EXHIBIT 4.4
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
DISCOVERY ZONE, INC.
--------------------------------------------------------
WARRANT AGREEMENT
--------------------------------------------------------
DATED AS OF JULY 22, 1997
WARRANTS TO PURCHASE SHARES OF COMMON STOCK
PAR VALUE $0.01 PER SHARE
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
TABLE OF CONTENTS
Page
ARTICLE I
ISSUANCE, FORM, EXECUTION, DELIVERY AND
REGISTRATION OF WARRANT CERTIFICATES........................................ 1
SECTION 1.1. Issuance of Warrants..................................... 1
SECTION 1.2. Form of Warrant Certificates............................. 2
SECTION 1.3. Execution of Warrant Certificates........................ 2
SECTION 1.4. Appointment of Warrant Agent............................. 2
SECTION 1.5. Authentications and Delivery............................. 3
SECTION 1.6. Temporary Warrant Certificates........................... 3
SECTION 1.7. Separation of Warrants and Notes......................... 4
SECTION 1.8. Registrar and Warrant Register........................... 4
SECTION 1.9. Registration of Transfers and Exchanges.................. 4
SECTION 1.10. Lost, Stolen, Destroyed, Defaced or
Mutilated Warrant Certificates........................... 11
SECTION 1.11. Offices for Exercise, etc................................ 12
ARTICLE II
DURATION, EXERCISE OF WARRANTS AND EXERCISE PRICE........................... 12
SECTION 2.1. Duration of Warrants..................................... 12
SECTION 2.2. Exercise, Exercise Price, Settlement and Delivery........ 13
SECTION 2.3. Cancellation of Warrant Certificates..................... 15
ARTICLE III
OTHER PROVISIONS RELATING TO
RIGHTS OF HOLDERS OF WARRANTS............................................... 15
SECTION 3.1. Enforcement of Rights.................................... 15
SECTION 3.2. Tag-Along Rights......................................... 16
SECTION 3.3. Exchange Rights of Holders............................... 18
SECTION 3.4. Repurchase Right......................................... 18
ARTICLE IV
CERTAIN COVENANTS OF THE COMPANY............................................ 20
SECTION 4.1. Payment of Taxes......................................... 20
SECTION 4.2. Notice of Expiration Date................................ 20
i
SECTION 4.3. Reservation of Common Stock.............................. 20
SECTION 4.4. Warrant Shares to be Duly Authorized
and Issued, Fully Paid and Nonassessable................. 21
SECTION 4.5. Reports.................................................. 21
SECTION 4.6. Private Placement Numbers................................ 22
SECTION 4.7. Right of Action.......................................... 22
SECTION 4.8. Survival................................................. 22
ARTICLE V
ADJUSTMENTS................................................................. 22
SECTION 5.1. Adjustment of Exercise Price
and Number of Warrant Shares Issuable.................... 22
SECTION 5.2. Fractional Interest...................................... 30
SECTION 5.3. When Adjustment Not Required............................. 31
SECTION 5.4. Treasury Stock........................................... 31
SECTION 5.5. Notices to Warrant Agent and Holders..................... 31
ARTICLE VI
CONCERNING THE WARRANT AGENT................................................ 32
SECTION 6.1. Warrant Agent............................................ 32
SECTION 6.2. Conditions of Warrant Agent's Obligations................ 32
SECTION 6.3. Resignation and Appointment of Successor................. 36
ARTICLE VII
MISCELLANEOUS............................................................... 37
SECTION 7.1. Defined Terms............................................ 37
SECTION 7.2. Amendment................................................ 39
SECTION 7.3. Notices and Demands to the
Company and Warrant Agent................................ 40
SECTION 7.4. Address for Notices to the Company
and for Transmission of Documents........................ 40
SECTION 7.5. Notices to Holders....................................... 41
SECTION 7.6. Applicable Law........................................... 41
SECTION 7.7. Obtaining of Governmental Approvals...................... 41
SECTION 7.8. Persons Having Rights Under Agreement.................... 41
SECTION 7.9. Headings................................................. 41
SECTION 7.10. Counterparts............................................. 41
SECTION 7.11. Inspection of Warrant Agreement.......................... 41
SECTION 7.12. Successors............................................... 42
ii
EXHIBITS
EXHIBIT A - FORM OF WARRANT CERTIFICATE......................................A-1
EXHIBIT B - CERTIFICATE TO BE DELIVERED UPON EXCHANGE
OR REGISTRATION OF TRANSFER OF WARRANTS............................B-1
EXHIBIT C - TRANSFEREE LETTER OF REPRESENTATION..............................C-1
iii
WARRANT AGREEMENT
THIS WARRANT AGREEMENT ("Warrant Agreement"), dated as of July 22,
1997 is executed and delivered by Discovery Zone, Inc., a Delaware corporation
(together with any successor thereto, the "Company") and State Street Bank and
Trust Company as warrant agent (together with any successor warrant agent, the
"Warrant Agent"), for the benefit of the holders (the "Holders") from time to
time of the Warrant Certificates (as hereinafter defined).
WHEREAS, the Company has entered into a purchase agreement dated as of
even date herewith (the "Purchase Agreement") with ▇▇▇▇▇▇▇▇▇ & Company, Inc.
(the "Initial Purchaser"), pursuant to which the Company has agreed, among other
things, to sell to the Initial Purchaser 85,000 units (the "Units"), each
consisting of (i) $1,000 principal amount of 13 1/2% Senior Secured Notes due
2002 (each a "Note" and, collectively, the "Notes") to be issued under an
indenture dated as of even date herewith (the "Indenture"), between the Company
and State Street Bank and Trust Company, as trustee (the "Trustee"), and (ii)
one warrant (each a "Warrant" and, collectively, the "Warrants" and the
certificates evidencing the Warrants being hereinafter referred to as the
"Warrant Certificates") to initially purchase 9.4724 shares of the Company's
common stock, $.01 par value per share (the "Common Stock"), at an initial
exercise price of $.01 per share, subject to adjustment in accordance with the
terms hereof; and
WHEREAS, the Warrants and the Notes shall be separately transferable
on and after the Separation Date (as hereinafter defined); and
NOW, THEREFORE, in consideration of the purchase of the Units by the
Initial Purchaser and other valuable consideration, the adequacy and receipt of
which is hereby acknowledged, and for the purpose of defining the respective
rights and obligations of the Company, the Warrant Agent and the Holders, the
parties hereto agree as follows:
ARTICLE I
ISSUANCE, FORM, EXECUTION, DELIVERY AND
REGISTRATION OF WARRANT CERTIFICATES
SECTION 1.1. ISSUANCE OF WARRANTS. Each Warrant Certificate shall,
when countersigned by the Warrant Agent, evidence the number of Warrants
specified therein, and each Warrant evidenced thereby shall represent the right,
subject to the provisions contained herein and therein, to purchase from the
Company (and the Company shall issue and sell to such Holder) 9.4724 fully paid
and non-assessable shares of Common Stock (the shares of Common Stock
purchasable upon exercise of a Warrant being hereinafter referred to as the
"Warrant Shares" and, where appropriate, such term shall also mean the other
securities or property purchasable and deliverable upon exercise of a Warrant as
provided in Article V) at the price specified herein and therein, in each case
subject to adjustment as provided herein and therein.
SECTION 1.2. FORM OF WARRANT CERTIFICATES. The Warrant Certificates
will initially be issued either in global form (the "Global Warrants") or in
registered form as definitive Warrant certificates (the "Definitive Warrants").
The Warrant Certificates evidencing the Global Warrants or the Definitive
Warrants to be delivered pursuant to this Warrant Agreement shall be
substantially in the form set forth in Exhibit A attached hereto, dated the date
on which countersigned. Such Global Warrants shall represent such of the
outstanding Warrants as shall be specified therein and each shall provide that
it shall represent the aggregate amount of outstanding Warrants from time to
time endorsed thereon and that the aggregate amount of outstanding Warrants
represented thereby may from time to time be reduced or increased, as
appropriate. Any endorsement of a Global Warrant to reflect the amount of any
increase or decrease in the amount of outstanding Warrants represented thereby
shall be made by the Warrant Agent and Depositary (as defined) in accordance
with instructions given by the Holder thereof. The Depository Trust Company
("DTC"), a New York corporation, shall act as the depository with respect to the
Global Warrants (the "Depositary") until a successor shall be appointed by the
Company. Upon written request, a Holder may receive from the Warrant Agent
Definitive Warrants as set forth in Section 1.9 hereof.
SECTION 1.3. EXECUTION OF WARRANT CERTIFICATES. The Warrant
Certificates shall be executed on behalf of the Company by its President or any
Vice President and attested to by its Secretary or Assistant Secretary, under
its corporate seal. Such signatures may be the manual or facsimile signatures
of the present or any future such officers. The seal of the Company may be in
the form of a facsimile hereof and may be impressed, affixed, imprinted or
otherwise reproduced on the Warrant Certificates. Typographical and other minor
errors or defects in any such reproduction of the seal or any such signature
shall not affect the validity or enforceability of any Warrant Certificate that
has been duly countersigned and delivered by the Warrant Agent.
In case any officer of the Company who shall have signed any of the
Warrant Certificates shall cease to be such officer before the Warrant
Certificate so signed shall be countersigned and delivered by the Warrant Agent
or disposed of by the Company, such Warrant Certificate nevertheless may be
countersigned and delivered or disposed of as though the person who signed such
Warrant Certificate had not ceased to be such officer of the Company; and any
Warrant Certificate may be signed on behalf of the Company by such persons as,
at the actual date of the execution of such Warrant Certificate, shall be the
proper officers of the Company, although at the date of the execution and
delivery of this Warrant Agreement any such person was not such an officer.
SECTION 1.4. APPOINTMENT OF WARRANT AGENT. The Company hereby
appoints the Warrant Agent to act as agent for the Company in accordance with
the terms and conditions set forth in this Agreement, and the Warrant Agent
hereby accepts such appointment.
-2-
SECTION 1.5. AUTHENTICATIONS AND DELIVERY. Subject to the
immediately following paragraph of this Section 1.5, Warrant Certificates shall
be authenticated by manual signature and dated the date of authentication by the
Warrant Agent and shall not be valid for any purpose unless so authenticated and
dated. The Warrant Certificates shall be numbered and shall be registered in
the Warrant Register (as defined in Section 1.8 hereof).
Upon the receipt by the Warrant Agent of a written order of the
Company, which order shall be signed by its President or any Vice President and
attested to by its Secretary or Assistant Secretary and shall specify the amount
of Warrants to be authenticated, whether the Warrants are to be Global Warrants
or Definitive Warrants, the date of such Warrants and such other information as
the Warrant Agent may reasonably request, without any further action by the
Company, the Warrant Agent is authorized, upon receipt from the Company at any
time and from time to time of the Warrant Certificates, duly executed as
provided in Section 1.3 hereof, to authenticate the Warrant Certificates and
deliver them. Such authentication shall be by a duly authorized signatory of
the Warrant Agent (although it shall not be necessary for the same signatory to
sign all Warrant Certificates).
In case any authorized signatory of the Warrant Agent who shall have
authenticated any of the Warrant Certificates shall cease to be such authorized
signatory before the Warrant Certificate shall be disposed of by the Company,
such Warrant Certificate nevertheless may be delivered or disposed of as though
the person who authenticated such Warrant Certificate had not ceased to be such
authorized signatory of the Warrant Agent; and any Warrant Certificate may be
authenticated on behalf of the Warrant Agent by such persons as, at the actual
time of authentication of such Warrant Certificates, shall be the duly
authorized signatories of the Warrant Agent, although at the time of the
execution and delivery of this Warrant Agreement any such person is not an
authorized signatory.
The Warrant Agent's authentication on all Warrant Certificates shall
be in substantially the form set forth in Exhibit A hereto.
SECTION 1.6. TEMPORARY WARRANT CERTIFICATES. Pending the
preparation of the definitive Warrant Certificates, the Company may execute, and
the Warrant Agent shall authenticate and deliver, temporary Warrant
Certificates, which are printed, lithographed, typewritten or otherwise
produced, substantially of the tenor of the definitive Warrant Certificates in
lieu of which they are issued and with such appropriate insertions, omissions,
substitutions and other variations as the officers executing such Warrant
Certificates may determine, as evidenced by their execution of such Warrant
Certificates.
If temporary Warrant Certificates are issued, the Company will cause
definitive Warrant Certificates to be prepared without unreasonable delay.
After the preparation of definitive Warrant Certificates, the temporary Warrant
Certificates shall be exchangeable for definitive Warrant Certificates upon
surrender of the temporary Warrant Certificates at any office or agency
maintained by the Company for the purpose pursuant to
-3-
Section 1.11 hereof. Subject to the provisions of Section 4.1 hereof, such
exchange shall be without charge to the Holder. Upon surrender for cancellation
of any one or more temporary Warrant Certificates, the Company shall execute,
and the Warrant Agent shall authenticate and deliver in exchange therefor, one
or more definitive Warrant Certificates representing in the aggregate a like
number of Warrants. Until so exchanged, the Holder of a temporary Warrant
Certificate shall in all respects be entitled to the same benefits under this
Warrant Agreement as a Holder of a definitive Warrant Certificate.
SECTION 1.7. SEPARATION OF WARRANTS AND NOTES. The Notes and
Warrants will not be separately transferable until the date (the "Separation
Date") which is the earlier of (i) 45 days from the Issue Date (as defined in
Section 1.9(a)(ii)(y) hereof) and (ii) such date as the Initial Purchaser may
determine (as specified to the Company and the Warrant Agent in writing).
SECTION 1.8. REGISTRAR AND WARRANT REGISTER. The Company will keep,
at the office or agency maintained by the Company for such purpose, a register
or registers in which, subject to such reasonable regulations as it may
prescribe, the Company shall provide for the registration of, and registration
of transfer and exchange of, Warrants as provided in this Article. Each Person
designated by the Company from time to time as a Person authorized to register
the transfer and exchange of the Warrants is hereinafter called, individually
and collectively, the "Registrar". Initially, State Street Bank and Trust
Company shall act as Registrar. Upon written notice to the Warrant Agent and
any acting Registrar, the Company may appoint a successor Registrar for such
purposes.
The Company will at all times designate one Person (who may be the
Company and who need not be a Registrar) to act as repository of a master list
of names and addresses of the Holders (the "Warrant Register"). The Company
will act as such repository unless and until some other Person is, by written
notice from the Company to the Warrant Agent and the Registrar, designated by
the Company to act as such. The Company shall cause each Registrar to furnish
to such repository, on a current basis, such information as to all registrations
of transfer and exchanges effected by such Registrar, as may be necessary to
enable such repository to maintain the Warrant Register on as current a basis as
is practicable.
SECTION 1.9. REGISTRATION OF TRANSFERS AND EXCHANGES.
(a) TRANSFER AND EXCHANGE OF DEFINITIVE WARRANTS. When Definitive
Warrants are presented to the Warrant Agent with a request:
(i) to register the transfer of the Definitive Warrants; or
(ii) to exchange such Definitive Warrants for an equal number of
Definitive Warrants, the Warrant Agent shall register the transfer or
make the exchange as requested if the requirements under this Warrant
Agreement as set forth in this Section 1.9 for such transactions are
met; PROVIDED, HOWEVER, that
-4-
the Definitive Warrants presented or surrendered for registration of
transfer or exchange:
(x) shall be duly endorsed or accompanied by a written
instruction of transfer in form satisfactory to the
Company and the Warrant Agent, duly executed by the
Holder thereof or by its attorney, duly authorized in
writing and
(y) in the case of Warrants the offer and sale of which has
not been registered under the Securities Act, and are
presented for transfer or exchange prior to (x) the
date which is one year after the later of the date of
original issue (the "Issue Date") and the last date on
which the Company or any affiliate of the Company was
the owner of such Warrant, or any predecessor thereto
and (y) such later date, if any, as may be required by
any subsequent change in applicable law (the "Resale
Restriction Termination Date"), such Warrants shall be
accompanied, in the sole discretion of the Company, by
the following additional information and documents, as
applicable:
(A) if such Warrant is being delivered to the Warrant
Agent by a Holder for registration in the name of
such Holder, without transfer, a certification
from such Holder to that effect (in substantially
the form of Exhibit B hereto); or
(B) if such Warrant is being transferred to a
qualified institutional buyer (as defined in Rule
144A under the Securities Act) in accordance with
Rule 144A under the Securities Act or pursuant to
an exemption from registration in accordance with
Rule 144 or Regulation S under the Securities Act,
a certification to that effect (in substantially
the form of Exhibit B hereto); or
(C) if such Warrant is being transferred to an
institutional "accredited investor" within the
meaning of subparagraph (a)(1), (a)(2), (a)(3) or
(a)(7) of Rule 501 under the Securities Act,
delivery of a certification to that effect (in
substantially the form of Exhibit B hereto) and a
letter of representation from the transferee in
substantially the form of Exhibit C hereto; or
-5-
(D) if such Warrant is being transferred in reliance
on another exemption from the registration
requirements of the Securities Act, a
certification to that effect (in substantially the
form of Exhibit B hereto) and an opinion of
counsel reasonably acceptable to the Company to
the effect that such transfer is in compliance
with the Securities Act.
(b) RESTRICTIONS ON TRANSFER OF A DEFINITIVE WARRANT FOR A BENEFICIAL
INTEREST IN A GLOBAL WARRANT. A Definitive Warrant may not be transferred for a
beneficial interest in a Global Warrant except upon satisfaction of the
requirements set forth below. Upon receipt by the Warrant Agent of a Definitive
Warrant, duly endorsed or accompanied by appropriate instruments of transfer, in
form satisfactory to the Warrant Agent, together with:
(i) certification, substantially in the form of Exhibit B
hereto, that such Definitive Warrant is being transferred to a
"qualified institutional buyer" (as defined in Rule 144A under the
Securities Act) in accordance with Rule 144A under the Securities Act;
and
(ii) written instructions directing the Warrant Agent to make, or
to direct the Depositary to make, an endorsement on the Global Warrant
to reflect an increase in the aggregate amount of the Warrants
represented by the Global Warrant;
then the Warrant Agent shall cancel such Definitive Warrant and cause, or direct
the Depositary to cause, in accordance with the standing instructions and
procedures existing between the Depositary and the Warrant Agent, the number of
Warrants represented by the Global Warrant to be increased accordingly. If no
Global Warrant is then outstanding, the Company shall issue and the Warrant
Agent shall authenticate a new Global Warrant in the appropriate amount.
(c) TRANSFER AND EXCHANGE OF GLOBAL WARRANTS. The transfer and
exchange of Global Warrants or beneficial interests therein shall be effected
through the Depositary, in accordance with this Section 1.9 and the procedures
of the Depositary therefor.
(d) TRANSFER OF A BENEFICIAL INTEREST IN A GLOBAL WARRANT FOR A
DEFINITIVE WARRANT.
(i) Any Person having a beneficial interest in a Global Warrant
may upon request transfer such beneficial interest for a Definitive
Warrant. Upon receipt by the Warrant Agent of written instructions or
such other form of instructions as is customary for the Depositary
from the Depositary or its nominee on behalf of any Person having a
beneficial interest in a Global Warrant and upon receipt by the
Warrant Agent of a written order or such other form of instructions as
is customary for the Depositary or the Person
-6-
designated by the Depositary as having such a beneficial interest
containing registration instructions and, in the case of any such
transfer or exchange prior to the Resale Restriction Termination Date,
the following additional information and documents:
(A) if such beneficial interest is being transferred to the
Person designated by the Depositary as being the
beneficial owner, a certificate from such Person to
that effect (in substantially the form of Exhibit B
hereto); or
(B) if such beneficial interest is being transferred to a
qualified institutional buyer (as defined in Rule 144A
under the Securities Act) in accordance with Rule 144A
under the Securities Act or pursuant to an exemption
from registration in accordance with Rule 144 or
Regulation S under the Securities Act, a certification
to that effect from the transferee or transferor (in
substantially the form of Exhibit B hereto); or
(C) if such beneficial interest is being transferred to an
institutional "accredited investor" within the meaning
of subparagraph (a)(1), (a)(2), (a)(3) or (a)(7) of
Rule 501 under the Securities Act, delivery of a
certification to that effect (in substantially the form
of Exhibit B hereto), a letter of representation from
the transferee in substantially the form of Exhibit C
hereto and an opinion of counsel reasonably acceptable
to the Company to the effect that such transfer is in
compliance with the Securities Act; or
(D) if such beneficial interest is being transferred in
reliance on another exemption from the registration
requirements of the Securities Act, a certification to
that effect (in substantially the form of Exhibit B
hereto) and an opinion of counsel reasonably acceptable
to the Company to the effect that such transfer is in
compliance with the Securities Act,
then the aggregate amount of the Global Warrant will be reduced
by the Depositary or its custodian and, following such reduction,
the Company will execute and, upon receipt of an authentication
order in the form of an Officers' Certificate (as hereinafter
defined), the Warrant Agent will authenticate and deliver to the
transferee a Definitive Warrant.
(ii) Definitive Warrants issued in exchange for a beneficial
interest in a Global Warrant pursuant to Section 1.8(d) shall be
registered in such
-7-
names and in such authorized denominations as the Depositary, pursuant
to instructions from its direct or indirect participants or otherwise,
shall instruct the Warrant Agent in writing. The Warrant Agent shall
deliver such Definitive Warrant to the Persons in whose names such
Warrants are so registered.
(e) RESTRICTIONS ON TRANSFER AND EXCHANGE OF GLOBAL WARRANTS.
Notwithstanding any other provisions of this Warrant Agreement (other than the
provisions set forth in Section 1.9(f)), a Global Warrant may not be transferred
as a whole except by the Depositary to a nominee of the Depositary or by a
nominee of the Depositary to the Depositary or another nominee of the Depositary
or by the Depositary or any such nominee to a successor Depositary or a nominee
of such successor Depositary.
(f) AUTHENTICATION OF DEFINITIVE WARRANTS IN ABSENCE OF DEPOSITARY.
If at any time:
(i) the Depositary for the Warrants notifies the Company that
the Depositary is unwilling or unable to continue as Depositary for
the Global Warrant and a successor Depositary for the Global Warrant
is not appointed by the Company within 90 days after delivery of such
notice or
(ii) the Company, at its sole discretion, notifies the Warrant
Agent in writing that it elects to cause the issuance of Definitive
Warrants under this Warrant Agreement,
then the Company will execute, and the Warrant Agent, upon receipt of an
officers' certificate signed by two duly authorized officers of the Company (one
of whom must be the principal executive officer, principal financial officer or
principal accounting officer) (an "Officers' Certificate") requesting the
authentication and delivery of Definitive Warrants, will authenticate and
deliver Definitive Warrants, in an aggregate number equal to the aggregate
number of warrants represented by the Global Warrant, in exchange for such
Global Warrant.
(g) LEGENDS.
(i) Except to the extent permitted by paragraph (ii) of this
Section 1.9(g), each Warrant Certificate evidencing the Global
Warrants and the Definitive Warrants (and all Warrants issued in
exchange therefor or substitution thereof) shall bear a legend
substantially to the following effect:
THE WARRANTS REPRESENTED BY THIS WARRANT CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), OR ANY STATE SECURITIES LAWS. NEITHER THIS WARRANT CERTIFICATE NOR
ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED,
TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF
-8-
IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT
FROM, OR NOT SUBJECT TO, REGISTRATION.
THE HOLDER OF THE WARRANTS REPRESENTED BY THIS WARRANT CERTIFICATE, BY ITS
ACCEPTANCE HEREOF, AGREES TO OFFER, SELL OR OTHERWISE TRANSFER THE WARRANTS
REPRESENTED BY THIS WARRANT CERTIFICATE PRIOR TO THE DATE WHICH IS TWO
YEARS AFTER THE LATER OF THE ORIGINAL ISSUE DATE OF THE WARRANTS
REPRESENTED BY THIS WARRANT CERTIFICATE AND THE LAST DATE ON WHICH
DISCOVERY ZONE, INC. ("THE COMPANY") OR ANY AFFILIATE OF THE COMPANY WAS
THE OWNER OF THE WARRANTS REPRESENTED BY THIS WARRANT CERTIFICATE (OR ANY
PREDECESSOR OF SUCH WARRANTS OR WARRANT CERTIFICATE) (THE "RESALE
RESTRICTION TERMINATION DATE"), ONLY (A) TO THE COMPANY, (B) PURSUANT TO A
REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE
SECURITIES ACT, (C) FOR SO LONG AS THE WARRANTS REPRESENTED BY THIS WARRANT
CERTIFICATE ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, TO A PERSON IT
REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE
144A UNDER THE SECURITIES ACT THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE
ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE
TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND
SALES TO NON-U.S. PERSONS THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE
MEANING OF REGULATION S UNDER THE SECURITIES ACT, (E) TO AN INSTITUTIONAL
"ACCREDITED INVESTOR" WITHIN THE MEANING OF SUBPARAGRAPH (A)(1), (2), (3)
OR (7) OF RULE 501 UNDER THE SECURITIES ACT THAT IS ACQUIRING THE WARRANTS
REPRESENTED BY THIS WARRANT CERTIFICATE FOR ITS OWN ACCOUNT, OR FOR THE
ACCOUNT OF SUCH AN INSTITUTIONAL "ACCREDITED INVESTOR," FOR INVESTMENT
PURPOSES AND NOT WITH A VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH,
ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT OR (F) PURSUANT TO
ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT, SUBJECT TO THE COMPANY'S AND THE WARRANT AGENT'S, AS
APPLICABLE, RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO
CLAUSE (D), (E) OR (F) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL,
CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM, AND IN
EACH OF THE FOREGOING CASES, AN ASSIGNMENT IN THE FORM APPEARING ON THE
OTHER SIDE OF THIS WARRANT CERTIFICATE IS COMPLETED AND DELIVERED BY THE
TRANSFEROR TO THE WARRANT AGENT. THIS LEGEND SHALL BE REMOVED UPON THE
REQUEST OF A HOLDER AFTER THE RESALE RESTRICTION TERMINATION DATE.
-9-
THIS SECURITY IS SUBJECT TO A REGISTRATION RIGHTS AGREEMENT DATED AS OF
JULY 22, 1997 BETWEEN THE COMPANY AND ▇▇▇▇▇▇▇▇▇ & COMPANY, INC. (THE
"INITIAL PURCHASER"), A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE
COMPANY.
To the extent a Warrant Certificate evidences a Global Warrant, such
Warrant Certificate shall also bear the legend with respect thereto
substantially in the form set forth on Exhibit A hereto.
Each Warrant Certificate issued prior to the Separation Date shall
also bear the following legend on the face thereof:
THE WARRANTS EVIDENCED BY THIS WARRANT CERTIFICATE ARE INITIALLY ISSUED AS
PART OF AN ISSUANCE OF UNITS, EACH OF WHICH CONSISTS OF $1,000 PRINCIPAL
AMOUNT OF 13 1/2% SENIOR SECURED NOTES DUE 2002 (THE "NOTES") OF THE COMPANY
AND ONE WARRANT INITIALLY ENTITLING THE HOLDER THEREOF TO PURCHASE 9.4724
SHARES OF THE COMPANY'S COMMON STOCK, PAR VALUE $.01 PER SHARE. PRIOR TO
THE CLOSE OF BUSINESS UPON THE EARLIEST TO OCCUR OF (i) 45 DAYS AFTER JULY
22, 1997 AND (ii) SUCH EARLIER DATE AS THE INITIAL PURCHASER MAY DESIGNATE,
THE WARRANTS EVIDENCED BY THIS CERTIFICATE MAY NOT BE TRANSFERRED OR
EXCHANGED SEPARATELY FROM, BUT MAY BE TRANSFERRED OR EXCHANGED ONLY
TOGETHER WITH, THE NOTES.
(ii) Upon any sale or transfer of a Warrant pursuant to Rule 144
under the Securities Act in accordance with this Section 1.9
or an effective registration statement under the Securities
Act;
(A) in the case of any Warrant that is a Definitive
Warrant, the Warrant Agent shall permit the Holder
thereof to exchange such Warrant for a Definitive
Warrant that does not bear the first paragraph of the
legend set forth above and rescind any related
restriction on the transfer of such Warrant; and
(B) any such Warrant represented by a Global Warrant shall
not be subject to the provisions set forth in (i) above
(such sales or transfers being subject only to the
provisions of Section 1.9(c) hereof); PROVIDED,
HOWEVER, that with respect to any request for an
exchange of a Warrant that is represented by a Global
Warrant for a Definitive Warrant that does not bear the
first paragraph of the legend set forth above, which
request is made in reliance upon Rule 144 under the
Securities Act, the Holder thereof shall certify in
writing to the Warrant
-10-
Agent that such request is being made pursuant to Rule
144 under the Securities Act (such certification to be
substantially in the form of Exhibit B hereto).
(h) CANCELLATION AND/OR ADJUSTMENT OF A GLOBAL WARRANT. At such time
as all beneficial interests in a Global Warrant have either been exchanged for
Definitive Warrants, redeemed, repurchased or canceled, such Global Warrant
shall be returned to or retained and canceled by the Warrant Agent. At any time
prior to such cancellation, if any beneficial interest in a Global Warrant is
exchanged for Definitive Warrants, redeemed, repurchased or canceled, the number
of Warrants represented by such Global Warrant shall be reduced and an
endorsement shall be made on such Global Warrant by the Warrant Agent or the
Depositary to reflect such reduction.
(i) OBLIGATIONS WITH RESPECT TO TRANSFERS AND EXCHANGES OF DEFINITIVE
WARRANTS.
(i) To permit registrations of transfers and exchanges, the
Company shall execute, at the Warrant Agent's request, and the Warrant
Agent shall authenticate Definitive Warrants and Global Warrants.
(ii) All Definitive Warrants and Global Warrants issued upon any
registration of transfer or exchange of Definitive Warrants or Global
Warrants shall be the valid obligations of the Company, entitled to
the same benefits under this Warrant Agreement as the Definitive
Warrants or Global Warrants surrendered upon the registration of
transfer or exchange.
(iii) Prior to due presentment for registration of transfer
of any Warrant, the Warrant Agent and the Company may deem and treat
the Person in whose name any Warrant is registered as the absolute
owner of such Warrant, and neither the Warrant Agent nor the Company
shall be affected by notice to the contrary.
(j) PAYMENT OF TAXES. The Company or the Warrant Agent may require
payment of a sum sufficient to cover any tax or other governmental charge that
may be imposed in connection with any exchange or transfer pursuant to this
Section 1.9.
SECTION 1.10. LOST, STOLEN, DESTROYED, DEFACED OR MUTILATED WARRANT
CERTIFICATES. Upon receipt by the Company and the Warrant Agent (or any agent
of the Company or the Warrant Agent, if requested by the Company) of evidence
satisfactory to them of the loss, theft, destruction, defacement, or mutilation
of any Warrant Certificate and of indemnity reasonably satisfactory to them and,
in the case of mutilation or defacement, upon surrender thereof to the Warrant
Agent for cancellation, then, in the absence of notice to the Company or the
Warrant Agent that such Warrant Certificate has been acquired by a bona fide
purchaser or holder in due course, the Company shall execute, and an authorized
signatory of the Warrant Agent shall manually authenticate and deliver, in
exchange for or in lieu of the lost, stolen, destroyed, defaced or mutilated
Warrant Certificate, a new Warrant
-11-
Certificate representing a like number of Warrants, bearing a number or other
distinguishing symbol not contemporaneously outstanding. Upon the issuance of
any new Warrant Certificate under this Section 1.10, the Company may require the
payment from the Holder of such Warrant Certificate of a sum sufficient to cover
any tax, stamp tax or other governmental charge that may be imposed in relation
thereto and any other expenses (including the fees and expenses of the Warrant
Agent and the Registrar) in connection therewith. Every substitute Warrant
Certificate executed and delivered pursuant to this Section 1.10 in lieu of any
lost, stolen or destroyed Warrant Certificate shall constitute an additional
contractual obligation of the Company, whether or not the lost, stolen or
destroyed Warrant Certificate shall be at any time enforceable by anyone, and
shall be entitled to the benefits of (but shall be subject to all the
limitations of rights set forth in) this Warrant Agreement equally and
proportionately with any and all other Warrant Certificates duly executed and
delivered hereunder. The provisions of this Section 1.10 are exclusive with
respect to the replacement of lost, stolen, destroyed, defaced or mutilated
Warrant Certificates and shall preclude (to the extent lawful) any and all other
rights or remedies notwithstanding any law or statute existing or hereafter
enacted to the contrary with respect to the replacement of lost, stolen,
destroyed, defaced or mutilated Warrant Certificates.
The Warrant Agent is hereby authorized to authenticate and deliver the
new Warrant Certificates required pursuant to the provisions of this Section
1.10.
SECTION 1.11. OFFICES FOR EXERCISE, ETC. So long as any of the
Warrants remain outstanding, the Company will designate and maintain in the
continental United States: (a) an office or agency where the Warrant
Certificates may be presented for exercise, (b) an office or agency where the
Warrant Certificates may be presented for registration of transfer and for
exchange (including the exchange of temporary Warrant Certificates for
definitive Warrant Certificates pursuant to Section 1.6 hereof), and (c) an
office or agency where notices and demands to or upon the Company in respect of
the Warrants or of this Warrant Agreement may be served. The Company may from
time to time change or rescind such designation, as it may deem desirable or
expedient. The Company will give to the Warrant Agent written notice of the
location of any such office or agency and of any change of location thereof.
The Company hereby designates the corporate trust office of the Warrant Agent in
New York, New York (the "Warrant Agent Office"), as the initial agency
maintained for each such purpose.
ARTICLE II
DURATION, EXERCISE OF WARRANTS AND EXERCISE PRICE
SECTION 2.1. DURATION OF WARRANTS. Subject to the terms and
conditions established herein, the Warrants shall expire at 5:00 p.m., New York
City time on August 1, 2007 (the "Expiration Date"). Each Warrant may be
exercised on any Business Day (as hereinafter defined) on or after the
Exercisability Date (as hereinafter defined) and on or prior to the Expiration
Date.
-12-
Any Warrant not exercised before the close of business on the
Expiration Date relating to such Warrant shall become void, and all rights of
the Holder under the Warrant Certificate evidencing such Warrant and under this
Warrant Agreement shall cease.
SECTION 2.2. EXERCISE, EXERCISE PRICE, SETTLEMENT AND DELIVERY.
(a) Subject to the provisions of this Warrant Agreement, each Holder
shall have the right to purchase from the Company, on or after the date hereof
(the "Exercisability Date") and on or prior to the Expiration Date, 9.4724 fully
paid and non-assessable Warrant Shares per each Warrant such Holder owns,
subject to adjustment in accordance with Article V hereof, at the initial
purchase price of $0.01 for each Warrant Share purchased, subject to adjustment
in accordance with Article V hereof (the "Exercise Price").
(b) Warrants may be exercised, in whole or in part, on or after the
Exercisability Date by (i) surrendering at any Warrant Agent office the Warrant
Certificate evidencing such Warrants with the form of election to purchase
Warrant Shares set forth on the reverse side of the Warrant Certificate (the
"Election to Exercise") duly completed and signed by the registered Holder or
Holders thereof or by the duly appointed legal representative thereof or by a
duly authorized attorney, and (ii) paying in full the Exercise Price for each
such Warrant Share purchased and any other amounts required to be paid pursuant
to Section 4.1 hereof.
(c) Simultaneously with the exercise of each Warrant, payment in full
of the Exercise Price shall be made (i) in cash or by certified or official bank
check payable to the order of the Company, delivered to the office or agency
where the Warrant Certificate is being surrendered; or (ii) by delivery of
Warrant Certificates pursuant to Section 2.2(d).
(d) In the event that any Holder of Warrant Certificates delivers
such Warrant Certificates to the Company and indicates on the Election to
Exercise that such Holder intends to exercise all, or any portion of, the
Warrants represented by such Warrant Certificate to satisfy its obligation to
pay the Exercise Price in respect thereof by virtue of the provisions of this
Section 2.2(d), such Holder shall become entitled to receive, instead of the
number of Warrant Shares such Holder would have received had the Exercise Price
been paid in cash pursuant to Section 2.2(c), a number of Warrant Shares in
respect of the exercises of such Warrants equal to the PRODUCT of:
(A) the number of Warrant Shares issuable upon such
exercise of such Warrant Certificates (or, if only a portion of
such Warrant Certificates are being exercised, issuable upon the
exercise of such portion) MULTIPLIED by
(B) the QUOTIENT of:
(i) the DIFFERENCE of:
-13-
(X) the per share Fair Market Value of the Common Stock
at the time of such exercise; MINUS
(Y) the Exercise Price at the time of such exercise;
DIVIDED by
(ii) the per share Fair Market Value of the Common Stock at
the time of such exercise.
For purposes of Rule 144 and Rule 144A under the Securities Act, the
Company and the Warrant Agent, on behalf of the Holders, hereby agree that the
exercise of any Warrants in accordance with this Section 2.2(d) shall be deemed
to be a conversion of such Warrants, pursuant to the terms of this Warrant
Agreement and the Warrants, into Warrant Shares.
(e) Upon such surrender of a Warrant Certificate and payment and
collection of the Exercise Price at any Warrant Agent Office, such Warrant
Certificate and payment shall be promptly delivered to the Warrant Agent. The
"Exercise Date" for a Warrant shall be the date when all of the items referred
to in the first sentence of paragraphs (b) and (c) of this Section 2.2 are
received by the Warrant Agent at or prior to 2:00 p.m., New York City time, on a
Business Day and the exercise of the Warrants will be effective as of such
Exercise Date. If any items referred to in the first sentence of paragraphs (b)
and (c) of this Section 2.2 are received after 2:00 p.m., New York City time, on
a Business Day, the exercise of the Warrants to which such item relates will be
effective on the next succeeding Business Day. Notwithstanding the foregoing,
in the case of an exercise of Warrants on the Expiration Date, if all of the
items referred to in the first sentence of paragraphs (b) and (c) of this
Section 2.2 are received by the Warrant Agent at or prior to 5:00 p.m., New York
City time, on such Expiration Date, the exercise of the Warrants to which such
items relate will be effective on the Expiration Date.
(f) Upon the exercise of a Warrant in accordance with the terms
hereof, the receipt of a Warrant Certificate and payment of the Exercise Price,
the Warrant Agent shall: (i) cause an amount equal to the Exercise Price,
whether in cash or Warrant Certificates, to be delivered or paid to the Company
by crediting the same to the account designated by the Company in writing to the
Warrant Agent for that purpose; (ii) in the case of a payment of the Exercise
Price in cash, advise the Company immediately by telephone of the amount so
deposited to the Company's account and promptly confirm such telephonic advice
in writing; and (iii) as soon as practicable, advise the Company in writing of
the number of Warrants exercised in accordance with the terms and conditions of
this Warrant Agreement and the Warrant Certificates, the instructions of each
exercising Holder with respect to delivery of the Warrant Shares to which such
Holder is entitled upon such exercise, and such other information as the Company
shall reasonably request.
(g) Subject to Section 5.2 hereof, as soon as practicable after the
exercise of any Warrant or Warrants in accordance with the terms hereof, the
Company shall issue or cause to be issued to or upon the written order of the
registered Holder evidencing such
-14-
exercised Warrant or Warrants, a certificate or certificates evidencing the
Warrant Shares to which such Holder is entitled, in fully registered form,
registered in such name or names as may be directed by such Holder pursuant to
the Election to Exercise, as set forth on the reverse of the Warrant
Certificate. The Warrant Agent shall have no obligation to ascertain the number
of Warrant Shares to be issued with respect to the exercised Warrant or
Warrants. Such certificate or certificates evidencing the Warrant Shares shall
be deemed to have been issued and any Persons who are designated to be named
therein shall be deemed to have become the Holder of record of such Warrant
Shares as of the close of business on the Exercise Date. After such exercise of
any Warrant or Warrants, the Company shall also issue or cause to be issued to
or upon the written order of the registered holer of such Warrant Certificate, a
new Warrant Certificate, countersigned by the Warrant Agent pursuant to the
Company's written instruction, evidencing the number of Warrants, if any,
remaining unexercised (unless such Warrants shall have expired).
SECTION 2.3. CANCELLATION OF WARRANT CERTIFICATES. In the event the
Company shall purchase or otherwise acquire Warrants, the Warrant Certificates
evidencing such Warrants may thereupon be delivered to the Warrant Agent, and if
so delivered, shall be canceled by it and retired. The Warrant Agent shall
cancel all Warrant Certificates properly surrendered for exchange, substitution,
transfer or exercise. The Warrant Agent shall destroy canceled Warrant
Certificates held by it and deliver a certificate of destruction to the Company.
The Warrant Agent shall account promptly to the Company with respect to Warrants
exercised and concurrently pay to the Company all money received by the Warrant
Agent for the purchase of Warrant Shares through the exercise of such Warrants.
ARTICLE III
OTHER PROVISIONS RELATING TO
RIGHTS OF HOLDERS OF WARRANTS
SECTION 3.1. ENFORCEMENT OF RIGHTS.
(a) Notwithstanding any of the other provisions of this Warrant
Agreement, any Holder of Warrant Certificates or holder of Warrant Shares,
without the consent of the Warrant Agent, may, in and for its own behalf,
enforce, and may institute and maintain any suit, action or proceeding against
the Company suitable to enforce, its right to exercise the Warrant or Warrants
evidenced by its Warrant Certificate as provided in such Warrant Certificate and
in this Warrant Agreement.
(b) Neither the Warrants nor any Warrant Certificate shall entitle
the Holders thereof to any of the rights of a holder of Common Stock, including,
without limitation, the right to vote or to receive any dividends or other
payments or to consent or to receive notice as stockholders in respect of the
meetings of stockholders or for the election of directors of the Company or to
share in the assets of the Company in the event of the liquidation, dissolution
or winding up of the Company's affairs or any other matter, or any rights
whatsoever as stockholders of the Company.
-15-
SECTION 3.2. TAG-ALONG RIGHTS. From and after the Issue Date until
the date on which the Common Stock is listed for trading on a national
securities exchange or is authorized for trading on any tier of the NASDAQ
National Market System (the "Tag-Along Period"), with respect to any proposed
sale, exchange, transfer or other disposition (collectively, a "proposed
transfer") of shares of Common Stock by Birch Holdings L.L.C., Birch Acquisition
L.L.C. or any of their Related Parties (any such Persons being hereinafter
referred to as a "Transferor") to a Person (such other Person being hereafter
referred to as the "proposed purchaser"), each Holder and each holder of Warrant
Shares (individually, a "Tag Along Investor" and, collectively, the "Tag-Along
Investors") shall have the right (the "Tag-Along Right") to require the proposed
purchaser to purchase from each Tag-Along Investor prior to consummation of the
proposed transfer up to the number of whole Warrant Shares owned, or which could
be acquired upon exercise of Warrants, by each such Tag-Along Investor equalling
the SUM of:
(i) the number derived by MULTIPLYING the total number of shares
of Common Stock the Transferor proposes to transfer by a fraction, the
numerator of which is the total number of Warrant Shares then
outstanding, or which could then be acquired upon exercise of
Warrants, by such Tag-Along Investor, and the denominator of which is
the SUM of (A) the total number of shares of Common Stock owned by the
Transferor, PLUS (B) the total number of shares of Common Stock then
outstanding which were previously issued upon conversion of
Convertible Preferred Stock and which could then be acquired upon
conversion of Convertible Preferred Stock by all holders of
Convertible Preferred Stock, PLUS (C) the total number of Warrant
Shares which are then outstanding, or which could then be acquired
upon exercise of Warrants, by all Tag-Along Investors; and
(ii) any additional Warrant Shares, if any, such Tag-Along
Investor shall be entitled to transfer if any other Tag-Along Investor
elects not to exercise its Tag-Along Right hereunder (as determined
pursuant to Section 3.2(c)).
At all times during the Tag-Along Period, each of Birch Acquisition
L.L.C., Birch Holdings, L.L.C. and their Related Parties (collectively, the
"Birch Parties") will hold their respective shares of Common Stock subject to
the Tag-Along Rights described herein.
(a) NOTICE OF PROPOSED TRANSFER. The Transferor and the Company
shall, not less than 45 nor more than 60 days prior to each proposed transfer,
notify, or cause to be notified, the Warrant Agent, each Holder and each holder
of Warrant Shares in writing (the "Sale Notice") of each such proposed transfer.
Such Sale Notice shall set forth: (i) the name of the Transferor and the number
of shares of Common Stock proposed to be transferred, (ii) the name and address
of the proposed purchaser, (iii) the proposed amount and form of consideration
and terms and conditions of payment offered by such proposed purchaser and (iv)
that the proposed purchaser has been informed of the Tag-Along Right provided
for in this Section 3.2 and has agreed to purchase shares of Common Stock (and
Warrant Shares) in accordance with the terms hereof.
-16-
(b) EXERCISE OF TAG-ALONG RIGHT. The Tag-Along Right may be
exercised by any Tag-Along Investor by delivery of a written notice (the
"Tag-Along Notice") to the Transferor along with delivery of a copy of the
written notice to the Warrant Agent within 30 days following receipt by the
Warrant Agent of the Sale Notice. The Tag-Along Notice shall state the amount
of shares of Warrant Shares that such Tag-Along Investor proposes to include in
such transfer to the proposed purchaser (as determined in this Section 3.2),
plus the amount of additional Warrant Shares, if any, that such Tag-Along
Investor would be willing to sell to the proposed purchaser in the event that
any of the other Tag-Along Investors elect not to exercise their Tag-Along
Rights in whole or in part.
(c) ADDITIONAL WARRANT SHARES. The maximum amount of additional
Warrant Shares that each such Tag-Along Investor shall be entitled to sell, and
the proposed purchaser be required to purchase, shall be determined by
multiplying the total number of Warrant Shares, or Warrant Shares which could be
acquired upon exercise of Warrants, that Tag-Along Investors could have elected
to sell to the proposed purchaser but elected not to so sell (as indicated in
the Tag-Along Notices), by a fraction, the numerator of which is the total
number of Warrant Shares, or Warrant Shares which could be acquired upon
exercise of Warrants, owned by such Tag-Along Investors electing to sell
additional Warrant Shares and the denominator of which is the total number of
Warrant Shares, or Warrant Shares which could be acquired upon exercise of
Warrants, owned by all Tag-Along Investors who delivered Tag-Along Notices.
(d) LIMITATIONS ON RIGHT OF TRANSFEROR TO SELL COMMON STOCK. In the
event that the proposed purchaser does not purchase Warrant Shares from the
Tag-Along Investors on the same terms and conditions as specified in the Sale
Notice, then the Transferor shall not be permitted to sell any shares of Common
Stock to the proposed purchaser in the proposed transfer. If no Tag-Along
Notice is received during the 30-day period referred to above (or if such
Tag-Along Notices do not cover all the shares of Common Stock proposed to be
transferred), the Transferor shall have the right, for a 45-day period after the
expiration of the 30-day period referred to above, to transfer the shares of
Common Stock specified in the Sale Notice (or the remaining shares of Common
Stock) on terms and conditions no more favorable than those stated in the
Tag-Along Notice and without regard to the Tag-Along Rights described in this
Section 3.2.
(e) PAYMENT AND TRANSFER OF WARRANT SHARES. Any Warrant Shares
purchased from Tag-Along Investors hereunder shall be paid for in cash, at the
same price per share of Common Stock and upon the same terms and conditions as
such proposed transfer by the Transferor, it being agreed, however, that such
terms and conditions do not include the making of any representations and
warranties, indemnities or other similar agreements other than representations
and warranties with respect to title of the Warrant Shares being sold and
authority to sell such Warrant Shares and indemnities related thereto. All
payments to be made to the Tag-Along Investors shall be made to the Warrant
Agent on behalf of the Tag-Along Investors as directed in writing by the Warrant
Agent. Notwithstanding any provision to the contrary in this Section 3.2, no
Tag-Along Investor shall be required to surrender or deliver Warrant Shares (or
Warrant Certificates representing Warrant Shares) to any Person (including,
without limitation, the proposed purchaser) as a
-17-
condition precedent to exercise of a Tag-Along Right hereunder; PROVIDED,
HOWEVER, that any such Tag-Along Investor electing to exercise any Tag-Along
Right hereunder shall, promptly after consummation of a proposed transfer of
Warrant Shares in accordance with this Section 3.2(e), exercise all Warrants
with respect to which a Tag-Along Right has been exercised and request that
Warrant Certificates (representing Warrant Shares acquired upon exercise of such
Warrants) be issued to such Tag-Along Investor in accordance with the provisions
of Article II hereof.
(f) ACKNOWLEDGMENT BY WARRANT AGENT AND THE COMPANY. The Company
agrees not to effect any transfer of shares of Common Stock by any of the Birch
Parties until the Company has received evidence reasonably satisfactory to it
and the Warrant Agent that the terms and provisions of this Section 3.2 with
respect to the exercise of any Tag-Along Right, if applicable to such transfer,
have been complied with in all respects.
SECTION 3.3. EXCHANGE RIGHTS OF HOLDERS. If either Birch Holdings
L.L.C., Birch Acquisition L.L.C. or any of their respective Related Parties
shall consummate a public or private offering of shares of Common Stock or any
security whether or not immediately convertible, exchangeable or exercisable
into Common Stock, the Holders and the Holders shall have the right to convert
the Warrants or Warrant Shares into such number of shares of Common Stock of
Birch Holdings L.L.C., Birch Acquisition L.L.C. or such other entity, as the
case may be, as have an equivalent Fair Market Value to the Fair Market Value of
the number of Warrant Shares outstanding or issuable upon the exercise of
outstanding Warrants as of the date of such offering, as determined by an
Independent Financial Advisor.
SECTION 3.4. REPURCHASE RIGHT.
(a) If (A) the Company, in a single transaction or series of related
transactions, (i) sells, assigns, transfers, leases, conveys or otherwise
disposes of all or substantially all of the assets of the Company to any Person;
(ii) consolidates or merges with or into another Person and the Company is not
the surviving entity; or (iii) consolidates or merges with or into another
Person and the Company is the surviving entity (a "Forward Merger") and (w) the
shareholders of the Company immediately preceding such Forward Merger will not
continue to own at least a majority of the outstanding shares of capital stock
of the Company on a fully diluted basis following the consummation of such
Forward Merger, (x) as a direct or indirect result of such Forward Merger, a
Change of Control (as defined in the Indenture) shall have occurred, (y) the net
worth of the Company following the consummation of such Forward Merger shall not
at least equal the net worth of the Company immediately preceding such Forward
Merger, or (z) immediately following the consummation of such Forward Merger,
the Company would not be permitted to incur any additional Indebtedness (as
defined in the Indenture) pursuant to Section 4.12 of the Indenture, and (B) the
consideration payable in respect of any event described in the immediately
preceding clause (i), (ii) or (iii) does not consist solely of cash (any such
event, hereinafter, a "Repurchase Event"), then the Company shall offer to
repurchase (a "Repurchase Offer"), in accordance with the procedures set forth
in this Section 3.4, all Warrants at the per share Fair Market Value of the
Common Stock issuable upon exercise
-18-
thereof, less the Exercise Price (the "Repurchase Price"). The Company shall,
subject to the provisions described in this Section 3.4, be required to purchase
all Warrants properly tendered pursuant to a Repurchase Offer and not withdrawn.
Notwithstanding the foregoing, the provisions of this Section 3.4(a) shall not
apply in the event of an internal reorganization involving only the Company and
its wholly-owned subsidiaries pursuant to which the Company is the surviving
entity.
(b) The Repurchase Offer shall remain open for at least 20 Business
Days and until the close of business on the fifth Business Day prior to the
Repurchase Date (as hereinafter defined).
(c) Not later than the 30th day following the occurrence of the
Repurchase Event, the Company shall mail to the Warrant Agent and to each Holder
a notice (the "Repurchase Notice") stating, among other things:
(1) that a Repurchase Event has occurred and that such Holder
has the right to require the Company to repurchase such holder's Warrants,
or portion thereof, at the Repurchase Price;
(2) any information regarding such Repurchase Event required to
be furnished under applicable federal and State securities laws, rules and
regulations;
(3) a purchase date (the "Repurchase Date"), which shall be on a
Business Day and no earlier than 30 days nor later than 60 days after the
occurrence of a Repurchase Event;
(4) that any Warrant, or portion thereof, not tendered or
accepted for payment shall be subject to appropriate adjustment as required
by Section 5 of this Warrant Agreement, and continue in full force and
effect in accordance with this Warrant Agreement; and
(5) the instructions a Holder must follow in order to have
Warrants repurchased in accordance with this Section 3.4.
No failure of the Company to give the foregoing notice shall limit any
right to any Holder right to exercise a repurchase right hereunder.
(d) To exercise the repurchase right, the Holder must deliver, on or
before the fifth calendar day prior to the Repurchase Date, written notice of
the Company (or an agent designated by the Company for such purpose) of the
exercise of such repurchase right, together with the Warrant Certificates with
respect to which the right is being exercised, duly endorsed for transfer;
PROVIDED, HOWEVER, that with respect to Warrants held of record by DTC, the
Company or its designated agent may accept as tendered for repurchase pursuant
to this Section 3.4 Warrants tendered by means of a book entry in accordance
with the normal procedures of DTC.
-19-
(e) On the Repurchase Date, the Company shall (i) accept for payment
Warrants or portions thereof tendered pursuant to the Repurchase Notice, (ii) if
the Company appoints a depository or Paying Agent, deposit with such depository
or Paying Agent money sufficient to pay the Repurchase Price of all Warrants or
portions thereof so tendered and (iii) deliver to the Warrant Agent Warrants so
accepted together with an Officers' Certificate stating the Warrants or portions
thereof tendered to the Company. DTC, the Company or the Paying Agent, as the
case may be, shall promptly mail to the Holders whose Warrants are so accepted
payment in an amount equal to the Repurchase Price, and the Warrant Agent shall
promptly authenticate and mail to Holders of Definitive Warrants new Definitive
Warrants equal in principal amount to any unpurchased portion of the Definitive
Warrant surrendered. The Company will publicly announce the results of the
Repurchase Offer on or as soon as practicable after the Repurchase Date. For
purposes of this Section 3.4, the Warrant Agent shall act as the Paying Agent.
(f) The Company, to the extent applicable and if required by law,
will comply with the Securities Exchange Act of 1934, as amended (the "Exchange
Act") and any other federal and state securities laws, rules and regulations
that may then be applicable to any offer by the Company to purchase the Warrants
pursuant to the provisions of this Section 3.4.
ARTICLE IV
CERTAIN COVENANTS OF THE COMPANY
SECTION 4.1. PAYMENT OF TAXES. The Company will pay all documentary
stamp taxes attributable to the initial issuance of Warrants and of the Warrant
Shares upon the exercise of Warrants or to the separation of the Note Warrants
and Notes on the Separability Date; PROVIDED, HOWEVER, that the Company shall
not be required to pay any tax or other governmental charge which may be payable
in respect of any transfer involved in the issue of any Warrant Certificates or
any certificates for Warrant Shares in a name other than the registered Holder
surrendered upon the exercise of a Warrant. In any such case, the Company shall
not be required to issue or deliver such Warrant Certificate or certificate for
Warrant Shares unless or until the Person or Persons requesting issuance thereof
shall have paid to the Company the amount of such tax or other governmental
charge or shall have established to the satisfaction of the Company that such
tax or other governmental charge has been paid or an exemption is available
therefrom.
SECTION 4.2. NOTICE OF EXPIRATION DATE. The Company will give
notice of the Expiration Date to all Holders of the then outstanding Warrants,
not less than 90 and not more than 120 days prior to the Expiration Date.
SECTION 4.3. RESERVATION OF COMMON STOCK. The Company covenants and
agrees that it will at all times cause to be reserved and kept available out of
its authorized and unissued shares of Common Stock such number of shares of
Common Stock as will be sufficient to permit the exercise in full of all
Warrants issued hereunder and all
-20-
other rights, warrants or options exercisable into, and the conversion of all
securities convertible into, Common Stock.
SECTION 4.4. WARRANT SHARES TO BE DULY AUTHORIZED AND ISSUED, FULLY
PAID AND NONASSESSABLE. The Company covenants and agrees that it will take all
such action as may be necessary to ensure that all Warrant Shares delivered upon
the exercise in full of any Warrants, at the time of delivery of the
certificates representing such shares, shall be duly and validly authorized and
issued and fully paid and nonassessable, free of any preemptive rights in favor
of any Person in respect of such issuance and free of any security interest,
lien or other encumbrance of any kind or nature created by, arising out of
actions of, the Company, any subsidiary or any affiliate of the Company.
SECTION 4.5. REPORTS.
(a) For so long as any Warrants are outstanding, the Company shall
deliver to the Warrant Agent and mail to each Holder, within 15 days after the
filing of the same with the Securities and Exchange Commission ("SEC"), copies
of its quarterly and annual reports and of the information, documents and other
reports, if any, which the Company is required to file with the SEC pursuant to
Section 13 or 15(d) of the Exchange Act.
(b) For so long as any Warrants are outstanding, if at any time the
Company is not subject to the requirements of such Section 13 or 15(d) of the
Exchange Act, the Company shall file with the SEC, to the extent permitted, and
distribute to the Warrant Agent and to each Holder copies of the quarterly and
annual financial information that would have been required to be contained in a
filing with the SEC on Forms 10-Q and 10-K and all current reports that would be
required to be filed with the SEC on Form 8-K had the Company been subject to
the reporting requirements of Section 13 or 15(d) of the Exchange Act. All such
financial information shall include consolidated financial statements (including
footnotes) prepared in accordance with generally accepted accounting principles.
Such annual financial information shall also include an opinion thereon
expressed by an independent accounting firm of established national reputation.
All such consolidated financial statements shall be accompanied by a
"Management's Discussion and Analysis of Financial Condition and Results of
Operation." The financial and other information to be distributed to Holders
shall be filed with the Warrant Agent and mailed to the Holders at their
respective addresses appearing in the Warrant Register maintained by the Warrant
Agent, within 120 days after the end of the Company's fiscal year and within 60
days after the end of each of the first three quarters of each such fiscal year.
In addition, for so long as any Warrants are outstanding, the Company shall
furnish to the Holders and to securities analysts and to prospective purchasers
upon their request, the information required to be delivered pursuant to Rule
144A(d)(4) under the Securities Act for so long as the Company is required for
an offer or sale of the Warrants under Rule 144A. From and after the date of
effectiveness of any registration statement filed with the SEC with respect to
the Warrants, the Company will file with the SEC such Forms 10-Q and 10-K and
any other information required to be filed by it.
-21-
SECTION 4.6. PRIVATE PLACEMENT NUMBERS. The Company covenants and
agrees to obtain, and thereafter maintain, a private placement number in respect
of the Warrants and a private placement number or CUSIP number, as appropriate,
in respect of the Warrant Shares from the CUSIP Service Bureau of Standard &
Poor's, a division of ▇▇▇▇▇▇-▇▇▇▇, Inc.
SECTION 4.7. RIGHT OF ACTION. All rights of action in respect of
the Warrants are vested in the respective registered Holders of the Warrant
Certificates, and any registered Holder of any Warrant Certificate, without the
consent of the Holder of any other Warrant Certificate, may, on its own behalf
and for its own benefit, enforce, and may institute and maintain any suit,
action or proceeding against the Company to enforce, or otherwise act in respect
of, its right to exercise the Warrants evidenced by such Warrant Certificate in
the manner provided in such Warrant Certificate and in this Warrant Agreement.
SECTION 4.8. SURVIVAL. The agreements of the Company contained in
Section 4.1 and Section 4.7 shall survive the exercise of and the expiration of
the Warrants.
ARTICLE V
ADJUSTMENTS
SECTION 5.1. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF WARRANT
SHARES ISSUABLE. The Exercise Price and the number and kind of Warrant Shares
purchasable upon the exercise of each Warrant shall be subject to adjustment
from time to time as follows:
(a) STOCK DIVIDENDS, SUBDIVISIONS AND COMBINATIONS. In case the
Company shall hereafter (A) pay a dividend in shares of Common Stock or make a
distribution in shares of Common Stock, (B) reclassify by subdivision its
outstanding shares of Common Stock into a greater number of shares or (C)
reclassify by combination its outstanding shares of Common Stock into a smaller
number of shares, (i) the number of Warrant Shares purchasable upon exercise of
each Warrant immediately prior thereto shall be adjusted so that the Holder of
any Warrant Certificate thereafter exercised shall be entitled to receive the
number of Warrant Shares which such Holder would have owned immediately
following such action had such Warrant been exercised immediately prior thereto,
and (ii) the Exercise Price shall be adjusted by multiplying such Exercise Price
immediately prior to such adjustment by a fraction, the numerator of which shall
be the number of Warrant Shares purchasable upon the exercise of each Warrant
immediately prior to such adjustment, and the denominator of which shall be the
number of Warrant Shares purchasable immediately thereafter. An adjustment made
pursuant to this Section 5.1(a) shall become effective immediately after the
record date, in the case of a dividend, and shall become effective immediately
after the effective date, in the case of a subdivision, combination or
reclassification. If, as a result of an adjustment made pursuant to this
Section 5.1(a), the Holder of any Warrant Certificate thereafter exercised shall
become entitled to receive shares of two or more classes of capital
-22-
stock of the Company, the Board of Directors of the Company shall determine, in
its reasonable discretion, the allocation of the adjusted Exercise Price between
or among shares of such classes of capital stock.
(b) RECLASSIFICATION, COMBINATIONS, MERGERS, ETC. Subject to Section
3.4, if (A) any capital reorganization, reclassification or change of
outstanding shares of Common Stock (other than as set forth in Section 5.1(a)
and other than a change in par value, or from par value to no par value, or from
no par value to par value), or (B) in case of any consolidation or merger of the
Company with or into another corporation or other entity (other than a merger in
which the Company is the continuing corporation and which does not result in any
reclassification or change of the then outstanding shares of Common Stock or
other capital stock of the Company (other than a change in par value, or from
par value to no par value, or from no par value to par value or as a result of a
subdivision or combination)) or (C) in case of any sale or conveyance to another
corporation or other entity of all or substantially all of the assets of the
Company shall be effected in such a way that the holders of Common Stock shall
be entitled to receive shares of common stock, other securities or assets
(whether such stock, other securities or assets are issued or distributed by the
Company or another Person) with respect to or in exchange for Common Stock,
then, as a condition of such reclassification, reorganization, change,
consolidation, merger, sale or conveyance, the Company or such a successor or
purchasing corporation or other entity, as the case may be, shall forthwith make
lawful and adequate provision whereby the Holder of such Warrant Certificate
then outstanding shall have the right thereafter to receive on exercise of such
Warrant the kind and amount of shares of stock and other securities and assets
receivable upon such reclassification, reorganization, change, consolidation,
merger, sale or conveyance by a holder of the number of shares of Common Stock
that such holders would have been entitled to receive upon exercise of such
Warrant had such Warrant been exercised immediately before such
reclassification, reorganization, change, consolidation, merger, sale or
conveyance that shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Article V and enter into a supplemental warrant
agreement so providing.
For purposes of this Section 5.1(b), "shares of stock and other
securities and property" receivable upon a reclassification, charge,
consolidation, merger, sale or conveyance shall include stock of any successor
or acquiring corporation of any class which is not subject to redemption and
shall also include any evidence of indebtedness, shares of stock or other
securities which are convertible into or exchangeable for any such stock, either
immediately or upon the arrival of a specified date or the happening of a
specified event any warrants or other rights to subscribe for or purchase any
such stock. If the issuer of securities deliverable upon exercise of Warrants
under the supplemental warrant agreement is an affiliate of the formed,
surviving or transferee corporation or other entity, such issuer shall join in
the supplemental warrant agreement.
In case of any such reclassification, reorganization, merger,
consolidation or dispositions of assets, the successor or acquiring corporation
or other entity shall expressly assume the due and punctual observance and
performance of each and every covenant and condition of this Warrant Agreement
to be performed and observed by the Company and all
-23-
the obligations and liabilities hereunder, subject to such modifications as may
be deemed appropriate (as determined in good faith by resolution of the Board of
Directors of the Company) in order to provide for adjustments of Warrant Shares
into which each Warrant is exercisable, which shall be as nearly equivalent as
practicable to the adjustments provided for in this Article V.
(c) ISSUANCES OF COMMON STOCK OR RIGHTS. In the event that the
Company shall, at any time or from time to time after the date hereof, issue,
sell distribute or otherwise grant (in any such case, a "Distribution") shares
of Common Stock or Rights, whether or not such Rights are immediately
exercisable, convertible or exchangeable, at a Consideration Per Share lower
than the per share Fair Market Value of the Common Stock on the date of such
issuance or sale, or if the Company shall amend any of the provisions of any
Rights, including, without limitation, a change in the purchase, conversion,
exchange or exercise price per share of Common Stock, as the case may be, of
each such Right, or the Aggregate Consideration Receivable applicable to any
such Right (other than under or by reason of provisions designed to protect
against dilution upon an event which results in a related adjustment pursuant to
this Article V), then, immediately after the date of such issuance or sale,
(A) the number of Warrant Shares purchasable upon exercise of
each Warrant shall be increased so that the Holders thereafter will be
entitled to receive the number of Warrant Shares determined by MULTIPLYING:
(i) the number of shares of Common Stock such Holders would have
been entitled to receive immediately before the date of such issuance
or sale had such Holders exercised their Warrants immediately prior
thereto; by
(ii) a fraction, the numerator of which shall be the SUM of: (X)
the number of shares of Common Stock outstanding on such date PLUS (Y)
the number of additional shares of Common Stock offered for
subscription or purchase (or into which the Rights so offered are
initially convertible or exchangeable or exercisable, as the case may
be), and the denominator of which shall be the SUM of: (X) the number
of shares of Common Stock outstanding on such date PLUS (Y) the number
of shares of Common Stock that the Aggregate Consideration Receivable
would purchase at such per share Fair Market Value of the Common Stock
on the date of such issuance or sale, and
(B) the Exercise Price in effect immediately after such
Distribution shall be adjusted by MULTIPLYING the Exercise Price in effect
immediately prior to such Distribution by the QUOTIENT of:
(i) the SUM of: (A) the number of shares of Common Stock
outstanding immediately prior to such Distribution; PLUS (B) the
QUOTIENT of: (X) the Aggregate Consideration Receivable; DIVIDED by
(Y) the per share Fair
-24-
Market Value of the Common Stock; in each case immediately prior to
such Distribution; DIVIDED by
(ii) the SUM of: (A) the number of shares of Common Stock
outstanding immediately prior to such Distribution; PLUS (B) the
number of shares of Common Stock so issued or sold (or initially
issuable pursuant to any Rights).
For purposes of the foregoing calculation, the total maximum number of
shares of Common Stock issuable upon exercise, conversion or exchange, as
applicable, of all Rights shall be deemed to have been issued as of the date of
such Distribution and thereafter shall be deemed to be outstanding and the
Company shall be deemed to have received as consideration therefor the Aggregate
Consideration Receivable applicable thereto after giving effect to such
exercise, conversion or exchange. Except as provided in Section 5.1(g), no
additional adjustments of the Exercise Price shall be made upon the actual
exercise, exchange or conversion, as applicable, of such Rights.
(d) DIVIDENDS AND DISTRIBUTIONS. In the event the Company shall, at
any time or from time to time after the date hereof, make or pay any dividend
of, or distribute to holders of Common Stock (in any such case, a "Dividend"),
shares of capital stock, any of its property or assets, including, without
limitation, cash, evidences of its indebtedness, Rights or other securities (in
each case, other than dividends payable in Common Stock) (collectively,
"Dividend Securities"), then, in each such case, unless the Company elects to
reserve shares or other units of such Dividend Securities for distribution to
the Holders upon exercise of their Warrants so that, in addition to the Warrant
Shares issuable upon exercise thereof, such Holders will receive upon such
exercise the amount and kind of such Dividend Securities that such Holders would
have received if the Holders had, immediately prior to the record date for the
distribution of the Dividend Securities, exercised the Warrants:
(A) the Exercise Price in effect after the record date in
respect of which Dividend Securities are distributed or issued shall be
adjusted by multiplying the Exercise Price in effect immediately prior to
such record date by the QUOTIENT of:
(i) the DIFFERENCE of (A) the per share Fair Market Value
of the Common Stock on such record date; MINUS (B) the QUOTIENT of:
(X) in the case of a Dividend made in cash, the
aggregate amount of cash so dividend or distributed and, in
the case of a Dividend made other than in cash, the then
Fair Market Value of the Dividend Securities so distributed
or issued; DIVIDED BY
(Y) the number of shares of Common Stock outstanding
on the record date; DIVIDED BY
-25-
(ii) the per share Fair Market Value of the Common Stock on
such record date, and
(B) the number of Warrant Shares purchasable upon the exercise
of each Warrant shall be increased to a number determined by MULTIPLYING
the number of Warrant Shares such Holders would have been entitled to
receive immediately before the record date for such Dividend, had the
Holders exercised their Warrants immediately prior thereto, by a fraction,
the numerator of which shall be the Exercise Price in effect immediately
prior to the adjustment required by clause (A) of this sentence, and the
denominator of which shall be the Exercise Price in effect immediately
after such adjustment.
The adjustments required by this Section 5.1(d) shall be made whenever any such
Dividend is made retroactive to the record date for the determination of
stockholders entitled to receive such Dividend and shall be effective on the
date of such Dividend.
(e) SELF-TENDERS. If, at any time or from time to time after the
date hereof, the Company or any subsidiary of the Company shall repurchase, by
self-tender offer or otherwise, any shares of Common Stock of the Company or any
Right at a weighted average purchase price in excess of the per share Fair
Market Value of the Common Stock on the Business Day immediately prior to the
earliest of (i) the date of such repurchase, (ii) the commencement of an offer
to repurchase or (iii) the public announcement of either (such date being
referred to as the "DETERMINATION DATE"), the number of Warrant Shares
purchasable upon exercise of the Warrants shall be increased so that the Holders
thereafter will be entitled to receive the number of Warrant Shares determined
by MULTIPLYING the number of Warrant Shares such Holders would have been
entitled to receive before the Determination Date, had the Holders exercised
their Warrant Shares immediately prior thereto, by a fraction,
the numerator of which shall be the PRODUCT of:
(A) the DIFFERENCE between (X) the number of shares of Common
Stock outstanding immediately prior to such Determination Date MINUS
(Y) the number of shares of Common Stock (or shares of Common Stock
into which the Rights are convertible or exchangeable or exercisable,
as the case may be) represented by the Common Stock or Rights
repurchased or to be purchased by the Company or any subsidiary of the
Company in such repurchase, MULTIPLIED by
(B) the per share Fair Market Value of the Common Stock
immediately prior to such Determination Date, and
the denominator of which shall be the DIFFERENCE between:
-26-
(A) the PRODUCT of (X) the number of shares of Common Stock
outstanding immediately prior to the Determination Date MULTIPLIED by
(Y) the per share Fair Market Value of the Common Stock immediately
prior to such Determination Date MINUS
(B) the SUM of (X) the aggregate consideration paid by the
Company or any of subsidiary of the Company in connection with such
repurchase PLUS (Y) in the case of Rights, the additional
consideration required to be received by the Company or any subsidiary
of the Company upon the conversion, exchange or exercise of such
Rights, and
the Exercise Price shall be adjusted by multiplying such Exercise Price
immediately prior to such repurchase by a fraction, the numerator of which shall
be the number of Warrant Shares purchasable upon exercise of the Warrants prior
to such repurchase, and the denominator of which shall be the number of Warrant
Shares purchasable upon exercise of the Warrants immediately thereafter.
(f) FAIR MARKET VALUE OF CONSIDERATION RECEIVED. Notwithstanding any
provision to the contrary herein, for purposes of this Article V, if any Rights
shall be issued in connection with the issuance and sale of other securities of
the Company, together comprising one integral transaction in which no specific
consideration is allocated to such Rights by the parties thereto, such Rights
shall be deemed to have been issued without consideration, PROVIDED, HOWEVER,
that if any such Rights have an exercise price (to the extent applicable) equal
to or greater than the per share Fair Market Value of the Common Stock on the
date of issuance of such Rights, then such Rights shall be deemed to have been
issued for consideration equal to such exercise price.
(g) DEFERRAL OF CERTAIN ADJUSTMENTS. No adjustment to the Exercise
Price (including the related adjustment to the number of Warrant Shares
purchasable upon the exercise of each Warrant) shall be required hereunder
unless such adjustment, together with other adjustments carried forward as
provided below, would result in an increase or decrease of at least one percent
(1%) of the Exercise Price; PROVIDED, HOWEVER, that any adjustments which by
reason of this 5.1(g) are not required to be made shall be carried forward and
taken into account in any subsequent adjustment. No adjustment need be made for
a change in the par value of the Common Stock; PROVIDED, HOWEVER, the Company
shall not increase the par value of the Common Stock to exceed the Exercise
Price. All calculations under this Section 5.1 shall be made to the nearest
1/1,000 of one cent or to the nearest 1/1,000th of a Warrant Share, as the case
may be.
(h) OTHER ADJUSTMENTS. In the event that at any time, as a result of
an adjustment made pursuant to this Article V, Holders shall become entitled to
receive any securities of the Company other than shares of Common Stock,
thereafter the number of such other securities so receivable upon exercise of
each Warrant and the Exercise Price applicable to such exercise shall be subject
to adjustment from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to the Warrant
-27-
Shares and the Exercise Price contained in this Article V, and all other
relevant provisions of this Article V that are applicable to shares of Common
Stock shall be applicable to such other securities. In case at any time or from
time to time the Company shall take any action in respect of its outstanding
shares of Common Stock, other than any action described in this Article V, or
any event occurs as to which the provisions of this Article V are not strictly
applicable, then the number of Warrant Shares for which each Warrant is
exercisable shall be adjusted in such manner as may be equitable in the
circumstances and on terms as nearly equivalent as practicable to the provisions
with respect to the Warrant Shares and the Exercise Price contained in this
Article V and as shall be reasonably necessary, in the good faith opinion of the
Board of Directors of the Company, to protect the exercise rights of the
Holders, but in no event shall any such adjustment have the effect of adversely
affecting the Holders. If the Company shall at any time or from time to time
issue, sell or distribute any shares of capital stock (other than Common Stock),
any evidences of indebtedness, any property or assets, Rights or other
securities, then, in each such case, such issuance, sale or distribution shall
be deemed to be of, or in respect of, Common Stock for purposes of this Article
V.
(i) STATEMENT OF WARRANT CERTIFICATES. Irrespective of any
adjustment in the number of kind of Warrant Shares issuable upon the exercise of
each Warrant or the Exercise Price, Warrant Certificates theretofore or
thereafter issued shall continue to express the same number and kind of Warrant
Shares and Exercise Price as are stated in the Warrant Certificates initially
issuable pursuant to this Warrant Agreement.
(j) INCREASED WARRANT SHARES OR REDUCED EXERCISE PRICE. From time to
time, the Company may, for a period of not less than 20 Business Days, in its
discretion, increase the number of Warrant Shares purchasable upon the exercise
of each Warrant, without making any adjustment to the Exercise Price, or reduce
the Exercise Price, without making any adjustment to the number of Warrant
Shares purchasable upon the exercise of each Warrant.
(k) NO ADJUSTMENTS FOR CERTAIN INCENTIVE COMPENSATION OR ISSUANCE OF
WARRANT SHARES. Notwithstanding any other provision hereof, it is expressly
understood that the Warrants shall not be adjusted with respect to (a) Common
Stock or Rights, in any case, that may be issued to any of the Company's
officers or employees pursuant to the stock option plans or similar plans of the
Company, including, without limitation, the Discovery Zone, Inc. 1997 Stock
Incentive Plan (collectively, the "Plans"), to the extent that shares of Common
Stock or other securities issued or granted under such Plans are issued or
granted at a price, or with an exercise price, that is no less than the per
share Fair Market Value of the Common Stock at the date of grant or issuance and
such grant or issuance, together with all previous grants and issuances under
all such Plans, represent 10% of the fully diluted Common Stock at the time of
such grant or issuance, (b) the conversion or exchange (other than pursuant to a
reclassification), in any case on a share-for-share basis, of Common Stock for
non-voting common stock of the Company or (c) the issuance of any Warrant
Shares.
(l) NO IMPAIRMENT. The Company will not, by amendment of its
certificate of incorporation or through any reorganization, transfer of assets,
consolidation,
-28-
merger, dissolution, liquidation, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Company, but will at all
times in good faith assist in the carrying out of all the provisions of this
Section 5.1 and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the Holders against impairment.
(m) FURTHER EQUITABLE ADJUSTMENTS. If, after one or more adjustments
to the Exercise Price pursuant to this Section 5.1, the Exercise Price cannot be
reduced further without falling below the greater of (i) $0.01 or (ii) the
lowest positive exercise price legally permissible for warrants to acquire
shares of common stock, the Company shall make further adjustments to compensate
the Holders, consistent with the foregoing principles, as the Board of Directors
of the Company, acting in good faith, deems necessary, including an increase in
the number of Warrant Shares issuable upon exercise of outstanding Warrants
and/or a cash payment to the Holders.
(n) OTHER ADJUSTMENTS.
(i) Adjustments shall be made pursuant to this Section 5.1
successively whenever any of the events referred to in Section 5.1(a)
through Section 5.1(e), inclusive, and Section 5.1(p) shall occur.
(ii) If any Warrant shall be exercised subsequent to the record
date for any of the events referred to in this Section 5.1, but prior to
the effective date thereof, appropriate adjustments shall be made
immediately after such effective date so that the Holder of such Warrant on
such record date shall have received, in the aggregate, the kind and number
of shares of Common Stock or other securities or property or assets that it
would have owned or been entitled to receive on such effective date had
such Warrant been exercised prior to such record date.
(iii) Shares of Common Stock owned by or held for the account
of the Company shall not, for purposes of the adjustments set forth in this
Section 5.1 be deemed outstanding.
(o) EXPIRATION OF RIGHTS. Upon the expiration of any Rights referred
to in this Section 5.1, without the exercise, exchange or conversion, as
applicable, thereof, the Exercise Price and the number of Warrant Shares shall,
upon such expiration, be readjusted and shall thereafter be such Exercise Price
and such number of Warrant Shares as would have been had such Exercise Price and
such number of Warrant Shares been originally adjusted (or had the original
adjustment not been required, as the case may be) as if:
(i) the only shares of Common Stock so issued were the shares of
Common Stock, if any, actually issued or sold upon the exercise of such
Rights; and
(ii) such shares of Common Stock, if any, were issued or sold for
the consideration actually received by the Company upon such exercise plus
the
-29-
aggregate consideration, if any, actually received by the Company for the
issuance, sale or grant of all such Rights, whether or not exercised;
PROVIDED, HOWEVER, that no such readjustment shall have the effect of
increasing the Exercise Price by an amount in excess of the amount of the
reduction initially made in respect of the issuance, sale, or grant of such
Rights.
(p) ADJUSTMENTS IN CONNECTION WITH PLAN DISTRIBUTIONS. If, at any
time after the Issue Date and for so long as Warrants shall continue to be
outstanding, the Company shall issue shares of Common Stock or Rights to holders
of Disputed Claims (as such term is defined in the Company's Third Amended Plan
of Reorganization, dated March 11, 1997 (the "Reorganization Plan")) in
settlement of such claims in an aggregate amount at any time outstanding greater
than 4,444,444 (which amount represents the sum of (x) all of the issued and
outstanding Common Stock on the date hereof in an aggregate amount of 4,000,000
issued to holders of certain claims against the Company in accordance with the
Reorganization Plan and (y) 444,444 shares of Common Stock reserved for issuance
upon exercise of the Ten Year Warrants (as defined under the Reorganization
Plan) (an "Excess Plan Distribution"), then, on the date of any such Excess Plan
Distribution, the number of Warrant Shares issuable upon exercise of all
Warrants shall be increased such that each Holder thereof would receive upon
such exercise on the date of any such Excess Plan Distribution such number of
Warrant Shares as shall be necessary to cause such Holder's percentage interest
in the Common Stock on a fully diluted basis (except issuances of shares of
Common Stock upon exercise of options granted under the Company's 1997 Stock
Incentive Plan (the "Plan")) immediately after such Excess Payment Distribution
to equal such Holder's percentage interest in Common Stock on a fully diluted
basis (except issuances of shares of Common Stock upon exercise of options
granted under the Plan) immediately prior to such Excess Plan Distribution.
Notwithstanding the foregoing, if the Company shall, in connection with the
resolution of Disputed Claims, issue shares of Common Stock in an aggregate
amount less than 4,444,444, the balance of any such shares of Common Stock may
be distributed by the Company without requiring any adjustment pursuant to this
Section 5.1(p). The adjustments required by this Section 5.1(p) shall not limit
or otherwise adversely affect the rights of the Holders under any other
adjustments required by this Article V.
SECTION 5.2. FRACTIONAL INTEREST. The Company shall not be required
to issue fractional shares of Common Stock on the exercise of Warrants. If more
than one Warrant shall be presented for exercise in full at the same time by the
same Holder, the number of full shares of Common Stock which shall be issuable
upon such exercise shall be computed on the basis of the aggregate number of
shares of Common Stock acquirable on exercise of the Warrants so presented. If
any fraction of a share of Common Stock would, except for the provisions of this
Section 5.2, be issuable on the exercise of any Warrant, the Company shall
either (i) pay an amount in cash calculated by the Company to equal the per
share Fair Market Value of the Common Stock MULTIPLIED BY such fraction of a
share of Common Stock computed to the nearest whole cent or (ii) aggregate all
such fractional shares of Common Stock into a whole number of shares and sell
such aggregated fractional shares on behalf of the Holders entitled thereto in a
public or private sale and distribute, on a pro rata basis, the net cash
proceeds therefrom to such Holders. While the Company will use its best efforts
to secure the best available sale price for such aggregated fractional shares,
such
-30-
price shall not necessarily be the highest price obtainable for such shares. By
their acceptances of the Warrant Certificates, Holders expressly waive any and
all rights to receive any fraction of a share of Common Stock or a stock
certificate or scrip representing a fraction of a share of Common Stock.
SECTION 5.3. WHEN ADJUSTMENT NOT REQUIRED. If the Company shall
take a record of the holders of its Common Stock for the purpose of entitling
them to receive a dividend or distribution or subscription or purchase rights
and shall, thereafter and before the distribution to stockholders thereof,
legally abandon its plan to pay or deliver such dividend, distribution,
subscription or purchase rights, then thereafter no adjustment shall be required
by reason of the taking of such record and any such adjustment previously made
in respect thereof shall be rescinded and annulled.
SECTION 5.4. TREASURY STOCK. The sale or other disposition of any
issued shares of Common Stock owned or held by or for the account of the Company
shall be deemed an issuance thereof and, except for a voluntary tender or
exchange offer made by the Company or any subsidiary of the Company subject to
Section 13(e) of the Exchange Act, a repurchase thereof and designation of such
shares as treasury stock shall not be deemed to be a redemption thereof for the
purposes of this Warrant Agreement.
SECTION 5.5. NOTICES TO WARRANT AGENT AND HOLDERS. Whenever the
number of Warrant Shares is adjusted or the Exercise Price in respect thereof is
adjusted, as herein provided, the Company shall promptly or, if notice of such
adjustment is required to be given to DTC, at least five (5) days prior to the
date on which notice of such adjustment is given to DTC, give to each Holder
notice of such adjustment or adjustments and shall promptly deliver to each
Holder and the Warrant Agent an Officer's Certificate (confirmed by a
certificate from the Company's independent certified public accountants) setting
forth: (i) the number of Warrant Shares issuable upon the exercise of each
Warrant and the Purchase Price of such shares after such adjustment; (ii) a
brief statement of the facts requiring such adjustment; and (iii) the
computation by which such adjustment was made.
So long as any Warrant is outstanding, within ninety (90) days of the
end of each fiscal year of the Company, the Company shall deliver to each Holder
an Officer's Certificate setting forth: (i) the number of Warrant Shares
issuable upon the exercise of each Warrant and the Exercise Price of such shares
as of the end of such fiscal year; (ii) a brief statement of the facts requiring
each adjustment, if any, required to be made in such fiscal year; and (iii) the
computation by which each such adjustment was made.
In the event that the Holders of at least 25% of the outstanding
Warrants shall challenge any of the calculations set forth in such notice within
20 Business Days after the Company's delivery thereof, the Company shall retain
an Independent Financial Advisor to prepare and execute a certificate verifying
that no adjustment is required. The Company shall promptly cause a signed copy
of any certificate prepared pursuant to this Section 5.5 to be delivered to each
Holder. The Company shall keep at the Warrant Agent Office copies of all such
certificates and cause the same to be available for inspection at said office
during
-31-
normal business hours upon reasonable notice by any Holder or any prospective
purchaser of a Warrant designated by a Holder thereof.
ARTICLE VI
CONCERNING THE WARRANT AGENT
SECTION 6.1. WARRANT AGENT. At no time when the Company may be
acting as its own Warrant Agent shall any of its obligations to the Holders be
in any respect reduced as a result thereof. The Warrant Agent shall have the
powers and authority specifically granted to and conferred upon it in the
Warrant Certificates and this Warrant Agreement and such further powers and
authority to act on behalf of the Company as the Company may hereafter grant to
or confer upon it and it shall accept in writing. All of the terms and
provisions with respect to such powers and authority contained in the Warrant
Certificates are subject to and governed by the terms and provisions hereof.
SECTION 6.2. CONDITIONS OF WARRANT AGENT'S OBLIGATIONS. The Warrant
Agent accepts its obligations herein set forth upon the terms and conditions
hereof and in the Warrant Certificates, including the following, to all of which
the Company agrees and to all of which the rights hereunder of the Holders from
time to time of the Warrant Certificates shall be subject:
(a) The Warrant Agent shall be entitled to compensation to be agreed
upon with the Company in writing for all services rendered by it and the Company
agrees promptly to pay such compensation and to reimburse the Warrant Agent for
its reasonable out-of-pocket expenses (including reasonable fees and expenses of
counsel) incurred without gross negligence, bad faith or willful misconduct on
its part in connection with the services rendered by it hereunder. The Company
also agrees to indemnify the Warrant Agent, each predecessor Warrant Agent, and
their respective directors, officers, affiliates, agents and employees for, and
to hold it and its directors, officers, affiliates, agents and employees
harmless against, any loss, liability or expense of any nature whatsoever
(including, without limitation, fees and expenses of counsel) incurred without
gross negligence, bad faith or willful misconduct on the part of the Warrant
Agent or predecessor Warrant Agent, arising out of or in connection with its
acting as such Warrant Agent hereunder and its exercise or failure to exercise
of its rights and performance of its obligations hereunder. The obligations of
the Company under this Section 6.2 shall survive the exercise and the expiration
of the Warrant Certificates and the resignation and removal of the Warrant
Agent.
(b) In acting under this Warrant Agreement and in connection with the
Warrant Certificates, the Warrant Agent is acting solely as agent of the Company
and does not assume any obligation or relationship of agency or trust for or
with any of the owners or Holders of the Warrant Certificates.
(c) The Warrant Agent may consult with counsel and any advice or
written opinion of such counsel shall be full and complete authorization and
protection in respect of
-32-
any action taken, suffered or omitted by it hereunder in good faith and in
accordance with such advice or opinion.
(d) The Warrant Agent shall be fully protected and shall incur no
liability for or in respect of any action taken or omitted to be taken or thing
suffered by it in reliance upon any Warrant Certificate, notice, direction,
consent, certificate, affidavit, opinion of counsel, instruction, statement or
other paper or document reasonably believed by it to be genuine and to have been
presented or signed by the proper parties.
(e) The Warrant Agent and its Related Parties may become the owners
of, or acquire any interest in, Warrant Certificates, shares or other
obligations of the Company with the same rights that it or they would have it if
were not the Warrant Agent hereunder and, to the extent permitted by applicable
law, it or they may engage or be interested in any financial or other
transaction with the Company and may act on, or as depositary, trustee or agent
for, any committee or body of holders of shares or other obligations of the
Company as freely as if it were not the Warrant Agent hereunder. Nothing in
this Warrant Agreement shall be deemed to prevent the Warrant Agent or such
Related Parties from acting in any other capacity for the Company.
(f) The Warrant Agent shall not be under any liability for interest
on, and shall not be required to invest, any money at any time received by it
pursuant to any of the provisions of this Warrant Agreement or of the Warrant
Certificates.
(g) The Warrant Agent shall not be under any responsibility in
respect of the validity of this Warrant Agreement (or any term or provision
hereof) or the execution and delivery hereof or in respect of the validity or
execution of any Warrant Certificate (except its authentication thereof).
(h) The recitals and other statements contained herein and in the
Warrant Certificates (except as to the Warrant Agent's authentication thereon)
shall be taken as the statements of the Company, and the Warrant Agent assumes
no responsibility for the correctness of such recitals or other statements. The
Warrant Agent does not make any representation as to the validity or sufficiency
of this Warrant Agreement or the Warrant Certificates; PROVIDED, HOWEVER, that
the Warrant Agent shall not be relieved of its duty to authenticate the Warrant
Certificates as authorized by this Warrant Agreement. The Warrant Agent shall
not be accountable for the use or application by the Company of the proceeds of
the exercise of any Warrant.
(i) Before the Warrant Agent acts or refrain from acting with respect
to any matter contemplated by this Warrant Agreement, it may require:
(A) an Officers' Certificate stating that, in the opinion of the
signers, all conditions precedent, if any, provided for in this
Warrant Agreement relating to the proposed action have been complied
with; and
-33-
(B) if reasonably necessary in the sole judgment of the Warrant
Agent, an opinion of counsel for the Company stating that, in the
opinion of such counsel, all such conditions precedent have been
complied with.
Each Officers' Certificate or, if requested, an opinion of counsel
(with respect to which such counsel may rely, as to matters of fact, on a
certificate or certificates of Officers of the Company) with respect to
compliance with a condition or covenant provided for in this Warrant Agreement
shall include:
(1) a statement that the Person making such certificate or
opinion has read such covenant or condition;
(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(3) a statement that, in the opinion of such Person, he or
she has made such examination or investigation as is necessary to enable
him or her to express an informed opinion as to whether or not such
covenant or condition has been complied with; and
(4) a statement as to whether or not, in the opinion of
such Person, such condition or covenant has been complied with.
(j) The Warrant Agent shall be obligated to perform such duties as
are herein and in the Warrant Certificates specifically set forth and no implied
duties or obligations shall be read into this Warrant Agreement or the Warrant
Certificates against the Warrant Agent. The Warrant Agent shall not be
accountable or under any duty or responsibility for the use by the Company of
any of the Warrant Certificates authenticated by the Warrant Agent and delivered
by it to the Company pursuant to this Warrant Agreement. The Warrant Agent
shall have no duty or responsibility in case of any default by the Company in
the performance of its covenants or agreements contained in the Warrant
Certificates or in the case of the receipt of any written demand from a Holder
with respect to such default, including, without limiting the generality of the
foregoing, any duty or responsibility to initiate or attempt to initiate any
proceedings at law or otherwise or, except as provided in Section 7.2 hereof, to
make any demand upon the Company. The Warrant Agent shall not be obligated to
perform any duty to the extent prohibited by law.
(k) Unless otherwise specifically provided herein, any order,
certificate, notice, request, direction or other communication from the Company
made or given under any provision of this Warrant Agreement shall be sufficient
if signed by its President or, Vice President and attested by its Treasurer,
Controller, Secretary or any Assistant Secretary.
(l) The Warrant Agent shall have no responsibility in respect of any
adjustment pursuant to Article V hereof.
-34-
(m) The Company agrees that it will perform, execute, acknowledge and
deliver, or cause to be performed, executed, acknowledged and delivered, all
such further and other acts, instruments and assurances as may reasonably be
required by the Warrant Agent for the carrying out or performing by the Warrant
Agent of the provisions of this Warrant Agreement.
(n) The Warrant Agent is hereby authorized and directed to accept
written instructions with respect to the performance of its duties hereunder
from any one of the President, the Treasurer, the Controller, any Vice President
or the Secretary of the Company or any other officer or official of the Company
reasonably believed to be authorized to give such instructions and to apply to
such officers or officials for advice or instructions in connection with its
duties, and it shall not be liable for any action taken or suffered to be taken
by it in good faith in accordance with instructions with respect to any matter
arising in connection with the Warrant Agent's duties and obligations arising
under this Warrant Agreement. Such application by the Warrant Agent for written
instructions from the Company may, at the option of the Warrant Agent, set forth
in writing any action proposed to be taken or omitted by the Warrant Agent with
respect to its duties or obligations under this Warrant Agreement and the date
on or after which such action shall be taken, and the Warrant Agent shall not be
liable for any action taken or omitted to be taken in accordance with a proposal
included in any such application on or after the date specified therein (which
date shall be not less than 10 Business Days after the Company receives such
application unless the Company consents to a shorter period), provided that (i)
such application includes a statement to the effect that it is being made
pursuant to this Section 6.2(n) and that unless objected to prior to such date
specified in the application, the Warrant Agent will not be liable for any such
action or omission to the extent set forth in such application and (ii) prior to
taking or omitting any such action, the Warrant Agent has not received written
instructions objecting to such proposed action or omission.
(o) Whenever in the performance of its duties under this Warrant
Agreement the Warrant Agent shall deem it necessary or desirable that any fact
or matter be proved or established by the Company prior to taking or suffering
any action hereunder, such fact or matter (unless other evidence in respect
thereof be herein specifically prescribed) may be deemed to be conclusively
proved and established by a certificate signed by any one of the President, the
Treasurer, the Controller, any Vice President or the Secretary of the Company or
any other officer or official of the Company reasonably believed by the Warrant
Agent to be authorized to give such instructions and delivered to the Warrant
Agent and such certificate shall grant full authorization to the Warrant Agent
for any action taken or suffered in good faith by it under the provisions of
this Warrant Agreement in reliance upon such certificate.
(p) The Warrant Agent shall not be required to risk or expend its own
funds in the performance of its obligations and duties hereunder.
-35-
SECTION 6.3. RESIGNATION AND APPOINTMENT OF SUCCESSOR.
(a) The Company agrees, for the benefit of the Holders, that there
shall at all times be a Warrant Agent hereunder.
(b) The Warrant Agent may at any time resign as Warrant Agent by
giving written notice to the Company of such intention on its part, specifying
the date on which its desired resignation shall become effective, provided that
such date shall be at least 30 days after the date on which such notice is given
unless the Company agrees to accept less notice. Upon receiving such notice of
resignation, or in the event the Company shall determine not to continue to act
as its own Warrant Agent, the Company shall promptly appoint a successor Warrant
Agent, qualified as provided in Section 6.3(d) hereof, by written instrument in
duplicate signed on behalf of the Company, one copy of which shall be delivered
to the resigning Warrant Agent and one copy to the successor Warrant Agent. As
provided in Section 6.3(d) hereof, such resignation shall become effective upon
the earlier of (x) the acceptance of the appointment by the successor Warrant
Agent or (y) 30 days after receipt by the Company of notice of such resignation.
The Company may, at any time and for any reason, and shall, upon any event set
forth in the next succeeding sentence, remove the Warrant Agent and appoint a
successor Warrant Agent by written instrument in duplicate, specifying such
removal and the date on which it is intended to become effective, signed on
behalf of the Company, one copy of which shall be delivered to the Warrant Agent
being removed and one copy to the successor Warrant Agent. The Warrant Agent
shall be removed as aforesaid if it shall become incapable of acting, or shall
be adjudged a bankrupt or insolvent, or a receiver of the Warrant Agent or of
its property shall be appointed, or any public officer shall take charge or
control of it or of its property or affairs for the purpose of rehabilitation,
conservation or liquidation. Any removal of the Warrant Agent and any
appointment of a successor Warrant Agent shall become effective upon acceptance
of appointment by the successor Warrant Agent as provided in Section 6.3(d). As
soon as practicable after appointment of the successor Warrant Agent, the
Company shall cause written notice of the change in the Warrant Agent to be
given to each of the registered Holders in the manner provided for in Section
7.4 hereof.
(c) Upon resignation or removal of the Warrant Agent, if the Company
shall fail to appoint a successor Warrant Agent within a period of 30 days after
receipt of such notice of resignation or removal, then the Holder or the Warrant
Agent may apply to a court of competent jurisdiction for the appointment of a
successor to the Warrant Agent. Pending appointment of a successor to the
Warrant Agent, either by the Company or by such a court, the duties of the
Warrant Agent shall be carried out by the Company.
(d) Any successor Warrant Agent, whether appointed by the Company or
by a court, shall be a bank or trust company in good standing, incorporated
under the laws of the United States of America or any State thereof and having,
at the time of its appointment, a combined capital surplus of at least $150
million. Such successor Warrant Agent shall execute and deliver to its
predecessor and to the Company an instrument accepting such appointment
hereunder and all the provisions of this Warrant Agreement, and thereupon such
successor Warrant Agent, without any further act, deed or conveyance, shall
-36-
become vested with all the rights, powers, duties and obligations of its
predecessor hereunder, with like effect as if originally named as Warrant Agent
hereunder, and such predecessor shall thereupon become obligated to (i) transfer
and deliver, and such successor Warrant Agent shall be entitled to receive, all
securities, records or other property on deposit with or held by such
predecessor as Warrant Agent hereunder and (ii) upon payment of the amounts then
due it pursuant to Section 6.2(a) hereof, pay over, and such successor Warrant
Agent shall be entitled to receive, all money deposited with or held by any
predecessor Warrant Agent hereunder.
(e) Any corporation or bank into which the Warrant Agent hereunder
may be merged or converted, or any corporation or bank with which the Warrant
Agent may be consolidated, or any corporation or bank resulting from any merger,
conversion or consolidation to which the Warrant Agent shall be a party, or any
corporation or bank to which the Warrant Agent shall sell or otherwise transfer
all or substantially all of its corporate trust business or assets, shall be the
successor to the Warrant Agent under this Warrant Agreement (provided that such
corporation or bank shall be qualified as aforesaid) without the execution or
filing of any document or any further act on the part of any of the parties
hereto.
(f) No Warrant Agent under this Warrant Agreement shall be personally
liable for any action or omission of any successor Warrant Agent or of the
Company.
ARTICLE VII
MISCELLANEOUS
SECTION 7.1. DEFINED TERMS. Unless otherwise defined in this
Warrant Agreement, the capitalized terms set forth below and used in this
Warrant Agreement shall have the meanings given to such terms below:
"AGGREGATE CONSIDERATION RECEIVABLE" means, in the case of a sale,
issuance or other distribution of shares of Common Stock, the aggregate amount
paid to the Company in connection therewith and, in the case of an issuance,
sale or other distribution of Rights, or any amendment thereto, the SUM of: (a)
the aggregate amount paid to the Company for such Rights; PLUS (b) the aggregate
consideration or premium stated in such Rights to be payable for the shares of
Common Stock covered thereby, in each case, without deduction for any fees,
expenses or underwriters discounts; PROVIDED, FURTHER, that if all or any
portion of the aggregate amount paid to the Company for such Rights was not paid
in cash, the amount of such consideration other than cash received by the
Company shall be deemed to be the then Fair Market Value of such consideration.
"BUSINESS DAY" means any Monday, Tuesday, Wednesday, Thursday and
Friday on which (i) banks in New York City or the city in which the principal
corporate trust office of the Warrant Agent is located, (ii) the principal
national securities exchange or
-37-
market, if any, on which the Common Stock or the Warrants are listed or admitted
to trading, in each case, are not obligated by law or executive order to be
closed.
"CLOSING PRICES" means, per share of Common Stock or any other
security, on any date specified herein:
(i) the last sale price, regular way, on such date or, if no such
sale takes place on such date, the average of the closing bid and
asked prices on such date, in each case as officially reported on
the principal national securities exchange on which the Common
Stock or other security is then listed or admitted to trading;
and
(ii) if the Common Stock or other security is not then listed or
admitted to trading on any national securities exchange, but is
designated as a national market system security by the National
Association of Securities Dealers, Inc. ("NASD"), the last
trading price of the Common Stock or such other security on such
date, or if there shall have been no trading on such date or if
the Common Stock or such other security is not so designated, the
average of the reported closing bid and asked prices on such date
as shown by the National Association of Securities Dealers
Annotated Quotation System ("NASDAQ").
"CONSIDERATION PER SHARE" means, with respect to shares of Common
Stock or Rights, the quotient of: (a) the Aggregate Consideration Receivable in
respect of such shares of Common Stock or such Rights, DIVIDED BY (b) the total
number of such shares of Common Stock or, in the case of Rights, the total
number of shares of Common Stock into which such Rights are exercisable or
convertible.
"CONVERTIBLE PREFERRED STOCK" means the Series A Convertible Preferred
Stock of the Company issued by the Company in connection with the issuance of
the Notes and the Warrants.
"FAIR MARKET VALUE" means, per share of Common Stock or any other
security, as of any date of determination, the arithmetic mean of the daily
Closing Prices for the 30 consecutive trading days before such date of
determination; PROVIDED, HOWEVER, that if the Common Stock or such other
security is then neither listed or admitted to trading on any national
securities exchange, designated as a national market system security by the NASD
or quoted by NASDAQ, then "Fair Market Value" means the fair market value of one
share of Common Stock or such other security as determined by an Independent
Financial Advisor as of the date of determination.
"INDEPENDENT FINANCIAL ADVISOR" means ▇▇▇▇▇▇▇▇▇ & Company, Inc. or any
of its successors. If and only to the extent ▇▇▇▇▇▇▇▇▇ & Company, Inc. or any
such successor shall resign from acting as such, such other firm of independent
certified public accountants, an investment banking or appraisal firm (which
firm shall own no equity interest of, and shall not be an affiliate, subsidiary
or Related Party of the Company) of recognized national
-38-
standing to be retained by the Company and acceptable to ▇▇▇▇▇▇▇▇▇ & Company,
Inc. and the Warrant Agent.
"PERSON" means any individual, corporation, partnership, joint
venture, association, joint stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
"RELATED PARTY" means, with respect to any Person: (A) any other
Person directly or indirectly controlling, controlled by, or under direct or
indirect common control with, such Person, (B) any spouse or immediate family
member of such Person or (C) a trust, corporation, partnership or other entity,
the beneficiaries, stockholders, partners, owners or Persons holding a 75% or
more controlling interest of which consist of such Person and/or such other
Persons or entities referred to in the immediately preceding clause (A). A
Person shall be deemed to control another Person if such Person possesses,
directly or indirectly, the power to direct or cause the direction of the
management and policies of such other Person, whether through the ownership of
voting securities, by contract or otherwise.
"RIGHT" means and includes:
(a) any warrant (including, without limitation, any Warrant) or
any option (including, without limitation, employee stock options) to
acquire Common Stock;
(b) any right issued to holders of the Common Stock, or any
class thereof, permitting the holders thereof to subscribe to shares of
Additional Common Stock (pursuant to a rights offering or otherwise);
(c) any right to acquire Common Stock pursuant to the provisions
of any security convertible or exchangeable into Common Stock; and
(d) any similar right permitting the holder thereof to subscribe
for or purchase shares of Common Stock.
"SECURITIES ACT" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
SECTION 7.2. AMENDMENT. This Warrant Agreement and the terms of the
Warrants may be amended by the Company and the Warrant Agent, without the
consent of any Holder, for the purpose of curing any ambiguity, or for curing,
correcting or supplementing any defective or inconsistent provision contained
herein or therein or in any other manner which the Company may deem necessary or
desirable and which shall not adversely affect in any respect the interests of
the Holders.
-39-
The Company and the Warrant Agent may modify this Warrant Agreement
and the terms of the Warrants with the consent of not less than a majority in
number of the then outstanding Warrants for the purpose of adding any provision
to or changing in any manner or eliminating any of the provisions of this
Warrant Agreement or modifying in any manner the rights of the Holders;
PROVIDED, HOWEVER, that no such modification that increases the Exercise Price,
reduces the period of time during which the Warrants are exercisable hereunder,
otherwise adversely affects the exercise rights of the Holders, reduces the
percentage required for modification, or effects any change to this Section 7.1,
may be made with respect to an outstanding Warrant without the consent of the
Holder of such Warrant.
Any modification or amendment made in accordance with this Warrant
Agreement will be conclusive and binding on all present and future Holders
whether or not they have consented to such modification or amendment or waiver
and whether or not notation of such modification or amendment is made upon such
Warrant Certificates. Any instrument given by or on behalf of any Holder in
connection with any consent to any modification or amendment will be conclusive
and binding on all subsequent Holders.
SECTION 7.3. NOTICES AND DEMANDS TO THE COMPANY AND WARRANT AGENT.
If the Warrant Agent shall receive any notice or demand addressed to the Company
by the Holder of a Warrant Certificate pursuant to the provisions hereof or of
the Warrant Certificates, the Warrant Agent shall promptly forward such notice
or demand to the Company.
SECTION 7.4. ADDRESS FOR NOTICES TO THE COMPANY AND FOR TRANSMISSION
OF DOCUMENTS. All notices hereunder to the Company and the Warrant Agent shall
be deemed to have been given when sent by certified or registered mail, postage
prepaid, or by telecopy, confirmed by first class mail, postage prepaid,
addressed as follows:
To the Company:
Discovery Zone, Inc.
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone:(▇▇▇) ▇▇▇-▇▇▇▇
Attention: Chief Financial Officer
To the Warrant Agent:
State Street Bank and Trust Company
c/o Boston Equiserv, Inc.
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇ ▇▇-▇▇-▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: Corporate Registration Department
-40-
SECTION 7.5. NOTICES TO HOLDERS. Notices to Holders shall be mailed
to such Holders at the addresses of such Holders as they appear in the Warrant
Register. Any such notice shall be sufficiently given if sent by first-class
mail, postage prepaid.
SECTION 7.6. APPLICABLE LAW. THE VALIDITY, INTERPRETATION AND
PERFORMANCE OF THIS WARRANT AGREEMENT AND EACH WARRANT ISSUED HEREUNDER AND OF
THE RESPECTIVE TERMS AND PROVISIONS THEREOF SHALL BE GOVERNED BY THE LAWS OF THE
STATE OF NEW YORK.
SECTION 7.7. OBTAINING OF GOVERNMENTAL APPROVALS. The Company will
from time to time take all action required to be taken by it which may be
necessary to obtain and keep effective any and all permits, consents and
approvals of governmental agencies and authorities and securities laws filings
under United States Federal and State laws, and the rules and regulations of all
stock exchanges or markets on which the Warrants may be listed, which may be or
become requisite in connection with the issuance, sale, transfer, and delivery
of the Warrant Certificates, the exercise of the Warrants or the issuance, sale,
transfer and delivery of the Warrant Shares, it being understood, however, that
the only contractual registration rights of the Holders are those set forth in
the Registration Rights Agreement, dated of even date herewith (the
"Registration Rights Agreement"), between the Company and the Initial Purchaser.
SECTION 7.8. PERSONS HAVING RIGHTS UNDER AGREEMENT. Nothing in this
Warrant Agreement expressed or implied and nothing that may be inferred from any
of the provisions hereof is intended, or shall be construed, to confer upon, or
give to, any Person other than the Company, the Warrant Agent and the Holders
from time to time of the Warrant Certificates any right, remedy or claim under
or by reason of this Warrant Agreement or of any covenant, condition,
stipulation, promise or agreement hereof and all covenants, conditions,
stipulations, promises and agreements in this Warrant Agreement contained shall
be for the sole and exclusive benefit of the Company and the Warrant Agent and
their successors and of the Holders from time to time of the Warrant
Certificates.
SECTION 7.9. HEADINGS. The descriptive headings of the several
Articles and Sections of this Warrant Agreement are inserted for convenience of
reference only and shall not control or affect the meaning or construction of
any of the provisions hereof.
SECTION 7.10. COUNTERPARTS. This Warrant Agreement may be executed
in any number of counterparts, each of which so executed shall be deemed to be
an original; but such Counterparts shall together constitute but one and the
same instrument.
SECTION 7.11. INSPECTION OF WARRANT AGREEMENT. A copy of this
Warrant Agreement shall be available at all reasonable times at the Warrant
Agent Office, for inspection by the Holder of any Warrant Certificate. The
Warrant Agent may require such Holder to submit his Warrant Certificate for
inspection by it.
-41-
SECTION 7.12. SUCCESSORS. All the covenants and provisions of this
Warrant Agreement by or for the benefit of the Company or the Warrant Agent
shall bind and inure to the benefit of their respective successors and assigns
hereunder.
* * * * *
-42-
IN WITNESS WHEREOF, this Warrant Agreement has been duly executed by
the Company and the Warrant Agent as of the day and year first above written.
DISCOVERY ZONE, INC.
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
----------------------------------------
Name: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
Title: President and CEO
STATE STREET BANK AND TRUST COMPANY
/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇.
By: ----------------------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇.
Title: Vice President
ACKNOWLEDGED AND AGREED TO:
BIRCH HOLDINGS L.L.C.
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
-----------------------
Name: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: Member
BIRCH ACQUISITION L.L.C.
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
-------------------------
Name: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: Member
-43-
EXHIBIT A
{FORM OF WARRANT CERTIFICATE}
{FACE}
Unless and until it is exchanged in whole or in part for Warrants in
certificated form, this Warrant may not be transferred except as a whole by the
Depositary to a nominee of the Depositary or by a nominee of the Depositary to
the Depositary or another nominee of the Depositary or by the Depositary or any
such nominee to a successor Depositary or a nominee of such successor
Depositary. Unless this certificate is presented by an authorized
representative of The Depository Trust Company, a New York corporation ("DTC"),
to the issuer or its agent for registration of transfer, exchange or payment,
and any certificate issued is registered in the name of Cede & Co. or such other
name as requested by an authorized representative of DTC (and any payment is
made to Cede & Co. or such other entity as is requested by an authorized
representative of DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner
hereof, Cede & Co., has an interest herein.(1)
THE WARRANTS REPRESENTED BY THIS WARRANT CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), OR ANY STATE SECURITIES LAWS. NEITHER THIS WARRANT CERTIFICATE NOR
ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED,
TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF
SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT
TO, REGISTRATION.
THE HOLDER OF THE WARRANTS REPRESENTED BY THIS WARRANT CERTIFICATE, BY
ITS ACCEPTANCE HEREOF, AGREES TO OFFER, SELL OR OTHERWISE TRANSFER THE
WARRANTS REPRESENTED BY THIS WARRANT CERTIFICATE PRIOR TO THE DATE WHICH IS
TWO YEARS AFTER THE LATER OF THE ORIGINAL ISSUE DATE OF THE WARRANTS
REPRESENTED BY THIS WARRANT CERTIFICATE AND THE LAST DATE ON WHICH
DISCOVERY ZONE, INC. ("THE COMPANY") OR ANY AFFILIATE OF THE COMPANY WAS
THE OWNER OF THE WARRANTS REPRESENTED BY THIS WARRANT CERTIFICATE (OR ANY
PREDECESSOR OF SUCH WARRANTS OR WARRANT CERTIFICATE) (THE "RESALE
RESTRICTION TERMINATION DATE"), ONLY (A) TO THE COMPANY, (B) PURSUANT TO A
REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE
SECURITIES ACT, (C) FOR SO LONG AS THE WARRANTS REPRESENTED BY THIS WARRANT
CERTIFICATE ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, TO A PERSON IT
___________________
(1.) This paragraph is to be included only if the Warrant Certificate is in
global form.
A-1
REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE
144A UNDER THE SECURITIES ACT THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE
ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE
TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND
SALES TO NON-U.S. PERSONS THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE
MEANING OF REGULATION S UNDER THE SECURITIES ACT, (E) TO AN INSTITUTIONAL
"ACCREDITED INVESTOR" WITHIN THE MEANING OF SUBPARAGRAPH (A)(1), (2), (3)
OR (7) OF RULE 501 UNDER THE SECURITIES ACT THAT IS ACQUIRING THE WARRANTS
REPRESENTED BY THIS WARRANT CERTIFICATE FOR ITS OWN ACCOUNT, OR FOR THE
ACCOUNT OF SUCH AN INSTITUTIONAL "ACCREDITED INVESTOR," FOR INVESTMENT
PURPOSES AND NOT WITH A VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH,
ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT OR (F) PURSUANT TO
ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT, SUBJECT TO THE COMPANY'S AND THE WARRANT AGENT'S, AS
APPLICABLE, RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO
CLAUSE (D), (E) OR (F) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL,
CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM, AND IN
EACH OF THE FOREGOING CASES, AN ASSIGNMENT IN THE FORM APPEARING ON THE
OTHER SIDE OF THIS WARRANT CERTIFICATE IS COMPLETED AND DELIVERED BY THE
TRANSFEROR TO THE WARRANT AGENT. THIS LEGEND SHALL BE REMOVED UPON THE
REQUEST OF A HOLDER AFTER THE RESALE RESTRICTION TERMINATION DATE.
THIS SECURITY IS SUBJECT TO A REGISTRATION RIGHTS AGREEMENT DATED AS
OF JULY 22, 1997 BETWEEN THE COMPANY AND ▇▇▇▇▇▇▇▇▇ & COMPANY, INC., A COPY
OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY.
THE WARRANTS EVIDENCED BY THIS WARRANT CERTIFICATE ARE INITIALLY
ISSUED AS PART OF AN ISSUANCE OF UNITS, EACH OF WHICH CONSISTS OF $1,000
PRINCIPAL AMOUNT OF 13 1/2% SENIOR SECURED NOTES DUE 2002 (THE "NOTES") OF
THE COMPANY AND ONE WARRANT INITIALLY ENTITLING THE HOLDER THEREOF TO
PURCHASE 9.4724 SHARES OF THE COMPANY'S COMMON STOCK, PAR VALUE $.01 PER
SHARE. PRIOR TO THE CLOSE OF BUSINESS UPON THE EARLIEST TO OCCUR OF (i) 45
DAYS AFTER JULY 22, 1997 AND (ii) SUCH EARLIER DATE AS THE INITIAL
PURCHASER MAY DESIGNATE, THE WARRANTS EVIDENCED BY THIS CERTIFICATE MAY NOT
BE TRANSFERRED OR EXCHANGED SEPARATELY FROM, BUT MAY BE TRANSFERRED OR
EXCHANGED ONLY TOGETHER WITH, THE NOTES.
A-2
CUSIP NUMBER: 25468B-115
No. [ ] [ ] Warrants
WARRANT CERTIFICATE
DISCOVERY ZONE, INC.
This Warrant Certificate certifies that [ ], or its
registered assigns, is the registered holder of [ ] Warrants (the
"Warrants") to purchase shares of Common Stock, par value $0.01 per share (the
"Common Stock"), of Discovery Zone, Inc., a Delaware corporation (the
"Company"). Each Warrant entitles the holder to purchase from the Company at
any time on or after the date hereof and until 5:00 p.m., New York City time, on
August 1, 2007 (the "Expiration Date"), 9.4724 fully paid and non-assessable
shares of Common Stock (as such number may be adjusted from time to time, the
"Warrant Shares", which may also include any other securities or property
issuable upon exercise of a Warrant, such adjustment and inclusion each as
provided in the Warrant Agreement) at the initial exercise price (the "Exercise
Price") of $0.01 per Warrant Share upon surrender of this Warrant Certificate
and payment of the Exercise Price at any office or agency maintained for that
purpose by the Company (the "Warrant Agent Office"), subject to the conditions
set forth herein and in the Warrant Agreement.
The Exercise Price shall be payable in cash or by certified or official
bank check in the lawful currency of the United States of America which as of
the time of payment is legal tender for payment of public or private debts. The
Company has initially designated its principal executive offices in New York,
New York, as the initial Warrant Agent Office. The number of Warrant Shares
issuable upon exercise of the Warrants is subject to adjustment upon the
occurrence of certain events set forth in the Warrant Agreement.
Any Warrants not exercised on or prior to 5:00 p.m., New York City time, on
August 1, 2007 shall thereafter be void.
Reference is hereby made to the further provisions on the reverse hereof,
which provisions shall for all purposes have the same effect as though fully set
forth at this place.
All capitalized terms used in this Warrant Certificate and not otherwise
defined herein shall have the meanings ascribed thereto in the Warrant
Agreement.
This Warrant Certificate shall not be valid unless authenticated by the
Warrant Agent, as such term is used in the Warrant Agreement. Initially, the
Company shall act as its own Warrant Agent.
THE WARRANTS REPRESENTED BY THIS WARRANT CERTIFICATE SHALL BE GOVERNED BY
THE LAWS OF THE STATE OF NEW YORK.
A-3
WITNESS the corporate seal of the Company and the signatures of its duly
authorized officers.
Dated: July 22, 1997
DISCOVERY ZONE, INC.
By: ______________________________
Name:
Title:
Attest:
______________________________
Name:
Title:
Certificate of Authentication:
This is one of the Warrants
referred to in the within-
mentioned Warrant Agreement:
STATE STREET BANK AND TRUST COMPANY
as Warrant Agent
By: ______________________________
Name:
Title:
A-4
{FORM OF WARRANT CERTIFICATE}
{REVERSE}
DISCOVERY ZONE, INC.
The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of Warrants, each of which represents the right to purchase at
any time on or after the date hereof and until 5:00 p.m., New York City time, on
August 1, 2007, 9.4724 Warrant Shares, subject to adjustment as set forth in the
Warrant Agreement (as defined). The Warrants are issued pursuant to a Warrant
Agreement dated as of July 22, 1997 (the "Warrant Agreement"), duly executed and
delivered by the Company for the benefit of the holders from time to time of the
Warrant Certificates, and subject to the terms and provisions of the
Registration Rights Agreement, dated as of July 22, 1997, between ▇▇▇▇▇▇▇▇▇ &
Company, Inc. and the Company (the "Registration Rights Agreement"), which
Warrant Agreement and Registration Rights Agreement are hereby incorporated by
reference in and made a part of this instrument and are hereby referred to for a
description of the rights, limitation of rights, obligations, duties and
immunities thereunder of the Warrant Agent, the Company and the holders (the
words "holders" or "holder" meaning the registered holders or registered holder)
of the Warrant Certificates. Warrants may be exercised by (i) surrendering at
any Warrant Agent Office this Warrant Certificate with the form of Election to
Exercise set forth hereon duly completed and executed and (ii) paying in full
the Warrant Exercise Price for each such Warrant exercised and any other amounts
required to be paid pursuant to the Warrant Agreement.
If all of the items referred to in the last sentence of the preceding
paragraph are received by the Warrant Agent at or prior to 2:00 p.m., New York
City time, on a Business Day, the exercise of the Warrant to which such items
relate will be effective on such Business Day. If any items referred to in the
last sentence of the preceding paragraph are received after 2:00 p.m., New York
City time, on a Business Day, the exercise of the Warrants to which such item
relates will be deemed to be effective on the next succeeding Business Day.
Notwithstanding the foregoing, in the case of an exercise of Warrants on the
Expiration Date, if all of the items referred to in the last sentence of the
preceding paragraph are received by the Warrant Agent at or prior to 5:00 p.m.,
New York City time, on such Expiration Date, the exercise of the Warrants to
which such items relate will be effective on the Expiration Date.
Subject to the terms of the Warrant Agreement, as soon as practicable after
the exercise of any Warrant or Warrants, the Company shall issue or cause to be
issued to or upon the written order of the registered holder of this Warrant
Certificate, a certificate or certificates evidencing the Warrant Share or
Warrant Shares to which such holder is entitled, in fully registered form,
registered in such name or names as may be directed by such holder pursuant to
the Election to Exercise, as set forth on the reverse of this Warrant
Certificate. Such certificate or certificates evidencing the Warrant Share or
Warrant Shares shall be deemed to have been issued and any Persons who are
designated to be named therein shall be
A-5
deemed to have become the holder of record of such Warrant Share or Warrant
Shares as of the close of business on the date upon which the exercise of this
Warrant was deemed to be effective as provided in the preceding paragraph.
The Company will not be required to issue fractional shares of Common Stock
upon exercise of the Warrants or distribute Warrant Certificates that evidence
fractional shares of Common Stock. In lieu of fractional shares of Common
Stock, there shall be paid to the registered Holder of this Warrant Certificate
at the time such Warrant Certificate is exercised an amount in cash equal to the
same fraction of the Fair Market Value per share of Common Stock as determined
in accordance with the Warrant Agreement.
Warrant Certificates, when surrendered at any Warrant Agent Office by the
holder thereof in person or by legal representative or attorney duly authorized
in writing, may be exchanged for a new Warrant Certificate or new Warrant
Certificates evidencing in the aggregate a like number of Warrants, in the
manner and subject to the limitations provided in the Warrant Agreement, without
charge except for any tax or other governmental charge imposed in connection
therewith.
Upon due presentment for registration of transfer of this Warrant
Certificate at any office or agency maintained by the Company for that purpose,
a new Warrant Certificate evidencing in the aggregate a like number of Warrants
shall be issued to the transferee in exchange for this Warrant Certificate,
subject to the limitations provided in the Warrant Agreement, without charge
except for any tax or other governmental charge imposed in connection therewith.
The Company and the Warrant Agent may deem and treat the registered holder
hereof as the absolute owner of this Warrant Certificate (notwithstanding any
notation of ownership or other writing hereon made by anyone) for the purpose of
any exercise hereof and for all other purposes, and neither the Company nor the
Warrant Agent shall be affected by any notice to the contrary.
All capitalized terms used in this Warrant Certificate and not otherwise
defined herein have the meanings given to such terms in the Warrant Agreement.
A-6
ELECTION TO EXERCISE
TO BE EXECUTED UPON EXERCISE OF WARRANTS ON THE EXERCISE DATE
The undersigned hereby irrevocably elects to exercise ______ of the
Warrants represented by this Warrant Certificate and purchase the whole number
of Warrant Shares issuable upon the exercise of such Warrants and herewith
tenders payment for such Warrant Shares:*
(i) / / in the amount of $_____________ in cash or by certified or official
bank check; and/or
(ii) / / in Warrant Certificates,
in each case, pursuant to Section 2.1 of the Warrant Agreement.
The undersigned requests that a certificate representing such Warrant
Shares be registered in the name of ___________________, whose address is
____________________, and that such certificate be delivered to
_____________________, whose address is ____________________. Any cash payments
to be paid in lieu of a fractional Warrant Share should be made to
____________________, whose address is ____________________, and the check
representing payment thereof should be delivered to ____________________, whose
address is _____________________.
Name of holder of
Warrant Certificate:
------------------------------------------------
(Please Print)
Tax Identification or
Social Security Number:
---------------------------------------------
Signature:
----------------------------------------------------------
Note: The above signature must correspond
with the name as written upon the face of
this Warrant Certificate in every particular,
without alteration or enlargement or any
change whatever.
Dated: ,
-------------- -----------------------
__________________
* INDICATE, AS APPLICABLE, THE FORM OF CONSIDERATION BEING PROVIDED.
A-7
ASSIGNMENT
For value received, ____________________ hereby sells, assigns and
transfers unto ____________________ the within Warrant Certificate, together
with all right, title and interest therein, and does hereby irrevocably
constitute and appoint ____________________ attorney, to transfer said Warrant
Certificate on the books of the within-named Company, with full power of
substitution in the premises.
Dated: ,
-------------- -----------------------
Signature:
------------------------------------------------------------
Note: The above signature must correspond
with the name as written upon the face of
this Warrant Certificate in every particular,
without alteration or enlargement or any
change whatever.
SCHEDULE OF EXCHANGES OF DEFINITIVE WARRANTS**
The following exchanges of a part of this Global Warrant for Definitive Warrants
have been made:
Amount of Amount of Number of Warrants
Decrease in Increase in of This Global
Number of Number of Warrant Following Signature of Authorized
Date of Warrants of This Warrants of This Such Decrease (or Signatory of Warrant Agent or
Exchange Global Warrant Global Warrant Increase) Depository
--------------------------------------------------------------------------------------------------------------
___________________
**This is to be included only if the Warrant Certificate is in global form.
A-8
EXHIBIT B
CERTIFICATE TO BE DELIVERED UPON EXCHANGE
OR REGISTRATION OF TRANSFER OF WARRANTS
Re: Warrants to Purchase Common Stock (the "Warrants") of Discovery Zone, Inc.
This Warrant Certificate relates to _____ Warrants held in *_____
book-entry or *_____ certificated form by ____________________ (the
"Transferor").
The Transferor:*
/ / has requested the Warrant Agent by written order to deliver in
exchange for its beneficial interest in the Global Warrant held by the
Depositary a Warrant or Warrants in definitive, registered form of authorized
denominations and an aggregate number equal to its beneficial interest in such
Global Warrant (or the portion thereof indicated above) or
/ / has requested the Warrant Agent by written order to exchange or
register the transfer of a Warrant or Warrants.
In connection with such request and in respect of each such Warrant, the
Transferor does hereby certify that the Transferor is familiar with the Warrant
Agreement relating to the above captioned Warrants and the restrictions on
transfers thereof as provided in Section 1.8(b) of such Warrant Agreement, and
that the transfer of this Warrant does not require registration under the
Securities Act of 1933, as amended (the "Act") because(*):
/ / Such Warrant is being acquired for the Transferor's own account,
without transfer (in satisfaction of Section 1.8(a)(ii)(y)(A) or Section 1.8
(d)(i)(A) of the Warrant Agreement).
/ / Such Warrant is being transferred to a qualified institutional
buyer (as defined in Rule 144A under the Act) in reliance on Rule 144A or in
accordance with Regulation S under the Act.
/ / Such Warrant is being transferred in accordance with Rule 144
under the Act.
/ / Such Warrant is being transferred in reliance on and in
compliance with an exemption from the registration requirements of the Act,
other than Rule 144A or Rule 144 or Regulation S under the Act. An opinion of
counsel to the effect that such transfer does not require registration under the
Act accompanies this Certificate.
{INSERT NAME OF TRANSFEROR}
By:
-----------------------------------------
Date:
-----------------------------
* Check applicable box.
B-1
EXHIBIT C
TRANSFEREE LETTER OF REPRESENTATION
Discovery Zone, Inc.
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Ladies and Gentlemen:
In connection with our proposed purchase of warrants ("Warrants") to
purchase Common Stock, par value $0.01 per share (the "Common Stock", together
with the Warrants, the "Securities"), of Discovery Zone, Inc. (the "Company"),
we confirm that:
1. We understand that the Securities have not been registered under
the Securities Act of 1933, as amended (the "Securities Act"), and, unless so
registered, may not be sold except as permitted in the following sentence. We
agree on our own behalf and on behalf of any investor account for which we are
purchasing Securities to offer, sell or otherwise transfer such Securities prior
to the date which is two years after the later of the date of original issue and
the last date on which the Company or any affiliate of the Company was the owner
of such Securities, or any predecessor thereto (the "Resale Restriction
Termination Date") only (a) to the Company, (b) pursuant to a registration
statement which has been declared effective under the Securities Act, (c) so
long as the Securities are eligible for resale pursuant to Rule 144A, under the
Securities Act, to a Person we reasonably believe is a qualified institutional
buyer under Rule 144A (a "QIB") that purchases for its own account or for the
account of a QIB and to whom notice is given that the transfer is being made in
reliance on Rule 144A, (d) pursuant to offers and sales that occur outside the
United States within the meaning of Regulation S under the Securities Act, (e)
to an institutional "accredited investor" within the meaning of subparagraph
(a)(1), (2), (3) or (7) of Rule 501 under the Securities Act that is purchasing
for his own account or for the account of such an institutional "accredited
investor," or (f) pursuant to any other available exemption from the
registration requirements of the Securities Act, subject in each of the
foregoing cases to any requirement of law that the disposition of our property
or the property of such investor account or accounts be at all times within our
or their control and to compliance with any applicable state securities laws.
The foregoing restrictions on resale will not apply subsequent to the Resale
Restriction Termination Date. If any resale or other transfer of the Securities
is proposed to be made pursuant to clause (e) above prior to the Resale
Restriction Termination Date, the transferor shall deliver a letter from the
transferee substantially in the form of this letter to the warrant agent under
the Warrant Agreement pursuant to which the Securities were issued (the "Warrant
Agent") which shall provide, among other things, that the transferee is an
institutional "accredited investor" within the meaning of subparagraph (a)(1),
(2), (3) or (7) of Rule 501 under the Securities Act and that it is acquiring
such Securities for investment purposes and not for distribution in violation of
the Securities Act. The Warrant Agent and the Company reserve the right, prior
to any offer, sale or other transfer prior to the Resale Restriction Termination
Date of the Securities
C-1
pursuant to clause (e) or (f) above, to require the delivery of a written
opinion of counsel, certifications, and/or other information reasonably
satisfactory to the Company and the Warrant Agent.
2. We are an institutional "accredited investor" (as defined in
Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act)
purchasing for our own account or for the account of such an institutional
"accredited investor," and we are acquiring the Securities for investment
purposes and not with a view to, or for offer or sale in connection with, any
distribution in violation of the Securities Act and we have such knowledge and
experience in financial and business matters as to be capable of evaluating the
merits and risks of our investment in the Securities, and we and any accounts
for which we are acting are each able to bear the economic risk of our or its
investment for an indefinite period.
3. We are acquiring the Securities purchased by us for our own
account or for one or more accounts as to each of which we exercise sole
investment discretion.
4. You, the Warrant Agent and your respective counsel are entitled
to rely upon this letter and you are irrevocably authorized to produce this
letter or a copy hereof to any interested party in any administrative or legal
proceeding or official inquiry with respect to the matters covered hereby.
Very truly yours,
-------------------------
(Name of Purchaser)
By:
----------------------
Upon transfer the Securities would be registered in the name of the new
beneficial owner as follows:
Name:
-------------------------
Address:
----------------------
Taxpayer ID Number:
-----------
C-2