise of any other right, power or
privilege. The rights and remedies herein provided shall be cumulative and not
exclusive of any rights or remedies provided by law.
* * *
-16-
IN WITNESS WHEREOF, the Issuer has duly executed this Warrant.
Dated: October 24, 1997
DIGITAL THEATER SYSTEMS, INC.
By: ______________________________
Name: Xxx Xxxxxxxx
Title: Chief Financial Officer
ANNEX A
FORM OF EXERCISE NOTICE
(To be executed by registered holder hereof)
The undersigned registered owner of this Warrant exercises
this Warrant for the purchase of ___________ shares of Common Stock of Digital
Theater Systems, Inc., a Delaware corporation, and herewith makes payment
therefor of $ ___________ (such payment being made [check one] (x) [ ] in cash
or by certified or official bank check or (y) [ ] by acceptance of a reduced
number of shares of Common Stock upon cancellation of this Warrant as provided
in Section 2(b) of this Warrant, all on the terms and conditions specified in
this Warrant, and requests that (i) certificates and/or other instruments
covering such shares of Common Stock be issued in accordance with the
instructions given below and (ii) if such shares of Common Stock shall not
include all of the shares of Common Stock to which the Holder is entitled under
this Warrant, that a new Warrant for the unpurchased balance of the shares of
Common Stock issuable hereunder be delivered to the undersigned. References in
this Exercise Notice to "Common Stock" shall include other securities or other
property to the extent included in Warrant Stock.
[This Exercise Notice is being delivered contingent upon the
consummation of [describe transaction] as contemplated by Section 2(d) of this
Warrant].*
Dated: _______________
__________________________________
(Signature of Registered Holder)**
Instructions for issuance and
registration of shares of
Common Stock:
_____________________________ Social Security or Other
Name of Registered Holder Identifying Number: _______
(please print)
-------------------------------
* Include if applicable.
** The signature must correspond with the name as written upon the face of the
attached Warrant in every particular, without alteration.
Please deliver certificate to
the following address:
______________________________
Street
______________________________
City, State and Zip Code
ANNEX B
FORM OF ASSIGNMENT
(To be executed by the registered holder hereof)
FOR VALUE RECEIVED the undersigned registered owner of this
Warrant hereby sells, assigns and transfers unto the assignee named below all
the rights of the undersigned under this Warrant with respect to the number of
shares of Common Stock covered thereby set forth below to:
Number of
Shares of
Name of Assignee Address Common Stock
References in this Exercise Notice to "Common Stock" shall include other
securities or other property to the extent included in Warrant Stock.
Dated: _________________
_________________________________
(Signature of Registered Holder)*
_________________________________
Name of Registered Holder
(Please Print)
Witness:
___________________________
------------------------
* The signature must correspond with the name as written upon the face of the
attached Warrant in every particular, without alteration.
SCHEDULE OF WARRANT HOLDERS
Eos Partners SBIC, X.X.
Xxxxxx Presidio Capital II
Scripps Ventures, L.L.C.
The Phoenix Partners IV Limited Partnership
H&Q Digital Theater Systems Investors, L.P.
Xxxxxxxxx X. Xxxx
Xxx Xxxxxxxx
Xxxxx Xxxxxxxx
Xxxx Xxxxx
Xxxx Xxx
Mr. & Xxx. X. X. Xxxxxxxxx
Xxxxx Xxxxxxxxxx
Xxxxxxxx Xxxxxxxx
Xxxxxxx Xxxxxx
Xxx Xxxxx
Xxxx Xxxx Xxxxxx
Xxxxxx Xxx
AT Communications K.K.
Xxxxxxx Xxxxxxxxx
Xxxxxx Xxxxxxx
Xxx Xxxxxxxx
Xxxxx Xxxxxx
Mr. & Xxx. Xxxx X. Xxxxx
Xxx Xxxxxxx
Xxxxxxx Xxxxxx
Xxxxx Xxxxx