EXHIBIT 10.19
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE HEREUNDER HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY
APPLICABLE STATE SECURITIES LAWS AND MUST BE HELD INDEFINITELY UNLESS
SUBSEQUENTLY REGISTERED UNDER SAID ACT AND ANY APPLICABLE STATE
SECURITIES LAWS OR DISPOSED OF PURSUANT TO AN EXEMPTION FROM SUCH
REGISTRATION REQUIREMENTS.
WARRANT
Company: Digital Theater Systems, Inc.,
a Delaware corporation
Number of Shares: 40,000 Shares of Common Stock, subject to
adjustment
Class of Stock: Common Stock
Initial Exercise Price: The lesser of (i) $2.019 per share or (ii) the
Current Placement Value
Issued as of: October 24, 1997
Expiration Date: Five(5) years after the date that all Obligations
under the Loan Agreement have been paid in full and
all obligations of the Bank under the Loan Agreement
have been terminated
FOR VALUE RECEIVED, the adequacy and receipt of which is hereby
acknowledged, DIGITAL THEATER SYSTEMS, INC., a Delaware corporation, hereby
certifies that IMPERIAL BANK, a California banking corporation, and its
successors and assigns, are entitled to purchase from the Company, subject to
adjustment as provided in Section 6 hereof, Forty Thousand (40,000) fully paid
and nonassessable shares of the Company's Common Stock at any time and from time
to time on and after the date hereof until 12:00 midnight California local time
on the Expiration Date at an initial exercise price equal to the lesser of (i)
$2.019 per share of Common Stock or (ii) the Current Placement Value per share
of Common Stock; on the terms and conditions hereinafter set forth.
The number of such shares of Common Stock and the Exercise Price are
subject to adjustment as provided in this Warrant. Anything contained in this
Warrant to the contrary notwithstanding, the number of shares of Common Stock
which may be issued upon exercise of this Warrant by any Regulated Warrantholder
shall never exceed such amount (the "Maximum Amount") as may be permitted under
the Bank Holding Company Act, or any successor statute, or under any other
federal or state banking laws or regulations to which such Regulated
Warrantholder may be subject at the time of such exercise. If the number of
shares of Common Stock which may be issued upon exercise of this Warrant exceeds
the Maximum Amount, the number of shares of Common Stock into which this Warrant
may be exercised will be reduced to
the Maximum Amount and the Company will pay to the Bank by check or in cash such
amount that equals the Exercise Price multiplied by the number of shares of
Common Stock by which the Warrant is reduced pursuant to this Paragraph.
1. Certain Definitions. As used in this Warrant, the following
terms have the following definitions:
"Additional Shares of Common Stock" means all shares of Common Stock
issued or issuable by the Company after the date of this Warrant.
"Bank" means IMPERIAL BANK, a California banking corporation, and its
successors and assigns.
"Common Stock" means the Company's Common Stock, $.0001 par value, and
includes any common stock of the Company of any class or classes resulting from
any reclassification or reclassifications thereof which is not limited to a
fixed sum or percentage of par value in respect of the rights of the holders
thereof to participate in dividends and in the distribution of assets upon the
voluntary or involuntary liquidation, dissolution or winding up of the Company.
"Company" means Digital Theater Systems, Inc., a Delaware corporation.
"Convertible Securities" means evidence of indebtedness, shares of
stock or other securities which are at any time directly or indirectly
convertible into or exchangeable for Additional Shares of Common Stock.
"Current Market Price" of a share of Common Stock or of any other
security as of a relevant date means: (i) the Fair Value thereof as determined
in accordance with clause (ii) of the definition of Fair Value with respect to
Common Stock or any other security that is not listed on a national securities
exchange or traded on the over-the-counter market or quoted on NASDAQ, and (ii)
the average of the daily closing prices for the ten (10) trading days before
such date (excluding any trades which are not bona fide arm's length
transactions) with respect to Common Stock or any other security that is listed
on a national securities exchange or traded on the over-the-counter market or
quoted on NASDAQ. The closing price for each day shall be (i) the last sale
price of shares of Common Stock or such other security, regular way, on such
date or, if no such sale takes place on such date, the average of the closing
bid and asked prices thereof on such date, in each case as officially reported
on the principal national securities exchange on which the same are then listed
or admitted to trading, or (ii) if no shares of Common Stock or if no securities
of the same class as such other security are then listed or admitted to trading
on any national securities exchange, the average of the reported closing bid and
asked prices thereof on such date in the over-the-counter market as shown by the
National Association of Securities Dealers automated quotation system or, if no
shares of Common Stock or if no securities of the same class as such other
security are then quoted in such system, as published by the National Quotation
Bureau, Incorporated or any similar successor organization, and in either case
as reported by any member firm of the New York Stock Exchange selected by the
Warrantholders.
"Current Placement Value" means the per share purchase price of those
Equity Securities of the Company which are offered and sold by it at the lowest
price at which such Securities are
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sold in the Company's next offering, after the Pending Offering, of its Equity
Securities for consideration of at least $3,000,000.
"Entity" means any individual, partnership, company, corporation,
limited liability company, trust, estate, unincorporated association, syndicate,
joint venture or unincorporated organization, any government or any department
agency or political subdivision thereof, or any other entity.
"Equity Securities" means the Company's Common Stock or any other
equity or debt security convertible into such Common Stock or any right or
warrant calling for the issuance of Common Stock.
"Exchange Act" means the Securities Exchange Act of 1934, and any
successor federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Exercise Period" means the period commencing on the date hereof and
ending at 12:00 midnight California local time on the Expiration Date.
"Exercise Price" means initially the lesser of (i) $2.019 per share or
(ii) the Current Placement Value per share, subject to adjustment as provided in
this Warrant.
"Excluded Securities" means (i) the Company's warrants to purchase an
aggregate of 608,238 shares of Common Stock at $.53 per share issuable to
Universal City Studios, Inc. and Forth Investments, LLC (collectively "Universal
and Xxxxxxxxx Warrants"), (ii) warrants to purchase an aggregate of 59,435
shares of preferred stock to be issued to the Company's placement agent (the
"Placement Agent") in the Company's Pending Offering and exercisable at $2.019
per share, (iii) warrants to purchase an aggregate of 4,253,327 shares of Common
Stock at $6.057 per share to be issued to the Company's Common Stock holders in
the Pending Offering (the "Offering Warrants"), (iv) options to purchase an
aggregate of 1,660,466 shares of Common Stock issued or issuable under the
Company's 1997 Stock Option Plan (the "Incentive Stock Options"), (v) an
aggregate of 5,943,536 shares of Series A Preferred Stock to be issued in the
Pending Offering at $2.019 per share (the "Offered Series A Preferred Stock"),
(vi) warrants to purchase an aggregate of up to 5,943,536 shares of Common Stock
to be issued in the Pending Offering (the "Purchaser Warrants") exercisable at
$.01 per share and (vii) any shares of Common Stock issued upon exercise of the
Xxxxxxxxx Warrants, the Offering Warrants or the Incentive Stock Options, the
Purchaser Warrants, any shares of Preferred Stock issued upon exercise of the
Placement Agent Warrants (the "Placement Agent Preferred Stock"), and any shares
of Common Stock issued upon conversion of the Offered Series A Preferred Stock
or the Placement Agent Preferred Stock.
"Expiration Date" means the date that is five (5) years after the date
that all "Obligations" under the Loan Agreement have been paid in full and all
obligations of the Bank under the Loan Agreement have been terminated. As used
in this definition, the term "Obligations" has the meaning as defined in the
Loan Agreement.
"Fair Value" means: (i) with respect to a share of Common Stock or any
other security, the Current Market Price thereof, and (ii) with respect to any
other property, assets, business or
3
entity, an amount determined in accordance with the following procedure: The
Company and the holders of the Warrants and Warrant Shares, as applicable, shall
use their best efforts to mutually agree to a determination of Fair Value within
ten (10) days of the date of the event requiring that such a determination be
made. If the Company and such holders are unable to reach agreement within said
ten (10) day period, the Company and such holders shall within ten (10) days of
the expiration of the ten (10) day period referred to above each retain a
separate independent investment banking firm (which firm shall not be the
investment banking firm regularly retained by the Company). If either the
Company or such holders fails to retain such an investment banking firm during
such period, then the independent investment banking firm retained by such
holders or the Company, as the case may be, acting alone, shall take the actions
outlined below. Such firms shall determine (within thirty (30) days of their
being retained) the Fair Value of the security, property, assets, business or
entity, as the case may be, in question and deliver their opinion in writing to
the Company and to such holders. If such firms cannot jointly make the
determination, then, unless otherwise directed by agreement of the Company and
such holders, such firms, in their sole discretion, shall choose another
investment banking firm independent of the Company and such holders, which firm
shall make the determination and render an opinion as promptly as practicable.
In either case, the determination so made shall be conclusive and binding on the
Company and such holders. The fees and expenses of any such determination made
by any and all such independent investment banking firms shall be paid by the
Company. If there is more than one holder of Warrants, and/or Warrant Shares
entitled to a determination of Fair Value in any particular instance, each
action to be taken by the holders of such Warrants and/or Warrant Shares under
this Section shall be taken by a majority in interest of such holders and the
action taken by such majority (including as to any mutual agreement with the
Company with respect to Fair Value and as to any selection of investment banking
firms) shall be binding upon all such holders. In the case of a determination of
the Fair Value per share of Common Stock, the Company and such holders shall not
take into consideration, and shall instruct all such investment banking firms
not to take into consideration, any premium for shares representing control of
the Company, any discount for any minority interest therein or any restrictions
on transfer under applicable federal and state securities laws or otherwise.
"Indemnified Party" and "Indemnifying Party" have the meanings set
forth in Section 11(e)(iii).
"Loan Agreement" means that certain Revolving Credit Agreement of even
date herewith between the Company and the Bank.
"Other Shares" means at any time those shares of Common Stock which do
not constitute Primary Shares or Registrable Stock.
"Pending Offering" means the Company's pending offering of up to
$12,000,000 of its Series A convertible preferred stock as described in the
Company's Confidential Private Placement Memorandum dated May 1997 and any
supplements thereto.
"Primary Shares" means at any time the authorized but unissued shares
of Common Stock and shares of Common Stock held by the Company in its treasury.
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"Registrable Stock" means: (i) all Warrant Shares which are issuable to
the Warrantholders pursuant to the Warrants, whether or not the Warrants have in
fact been exercised and whether or not such Warrant Shares have in fact been
issued, (ii) all Warrant Shares acquired by the Warrantholders pursuant to the
Warrants, (iii) any shares of Common Stock, whether or not such shares of Common
Stock have in fact been issued, and stock or other securities of the Company
issued upon conversion of, in a stock split or reclassification of, or a stock
dividend or other distribution on, or in substitution or exchange for, or
otherwise in connection with, such Warrant Shares. For purposes of Section 11, a
Warrantholder of record shall be treated as the record holder of the related
Warrant Shares and other securities issuable pursuant to the Warrants.
Notwithstanding the foregoing, Warrant Shares shall cease to be Registrable
Stock when (i) they have been registered under the Securities Act, the
registration statement in connection therewith has been declared effective and
they have been disposed of pursuant to such effective registration, (ii) they
are all eligible to be sold or distributed pursuant to Rule 144 within any
consecutive three month period without volume limitations or (iii) they shall
have ceased to be outstanding.
"Regulated Warrantholder" means any Warrantholder which is, or the
parent of which is, subject to the Bank Holding Company Act, or any successor
statute, or any other federal or state banking laws and regulations.
"Securities Act" means the Securities Act of 1933, as amended, or any
successor Federal Statue, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Warrant(s)" means this Warrant and any warrants issued in exchange or
replacement of this Warrant or upon transfer hereof.
"Warrantholder(s)" means Bank and its successors and assigns.
"Warrant Shares" means shares of Common Stock issuable to
Warrantholders pursuant to the Warrants.
2. Exercise of Warrant. This Warrant may be exercised, in whole
or in part, at any time and from time to time during the Exercise Period by
written notice to the Company and upon payment to the Company of the Exercise
Price (subject to adjustment as provided herein) for the shares of Common Stock
in respect of which the Warrant is exercised.
3. Form of Payment of Exercise Price. Anything contained herein
to the contrary notwithstanding, at the option of the Warrantholders, the
Exercise Price may be paid in any one or a combination of the following forms:
(a) by wire transfer to the Company, (b) by the Warrantholder's check to the
Company, (c) by the cancellation of any indebtedness owed by the Company and/or
any subsidiaries of the Company to the Warrantholder, and/or (d) by the
surrender to the Company of Warrants, Warrant Shares, Common Stock and/or other
securities of the Company and/or any subsidiaries of the Company having a Fair
Value equal to the Exercise Price.
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4. Cashless Exercise/Conversion, Appreciation Right.
(a) Cashless Exercise/Conversion. In lieu of exercising
this Warrant as specified in Sections 2 and 3 above, the Warrantholders may from
time to time at the Warrantholders' option convert this Warrant, in whole or in
part, into a number of shares of Common Stock of the Company determined by
dividing (A) the aggregate Fair Value of such shares or other securities
otherwise issuable upon exercise of this Warrant minus the aggregate Exercise
Price of such shares by (B) the Fair Value of one such share.
(b) Appreciation Right. If and when the Company has
consummated (i) a public offering of its Equity Securities pursuant to a general
form of registration under the Securities Act, (ii) the acquisition of the
Company by another Entity by means of any transaction or series or related
transactions (including, without limitation, any reorganization, merger or
consolidation) unless the Company's shareholders of record as constituted
immediately prior to such acquisition or sale will, immediately after such
acquisition or sale, hold, directly or indirectly, at least fifty percent (50%)
of the voting power of the surviving or acquiring entity, or (iii) the sale of
all or substantially all of the assets of the Company, then in lieu of
exercising this Warrant as specified in Sections 2 and 3 above, the
Warrantholders may at the Warrantholders' option, require the Company to pay it
an amount of cash equal to the Fair Value of the Common Stock issuable upon
exercise of this Warrant less the Exercise Price. Upon the Warrantholders'
exercise of this option, the Company shall promptly wire transfer to the
Warrantholders such amount in immediately available funds as is required under
this Section 4(b), but in no event later than five (5) business days after the
exercise of such option, in immediately available funds.
5. Certificates for Warrant Shares; New Warrant. The Company
agrees that the Warrant Shares shall be deemed to have been issued to the
Warrantholders as the record owner of such Warrant Shares as of the close of
business on the date on which payment for such Warrant Shares has been made (or
deemed to be made by conversion) in accordance with the terms of this Warrant.
Certificates for the Warrant Shares shall be delivered to the Warrantholders
within a reasonable time, not exceeding five (5) days, after this Warrant has
been exercised or converted. A new Warrant representing the number of shares, if
any, with respect to which this Warrant remains exercisable also shall be issued
to the Warrantholders within such time so long as this Warrant has been
surrendered to the Company at the time of exercise.
6. Adjustment of Exercise Price, Number of Shares and Nature of
Securities Issuable Upon Exercise of Warrants.
(a) Exercise Price: Adjustment of Number of shares. The
Exercise Price shall be subject to adjustment from time to time as hereinafter
provided. Upon each adjustment of the Exercise Price, the Warrantholders shall
thereafter be entitled to purchase, at the Exercise Price resulting from such
adjustment, a number of shares determined by multiplying the Exercise Price in
effect immediately prior to such adjustment by the number of shares purchasable
pursuant hereto immediately prior to such adjustment and dividing the product
thereof by the Exercise Price resulting from such adjustment.
(b) Adjustment of Exercise Price Upon Issuance of Common
Stock. If and whenever after the date hereof the Company shall issue or sell
Additional Shares of Common
6
Stock (other than Excluded Securities) without consideration or for a
consideration per share less than the Current Market Price or the Exercise Price
then in effect immediately prior to the issuance or sale of such shares, then
the Exercise Price in effect immediately prior to such issuance or sale of such
shares shall be reduced to the number equal to the price per share at which such
issuance and sale of such shares was effected.
No adjustment of the Exercise Price, however, shall
be made in an amount less than $.01 per share, but any such lesser adjustment
shall be carried forward and shall be made at the time and together with the
next subsequent adjustment which, together with any adjustments so carried
forward, shall amount to $.01 per share or more.
The provisions of this Section 6(b) shall not apply
to any Additional Shares of Common Stock which are distributed to holders of
Common Stock pursuant to a stock split for which an adjustment is provided for
under Section 6(f).
(c) Further Provisions for Adjustment of Exercise Price
Upon Issuance of Additional Shares of Common Stock and Convertible Securities.
For purposes of Section 6(b), the following provisions shall also be applicable:
(i) In case at any time on or after the date hereof, the
Company shall declare any dividend, or authorize any other distribution, upon
any stock of the Company of any class, payable in Additional Shares of Common
Stock or by the issuance of Convertible Securities, such declaration or
distribution shall be deemed to have been issued or sold (as of the record date)
without consideration and shall thereby cause an adjustment in the Exercise
Price as required by Section 6(b) (provided that in no event shall the issuance
of Common Stock upon the conversion of any of the Excluded Securities result in
any adjustment pursuant to this Warrant.
(ii) A. In case at any time on or after the date
hereof, the Company shall in any manner issue or sell any Convertible Securities
(other than Excluded Securities), whether or not the rights to exchange or
convert thereunder are immediately exercisable, there shall be determined the
price per share for which Additional Shares of Common Stock are issuable upon
the conversion or exchange thereof, such determination to be made by dividing
(a) the total amount received or receivable by the Company as consideration for
the issue or sale of such Convertible Securities, plus the minimum aggregate
amount of additional consideration, if any, payable to the Company upon the
conversion or exchange thereof by (b) the maximum aggregate number of Additional
Shares of Common Stock issuable upon conversion or exchange of all such
Convertible Securities for such minimum aggregate amount of additional
consideration; and such issue or sale shall be deemed to be an issue or sale for
cash (as of the date of issue or sale of such Convertible Securities) of such
maximum number of Additional Shares of Common Stock at the price per share so
determined, and shall thereby cause an adjustment in the Exercise Price, if such
an adjustment is required by Section 6(b) hereof.
B. If such Convertible Securities shall by
their terms provide for an increase or increases, with the passage of time, in
the amount of additional consideration, if any, payable to the Company, or in
the rate of exchange upon the conversion or exchange thereof, the adjusted
Exercise Price shall, upon any such increase becoming effective, be increased to
such Exercise Price as would have been in effect had the adjustments made upon
the
7
issuance of such Convertible Securities been made upon the basis of (and the
total consideration received therefor) (a) the issuance of the number of shares
of Common Stock theretofore actually delivered upon the exercise of such
Convertible Securities, (b) the issuance of all Common Stock, all Convertible
Securities and all rights and options to purchase Common Stock issued after the
issuance of such Convertible Securities, and (c) the original issuance at the
time of such change of any such Convertible Securities then still outstanding;
provided, however, that any such increase or increases shall not exceed, in the
aggregate, the amount of the original reduction of the Exercise Price
attributable to the Convertible Securities.
C. If any rights of conversion or exchange
evidenced by such Convertible Securities shall expire without having been
exercised, the adjusted Exercise Price shall forthwith be readjusted to such
Exercise Price as would have been in effect had an adjustment with respect to
such Convertible Securities been made on the basis that the only Additional
Shares of Common Stock issued or sold were those issued upon the conversion or
exchange of such Convertible Securities, and that they were issued or sold for
the consideration actually received by the Company upon such exercise, plus the
consideration, if any, actually received by the Company for the granting of such
Convertible Securities.
(iii) A. In case at any time on or after the date
hereof, the Company shall in any manner grant or issue any rights or options to
subscribe for, purchase or otherwise acquire Additional Shares of Common Stock
(other than Excluded Securities), whether or not such rights or options are
immediately exercisable, there shall be determined the price per share for which
Additional Shares of Common Stock are issuable upon the exercise of such rights
or options, such determination to be made by dividing (a) the total amount, if
any, received or receivable by the Company as consideration for the granting of
such rights or options, plus the minimum aggregate amount of additional
consideration, if any, payable to the Company upon the exercise of such rights
or options if the maximum number of Additional Shares were issued pursuant to
such fights or options for such minimum aggregate amount of additional
consideration, by (b) the maximum number of Additional Shares of Common Stock of
the Company issuable upon the exercise of all such rights or options for such
minimum aggregate amount of additional consideration; and the granting of such
rights or options shall be deemed to be an issue or sale for cash (as of the
date of the granting of such rights or options) of such maximum number of
Additional Shares of Common Stock at the price per share so determined, and
shall thereby cause an adjustment in the Exercise Price, if such an adjustment
is required by Section 6(b) hereof.
B. If such rights or options shall by their
terms provide for an increase or increases, with passage of time, in the amount
of additional consideration payable to the Company upon the exercise thereof,
the adjusted Exercise Price shall, upon any such increases becoming effective,
be increased to such Exercise Price as would have been in effect had the
adjustments made upon the issuance of such rights or options been made upon the
basis of (and the total consideration received therefor) (a) the issuance of the
number of shares of Common Stock theretofore actually delivered upon the
exercise of such rights or options, (b) the issuance of all Common Stock, all
rights and options and all Convertible Securities issued after the issuance of
such rights and options, and (c) the original issuance at the time of such
change of any such rights or options then still outstanding; provided, however,
that any such increase or
8
increases in the Exercise Price shall not exceed, in the aggregate, the amount
of the original reduction of the Exercise Price attributable to the grant of
such rights or options.
C. If any such rights or options shall expire
without having been exercised, the adjusted Exercise Price shall forthwith be
readjusted to such Exercise Price as would have been in effect had an adjustment
with respect to such rights or options been made on the basis that the only
Additional Shares of Common Stock so issued or sold were those issued or sold
upon the exercise of such rights or options and that they were issued or sold
for the consideration actually received by the Company upon such exercise, plus
the consideration, if any, actually received by the Company for the granting of
such rights or options.
(iv) A. In case at any time on or after the date
hereof, the Company shall grant any rights or options to subscribe for, purchase
or otherwise acquire Convertible Securities (other than Excluded Securities),
there shall be determined the price per share for which Additional Shares of
Common Stock are issuable upon the exchange or conversion of such Convertible
Securities if such rights or options were exercised, such determination to be
made by dividing (a) the total amount, if any, received or receivable by the
Company as consideration for the issuance of such rights or options, plus the
minimum aggregate amount of additional consideration, if any, payable to the
Company upon the exercise of such rights or options if the maximum number of
Convertible Securities were issued pursuant to such rights or options for such
minimum aggregate amount of additional consideration, plus the minimum aggregate
amount of additional consideration, if any, payable to the Company upon the
exchange or conversion of such Convertible Securities if the maximum number of
Additional Shares were issued pursuant to such Convertible Securities for such
minimum aggregate amount of additional consideration, by (b) the maximum
aggregate number of Additional Shares of Common Stock issuable upon the exchange
or conversion of the Convertible Securities for such minimum aggregate amount of
additional consideration; and the issue or sale of such rights or options shall
be deemed to be an issue or sale for cash (as of the date of the granting of
such rights or options) of such maximum number of Additional Shares of Common
Stock at the price per share so determined, and thereby shall cause an
adjustment in the Exercise Price, if such an adjustment is required by Section
6(b).
B. If such rights or options to subscribe for
or otherwise acquire Convertible Securities shall by their terms provide for an
increase or increases, with the passage of time, in the amount of additional
consideration payable to the Company upon the exercise, exchange or conversion
thereof, the adjusted Exercise Price shall, forthwith upon any such increase
becoming effective, be increased to such Exercise Price as would have been in
effect had the adjustments made upon the issuances of such rights or options
been made upon the basis of (and the total consideration received therefor) (a)
the issuance of the number of shares of Common Stock theretofore actually
delivered upon the exchange or conversion of such Convertible Securities (b) the
issuances of all Common Stock and all rights, options and Convertible Securities
issued after the issuance of such rights and options and (c) the original
issuances at the time of such change of any such rights, options and Convertible
Securities issued upon exercise of such rights or options which are then still
outstanding; provided, however, that any such increase or increases shall not
exceed, in the aggregate, the amount of the original reduction of the Exercise
Price attributable to the grant of such rights or options.
9
C. If any such rights, options or rights of
conversion or exchange of such Convertible Securities shall expire without
having been exercised, exchanged or converted, the adjusted Exercise Price shall
forthwith be readjusted to such Exercise Price as would have been in effect had
an adjustment been made with respect to such rights, options or rights of
conversion or exchange of such Convertible Securities on the basis that the only
Additional Shares of Common Stock so issued or sold were those issued or sold
upon the exercise of such rights or options and exchange or conversion of such
Convertible Securities and that they were issued or sold for the consideration
actually received by the Company upon exercise of such rights and options and
exchange or conversion of such Convertible Securities, plus the consideration,
if any, actually received by the Company for the granting of such rights,
options or Convertible Securities.
(v) In any case where an adjustment has been made in the
Exercise Price upon the issuance of Convertible Securities or any rights or
options to purchase Convertible Securities or Additional Shares of Common Stock
pursuant to this Section 6(c), no further adjustment shall be made at the time
of the conversion of any such Convertible Securities or at the time of the
exercise of any such rights or options.
(vi) In case at any time on or after the issuance of this
Warrant any shares of Common Stock or Convertible Securities shall be issued or
sold for a consideration other than cash, the amount of the consideration other
than cash payable to the Company shall be deemed to be the Fair Value of such
consideration. Whether or not the consideration so received is cash, the amount
thereof shall be determined after deducting therefrom any expenses incurred or
any underwriting commissions or concessions or discounts paid or allowed by the
Company in connection therewith.
(vii) In case at any time the Company shall fix a record
date of the holders of its Common Stock for the purpose of entitling them (a) to
receive a dividend or other distribution payable in Common Stock, Convertible
Securities or rights or options to purchase either thereof, or (b) to subscribe
for or purchase Common Stock, Convertible Securities or rights or options to
purchase either thereof, then such record date shall be deemed to be the date of
the issue or sale of the shares of Common Stock deemed, pursuant to this Section
6(c), to have been issued or sold upon the declaration of such dividend or the
making of such other distribution or the date of the granting of such right of
subscription or purchase, as the case may be.
(viii) The number of shares of Common Stock outstanding at
any given time shall not include shares owned or held by or for the account of
the Company, and the disposition of any such shares shall be considered an issue
or sale of Common Stock for the purposes of this Section 6(c).
(d) Reorganization, Reclassification, Consolidation,
Merger or Sale. If any capital reorganization or reclassification of the capital
stock of the Company, or any consolidation or merger of the Company with another
corporation, or the sale of all or substantially all of its assets to another
corporation shall be effected in such a way that holders of Common Stock shall
be entitled to receive cash, stock, securities or assets with respect to or in
exchange for Common Stock, then, as a condition of such reorganization,
reclassification, consolidation, merger or sale, lawful and adequate provisions
shall be made whereby the
10
Warrantholders shall thereafter have the right to purchase and receive upon the
basis and upon the terms and conditions specified in this Warrant upon exercise
of this Warrant and in lieu of the shares of the Common Stock of the Company
immediately theretofore purchasable and receivable upon the exercise of the
rights represented hereby, such cash, shares of stock, securities or assets as
may be issued or payable with respect to or in exchange for a number of
outstanding shares of Common Stock equal to the number of shares of such Common
Stock immediately theretofore purchasable and receivable upon the exercise of
the rights represented hereby, and in any such case appropriate provision shall
be made with respect to the rights and interest of the Warrantholders to the end
that the provisions hereof (including, without limitation, provisions for
adjustments of the Exercise Price and of the number of shares purchasable and
receivable upon the exercise of this Warrant) shall thereafter be applicable, as
nearly as may be, in relation to any shares of stock, securities or assets
thereafter deliverable upon the exercise hereof. The Company shall not effect
any consolidation, merger or sale of all or substantially all of the assets of
the Company unless prior to or simultaneous with the consummation thereof the
successor corporation (if other than the Company) resulting from such
consolidation, merger or purchase of such assets shall assume, by written
instrument executed and mailed or delivered to the Warrantholders, the
obligation to deliver to such Warrantholders such cash (or cash equivalent),
shares of stock, securities or assets as, in accordance with the foregoing
provisions, the Warrantholders may be entitled to receive and containing the
express assumption of such successor corporation of the due and punctual
performance and observance of each provision of this Warrant to be performed and
observed by the Company and of all liabilities and obligations of the Company
hereunder; provided, however, in the case of any consolidation or merger of the
Company with another corporation or the sale of all or substantially all of its
assets to another corporation effected in such a manner that the holders of
Common Stock shall be entitled to receive stock, securities or assets with
respect to or in exchange for Common Stock, then, at the election of each
Warrantholder, in lieu of receiving such stock, securities or assets, such
Warrantholder shall receive cash equal to the Fair Value of the Common Stock
issuable upon exercise of the Warrant, less the Exercise Price payable upon
exercise thereof.
In case any Additional Shares of Common Stock or
Convertible Securities or any rights or options to purchase any Additional
Shares of Common Stock or Convertible Securities shall be issued in connection
with any merger of another corporation into the Company, the amount of
consideration therefor shall be deemed to be the Fair Value of such portion of
the assets of such merged corporation as the Board of Directors of the Company
shall in good faith determine to be attributable to such Additional Shares of
Common Stock, Convertible Securities or rights or options, as the case may be,
and the Exercise Price shall be adjusted in accordance with this Section 6(d).
(e) Company to Prevent Dilution. In case at any time or
from time to time conditions arise by reason of action taken by the Company
which are not adequately covered by the provisions of this Section 6, and which
might materially and adversely affect the exercise rights of the Warrantholders
under any provision of this Warrant, unless the adjustment necessary shall be
agreed upon by the Company and the Warrantholders, the Board of Directors of the
Company shall appoint a firm of independent certified public accountants of
recognized national standing (who have not been employed by the Company within
the last five years), acceptable to the Warrantholders, who at the Company's
expense shall give their opinion upon the adjustment, if any, on a basis
consistent with the standards established in the other provisions
11
of this Section 6, necessary with respect to the Exercise Price and the number
of shares purchasable upon exercise of the Warrants, so as to preserve, without
dilution, the exercise rights of the Warrantholders. Upon receipt of such
opinion, such Board of Directors shall forthwith make the adjustments described
therein.
(f) Stock Splits and Reverse Splits. In case at any time
the Company shall subdivide its outstanding shares of Common Stock into a
greater number of shares, the Exercise Price in effect immediately prior to such
subdivision shall be proportionately reduced and the number of shares of Common
Stock purchasable pursuant to this Warrant immediately prior to such subdivision
shall be proportionately increased, and conversely, in case at any time the
Company shall combine its outstanding shares of Common Stock into a smaller
number of shares, the Exercise Price in effect immediately prior to such
combination shall be proportionately increased and the number of shares of
Common Stock purchasable upon the exercise of this Warrant immediately prior to
such combination shall be proportionately reduced.
(g) Dissolution, Liquidation and Wind-Up. In case the
Company shall, at any time prior to the expiration of this Warrant, dissolve,
liquidate or wind up its affairs, the Warrantholders shall be entitled, upon the
exercise of this Warrant, to receive, in lieu of the shares of Common Stock of
the Company which such Warrantholders would have been entitled to receive, the
same kind and amount of assets as would have been issued, distributed or paid to
such Warrantholders upon any such dissolution, liquidation or winding up with
respect to such shares of Common Stock of the Company, had such Warrantholders
been the holders of record of the Warrant Shares receivable upon the exercise of
this Warrant on the record date for the determination of those persons entitled
to receive any such liquidating distribution. After any such dissolution,
liquidation or winding up which shall result in any cash distribution in excess
of the Exercise Price provided for by this Warrant, the Warrantholders may, at
each such Warrantholder's option, exercise the same without making payment of
the Exercise Price, and in such case the Company shall, upon the distribution to
said Warrantholders, consider that said Exercise Price has been paid in full to
it and in making settlement to said Warrantholders, shall deduct from the amount
payable to such Warrantholders an amount equal to such Exercise Price.
(h) Noncash Consideration. In case any Additional Shares
of Common Stock or Convertible Securities or any rights or options to purchase
any Additional Shares of Common Stock or Convertible Securities shall be issued
for a consideration in a form other than cash, the amount of such consideration
shall be deemed to be the Fair Value thereof.
(i) Accountants' Certificate. In each case of an
adjustment in the number of shares of Common Stock or other stock, securities or
property receivable on the exercise of the Warrants, the Company at its expense
shall cause independent public accountants of recognized standing selected by
the Company and acceptable to the Warrantholders to compute such adjustment in
accordance with the terms of this Warrant and prepare a certificate setting
forth such adjustment and showing in detail the facts upon which such adjustment
is based, including a statement of (a) the consideration received or to be
received by the Company for any Additional Shares of Common Stock, rights,
options or Convertible Securities issued or sold or deemed to have been issued
or sold, (b) the number of shares of Common Stock of each class outstanding or
deemed to be outstanding, (c) the adjusted Exercise Price and (d) the number of
shares issuable
12
upon exercise of this Warrant. The Company will forthwith mail a copy of each
such certificate to each Warrantholder.
7. Special Agreements of the Company.
(a) Reservation of Shares. The Company covenants and
agrees that all Warrant Shares will, upon issuance, be validly issued, fully
paid and nonassessable and free from all preemptive rights of any stockholder,
and from all taxes, liens and charges with respect to the issue thereof. The
Company further covenants and agrees that during the period within which the
rights represented by this Warrant may be exercised, the Company will at all
times have authorized, and reserved, a sufficient number of shares of Common
Stock to provide for the exercise of the rights represented by this Warrant. The
Company hereby covenants and agrees to take all such action as may be necessary
to assure that the par value per share of the Common Stock is at all times equal
to or less than the Exercise Price.
(b) Avoidance of Certain Actions. The Company will not,
by amendment of its Articles or Certificate of Incorporation or through any
reorganization, transfer of assets, consolidation, merger, issue or sale of
securities or otherwise, avoid or take any action which would have the effect of
avoiding the observance or performance of any of the terms to be observed or
performed hereunder by the Company, but will at all times in good faith assist
in carrying out all of the provisions of this Warrant and in taking all of such
action as may be necessary or appropriate in order to protect the rights of the
Warrantholders against dilution or other impairment of their rights hereunder.
(c) Securing Governmental Approvals. If any shares of
Common Stock required to be reserved for the purposes of exercise of this
Warrant require registration with or approval of any governmental authority
under any federal law (other than the Securities Act) or under any state law
before such shares may be issued upon exercise of this Warrant, the Company
will, at its expense, as expeditiously as possible, cause such shares to be duly
registered or approved, as the case may be.
(d) Listing on Securities Exchanges; Registration. If,
and so long as, any class of the Company's Common Stock shall be listed on any
national securities exchange (as defined in the Exchange Act), the Company will,
at its expense, obtain and maintain the approval for listing upon official
notice of issuance of all Warrant Shares and maintain the listing of Warrant
Shares after their issuance; and the Company will so list on such national
securities exchange, will register under the Exchange Act (or any similar
statute then in effect), and will maintain such listing of, any other securities
that at any time are issuable upon exercise of this Warrant if and at the time
any securities of the same class shall be listed on such national securities
exchange by the Company.
(e) Information Rights. So long as the Warrantholders
hold this Warrant and/or any of the Warrant Shares, the Company shall deliver to
the Warrantholders (i) promptly after mailing, copies of all communications to
the shareholders of the Company, (ii) within one hundred twenty (120) days after
the end of each fiscal year of the Company, the annual audited financial
statements of the Company certified by the independent public accountants of
13
recognized standing, and (iii) within forty-five (45) days after the end of each
of the first three quarters of each fiscal year, the Company's quarterly,
unaudited financial statements.
(f) Compliance with Law. The Company shall comply in all
material respects with all applicable laws, rules and regulations of the United
States and of all states, municipalities and agencies and of any other
jurisdiction applicable to the Company and shall do all things necessary to
preserve, renew and keep in full force and effect and in good standing its
corporate existence and authority necessary to continue its business.
8. Fractional Shares. No fractional shares or scrip representing
fractional shares shall be issued upon the exercise of this Warrant. With
respect to any fraction of a share called for upon exercise hereof, the Company
shall pay to the Warrantholder an amount in cash equal to such fraction
multiplied by the Current Market Value of one share of Common Stock.
9. Notices of Stock Dividends, Subscriptions, Reclassifications,
Consolidations, Mergers, etc. If at any time: (i) the Company shall declare a
cash dividend (or an increase in the then existing dividend rate), or declare a
dividend on Common Stock payable otherwise than in cash out of its net earnings
after taxes for the prior fiscal year; or (ii) the Company shall authorize the
granting to the holders of Common Stock of rights to subscribe for or purchase
any shares of capital stock of any class or of any other rights; or (iii) there
shall be any capital reorganization, or reclassification, or redemption of the
capital stock of the Company, or consolidation or merger of the Company with, or
sale of all or substantially all of its assets to, another corporation or firm;
or (iv) there shall be a voluntary or involuntary dissolution, liquidation or
winding up of the Company, then the Company shall give to the Warrantholders at
the addresses of such Warrantholders as shown on the books of the Company, at
least twenty (20) days prior to the applicable record date hereinafter
specified, a written notice summarizing such action or event and stating the
record date for any such dividend or rights (or, if a record date is not to be
selected, the date as of which the holders of Common Stock of record entitled to
such dividend or rights are to be determined), the date on which any such
reorganization, reclassification, consolidation, merger, sale of assets,
dissolution, liquidation or winding up is expected to become effective, and the
date as of which it is expected the holders of Common Stock of record shall be
entitled to effect any exchange of their shares of Common Stock for cash (or
cash equivalent), securities or other property deliverable upon any such
reorganization, reclassification, consolidation, merger, sale of assets,
dissolution, liquidation or winding up.
10. Registered Holder; Transfer of Warrants or Warrant Shares.
(a) Maintenance of Registration Books; Ownership of this
Warrant. The Company shall keep at its principal office a register in which the
Company shall provide for the registration, transfer and exchange of this
Warrant. The Company shall not at any time, except upon the dissolution,
liquidation or winding-up of the Company, close such register so as to result in
preventing or delaying the exercise or transfer of this Warrant.
(b) Exchange and Replacement. This Warrant is
exchangeable upon surrender hereof by the registered holder to the Company at
its principal office for new Warrants of like tenor and date representing in the
aggregate the right to purchase the number of shares purchasable hereunder, each
of such new Warrants to represent the right to purchase such
14
number of shares as shall be designated by said registered holder at the time of
surrender. Subject to the restrictions set forth on the legend hereof, this
Warrant and all rights hereunder are transferable in whole or in part upon the
books of the Company by the registered holder hereof in person or by duly
authorized attorney, and new Warrants shall be made and delivered by the
Company, of the same tenor and date as this Warrant but registered in the name
of the transferee(s), upon surrender of this Warrant, duly endorsed, to said
office of the Company. Upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of this
Warrant, and upon surrender and cancellation of this Warrant, if mutilated, the
Company will make and deliver a new Warrant of like tenor, in lieu of this
Warrant, without requiring the posting of any bond or the giving of any other
security. This Warrant shall be promptly cancelled by the Company upon the
surrender hereof in connection with any exchange, transfer or replacement. The
Company shall pay all expenses, taxes and other charges payable in connection
with the preparation, execution and delivery of Warrants pursuant to this
Section 10.
(c) Warrants and Warrant Shares Not Registered. The
holder of this Warrant, by accepting this Warrant, represents and acknowledges
that this Warrant and the Warrant Shares are not being registered under the
Securities Act on the grounds that the issuance of this Warrant and the offering
and sale of such Warrant Shares are exempt from registration under Section 4(2)
of the Securities Act as not involving any public offering.
11. Registration
(a) Form S-3 Registration. If and when the Company is
eligible to effect a registration under the Securities Act on Form S-3 and the
Company shall receive a written request there from any holder or holders of at
least 10% of the Registrable Stock, then the Company shall promptly prepare and
file a S-3 statement under the Securities Act (the "S-3 Statement") covering the
Registrable Stock which is the subject of such request and shall use its best
efforts to cause such S-3 Statement to become effective as expeditiously as
possible. Upon the receipt of such request, the Company shall promptly give
written notice to all holders of Registrable Stock and to the holders of all
Other Shares which are entitled to registration rights that such S-3
registration is to be effected. The Company shall include in such S-3 Statement
such Registrable Stock and such shares of Other Shares for which it has received
written requests to register such shares by the holders thereof within thirty
(30) days after the effectiveness of the Company's written notice to such other
holders, as well as Primary Shares, provided, however, that, in the case of an
underwritten offering, if the managing underwriter advises the holders of
Registrable Stock that the inclusion of all Registrable Stock, Primary Shares
and/or Other Shares proposed to be included in such registration would interfere
with the successful marketing (including pricing) of the Registrable Stock
proposed to be included in such registration, then the number of shares of
Registrable Stock, Primary Shares and/or Other Shares proposed to be included in
such registration should be included in the following order:
1. first, the shares of Registrable Stock requested to
be included in such registration (or, if necessary,
such Registrable Stock pro rata among the holders
thereof based upon the number of shares of
Registrable Stock requested to be registered by each
such holder);
15
2. second, the Other shares which are entitled to
registration rights; and
3. third, the Primary Shares.
Notwithstanding the foregoing, the rights set forth in this Section 11(a) may,
only be exercised once by the holders of the Registrable Stock.
(b) Incidental Registration. Each time the Company shall
determine to file a registration statement under the Securities Act (other than
on Form S-8 or Form S-4) in connection with the proposed offer and sale for
money of any of its securities by it or by any of its security holders, the
Company will give written notice of its determination to all holders of
Registrable Stock. Upon the written request of a holder of any Registrable Stock
delivered to the Company within 15 days of the receipt of the aforesaid notice,
the Company will use its best efforts to cause all such Registrable Stock, the
holders of which have so requested registration thereof, to be included in such
registration statement, all to the extent requisite to permit the sale or other
disposition by the prospective seller or sellers of the Registrable Stock to be
so registered in accordance with the terms of the proposed offering. If the
registration statement is to cover an underwritten distribution, the Company
shall use its best efforts to cause the Registrable Stock requested for
inclusion pursuant to this Section 11(b) to be included in the underwriting on
the same terms and conditions as the securities otherwise being sold through the
underwriters. Notwithstanding the foregoing, if the managing underwriter of such
public offering advises the Company that the inclusion of all of the Registrable
Stock requested to be registered would interfere with the successful marketing
(including pricing) of the Primary shares or Other Shares proposed to be
offered, then the number of Primary Shares, Registrable Stock and Other Shares
proposed to be included in such registration shall be included in the following
order:
(i) if the Company proposes to register Primary Shares:
A. first, the Primary Shares; and
B. second, the Registrable Stock and
Other Shares requested to be included in such registration (or, if necessary,
such Registrable Stock and Other Shares pro rata among the holders thereof based
upon the number of Registrable Stock and Other Shares requested to be registered
by each such holder); or
(ii) if the Company proposes to register Other Shares
pursuant to a request for registration by the holders of such Other Shares:
A. first, the Other Shares held by the
parties demanding such registration;
B. second, the Registrable Stock and
Other Shares requested to be registered by the holders thereof (or, if
necessary, pro rata among the holders thereof based on the number of Registrable
Stock and Other Shares requested to be registered by such holders); and
C. third, the Primary Shares.
16
The provisions of this Section 11 shall only apply after such time as
the Company has consummated an underwritten initial public offering of its
securities.
(c) Registration Procedures. If and whenever the Company
is required by the provisions of Sections 11(a) and 11(b) to effect the
registration of Registrable Stock under the Securities Act, the Company will, at
its expense, as expeditiously as possible:
(i) In accordance with the Securities Act and the rules
and regulations of the Commission, prepare and file with the Commission a
registration statement on the form of registration statement appropriate with
respect to such securities and use its best efforts to cause such registration
statement to become and remain effective until the securities covered by such
registration statement have been sold, and prepare and file with the Commission
such amendments to such registration statement and supplements to the prospectus
contained therein as may be necessary to keep such registration statement
effective and such registration statement and prospectus accurate and complete
until the securities covered by such registration statement have been sold (it
being understood that the foregoing shall only apply with respect to a Form S-3
Registration demand under Section 11(a) as to which the Company shall keep such
registration effective for not less than ninety (90) days);
(ii) If the offering is to be underwritten, in whole or in
part, enter into a written underwriting agreement with the holders of the
Registrable Stock participating in such offering and the underwriter in form and
substance reasonably satisfactory to the managing underwriter of the public
offering and the holders of the Registrable Stock participating in such
offering;
(iii) Furnish to the holders of securities participating in
such registration and to the underwriters of the securities being registered
such reasonable number of copies of the registration statement, preliminary
prospectus, final prospectus and such other documents as such underwriters and
holders may reasonably request in order to facilitate the public offering of
such securities;
(iv) Use its best efforts to register or qualify the
securities covered by such registration statement under such state securities or
blue sky laws of such jurisdictions as such participating holders and
underwriters may reasonably request;
(v) Notify the holders participating in such
registration, promptly after it shall receive notice thereof, of the date and
time when such registration statement and each post-effective amendment thereto
has become effective or a supplement to any prospectus forming a part of such
registration statement has been filed;
(vi) Notify such holders promptly of any request by the
Commission for the amending or supplementing of such registration statement or
prospectus or for additional information;
(vii) Prepare and file with the Commission, promptly upon
the request of any such holders, any amendments or supplements to such
registration statement or prospectus which, in the opinion of counsel for the
Company, is required under the Securities Act or the
17
rules and regulations thereunder in connection with the distribution of the
Registrable Stock by such holders;
(viii) Prepare and promptly file with the Commission, and
promptly notify such holders of the filing of, such amendments or supplements to
such registration statement or prospectus as may be necessary to correct any
statements or omissions if, at the time when a prospectus relating to such
securities is required to be delivered under the Securities Act, any event has
occurred as the result of which any such prospectus or any other prospectus as
then in effect may include an untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein not misleading;
(ix) In case any of such holders or any underwriter for
any such holders is required to deliver a prospectus at a time when the
prospectus then in circulation is not in compliance with the Securities Act or
the rules and regulations of the Commission, prepare promptly upon request such
amendments or supplements to such registration statement and such prospectus as
may be necessary in order for such prospectus to comply with the requirements of
the Securities Act and such rules and regulations;
(x) Advise such holders, promptly after it shall receive
notice or obtain knowledge thereof, of the issuance of any stop order by the
Commission suspending the effectiveness of such registration statement or the
initiation or threatening of any proceeding for that purpose and promptly use
its best efforts to prevent the issuance of any stop order or to obtain its
withdrawal if such stop order should be issued;
(xi) If requested by the managing underwriter or
underwriters or a holder of Registrable Stock being sold in connection with an
underwritten offering, immediately incorporate in a prospectus supplement or
post-effective amendment such information as the managing underwriters and the
holders of a majority of the Registrable Stock being sold agree should be
included therein relating to the plan of distribution with respect to such
Registrable Stock, including information with respect to the Registrable Stock
being sold to such underwriters, the purchase price being paid therefor by such
underwriters and with respect to any other terms of the underwritten (or best
efforts underwritten) offering of the Registrable Stock to be sold in such
offering; and make all required filings of such prospectus supplement or
post-effective amendment as soon as notified of the matters to be incorporated
in such prospectus supplement or post-effective amendment;
(xii) Cooperate with the selling holders of Registrable
Stock and the managing underwriters, if any, to facilitate the timely
preparation and delivery of certificates representing Registrable Stock to be
sold and not bearing any restrictive legends; and enable such Registrable Stock
to be in such denominations and registered in such names as the managing
underwriters may request at least two business days prior to any sale of
Registrable Securities to the underwriters;
(xiii) Prepare a prospectus supplement or post-effective
amendment to the registration statement or the related prospectus or any
document incorporated therein by reference or file any other required documents
so that, as thereafter delivered to the purchasers of
18
the Registrable Stock, the prospectus will not contain an untrue statement of
material fact or omit to state any material fact necessary to make the
statements therein not misleading;
(xiv) Enter into such agreements (including an underwriting
agreement) and take all such other actions in connection therewith in order to
expedite or facilitate the disposition of such Registrable Securities and in
such connection, whether or not an underwriting agreement is entered into and
whether or not the registration is an underwritten registration:
A. make such representations and
warranties to the holders of such Registrable Stock and the underwriters, if
any, in form, substance and scope as are customarily made by issuers to
underwriters in primary underwritten offerings;
B. If an underwriting agreement is
entered into, the same shall set forth in full the indemnification provisions
and procedures of Section 11(e) hereof with respect to all parties to be
indemnified pursuant to said Section; and
C. The Company shall deliver such
documents and certificates as may be requested by the holders of the majority of
the Registrable Stock being sold and the managing underwriters, if any, to
evidence compliance with the terms of this Section 11(c) and with any customary
conditions contained in the underwriting agreement or other agreement entered
into by the Company.
The above shall be done at each closing
under such underwriting or similar agreement or as and to the extent required
thereunder;
(xv) Make available for inspection by a representative of
the holders of a majority of the Registrable Stock, any underwriter
participating in any disposition pursuant to a registration statement, and any
attorney or accountant retained by the sellers or underwriter, all financial and
other records, pertinent corporate documents and properties of the Company, and
cause the Company's officers, directors and employees to supply all information
reasonably requested by any such representative, underwriter, attorney or
accountant in connection with the preparation of the registration statement;
provided, that any records, information or documents that are designated by the
Company in writing as confidential shall be kept confidential by such persons
unless disclosure of such records, information or documents is required by court
or administrative order;
(xvi) Otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission, and make generally available
to the Company's security holders, earning statements satisfying the provisions
of Section 11(a) of the Securities Act, no later than forty-five (45) days after
the end of any twelve (12) month period (or ninety (90) days, if such a period
is a fiscal year) (i) commencing at the end of any fiscal quarter in which
Registrable Stock is sold to underwriters in an underwritten offering, or, if
not sold to underwriters in such an offering, (ii) beginning with the first
month of the Company's first fiscal quarter commencing after the effective date
of a registration statement;
(xvii) At the request of any such holder (i) furnish to such
holder on the effective date of the registration statement or, if such
registration includes an underwritten public offering, at the closing provided
for in the underwriting agreement, an opinion, dated such date, of the
19
counsel representing the Company for the purposes of such registration,
addressed to the underwriters, if any, and to the holder or holders making such
request, covering such matters with respect to the registration statement, the
prospectus and each amendment or supplement thereto, proceedings under state and
federal securities laws, other matters relating to the Company, the securities
being registered and the offer and sale of such securities as are customarily
the subject of opinions of issuer's counsel provided to underwriters in
underwritten public offerings, and such opinion of counsel shall additionally
cover such legal and factual matters with respect to the registration as such
requesting holder or holders may reasonably request, and (ii) use its best
effort to furnish to such holder letters dated each such effective date and such
closing date, from the independent certified public accountants of the Company,
addressed to the underwriters, if any, and to the holder or holders making such
request, stating that they are independent certified public accountants within
the meaning of the Securities Act and dealing with such matters as the
underwriters may request, or, if the offering is not underwritten, that in the
opinion of such accountants the financial statements and other financial data of
the Company included in the registration statement or the prospectus or any
amendment or supplement thereto comply in all material respects with the
applicable accounting requirements of the Securities Act, and additionally
covering such other financial matters, including information as to the period
ending immediately prior to the date of such letter with respect to the
registration statement and prospectus, as such requesting holder or holders may
reasonably request.
(d) Expenses of Registration. All expenses incident to
the Company's performance of or compliance with this Warrant, including, without
limitation, the following shall be borne by the Company, regardless of whether
the registration statement becomes effective:
(i) All registration and filing fees (including those
with respect to filings required to be made with the National Association of
Securities Dealers, Inc.);
(ii) Fees and expenses of compliance with all securities
or blue sky laws (including fees and disbursements of counsel for the
underwriters or selling holders in connection with blue sky qualifications of
the Registrable Stock and in determination of their eligibility for investment
under the laws of such jurisdictions as the managing underwriters or holders of
a majority of the Registrable Stock being sold may designate);
(iii) Printing, messenger, telephone and delivery expenses;
(iv) Fees and disbursements of counsel for the Company and
of one legal counsel for the sellers of the Registrable Stock;
(v) Fees and disbursements of all independent certified
public accountants of the Company (including the expenses of any special audit
and "comfort" letters required by or incident to such performance);
(vi) Fees and disbursements of underwriters (excluding
discounts, commissions or fees of underwriters, selling brokers, dealer managers
or similar securities
20
industry professionals relating to the distribution of the Registrable Stock or
legal expenses of any person other than the Company and the selling holders);
and
(vii) Fees and expenses of other persons retained by the
Company.
The Company will, in any event, pay its
internal expenses (including without limitation, all salaries and expenses of
its officers and employees performing legal or accounting duties), the expense
of any annual audit, the fees and expenses incurred in connection with the
listing of the securities to be registered on each securities exchange on which
similar securities issued by the Company are then listed, rating agency fees and
the fees and expenses of any person, including special experts, retained by the
Company.
(e) Indemnification.
(i) The Company hereby agrees to indemnify each
of the holders of Registrable Stock against all claims, losses, damages and
liabilities (or actions in respect thereof) arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained in
any registration statement, preliminary or final prospectus, or other document
incident to any such registration, qualification or compliance (or in any
related registration statement, notification or the like) or any omission (or
alleged omission) to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, or any violation by
the Company of any rule or regulation promulgated under the Securities Act
applicable to the Company and relating to action or inaction required of the
Company in connection with any such registration, qualification or compliance,
and to reimburse the holders of Registrable Stock (including officers and
directors of the same and controlling persons) for any legal and any other
expenses reasonably incurred in connection with investigating or defending any
such claim, loss, damage, liability or action, provided, however, that the
Company will not be liable in any such case to the extent that any such claim,
loss, damage or liability arises out of or is based on any untrue statement or
omission based upon written information furnished to the Company by
Warrantholders in an instrument duly executed by Warrantholders and stated to be
specifically for use therein.
(ii) The Warrantholders severally and not jointly
agree to indemnify the Company and its officers and directors and each person,
if any, who controls any thereof within the meaning of Section 15 of the
Securities Act and their respective successors against all claims, losses,
damages and liabilities (or actions in respect thereof) arising out of or based
on any untrue statement of a material fact contained in any prospectus, offering
circular or other document incident to any registration, qualification or
compliance relating to securities purchased pursuant to the Warrants (or in any
related registration statement, notification or the like) or any omission (or
alleged omission) to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading and will reimburse
the Company and each other person indemnified pursuant to this subsection (ii)
for any legal and any other expenses reasonably incurred in connection with
investigating or defending any such claim, loss, damage, liability or action;
provided, however, that this subsection (ii) shall apply only if (and only to
the extent that) such statement or omission was made in reliance upon
information (including, without limitation, written negative responses to
inquiries) furnished to the Company by an instrument duly executed by
Warrantholders and stated to be specifically for
21
use in such prospectus, or other document (or related registration statement,
notification or the like) or any amendment or supplement thereto.
(iii) Each party entitled to indemnification
hereunder (the "Indemnified Party") shall give notice to the party required to
provide indemnification (the "Indemnifying Party") promptly after such
Indemnified Party has actual knowledge of any claim as to which indemnity may be
sought, and shall permit the Indemnifying Party (at such Indemnifying Party's
expense) to assume the defense of any claim or any litigation resulting
therefrom, provided that counsel for the Indemnifying Party, who shall conduct
the defense of such claim or litigation, shall be reasonably satisfactory to the
Indemnified Party, and the Indemnified Party may participate in such defense at
such party's expense, and provided, further, that the omission by any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Section 11(e) except to the
extent that the omission results in a failure of actual notice to the
Indemnifying Party and such Indemnifying Party is materially damaged solely as a
result of the failure to give notice. No Indemnifying Party, in the defense of
any such claim or litigation, shall, except with the consent of each Indemnified
Party, consent to entry of any judgment or enter into any settlement which does
not include as an unconditional term thereof the giving by the claimant or
plaintiff to such Indemnified Party of a release from all liability in respect
to such claim or litigation.
(iv) If the indemnification provided for in this
Section 11(e) is unavailable or insufficient to hold harmless an Indemnified
Party in respect of any losses, claims, damages, liabilities, expenses or
actions in respect thereof referred to herein, then the Indemnifying Party shall
contribute to the amount paid or payable by such Indemnified Party as a result
of such losses, claims, damages, liabilities, expenses or actions in such
proportion as is appropriate to reflect the relative fault of the Indemnifying
Party on the one hand, and the Indemnified Party on the other, in connection
with the statements or omissions which resulted in such losses, claims, damages,
liabilities, expenses or actions as well as any other relevant equitable
considerations, including the failure to give the notice required hereunder. The
relative fault of the Indemnifying Party and the Indemnified Party shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact relates to information supplied by the
Indemnifying Party or the Indemnified Party and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The Company and the Warrantholders agree that it would
not be just and equitable if contributions pursuant to this Section 11(e) were
determined by pro rata allocation or by any other method of allocation which did
not take account of the equitable considerations referred to above. The amount
paid or payable to an Indemnified Party as a result of the losses, claims,
damages, liabilities or actions in respect thereof, referred to above, shall be
deemed to include any legal or other expenses reasonably incurred by such
Indemnified Party in connection with investigating or defending any such action
or claim. Notwithstanding the contribution provisions of this Section 11(e), in
no event shall the amount contributed by any seller of Registrable Stock exceed
the aggregate net offering proceeds received by such seller from the sale of
Registrable Stock to which such contribution or indemnification claim relates.
No person guilty of fraudulent misrepresentations (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any person
who is not guilty of such fraudulent misrepresentation.
22
(v) The indemnification required by this Section
11(e) shall be made by periodic payments during the course of the investigation
or defense, as and when bills are received or expenses incurred. Anything
contained herein to the contrary notwithstanding, the maximum aggregate
liability of any holder of Registrable Stock under this Section 11(e) shall not
exceed the amount of the net proceeds actually received by such holder from the
sale of its Registrable Stock pursuant to the registration, qualification,
notification or compliance in respect of which such liability arose.
(f) Reporting Requirements Under Exchange Act. From and
after the effective date of the first registration statement filed by the
Company under the Securities Act (the "Effective Date"), the Company shall
(whether or not it shall then be required to do so) timely file such
information, documents and reports as the Commission may require or prescribe
under Section 13 or 15(d) (whichever is applicable) of the Exchange Act.
Immediately upon becoming subject to the reporting requirements of either
Section 13 or 15(d) of the Exchange Act, the Company shall forthwith upon
request furnish any holder of Registrable Stock (i) a written statement by the
Company that it has complied with such reporting requirements, (ii) a copy of
the most recent annual or quarterly report of the Company, and (iii) such other
reports and documents filed by the Company with the Commission as such holder
may reasonably request in availing itself of an exemption for the sale of
Registrable Stock without registration under the Securities Act. The Company
acknowledges and agrees that the purpose of the requirements contained in this
Section 11(f) is to enable any such holder to comply with the current public
information requirement contained in Rule 144 under the Securities Act should
such holder ever wish to dispose of any of the securities of the Company
acquired by it without registration under the Securities Act in reliance upon
Rule 144 (or any other similar exemptive provision). In addition, after the
Effective Date the Company shall take such other measures and file such other
information, documents and reports as shall hereafter be required by the
Commission as a condition to the availability of Rule 144 and Rule 144A under
the Securities Act (or any similar exemptive provision hereafter in effect).
(g) Stockholder Information. The Company may require each
holder of Registrable Stock as to which any registration is to be effected
pursuant to this Section 11 to furnish the Company such information with respect
to such holder and the distribution of such Registrable Stock as shall be
required by law or by the Commission in connection therewith.
12. Representation and Warranties. The Company hereby represents
and warrants to and covenants with Bank, each Warrantholder, and each holder of
Warrant Shares that:
(a) Organization and Capitalization of the Company. The
Company is a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware. As of the date hereof, the authorized
capital of the Company consists of 30,000,000 shares of Common Stock and
10,000,000 shares of Preferred Stock, of which 8,801,070 shares of Common Stock
and 5,943,536 shares of Preferred Stock are issued and outstanding. The Company
has, and at all times during the Exercise Period will have, reserved for
issuance pursuant to the Warrants that number of shares of Common Stock that are
issuable pursuant to the Warrants. Except for the Excluded Securities, as of the
date hereof, the Company has not issued or agreed to issue any stock purchase
rights, options, convertible securities, warrants (other than this Warrant) or
any other securities or indebtedness convertible into shares of
23
Common Stock, and there are no preemptive rights in effect with respect to the
issuance of any shares of Common Stock. All the outstanding shares of Common
Stock and Preferred Stock have been validly issued without violation of any
preemptive or similar rights, are fully paid and nonassessable and have been
issued in compliance with all federal and applicable state securities laws.
(b) Authority. The Company has full corporate power and
authority to execute and deliver this Warrant, to issue the shares of Common
Stock issuable upon exercise of this Warrant, and to perform all of its
obligations hereunder, and the execution, delivery and performance hereof has
been duly authorized by all necessary corporate action on its part. This Warrant
has been duly executed on behalf of the Company and constitutes the legal, valid
and binding obligation of the Company enforceable in accordance with its terms.
(c) No Legal Bar. Except as to the Bank's status, neither
the execution, delivery or performance of this Warrant nor the issuance of the
shares of Common Stock issuable upon exercise of this Warrant will (a) conflict
with or result in a violation of the Certificate of Incorporation or By-laws of
the Company, (b) conflict with or result in a violation of any law, statute,
regulation, order or decree applicable to the Company or any affiliate, (c)
require any consent or authorization or filing with, or other act by or in
respect of any governmental authority or (d) result in a breach of, constitute a
default under or constitute an event creating rights of acceleration,
termination or cancellation under any material mortgage, lease, contract,
franchise, instrument or other material agreement to which the Company is a
party or by which it is bound.
(d) Validity of Shares. When issued upon the exercise of
this Warrant as contemplated herein, the shares of Common Stock so issued will
have been validly issued and will be fully paid and nonassessable. On the date
hereof, the par value of the Common Stock is less than the Exercise Price per
share of Common Stock.
13. Miscellaneous Provisions.
(a) Judicial Reference.
(i) Other than the appointment of a receiver, or
the exercise of other provisional remedies (any and all of which may be
initiated pursuant to applicable law), each controversy, dispute or claim
arising out of or relating to this Warrant, which controversy, dispute or claim
is not settled in writing within thirty (30) days after the "Claim Date"
(defined as the date on which the Company or a Warrantholder gives written
notice to the other that a controversy, dispute or claim exists), will be
settled by a reference proceeding in California in accordance with the
provisions of Section 638 et seq. of the California Code of Civil Procedure, or
their successor section ("CCP"), which shall constitute the exclusive remedy for
the settlement of any controversy, dispute or claim concerning this Warrant,
including whether such controversy, dispute or claim is subject to the reference
proceeding and except as set forth above, the parties waive their rights to
initiate any legal proceedings against each other in any court or jurisdiction
other than the Superior Court in counties of Los Angeles or Orange, California
(the "Court"). The referee shall be a retired Judge of the Court selected by
mutual agreement of the parties, and if they cannot so agree within forty-five
(45) days after the Claim Date, the referee
24
shall be promptly selected by the Presiding Judge of the Court (or his or her
representative). The referee shall be appointed to sit as a temporary judge,
with all of the powers for a temporary judge, as authorized by law, and upon
selection shall take and subscribe to the oath of office as provided for in Rule
244 of the California Rules of Court (or any subsequently enacted Rule). Each
party shall have one peremptory challenge pursuant to CCP Section 170.6. The
referee shall (i) be requested to set the matter for hearing within sixty (60)
days after the Claim, Date and (ii) try any and all issues of law or fact and
report a statement of decision upon them, if possible, within ninety (90) days
of the Claim Date. Subject to the provision of Section 13(a)(iii), any decision
rendered by the referee will be final, binding and conclusive and judgment shall
be entered pursuant to CCP Section 644 in any court in the State of California
having jurisdiction. Any party may apply for a reference proceeding at any time
after thirty (30) days following notice to any other party of the nature of the
controversy, dispute or claim, by filing a petition for a hearing and/or trial.
All discovery permitted by this Warrant shall be completed no later than fifteen
(15) days before the first hearing date established by the referee. The referee
may extend such period in the event of a party's refusal to provide requested
discovery for any reason whatsoever, including, without limitation, legal
objections raised to such discovery or unavailability of a witness due to
absence or illness. No party shall be entitled to "priority" in conducting
discovery. Depositions may be taken by either party upon seven (7) days written
notice, and request for production or inspection of documents shall be responded
to within ten (10) days after service. All disputes relating to discovery which
cannot be resolved by the parties shall be submitted to the referee whose
decision shall be final and binding upon the parties. Pending appointment of the
referee as provided herein, the Court is empowered to issue temporary and/or
provisional remedies, as appropriate.
(ii) Except as expressly set forth in this
Warrant, the referee shall determine the manner in which the reference
proceeding is conducted including the time and place of all hearings, the order
of presentation of evidence, and all other questions that arise with respect to
the course of the reference proceeding. All proceedings and hearings conducted
before the referee, except for trial, shall be conducted without a court
reporter except that when any party so requests, a court reporter will be used
at any hearing conducted before the referee. The party making such a request
shall have the obligation to arrange for and pay for the court reporter. The
costs of the court reporter at the trial shall be borne equally by the parties.
(iii) The referee shall be required to determine
all issues in accordance with existing case law and the statutory laws of the
State of California. The rules of evidence applicable to proceedings at law in
the State of California will be applicable to the reference proceeding. The
referee shall be empowered to enter equitable as well as legal relief, to
provide all temporary and/or provisional remedies and to enter equitable orders
that will be binding upon the parties. The referee shall issue a single judgment
at the close of the reference proceeding which shall dispose of all of the
claims of the parties that are the subject of the reference. The parties hereto
expressly reserve the right to contest or appeal from the final judgment or any
appealable order or appealable judgment entered by the referee. The parties
hereto expressly reserve the right to request findings of fact, conclusions of
laws, a written statement of decision, and the right to move for a new trial or
a different judgment, which new trial, if granted, is also to be a reference
proceeding under this provision.
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(iv) In the event that the enabling legislation
which provides for appointment of a referee is repealed (and no successor
statute is enacted), any dispute between the parties that would otherwise be
determined by the reference procedure herein described will be resolved and
determined by arbitration. The arbitration will be conducted by a retired judge
of the Court, in accordance with the California Arbitration Act, Section 1280
through Section 1294.2 of the CCP as amended from time to time. The limitations
with respect to discovery as set forth hereinabove shall apply to any such
arbitration proceeding.
(b) Notices. All notices, requests and other
communications to any party hereunder shall be in writing (including facsimile
transmission or similar writing) and shall be given to such party at its address
or facsimile number set forth below or such other address or facsimile number as
such party may hereafter specify by notice to the other party in accordance with
this Section 13(b). Each such notice, request or other communication shall be
deemed given on the second business day after mailing; provided that actual
notice, however and from whomever given or received, shall always be effective
on receipt.
To the Company: Digital Theater Systems, Inc.
00000 Xxx Xxxxxxx, Xxxxx 000
Xxxxxxxx Xxxxxxx, XX 00000
Attention: Chief Financial Officer
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
with a copy Xxxx & Xxxxx
(which shall not Professional Corporation
constitute notice) 0000 Xxxxxxx Xxxx Xxxx, 00xx Xxxxx
to: Xxx Xxxxxxx, XX 00000
Attention: Xxxxxxxx X. Xxxxxxx, Esq.
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
To the Imperial Bank
Warrantholders 0000 Xxxxxxxx Xxxx., 0xx Xxxxx
or holder of Xxxxxxx Xxxxx, XX 00000
Warrant Shares: Attention: Xxxxxxx Xxxx Xxx
Vice President
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
With a copy (which Xxxxxxx X. Xxxxx, Esq.
shall not constitute Senior Vice President and General Counsel
notice) to: IMPERIAL BANK
0000 Xxxxx Xx Xxxxxxx Xxxxxxxxx
Xxxxxxxxx, XX 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
26
(c) Successors and Assigns. This Warrant shall be binding
upon and inure to the benefit of the Company, the Bank, the Warrantholders and
the holders of Warrant Shares and the successors, assigns and transferees of the
Company, the Bank, the Warrantholders and the holders of Warrant Shares.
(d) Attorneys' Fees. The Company agrees to pay, on
demand, all attorneys' fees (including attorneys' fees incurred pursuant to
proceedings arising under the Bankruptcy Code) and all other costs and expenses
which may be incurred by the Bank, the Warrantholders and the holders of Warrant
Shares in connection with any amendment to this Warrant and/or in connection
with the enforcement of this Warrant, whether or not suit is brought.
(e) Entire Agreement; Amendments and Waivers. This
Warrant sets forth the entire understanding of the parties with respect to the
transactions contemplated hereby. The failure of any party to seek redress for
the violation or to insist upon the strict performance of any term of this
Warrant shall not constitute a waiver of such term and such party shall be
entitled to enforce such term without regard to such forbearance. This Warrant
may be amended, the Company may take any action herein prohibited or omit to
take action herein required to be performed by it, and any breach of or
compliance with any covenant, agreement, warranty or representation may be
waived, only if the Company has obtained the written consent or written waiver
of the majority in interest of the Warrantholders, and then such consent or
waiver shall be effective only in the specific instance and for the specific
purpose for which given.
(f) Severability. If any term of this Warrant as applied
to any person or to any circumstance is prohibited, void, invalid or
unenforceable in any jurisdiction, such term shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or invalidity without in any way
affecting any other term of this Warrant or affecting the validity or
enforceability of this Warrant or of such provision in any other jurisdiction.
(g) Headings. The headings in this Warrant are inserted
only for convenience of reference and shall not be used in the construction of
any of its terms.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its duly authorized officers effective as of the date first set forth above.
DIGITAL THEATER SYSTEMS, INC., a Delaware
corporation
By /s/ Xxx Xxxxxxxx
----------------------------------------
Name: Xxxx X. Xxxxxxxx
Title: VP, CFO
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