WARRANT AGREEMENT
WARRANT AGREEMENT (this "Agreement") is made and entered into as of July
31, 1996, by and between (i) Vari-Lite International, Inc., a corporation
incorporated under the laws of the State of Texas (together with its successors,
the "Company") and (ii) ▇▇▇▇▇ Brothers ▇▇▇▇▇▇▇▇ & Co., NBD Bank, SunTrust Bank,
Atlanta (formerly known as Trust Company Bank) and Comerica Bank - Texas (each
an "Initial Holder" and collectively, the "Initial Holders").
WHEREAS, the Company (and each of its subsidiaries) and the Initial Holders
are parties to that certain Credit Agreement, dated as of March 31, 1994 (as the
same has been or shall be modified, amended and supplemented and in effect from
time to time, the "Credit Agreement"), providing for the making of certain loans
to the Company as contemplated therein;
WHEREAS, pursuant to the Credit Agreement, ▇▇▇▇▇ Brothers ▇▇▇▇▇▇▇▇ & Co.
("BBH") is acting as administrative agent for the various lenders named therein;
WHEREAS, in order to induce the Initial Holders to amend the Credit
Agreement, pursuant to Amendment No. 7 thereto, the Company has agreed to issue
the Warrants (as hereinafter defined) to the Initial Holders as contemplated
herein;
WHEREAS, the Company has authorized the issuance of the Warrants which are
exercisable, pursuant to the terms and conditions thereof, for Class A Common
Stock or Class B Common Stock of the Company; and
WHEREAS, the Initial Holders now desire to subscribe for, and the Company
now desires to issue to the Initial Holders, upon the terms and conditions set
forth herein, the Warrants substantially in the form of Exhibit A hereto (the
"Warrant");
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
Section 1. DEFINITIONS.
1.01 DEFINITIONS. Terms defined in either the Warrant or the Credit
Agreement and not otherwise defined herein have, as used herein, the respective
meanings provided for therein. The following additional terms, as used herein,
shall have the following respective meanings:
"Acceptance Notice" shall have the meaning provided in Section 6.02 hereof.
"Affiliate" shall mean, with respect to any Person, any other Person that
directly or indirectly controls, or is under common control with, or is
controlled by, such Person. As used in this definition, "control" (including,
with its correlative meanings, the terms "controlled by" and "under common
control with"), as used with respect to any Person, shall mean the possession,
directly or indirectly, of power to direct or cause the direction of the
management and policies of such Person (whether through the ownership of
securities or partnership or other ownership interests, contract or otherwise),
PROVIDED that, in any event, any Person which owns, directly or indirectly, more
than 10% of the securities having
ordinary voting power for the election of directors or other governing body of
a corporation or more than 10% of the partnership or other ownership interests
of any Person (other than as a limited partner of such other Person) shall be
deemed to control such corporation or other Person. Notwithstanding the
foregoing, neither the Initial Holders nor any of their respective Affiliates
shall be deemed to be an Affiliate of the Company. As used herein, an
"Affiliate" shall include (a) a Person's spouse and/or lineal descendants, (b)
a Person's estate, executor, guardian or conservator, (c) a trust for the
benefit of such Person or his spouse and/or lineal descendants and (d) the
partners of a Person that is a partnership or the spouse and/or lineal
descendants of such partner or a trust for the benefit of such partner or his
spouse and/or lineal descendants.
"Agreement" shall have the meaning provided in the recitals hereof.
"Appraised Value" shall have the meaning provided in Section 6.02 hereof.
"Business Day" shall mean any day other than a Saturday, Sunday or any
other day on which commercial banks are required by law or authorized to close
in New York City.
"Change of Control" shall mean, with respect to the Company, such time as
(i) a Person or "group" (within the meaning of Sections 13(d) and
14(d)(2) of the Exchange Act), other than a Person or group composed solely
of the current holders of capital stock of the Company, becomes the
beneficial owner of a majority of the voting capital stock of the Company;
or
(ii) (A) the Company consolidates with or merges into any other
Person or conveys, transfers or leases all or substantially all of the
business of the Company to any Person, or (B) any Person merges into the
Company, in either event pursuant to a transaction in which any voting
shares of the Company outstanding immediately prior to the effectiveness
thereof are altered, reclassified or changed into or exchanged for cash,
securities or other property; PROVIDED, HOWEVER, that any merger,
consolidation, conveyance, transfer or lease pursuant to which the holders
of a majority of the Company's shares of voting capital stock immediately
prior to such event shall continue to hold a majority of the voting capital
stock of the resulting entity following such event shall not constitute a
"Change of Control."
"Class A Common Stock" shall mean the Class A common stock of the Company,
$0.10 par value.
"Class B Common Stock" shall mean the Class B non-voting common stock of
the Company, $0.10 par value.
"Common Stock" shall mean and include collectively the Company's authorized
Class A Common Stock and the Company's authorized Class B Common Stock, as
constituted on the date hereof.
"Company" shall have the meaning provided in the recitals hereof.
"Confidential Information" shall have the meaning provided in Section 4.07
hereof.
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"Credit Agreement" shall have the meaning provided in the recitals hereof.
"Demand Notice" shall have the meaning provided in Section 5.01 hereof.
"Demand Registration" shall have the meaning provided in Section 5.01
hereof.
"Demand Registration Statement" shall have the meaning provided in Section
5.01 hereof.
"Disagreement Notice" shall have the meaning provided in Section 2.03
hereof.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended,
or any successor rule or regulation.
"Final Put Notice" shall have the meaning provided in Section 2.03 hereof.
"First Demand Date" shall have the meaning provided in Section 5.01 hereof.
"GAAP" shall mean generally accepted accounting principles, as in effect
from time to time in the United States.
"Holder" initially shall mean any Initial Holder and each other holder of
any Warrant or Warrant Share that is a direct or indirect transferee of an
Initial Holder or any other Holder unless, with respect to any such Warrant
Share, such Warrant Share is acquired in a public distribution pursuant to a
registration statement under the Securities Act or pursuant to a transaction
exempt from registration under the Securities Act if securities sold in such
transaction may be resold without subsequent registration under the Securities
Act.
"Holder Expenses" shall have the meaning provided in Section 5 hereof.
"Indebtedness" shall mean any obligation of the Company for borrowed money
(and any notes payable and drafts accepted representing extensions of credit
whether or not representing obligations for borrowed money) which would, in
accordance with GAAP, be shown on a balance sheet as a liability.
"Initial Holders" shall have the meaning provided in the recitals hereof.
"Initial Public Offering" shall mean the initial sale, in an underwritten
public offering registered under the Securities Act, of shares of the Company's
Common Stock having an aggregate offering price of at least $10 million.
"Inspectors" shall have the meaning provided in Section 5.03 hereof.
"Offered Warrants or Warrant Shares" shall have the meaning provided in
Section 6.02 hereof.
"Person" shall mean an individual, a corporation, a limited liability
company, a company, a voluntary association, a general partnership, a limited
partnership, a trust, an unincorporated organization or a government or any
agency, instrumentality or political subdivision thereof.
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"Permitted Transferee" shall have the meaning provided in Section 6.02
hereof.
"Piggy-Back Registration" shall have the meaning provided in Section 5.02
hereof.
"Put Exercise Date" shall have the meaning provided in Section 2.02 hereof.
"Put Exercise Notice" shall have the meaning provided in Section 2.03
hereof.
"Put Note" shall mean a promissory note, in form and substance reasonably
satisfactory to the Holder, which note shall (i) bear interest at a rate equal
to the lesser of (x) the sum of (A) the Base Rate of BBH plus (B) one percent
(1%), or (y) the Highest Lawful Rate, and (ii) be payable in either (a) four (4)
equal quarterly installments of principal, plus accrued and unpaid interest
thereon, through the date of payment in full, if such note is unsecured, or (b)
in eight (8) equal quarterly installments of principal, plus accrued and unpaid
interest thereon, through the date of payment in full, if, and only if, such
note is secured, on a PARI PASSU basis, by all of the collateral then securing
the primary credit facility (the "Primary Credit Facility") of the Company, or
its operating subsidiaries, as the case may be, and the Holders shall have
entered into an intercreditor agreement, reasonably satisfactory in form and
substance to the Required Holders, with the lenders under the Primary Credit
Facility addressing matters affecting the collateral and the enforcement of
remedial rights thereupon, such payments commencing on the date which is the
last business day of the first full calendar quarter subsequent to the Put
Exercise Date. If the Primary Credit Facility is unsecured or if the Holders are
unable to enter into an intercreditor agreement with the lenders under the
Primary Credit Facility, then the Put Note shall be payable as provided in
clause (ii)(a) above.
"Put Option" shall have the meaning provided in Section 2.02 hereof.
"Put Sales Price" shall have the meaning provided in Section 2.02 hereof.
"Qualified Public Offering" shall mean the earliest to occur of (i) the
closing of an Initial Public Offering, PROVIDED that all Holders who have
requested to sell Registrable Securities in connection with such Initial Public
Offering shall have actually been able to sell such Registrable Securities
therein, without being subject to any cutbacks or other limitations upon such
sales, (ii) the First Demand Date, assuming that none of the Holders elects to
exercise its Demand Registration rights under Section 5.01 on such date, and
(iii) the effectiveness of the first Demand Registration, assuming that at least
one of the Holders elects to exercise its Demand Registration rights under
Section 5.01 on the First Demand Date.
"Records" shall have the meaning provided in Section 5.03 hereof.
"Registrable Securities" shall mean any Warrant Shares until (i) one or
more registration statements covering any such Warrant Shares has become
effective under the Securities Act and all such Warrant Shares have been
disposed of pursuant to such effective registration statement, (ii) such Warrant
Shares are sold under circumstances in which all of the applicable conditions of
Rule 144 (or any similar provisions then in force) under the Securities Act are
met or under which such Warrant Shares may be sold pursuant to Rule 144(k),
(iii) the Company has delivered a new certificate or other evidence of ownership
for such Warrant Shares not bearing any legend relating to restrictions on
transfer and such Warrant Shares may be resold without subsequent registration
under the Securities Act or (iv) such Warrant Shares are no longer outstanding.
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"Registration Expenses" shall have the meaning provided in Section 5
hereof.
"Requested Securities" shall have the meaning provided in Section 5.01
hereof.
"Required Holders" shall mean the holders of more than sixty percent (60%)
of all Warrant Shares then outstanding (assuming the full exercise of all
Warrants).
"Securities Act" shall mean the Securities Act of 1933, as amended, or any
successor rule or regulation.
"Selling Holder" shall have the meaning provided in Section 6.02 hereof.
"Shelf Registration" shall mean (i) an effective registration statement
filed on any appropriate form under Rule 415 promulgated under the Securities
Act or (ii) an amendment or supplement thereto.
"Subsequent Demand Date" shall have the meaning provided in Section 5.01
hereof.
"Transfer" means any sale, transfer, encumbrance, gift, donation,
assignment, pledge, hypothecation or other disposition of any Warrants or
Warrant Shares or any interest therein, whether voluntary or involuntary, and
whether during a Holder's lifetime or upon or after his death, including, but
not limited to, any Transfer by operation of law, by court order, by judicial
process, or by foreclosure, levy, or attachment. Notwithstanding the foregoing,
neither (i) a sale, transfer, encumbrance, gift, donation, assignment, pledge,
hypothecation or other disposition of any Warrants or Warrant Shares or any
interest therein by a Holder (A) to an Affiliate of such Holder, (B) to another
Holder, (C) to an Affiliate of another Holder, or (D) to the Company pursuant to
the Put Option, (ii) the exercise of the Warrant by a Holder pursuant to the
terms of the Warrant and this Agreement, nor (iii) the sale, transfer or
disposition of any Warrant Shares by a Holder pursuant to an effective
registration statement under the Securities Act, shall constitute a "Transfer"
for purposes hereof.
"Transfer Notice" shall have the meaning provided in Section 6.02 hereof.
"Trigger Date" shall mean with respect to each Holder the earlier to occur
of (i) the date on which the Holder elects to exercise its Warrants or the Put
Option, and (ii) the date on which the Company shall have consummated a
Qualified Public Offering.
"Warrant" shall mean a Warrant substantially in the form of Exhibit A
hereto, and any Warrant or Warrants issued upon Transfer thereof or in
substitution therefor.
"Warrant Share" shall mean any share of Class A Common Stock or Class B
Common Stock issued or issuable upon exercise of any Warrant pursuant to the
terms hereof. For purposes of this Agreement, a Warrant Share shall be
"outstanding" from and after the date hereof until the redemption or
cancellation of such Warrant Share (or, if the related Warrant has not been
exercised, the expiration, repurchase or cancellation of such Warrant) by the
Company.
1.02 ACCOUNTING TERMS AND DETERMINATIONS. Unless otherwise specified
herein, all accounting terms used herein shall
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be interpreted, all determinations with respect to accounting matters
hereunder shall be made, and all financial statements and certificates and
reports as to financial matters required to be delivered hereunder shall be
prepared, in accordance with GAAP.
Section 2. TERMS AND CONDITIONS OF ISSUANCE OF WARRANTS; PUT OPTION.
2.01 ISSUANCE OF THE WARRANTS. In consideration of the premises set forth
herein and in the Credit Agreement and other good and valuable consideration,
the Company hereby issues to each Initial Holder Warrants to purchase the number
of shares of Warrant Shares set forth opposite such Initial Holder's name on
Schedule A hereto, subject to the terms and conditions set forth herein and in
the form of Warrant attached hereto as Exhibit A; PROVIDED, HOWEVER, that (i) if
the Trigger Date with respect to a Holder occurs on or after September 1, 1998,
and on or before August 31, 1999, the number of Warrant Shares underlying such
Holder's Warrants shall be adjusted upward as set forth on Schedule A; and (ii)
if the Trigger Date with respect to a Holder occurs on or after September 1,
1999, the number of Warrant Shares underlying such Holder's Warrants shall be
further adjusted as set forth on Schedule A; and PROVIDED, FURTHER, that the
Warrants shall automatically be convertible to Warrants to purchase Class A
Common Stock in lieu of Class B Common Stock, on a share-to-share basis, at the
option of the Holder, upon the occurrence of (x) an Initial Public Offering (but
only if shares of Class A Common Stock are being registered in such Initial
Public Offering), or (y) a Change of Control, except that upon a Change of
Control, only a portion of the Warrants shall be convertible to Warrants to
purchase Class A Common Stock (with the remainder of the Warrants continuing to
be Warrants to purchase Class B Common Stock) which portion shall be determined
as follows:
(i) following the Change of Control, the number of Warrant Shares
underlying such Holder's Warrants shall be divided by the total number of
shares of Common Stock then outstanding, such resulting amount being
hereinafter referred to as the "Percentage Ownership"; and
(ii) a portion of the Warrants held by such Holder shall be converted into
Warrants to purchase Class A Common Stock in an amount sufficient to cause
the number of such Holder's Warrant Shares representing Class A Common
Stock to equal (x) the total number of shares of Class A Common Stock then
outstanding, MULTIPLIED BY (y) the Percentage Ownership.
Notwithstanding the foregoing, the number of Warrant Shares contemplated by
this Section 2.01 and Schedule A attached hereto shall be subject to further
adjustment in accordance with the anti-dilution provisions contained in the
Warrant.
2.02 PUT OPTION. The Company hereby grants to each Holder a put option
(the "Put Option") entitling the Holder, at its election, to sell to the Company
and to require the Company to purchase on the terms and conditions and in the
manner stated herein and to the extent permitted by applicable law, all (and not
less than all) of the Warrant Shares underlying such Holder's Warrant, and, upon
the exercise of the Put Option by the Holder, the Company agrees to purchase the
Warrant Shares that such Holder desires to sell, all on the terms and subject to
the conditions and in the manner set forth herein. The Put Option shall be
exercisable at any time after December 31, 2001, prior to the expiration,
redemption or cancellation of the Warrants upon receipt by the Company of
written notice from the Holder stating its intent to exercise the Put Option
(the "Put Exercise Date"). The purchase price payable by the Company to a
Holder upon exercise of the Put Option (the "Put Sales Price") shall be equal to
the product of (i) 5.5 times the Company's earnings before interest, taxes,
depreciation and amortization for the trailing twelve-month period ending on the
calendar month end immediately prior to the Put Exercise Date
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(as determined in accordance with GAAP, subject to normal recurring year-end
adjustments with respect to the then current fiscal year), MINUS (x) all
Indebtedness of the Company outstanding as of the end of the month immediately
preceding the Put Exercise Date, and PLUS (y) all cash and cash equivalents
held by the Company as of the end of the month immediately preceding the Put
Exercise Date, each as reflected in the Company's books and records,
MULTIPLIED BY (ii) a fraction, the numerator of which shall equal the number
of Warrant Shares subject to such Put Option, and the denominator of which
shall equal the total number of shares of Common Stock outstanding on the Put
Exercise Date, determined on a fully diluted basis. Notwithstanding the
foregoing, the Put Option granted by this Section 2.02 shall terminate and be
of no further force and effect upon the earlier to occur of (A) the
consummation of a Qualified Public Offering, and (B) December 31, 2004.
2.03 EXERCISE OF PUT OPTION. As set forth in Section 4.03 hereof, the
Company shall provide monthly financial information to each Holder which shall
include, commencing on January 1, 2002, a calculation of the Put Sales Price.
In the event that a Holder elects to exercise the Put Option, the Holder shall
send a written notice (a "Put Exercise Notice") to the Company informing the
Company that the Holder exercises the Put Option, which notice shall include (i)
the number of Warrant Shares to which the exercise relates, and (ii) a statement
of whether the Holder agrees with the Put Sales Price calculated by the Company.
If the Holder agrees with the Company's calculation of the Put Sales Price, then
the Company shall promptly pay the Put Sales Price to the Holder in exchange for
the Warrants, duly endorsed for transfer, by delivery of a duly executed Put
Note. If the Holder disagrees with the Company's calculation of the Put Sales
Price, then the Holder shall furnish a revised calculation of the Put Sales
Price determined by the Holder (a "Disagreement Notice"). If the Company agrees
with the revised calculation of the Put Sales Price submitted by the Holder,
then the Company shall promptly pay the Put Sales Price to the Holder in
exchange for the Warrants, duly endorsed for transfer, by delivery of a duly
executed Put Note. If the Company disagrees with the revised Put Sales Price
set forth in the Disagreement Notice, it may request that the Company's
independent public auditors review such calculation and promptly provide to the
Company and the Holders an agreed upon procedures letter as to the calculation
of the Put Sales Price under the terms of this Agreement, indicating any
comparisons of information to the books and records of the Company and any
mathematical calculations made and including the auditors' determination of
whether the Put Sales Price computed by the Holders or the Company is correct.
If the auditors disagree with the Holder's calculation of the Put Sales Price,
then the Holder shall have the option to (i) withdraw its exercise of the Put
Option, or (ii) exercise the Put Option at the Put Sales Price proposed by the
Company, and shall deliver written notice (a "Final Put Notice") to the Company
of such determination within ten (10) days following the delivery of the
auditor's letter to the Holder. In such event, if the Holder elects to exercise
the Put Option at the Put Sales Price proposed by the Company, the Company shall
promptly pay such Put Sales Price to the Holder in exchange for the Warrants,
duly endorsed for transfer, by delivery of a duly executed Put Note following
its receipt of such Final Put Notice. If the auditors agree with the Holder's
calculation of such amount, then the Company shall promptly pay such Put Sales
Price to the Holder in exchange for the Warrants, duly endorsed for transfer, by
delivery of a duly executed Put Note. If a Holder at any time withdraws its
exercise of its Put Option pursuant to this Section 2.03, such Holder shall be
entitled to exercise its Put Option at a later date subject to the provisions of
this Section 2.
Nothing contained herein shall obligate the Holder to exercise the Put
Option, it being intended that the Holder shall have the sole discretion in
determining whether the Put Option shall be exercised. The Company shall at all
times permit the cashless exercise of a Warrant by a Holder that has delivered a
Put Exercise Notice to the Company with respect to its underlying Warrant
Shares, with it being
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understood that in such event, the Company shall only be obligated to pay to
such Holder the amount by which the Put Sales Price exceeds the aggregate
Exercise Price for such Warrant Shares.
Section 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to each Holder as follows:
3.01 AUTHORIZATION. The Company has all necessary power and authority to
execute, deliver and perform its obligations under this Agreement and the
Warrants and to issue and deliver the Warrants and Warrant Shares. The
execution, delivery and performance by the Company of this Agreement and the
Warrants have been duly authorized by all necessary corporate action. Each of
this Agreement and the Warrants has been duly executed and delivered by the
Company and, assuming that this Agreement is the legal, valid and binding
obligation of each of the Holders, constitutes the legal, valid and binding
obligation of the Company enforceable in accordance with its terms, subject, as
to enforceability, to applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and similar laws relating to creditors' rights
generally and to general equitable principles.
3.02 VALID ISSUANCES. The Warrants, when issued and delivered pursuant
hereto, and the Warrant Shares when issued and delivered pursuant to the
Warrants, will be validly issued, fully paid and non-assessable, with no
liability on the part of the Holders, and are not subject to any preemptive
rights, rights of first refusal or rights of first offer. Except for the
registration rights as set forth in this Agreement, the Company is not under any
obligation to cause the registration of any of its presently outstanding
securities or any of its securities which hereafter may be issued.
3.03 NO BREACH. Assuming the accuracy of the representations and
warranties of the Holders, and the compliance with the covenants of the Holders,
each as set forth in Section 6.01 hereof, neither the execution and delivery of
this Agreement or the Warrants, nor the consummation of the transactions herein
or therein contemplated, including the issuance and delivery of the Warrants
and, upon the exercise of the Warrants, the Warrant Shares, nor compliance by
the Company with the terms and provisions hereof or thereof, will conflict with
or result in a breach of, or require any consent under, the Articles of
Incorporation or Bylaws of the Company, or any applicable law or regulation, or
any order, writ, injunction or decree of any court or governmental authority or
agency, or any agreement or instrument to which the Company is a party or by
which it is bound or to which any of its properties or assets is subject, or
constitute a default under any such agreement or instrument or result in the
creation or imposition of any lien upon any of the revenues or assets of the
Company pursuant to the terms of any such agreement or instrument.
3.04 APPROVALS. No authorizations, approvals or consents of, and no
filings or registrations with, any governmental or regulatory authority or
agency, which have not already been made or obtained, are necessary for the
execution, delivery or performance by the Company of this Agreement or the
Warrants and the consummation of the transactions contemplated herein and
therein or the validity or enforceability hereof or thereof.
3.05 CAPITALIZATION. The authorized capital stock of the Company on the
date hereof consists of (i) 2,000,000 shares of Class A Common Stock of which
200,000 shares are issued and outstanding and no shares are held in the treasury
of the Company, and (ii) 8,000,000 shares of Class B Common Stock par value, of
which 1,344,681 shares are issued and outstanding and no shares are held in the
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treasury. There are no other outstanding shares of capital stock of the Company
and no outstanding options or warrants to acquire any shares of capital stock of
the Company exist.
3.06 OFFER OF WARRANTS. Neither the Company nor any Person acting on its
behalf has directly or indirectly offered the Warrants or any part thereof or
any similar securities for sale to, or solicited any offer to buy any of the
same from, or otherwise approached or negotiated in respect thereof with, any
Person other than a Holder. Neither the Company nor any Person acting on its
behalf has taken or will take any action which would subject the issuance and
sale of the Warrants to the provisions of Section 5 of the Securities Act, or to
the provisions of any state securities law requiring registration of securities,
notification of the issuance or sale thereof or confirmation of the availability
of any exemption from such registration except pursuant to this Agreement.
Section 4. COVENANTS.
4.01 MAINTENANCE OF EXISTENCE; CONDUCT OF BUSINESS. The Company will
preserve and maintain its corporate existence and all of its rights, privileges
and franchises necessary in the ordinary course of its business.
4.02 INSPECTION. The Company covenants and agrees that it will permit
each Holder and its representatives to inspect the properties of the Company, to
examine and make extracts and copies from the books and records of the Company
during normal business hours and to discuss with management the business and
affairs of the Company; PROVIDED, HOWEVER, that the Company shall not be
required to permit such inspection more than once per calendar quarter.
4.03 INFORMATION. The Company covenants and agrees that prior to a
Qualified Public Offering it will deliver to each Holder (i) as soon as such
information becomes available to the Company, monthly financial statements of
the Company prepared in accordance with GAAP (subject to normal recurring year-
end adjustments with respect to the then current fiscal year), including,
without limitation, a calculation of the Put Sales Price (commencing on January
1, 2002) and the Exercise Price (as defined in the Warrant), and (ii) such other
financial statements and other information regarding the Company or any of its
subsidiaries that the Company is obligated to prepare and deliver to, or does in
fact prepare and deliver to, any shareholder of the Company, in each case at the
same time such financial statements and other information are delivered to any
such shareholder, PROVIDED, HOWEVER, that following an Initial Public Offering
and prior to a Qualified Public Offering, the Company shall only be obligated to
provide the foregoing information to a Holder to the extent that (x) such
information is requested by such Holder, and (y) such requesting Holder executes
an agreement, in form and substance reasonably satisfactory to the Company and
to such Holder, not to engage in trading of the Common Stock until 48 hours
after the date of the Company's next public disclosure of financial information.
The Company hereby acknowledges and agrees that, subject to the provisions of
Section 4.07 below, each Holder may share with any of its Affiliates any
information related to the Company and any of its subsidiaries (including,
without limitation, any nonpublic customer information regarding the
creditworthiness of the Company and its subsidiaries).
4.04 TRANSACTIONS WITH AFFILIATES. The Company will not, directly or
indirectly, enter into any transaction with or for the benefit of any Affiliate;
PROVIDED that this Section 4.04 shall not prohibit (i) any such transaction
entered into on an arm's length basis containing terms which are no less
favorable to the Company than those terms that would be obtained in a similar
transaction with a Person which is
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not an Affiliate, and (ii) any such transaction between the Company and any
subsidiary or Affiliate thereof or any stockholder which is permitted pursuant
to, and conducted in accordance with, the terms and provisions of the Credit
Agreement.
4.05 COMPLIANCE WITH SECURITIES LAWS. At all times after the Warrants and
Warrant Shares are issued, the Company covenants that it will file all reports
required to be filed by it under the Securities Act and the Exchange Act.
4.06 FUTURE ISSUANCES. The Company covenants and agrees prior to a
Qualified Public Offering to provide written notice to each of the Holders of
the issuance by the Company following the date hereof of any securities
convertible into or exchangeable for, or options or other rights to acquire from
the Company or any other agreements by the Company following the date hereof to
issue, directly or indirectly, any shares of capital stock of the Company;
PROVIDED, HOWEVER, that the Company shall only be required to provide notice to
a Holder of issuances of securities to its employees pursuant to its employee
benefit plans upon the request of such Holder. During any fiscal year of the
Company, the Company shall not issue any of its securities, or options or rights
to purchase any of its securities, to (i) employees of the Company or any of its
subsidiaries pursuant to employee benefit plans or (ii) employee benefit plans
in an aggregate amount (assuming the immediate exercise of any such options or
rights) exceeding 15% of the Company's outstanding securities on a fully diluted
basis as of the date of each such issuance.
4.07 NON-DISCLOSURE OF CONFIDENTIAL INFORMATION. Each of the Holders
agrees and acknowledges that the information to be furnished by the Company to
the Holders pursuant to Sections 4.02 and 4.03 hereof is of a confidential
nature (the "Confidential Information"). No Holder shall sell, transfer,
publish, disclose, display or otherwise make available the Confidential
Information to any third party who is not an Affiliate of such Holder (and such
Holder shall ensure that such Affiliate complies with this Section 4.07), except
(i) as otherwise permitted by the Company or by this Agreement, (ii) to a
Permitted Transferee, or (iii) as may be required by applicable law, in which
case the Holder from whom disclosure is sought shall promptly notify the
Company. To the extent that the Company objects to disclosure of such
Confidential Information, the Holder from which disclosure is sought shall
(i) use reasonable and lawful efforts to resist making any disclosure of such
Confidential Information, (ii) use reasonable and lawful efforts to limit the
amount of such Confidential Information to be disclosed, and (iii) use all
reasonable efforts to obtain a protective order or other appropriate relief to
minimize the further dissemination of any Confidential Information to be
disclosed. Each Holder shall inform all Affiliates, employees and agents of
such Holder receiving such Confidential Information that the Confidential
Information is subject to this non-disclosure obligation.
4.08 DURATION. Except as otherwise provided herein, the covenants
contained in this Agreement, including this Section 4, shall remain in full
force and effect until and shall terminate upon the earlier of (i) December 31,
2004, and (ii) such time as the Warrants or Warrant Shares are no longer
Registrable Securities.
Section 5. REGISTRATION RIGHTS.
5.01 DEMAND REGISTRATION RIGHTS.
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(a) ANNUAL DEMAND REGISTRATIONS. On the first anniversary of an
Initial Public Offering (the "First Demand Date") and thereafter once per
calendar year on the earlier to occur of (i) the date of filing by the
Company of its Annual Report of Form 10-K (or such successor form as may then
be in effect) (a "Form 10-K"), and (ii) that date which is five (5) Business
Days after the deadline for the filing by the Company of its Form 10-K (the
"Subsequent Demand Date"), until December 31, 2004 (with it being understood
that the Subsequent Demand Date with respect to the Form 10-K due on or about
December 31, 2004, shall be no later than five (5) Business Days after
December 31, 2004), any Holder may request in writing that the Company file a
registration statement under the Securities Act registering all (and not less
than all) of the Registrable Securities held by such Holder (a "Demand
Registration"), which request shall include a statement that such Holder has
a good faith intention to sell its Registrable Securities. Each Holder shall
have fifteen (15) Business Days following the First Demand Date and any
Subsequent Demand Date to provide such written request of a Demand
Registration to the Company. Within 10 Business Days of receipt of such
request the Company shall serve written notice (the "Demand Notice") of such
registration request to all Holders, and the Company shall include in such
registration all Registrable Securities of such Holders with respect to which
the Company has received written requests for inclusion therein (the
"Requested Securities") within 10 Business Days after receipt by the Holders
of the Demand Notice, which request shall include a statement that such
Holder has a good faith intention to sell its Registrable Securities. The
Company shall use its best efforts to cause to be filed and declared
effective as soon as practicable a registration statement (a "Demand
Registration Statement") providing for the sale of all such Requested
Securities. Such Demand Registration Statement shall provide for the
continuous offer and sale of the Requested Securities pursuant to a Shelf
Registration; PROVIDED, HOWEVER, that the Company shall only be required to
keep the Demand Registration Statement effective for a period of six (6)
months. Notwithstanding the foregoing, no Holder shall be required to sell
its Requested Securities pursuant to such Demand Registration Statement.
Such Demand Registration Statement shall also permit persons and entities
purchasing securities thereunder to resell such securities thereunder if
registration is necessary for such resales. The Company shall give written
notice to each Holder of its filing of a Form 10-K within five (5) Business
Days following the filing thereof.
(b) UNDERWRITER. If the Holders of a majority of the Requested
Securities desire, in their sole discretion, to sell the Requested Securities
in an underwritten offering, the Company shall have the right to select one
or more nationally recognized investment banking firms to manage the
offering, which underwriter(s) shall be reasonably acceptable to the Holders
of a majority of the Requested Securities.
(c) RIGHT OF COMPANY OR OTHER PERSON TO PIGGY-BACK ON DEMAND
REGISTRATIONS. Neither the Company nor any Person owning any of its
securities (other than the Holders) shall have the right to include any of
the Company's securities in a registration statement initiated as a Demand
Registration under this Section 5.01 unless in the case of an underwritten
offering, (i) in the opinion of the managing underwriter or underwriters of
such offering, the inclusion of such additional securities would not
adversely affect the sale of the Requested Securities thereunder, and (ii)
the Holders of a majority of the Requested Securities agree to such inclusion
(which agreement shall not be unreasonably withheld or delayed). The Company
covenants that it shall not grant any registration rights to any Person which
rights would conflict with or be inconsistent with the provisions of this
Section 5.01(c) or which would otherwise materially adversely affect the
rights of any Holder under this Agreement, and in the event of such a
conflict or inconsistency, the terms of this Section 5.01(c) shall prevail.
(d) REDUCTION OF OFFERING. Notwithstanding anything to the contrary
contained herein, if the managing underwriter or underwriters of an
underwritten offering described in this Section 5.01 delivers
11
a written opinion to the Holders that the size of the offering that the
Holders, the Company or any other Person intends to make or the kind or
combination of securities that the Holders, the Company and any other Persons
intend to include in such offering are such that the success of the offering
would be materially and adversely affected by inclusion of all securities
requested to be included therein, then the amount of any securities proposed
to be offered by the Company and any other Person (other than the Holders)
shall be reduced or excluded from the offering first on a pro rata basis
among the Company and all holders of similar "piggy-back" or "demand"
registration rights (other than the Holders) to the extent necessary to
reduce the total amount of securities to be included in such offering to the
amount recommended by such managing underwriter or underwriters and then the
amount of any securities proposed to be included by the Holders shall be
reduced or excluded on a pro rata basis among the Holders to the extent
necessary to reduce the total amount of securities to be included in such
offering to the amount recommended by such managing underwriter or
underwriters.
(e) RIGHT TO DEFER DEMAND REGISTRATION. Notwithstanding the foregoing,
the Company shall have the right to defer for a period of not more than 120
days the filing of a Demand Registration Statement otherwise required by this
Section 5.01 if (i) the Company has effected any other registration statement
within thirty (30) days of the First Demand Date or any Subsequent Demand
Date, as the case may be, (ii) the Company has advised the Holders that it
intends in good faith to effect a registration statement under which the
Holders shall be entitled to register all of their Registrable Securities
under Section 5.02 during the 120-day period following the First Demand Date
or Subsequent Demand Date, as the case may be, or (iii) the Company has
advised the Holders that it is contemplating engaging in an undisclosed
transaction, including without limitation an acquisition, disposition,
merger, consolidation or tender offer, that would be material to the Company
during the 120-day period following the First Demand Date or any Subsequent
Demand Date, as the case may be, and that filing such Demand Registration
Statement would require the Company to disclose material non-public
information, the disclosure of which would have a material adverse effect
upon the Company. In the case of clause (iii) above, the filing of a Demand
Registration Statement (or any amendment or supplement thereto) cannot be
deferred, and the Holders' rights to make sales pursuant to an effective
Demand Registration Statement cannot be suspended, once such material
nonpublic information (A) is disclosed or becomes available to the public,
(B) ceases to be material, (C) ceases to exist, (D) ceases to have a material
adverse effect on the Company if disclosed, or (E) in any event, for more
than 120 days after the date of the Company's determination referenced in the
preceding sentence. The delay right contemplated by this Section 5.01(e) may
be exercised by the Company no more frequently than once during any calendar
year.
5.02 PIGGY-BACK REGISTRATION.
(a) GENERAL. (i) In connection with the Initial Public Offering, and
(ii) if, at any time or from time to time while any Registrable Securities
are outstanding, the Company proposes to register any of its securities
(whether for its own or others' account) under the Securities Act (other than
pursuant to Section 5.01 or by a registration statement on Form S-8 or other
form that does not include substantially the same information as would be
required in a form for the general registration of securities or that would
not be available for registration of Registrable Securities), the Company
shall, as expeditiously as possible, give written notice to the Holders of
the Company's intention to effect such registration. If, within 20 days
after receipt of such notice, any Holder submits a written request to the
Company specifying the Registrable Securities such Holder proposes to sell or
otherwise dispose of (a "Piggy-Back Registration"), the Company shall include
the number of shares of Registrable Securities specified in such Holder's
request in such registration statement and the Company shall use its best
efforts to keep each such
12
registration statement in effect and to maintain compliance with each Federal
and state law and regulation for the period necessary for such Holder to
effect the proposed sale or other disposition, but in no event longer than
180 days. Any Holder participating in an underwritten offering pursuant to
this Section 5.02 shall, if required by the managing underwriter or
underwriters of such offering, enter into an underwriting agreement in a form
customary for underwritten offerings of the same general type as such
offering.
(b) REDUCTION OF OFFERING. Notwithstanding anything to the contrary
contained herein, if the managing underwriter or underwriters of an offering
described in this Section 5.02 delivers a written opinion to the Company that
the size of the offering that the Holders, the Company or any other Person
intends to make or the kind or combination of securities that the Holders,
the Company and any other Persons intend to include in such offering are such
that the success of the offering would be materially and adversely affected
by inclusion of all securities requested to be included therein, then the
amount of any securities proposed to be offered by the Holders and any other
Person (other than the Holders) shall be reduced or excluded from the
offering first on a pro rata basis among the Holders and all holders of
similar "piggy-back" registration rights to the extent necessary to reduce
the total amount of securities to be included in such offering to the amount
recommended by such managing underwriter or underwriters and then the amount
of any securities proposed to be included by the Company shall be reduced or
excluded to the extent necessary to reduce the total amount of securities to
be included in such offering to the amount recommended by such managing
underwriter or underwriters.
(c) DELAYED OR DISCONTINUED PIGGY-BACK REGISTRATION. If at any time
after giving notice of the filing of a registration statement that results in
the Holders having the right to register Registrable Shares under this
Section 5.02, and prior to the effective date of such registration statement,
the Company shall determine not to register or to delay the registration of
the securities that are the subject of such registration statement, the
Company may give written notice of such determination to each Holder who has
exercised its rights under this Section 5.02 and, thereupon, (i) in the case
of a determination not to register, shall be relieved of its obligation to
register any Registrable Securities in connection with such registration, and
(ii) in the case of a determination to delay such registration, shall be
permitted to delay registering any Registrable Securities for the same period
of time as the delay in registering the other securities that are the subject
of such registration statement.
5.03 REGISTRATION PROCEDURES. Whenever any Holder or Holders request
that any Registrable Securities be registered pursuant to this Section 5, the
Company shall use its best efforts to effect the registration and the sale of
such Registrable Securities in accordance with the intended method of
disposition thereof as quickly as practicable, and in connection with any
such request:
(a) The Company will as expeditiously as possible prepare and file with
the Securities and Exchange Commission a registration statement on any form
for which the Company then qualifies or which counsel for the Company shall
deem appropriate and which form shall be available for the sale of the
Registrable Securities to be registered thereunder in accordance with the
intended method of distribution thereof, and will use its best efforts to
cause such filed registration statement to become and remain effective for a
period of not less than 180 days or until all of such Registrable Securities
have been disposed of (if earlier); PROVIDED that, if the Holders specify
that such registration shall be a Shelf Registration, the Company shall use
its best efforts to effect such Shelf Registration.
(b) The Company will, if requested, prior to filing a registration
statement or prospectus or any amendment or supplement thereto, furnish to
the Holders requesting registration of Registrable
13
Securities and each underwriter, if any, of the Registrable Securities
covered by such registration statement copies of such registration statement
as proposed to be filed, and thereafter furnish to the Holders requesting
registration of Registrable Securities and each underwriter, if any, such
number of copies of such registration statement, each amendment and
supplement thereto (in each case including all exhibits thereto and documents
incorporated by reference therein), the prospectus included in such
registration statement (including each preliminary prospectus) and such other
documents as the Holders requesting registration of Registrable Securities or
underwriter may reasonably request in order to facilitate the disposition of
the Registrable Securities owned by such Holders.
(c) After the filing of the registration statement, the Company will
promptly notify the Holders of any stop order issued or, to its knowledge,
threatened by the Securities and Exchange Commission and take all reasonable
actions required to prevent the entry of such stop order or to remove it if
entered.
(d) The Company will use its best efforts to (i) register or qualify
the Registrable Securities under such other securities or blue sky laws of
such jurisdictions in the United States as the Holders requesting
registration of Registrable Securities reasonably (in light of such Holders'
intended plan of distribution) request and (ii) cause such Registrable
Securities to be registered with or approved by such other governmental
agencies or authorities as may be necessary by virtue of the business and
operations of the Company and do any and all other acts and things that may
be reasonably necessary or advisable to enable the Holders to consummate the
disposition of the Registrable Securities owned by the Holders; PROVIDED that
the Company will not be required to (A) qualify generally to do business in
any jurisdiction where it would not otherwise be required to qualify but for
this Section 5.03(d), (B) subject itself to taxation in any such jurisdiction
or (C) consent to general service of process in any such jurisdiction.
(e) The Company will immediately notify the Holders, at any time when a
prospectus relating to any registration to be made pursuant to this Section 5
is required to be delivered under the Securities Act, of the occurrence of an
event requiring the preparation of a supplement or amendment to such
prospectus so that, as thereafter delivered to the purchasers of such
Registrable Securities, such prospectus will not contain an untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading and
promptly make available to the Holders any such supplement or amendment.
(f) The Company will enter into customary agreements (including an
underwriting agreement in customary form) and take such other actions as are
reasonably required in order to expedite or facilitate the disposition of
such Registrable Securities.
(g) The Company will make reasonably available for inspection by the
Holders requesting registration of Registrable Securities, any underwriter
participating in any disposition pursuant to such registration statement and
any attorney, accountant or other professional retained by such Holders or
underwriter (collectively, the "Inspectors"), all financial and other
records, pertinent corporate documents and properties of the Company
(collectively, the "Records") as shall be reasonably necessary to enable them
to exercise their due diligence responsibility, and cause the Company's
officers, directors and employees to supply all information reasonably
requested by any Inspectors in connection with such registration statement.
Records which the Company determines, in good faith, to be confidential and
which it notifies the Inspectors are confidential shall not be disclosed by
the Inspectors unless (i) the disclosure of such Records is necessary to
avoid or correct a misstatement or omission in such registration
14
statement or (ii) the release of such Records is ordered pursuant to a
subpoena or other order from a court of competent jurisdiction. Each Holder
agrees that information obtained by it as a result of such inspections shall
be deemed confidential and shall not be used by it as the basis for any
market transactions in the securities of the Company or its Affiliates unless
and until such is made generally available to the public.
(h) The Company will furnish to the Holders requesting registration of
Registrable Securities and to each underwriter, if any, a signed counterpart,
addressed to such Holders or underwriter, of (i) an opinion or opinions of
counsel to the Company and (ii) a comfort letter or comfort letters from the
Company's independent public accountants, each in customary form and covering
such matters of the type customarily covered by opinions or comfort letters,
as the case may be, as such Holders or the managing underwriter therefor
reasonably requests.
(i) The Company will otherwise use its best efforts to comply with all
applicable rules and regulations of the Securities and Exchange Commission.
(j) The Company will (at its own expense) use its best efforts to cause
all such Registrable Securities to be listed on each securities exchange on
which similar securities issued by the Company are then listed.
The Company may require the Holders requesting registration of
Registrable Securities to promptly furnish in writing to the Company such
information regarding the distribution of the Registrable Securities as the
Company may from time to time reasonably request and such other information
as may be legally required in connection with such registration.
The Holders agree that, upon receipt of any notice from the Company of
the happening of any event of the kind described in Section 5.03(e) hereof,
the Holders will forthwith discontinue disposition of any Registrable
Securities registered pursuant to this Section 5 pursuant to the registration
statement covering such Registrable Securities until the Holders' receipt of
the copies of the supplemented or amended prospectus contemplated by Section
5.03(e) hereof, and, if so directed by the Company, the Holders will deliver
to the Company all copies, other than permanent file copies then in such
Holders' possession, of the most recent prospectus covering such Registrable
Securities at the time of receipt of such notice. In the event the Company
shall give such notice, the Company shall extend the period during which such
registration statement shall be maintained effective (including the period
referred to in Section 5.03(a) hereof) by the number of days during the
period from and including the date of the giving of notice pursuant to
Section 5.03(e) hereof to the date when the Company shall make available to
the Holder a prospectus supplemented or amended to conform with the
requirements of Section 5.03(e) hereof.
(k) Upon the transfer of Shares by a Holder in connection with a
registration hereunder, the Company shall furnish unlegended certificates
representing ownership of the Registrable Securities in such denominations as
shall be requested by the Holders or the underwriters.
5.04 REGISTRATION EXPENSES. In connection with any registration
statement required to be filed hereunder, the Company shall pay the following
registration expenses (the "Registration Expenses"): (i) all registration and
filing fees, (ii) fees and expenses of compliance with securities or blue sky
laws (including reasonable fees and disbursements of counsel in connection
with blue sky qualifications of the Registrable Securities) , (iii) printing
expenses, (iv) internal expenses (including, without limitation, all
15
salaries and expenses of its officers and employees performing legal or
accounting duties), (v) the fees and expenses incurred in connection with the
listing of the Registrable Securities, (vi) fees and disbursements of counsel
for the Company and customary fees and expenses for independent certified
public accountants retained by the Company (including the expenses of any
comfort letters or costs associated with the delivery by independent
certified public accountants of a comfort letter or comfort letters), and
(vii) the fees and expenses of any special experts retained by the Company in
connection with such registration. Except as set forth above, the Company
shall have no obligation to pay any underwriting fees, discounts or
commissions attributable to the sale of Registrable Securities, or any
out-of-pocket expenses of Holders selling Registrable Securities under this
Section 5 (or the agents who manage its account) (collectively, the "Holder
Expenses").
5.05 INDEMNIFICATION AND CONTRIBUTION. (a) In connection with each
registration statement relating to the disposition of Registrable Securities,
the Company shall indemnify and hold harmless each of the Holders, each
underwriter of Registrable Securities, each partner, officer or director of
each of the Holders or any such underwriter and each Person, if any, who
controls (within the meaning of either the Securities Act or the Exchange
Act) any of the Holders or any such underwriter against all losses, claims,
damages or liabilities, joint or several, to which any of the Holders, such
underwriter or any such Person may be subject arising out of or based upon
(A) any untrue statement or alleged untrue statement of a material fact
contained in such registration statement or the prospectus included therein
(or any supplement or amendment thereto) or a preliminary prospectus or (B)
any omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading,
and the Company shall reimburse each of the Holders and each of such other
Persons for any reasonable legal or other expenses incurred in connection
with the investigation or defense thereof (any such reimbursement to be made
as such expenses are incurred); PROVIDED, HOWEVER, that the Company shall not
be liable in any such instance to the extent that any such loss, claim,
damage or liability arises out of or is based upon any untrue statement or
omission or alleged untrue statement or omission made in any such
registration statement, preliminary prospectus or prospectus (or amendment or
supplement) in reliance upon and in conformity with information relating to
any Person referred to above who would be indemnified by the Company pursuant
to this Section 5.05(a) furnished in writing to the Company by such Person
expressly for use therein; and PROVIDED, FURTHER, that the Company shall not
be liable in any such case to the extent that any such loss, claim, damage or
liability arises out of or is based upon any alleged untrue statement or
alleged omission of a material fact made in a preliminary prospectus if, at
or prior to the written confirmation of the sale of any Warrant Shares, a
copy of the prospectus (or the prospectus as amended or supplemented) was not
sent or delivered to the person asserting any such loss, claim, damage or
liability if the alleged untrue statement or alleged omission of a material
fact contained in such preliminary prospectus was corrected by the Company in
the prospectus (or the prospectus as amended or supplemented) and such
corrected prospectus (or the prospectus as amended or supplemented) was
delivered by the Company to the Holders.
(b) In connection with each registration statement relating to the
disposition of Registrable Securities, each Holder shall severally indemnify
the Company, each director or officer of the Company and any Person who
controls the Company (within the meaning of either the Securities Act or the
Exchange Act) to the same extent as the indemnity from the Company provided
in Section 5.05(a) hereof, but only with respect to information relating to
such Holder furnished in writing to the Company by such Holder expressly for
use in any such registration statement, preliminary prospectus or prospectus
(or amendment or supplement). The maximum liability of any Holder under this
Section 5.05(b) shall be
16
limited to the aggregate amount of all sales proceeds actually received by
such Holder upon the sale of such Holder's Registrable Securities in
connection with such registration.
(c) In case any proceeding (including any governmental investigation)
shall be instituted involving any Person in respect of which indemnity may be
sought pursuant to subsections (a) or (b) of this Section 5.05, such Person
(the "indemnified party") shall promptly notify the Person against whom such
indemnity may be sought (the "indemnifying party") in writing and the
indemnifying party shall assume the defense thereof, including the employment
of counsel reasonably satisfactory to the indemnified party, and shall assume
the payment of all fees and disbursements related to such proceeding. In any
such proceeding, any indemnified party shall have the right to retain its own
counsel, but the fees and expenses of such counsel shall be at the expense of
such indemnified party unless (x) the indemnifying party and indemnified
party shall have mutually agreed to the retention of such counsel or (y) the
named parties to any such proceeding (including any impleaded parties)
include both the indemnifying party and the indemnified party and
representation of both parties by the same counsel would be inappropriate due
to actual or potential differing interests between them. It is understood
that the indemnifying party shall not, in connection with any proceeding or
related proceedings in the same jurisdiction, be liable for the reasonable
fees and expenses of more than one separate firm (in addition to any local
counsel) at any time for all such indemnified parties, and that all such fees
and expenses shall be reimbursed as they are incurred. In the case of any
such separate firm for the indemnified parties, such firm shall be designated
in writing by the indemnified parties. The indemnifying party shall not be
liable for any settlement of any proceeding effected without its written
consent but if settled with such consent, the indemnifying party agrees to
indemnify the indemnified party from and against any loss or liability by
reason of such settlement. No indemnifying party shall, without the prior
written consent of the indemnified party, effect any settlement of any
pending or threatened proceeding in respect of which any indemnified party is
or could have been a party and indemnity could have been sought hereunder by
such indemnified party, unless such settlement includes an unconditional
release of such indemnified party from all liability arising out of such
proceeding.
(d) If the indemnification provided for in this Section 5.05 is
unavailable to the indemnified parties in respect of any losses, claims,
damages or liabilities referred to herein, then each such indemnifying party,
in lieu of indemnifying such indemnified party, shall contribute to the
amount paid or payable by such indemnified party as a result of such losses,
claims, damages or liabilities as between the Company on the one hand and the
respective Holder on the other, in such proportion as is appropriate to
reflect the relative fault of the Company on the one hand and such Holder on
the other in connection with the statements or omissions which resulted in
such losses, claims, damages or liabilities, as well as any other relevant
equitable considerations. The relative fault of the Company on the one hand
and of the respective Holder on the other shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by such party, and the parties' relative
intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission.
The Company and each Holder agree that it would not be just and
equitable if contribution pursuant to this Section 5.05(d) were determined by
PRO RATA allocation or by any other method of allocation which does not take
account of the equitable considerations referred to in the immediately
preceding paragraph. The amount paid or payable by an indemnified party as a
result of the losses, claims, damages or liabilities referred to in the
immediately preceding paragraph shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses reasonably incurred
by such
17
indemnified party in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of this Section 5.05(d), no
Holder shall be required to contribute any amount in excess of the amount of
all sales proceeds actually received by such Holder upon the sale of such
Holder's Registrable Securities in connection with such registration. No
Person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any
Person who was not guilty of such fraudulent misrepresentation.
5.06 HOLDBACK AGREEMENT. The Company agrees (i) not to effect any
public sale or distribution of any Registrable Securities or any securities
similar to the Registrable Securities, or any securities convertible into or
exchangeable or exercisable for Registrable Securities or any securities
similar to the Registrable Securities, during the 14 days prior to, and
during the 90-day period beginning on, the effective date of any registration
statement filed pursuant to Section 5.01 or 5.02 of this Agreement (except as
part of such registration statement where the Holders consent); and (ii) that
any agreement entered into after the date of the agreement pursuant to which
the Company issues or agrees to issue any privately placed securities shall
contain a provision under which holders of such securities agree not to
effect any public sale or distribution of any such securities during the
periods described in (i) above, in each case including a sale pursuant to
Rule 144 under the Securities Act (except as part of any such registration,
if permitted); PROVIDED, HOWEVER, that the provisions of this paragraph shall
not prevent the (x) conversion or exchange of any securities pursuant to
their terms into or for other securities or (y) the issuance of securities
pursuant to the Company's employee benefit plans.
5.07 SPECIFIC ENFORCEMENT. The Company and each of the Holders
acknowledge that remedies at law for the enforcement of this Section 5 may be
inadequate and intend that this Section 5 shall be specifically enforceable
in accordance with Section 7.04 hereof.
5.08 TRANSFER OF REGISTRATION RIGHTS. The rights to cause the Company
to register Registrable Securities pursuant to Section 5 may be assigned in
connection with any transfer or assignment by a Holder of Registrable
Securities provided that (i) such transfer may otherwise be effected in
accordance with applicable securities laws, and (ii) such transfer is
effected in compliance with the restrictions on transfer contained in this
Agreement and in any other agreement between the Company and such Holder. No
transfer or assignment will divest a Holder or any subsequent owner of such
rights and powers unless all Registrable Securities are transferred or
assigned. This Section 5.08 is not intended to modify or waive any
restrictions on transfer of the Registrable Securities that may exist under
any other agreement between the Company and any of its Holders.
5.09 LIMITATIONS ON REGISTRATION RIGHTS OF OTHERS. The Company
covenants and agrees that, from and after the date hereof, the Company will
not, without the prior written consent of the Holders, enter into any
agreement with any Holder or prospective Holder of any of the securities of
the Company to include such securities in any registration filed under
Section 5.01 or 5.02 hereof, unless the rights granted under the terms of
such agreement are expressly subject and subordinated to the rights of
registration granted to the Holders pursuant to Section 5 hereof.
5.10 PARTICIPATION IN UNDERWRITTEN REGISTRATIONS. No Holder may
participate in any underwritten registration hereunder unless such Holder (i)
agrees to sell such Holder's Registrable Securities on the basis provided in
any underwriting arrangements approved by the Company and the Holders, and
(ii) agrees to complete and execute all questionnaires, powers of attorney,
indemnities, underwriting agreements and other documents as may be reasonably
required under the terms of such
18
underwriting arrangements and these registration rights and to provide such
other information as may be reasonably requested by the Company in connection
with such registration.
Section 6. COMPLIANCE WITH THE SECURITIES LAWS.
6.01 REPRESENTATIONS AND WARRANTIES. Each Holder by its acceptance of
the Warrants represents and warrants as follows:
(a) Such Holder is acquiring the Warrants and the related Warrant
Shares for its own account for investment purposes only and not as nominee or
agent for any other Person and not for offer or sale in any manner that would
be in violation of the securities laws of the United States of America or any
state thereof, without prejudice, however, to its right at all times to sell
or otherwise dispose of all or any part of said Warrants or Warrant Shares
under a registration under the Securities Act or any applicable state
securities laws or under an exemption from such registration available under
such Act or any applicable state securities laws.
(b) Such Holder is an "accredited" investor within the meaning of
Regulation D promulgated under the Securities Act.
6.02 RESTRICTIONS ON TRANSFER.
(a) GENERAL. A Holder shall not make or suffer any Transfer of all or
any part of its Warrants or Warrant Shares except in accordance with the
terms of this Agreement, and any purported Transfer not made in compliance
with this Agreement shall be void and of no force and effect.
(b) NO TRANSFERS TO COMPETITORS. Under no circumstances shall a Holder
be permitted to Transfer its Warrants or Warrant Shares to any Person whose
products or activities compete with the products or activities of the
Company, anywhere within the United States or the world where the Company
actually conducts such business activities.
(c) OPTION. Each time a Holder proposes to make or suffer any Transfer
of all or any portion of its Warrants or Warrant Shares pursuant to a bona
fide third party offer or pursuant to the Holder's death, incapacity,
spouse's death (if applicable) or divorce (if applicable), such Holder, or in
the event of his death or incapacity, any other appropriate person or entity
(the "Selling Holder"), shall so inform the Company by notice in writing (the
"Transfer Notice") stating the number or amount of Warrants or Warrant Shares
that are the subject of such proposed Transfer (the "Offered Warrants or
Warrant Shares"), the name and address of the proposed transferee, and the
other terms and conditions of such proposed Transfer, including any
consideration proposed to be received for the Offered Warrants or Warrant
Shares (and, if the proposed Transfer is to be wholly or partly for
consideration other than cash or indebtedness of any person, the Transfer
Notice shall state the amount of the cash consideration, if any, and shall
describe all non-monetary consideration). By giving the Transfer Notice, the
Selling Holder shall be deemed to have granted to the Company an option to
purchase all (but not less than all) of the Offered Warrants or Warrant
Shares (i) if such Transfer is pursuant to the death of the Holder, the
divorce of the Holder, or the death of the Holder's spouse, at a price equal
to the Appraised Value (defined below) of the Offered Warrants or Warrant
Shares, or (ii) if clause (i) is not applicable, at the same consideration
and on the same terms as are set forth in the Transfer Notice (except that
any portion of the consideration
19
set forth in the Transfer Notice which is not cash or indebtedness of the
transferee shall be payable in cash at the Appraised Value (as hereinafter
defined) thereof.
(d) INTENTION TO EXERCISE BY COMPANY. Within 20 days after its receipt
of any Transfer Notice or the final determination of Appraised Value of the
Offered Warrants or Warrant Shares or non-monetary consideration referenced
in a Transfer Notice, whichever is later, the Company, acting through its
Board of Directors, shall determine, and shall notify (the "Acceptance
Notice") the Selling Holder as to whether the Company desires to purchase the
Offered Warrants or Warrant Shares and, if applicable, the Appraised Value of
the Offered Warrants or Warrant Shares or non-monetary consideration.
(e) REQUIREMENT TO PURCHASE ALL OFFERED WARRANTS OR WARRANT SHARES.
Notwithstanding any other provision of this Agreement, in no event shall any
Selling Holder be required to sell any of the Offered Warrants or Warrant
Shares to the Company unless, within the period provided, the Selling Holder
has been notified that all the Offered Warrants or Warrant Shares will be
purchased by the Company. If the Company elects not to purchase all the
Offered Warrants or Warrant Shares as described above, then the Company shall
not have any right or obligation to purchase any of the Offered Warrants or
Warrant Shares.
(f) CLOSING. The Closing (herein so called) of the purchase and sale
of Offered Warrants or Warrant Shares that are being purchased and sold under
this Section 6.02 shall take place on the 90th day following the date of
delivery of the Acceptance Notice (or if such date is a Saturday, Sunday, or
legal holiday in the state where the Company's principal office is located,
the first day thereafter that is not a Saturday, Sunday, or legal holiday) at
the place designated in such Acceptance Notice; PROVIDED, HOWEVER, that if a
Holder whose Warrants or Warrant Shares are being sold is deceased or
mentally incompetent, the Closing shall be delayed as long as is necessary to
allow the legal representative, executor, or administrator of any person
whose Warrants or Warrant Shares are to be sold to qualify properly as such
in order that such legal representative, executor, or administrator shall
have all necessary authority to convey such Warrants or Warrant Shares. At
the Closing, the parties shall take all action necessary to convey such
Warrants or Warrant Shares to be transferred in accordance with this
Agreement, free of all liens and encumbrances.
(g) FAILURE TO EXERCISE. If the Company does not elect to purchase all
of the Offered Warrants or Warrant Shares within the period provided, then
all of such Offered Warrants or Warrant Shares may be disposed of by the
Selling Holder to the prospective transferee named in the Transfer Notice,
for the price and on the terms and conditions set forth in the Transfer
Notice or upon any other terms more favorable to the Selling Holder, at any
time within 90 days after the expiration of the period provided for in the
notice of the Company to be delivered pursuant to Section 6.02(d) herein.
Any Warrants or Warrant Shares not so disposed of within such 90-day period
shall remain subject to all of the provisions of this Agreement.
(h) WAIVER. The rights of first refusal of the Company granted under
this Section 6.02 may be waived by the Board of Directors of the Company in
respect of any particular Transfer. Any such waiver, if given, shall bind
the Company as to the Transfer in question, but shall not affect its rights
in respect of any subsequent Transfer. The Company shall give notice of such
waiver to all Holders within five days after giving such waiver.
20
(i) APPRAISED VALUE. For purposes of this Section 6.02, "Appraised
Value" shall mean, as to any Offered Warrants or Warrant Shares or non-monetary
consideration, the fair market value of such Offered Warrants or Warrant Shares
or non-monetary consideration at the date of the Transfer Notice, as determined
by an independent appraiser selected by the Board of Directors of the Company;
PROVIDED, HOWEVER, if the Selling Holder shall object to such determination
within 10 days after being notified thereof by the Company, such Selling Holder
shall within such 10-day period select an independent appraiser to determine the
fair market value of such Offered Warrants or Warrant Shares or non-monetary
consideration on behalf of the Selling Holder. In the event that the
independent appraisers selected by the Company and the Selling Holder cannot
agree on the fair market value of such Offered Warrants or Warrant Shares or
non-monetary consideration, then the two independent appraisers shall mutually
select a third independent appraiser to determine the fair market value of such
Offered Warrants or Warrant Shares and non-monetary consideration, and the value
selected by such independent appraiser shall be binding upon all of the parties
hereto. Each such independent appraiser may use any customary method of
determining fair market value. The cost of the independent appraiser selected
by the Company shall be paid by the Company, the cost of the independent
appraiser, if any, selected by the Selling Holder shall be paid by the Selling
Holder, and the cost of the independent appraiser selected by the two
independent appraisers appointed by each of the Company and the Selling Holder
shall be paid one-half by the Company and one-half by the Selling Holder.
(j) TERMINATION OF RESTRICTIONS. Notwithstanding the foregoing, the
restrictions upon Transfer set forth in this Section 6.02 shall cease and be of
no further force and effect upon the consummation of an Initial Public Offering.
(k) NO PARTIAL TRANSFERS. Notwithstanding the foregoing, to the extent
enforceable and unless waived by the Company, no Holder shall be permitted to
Transfer less than all of its Warrants or Warrant Shares, except upon an Change
of Control, as contemplated by that certain Shareholders Agreement of even date
herewith among the Company, the Holders and certain shareholders of the Company
named therein.
(l) PERMITTED TRANSFEREES BOUND BY AGREEMENT. Upon the Transfer by a
Holder of its Warrants or Warrant Shares in compliance with the provisions of
this Section 6.02, the Selling Holder shall obtain a written agreement from the
third party transferee (the "Permitted Transferee"), in form and substance
reasonably satisfactory to the Company, stating that the Permitted Transferee
agrees to hold such Warrant or Warrant Shares subject to the terms and
conditions set forth in the Warrant and this Agreement.
6.03 LEGEND. Each Warrant or certificate or instrument (if any)
representing the Warrant Shares issued upon exercise of the Warrants (and each
Warrant or certificate or instrument (if any) representing the Warrant Shares
issued to transferees of such Warrant or certificate or instrument (if any)),
unless at such time as the same is no longer required under the applicable
requirements of the Securities Act, or any applicable state securities laws,
shall bear the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE OR INSTRUMENT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY
APPLICABLE STATE SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD,
PLEDGED OR TRANSFERRED IN THE ABSENCE OF REGISTRATION OR AN EXEMPTION
THEREFROM UNDER SAID
21
ACT OR LAWS. SUCH SECURITIES ARE ALSO SUBJECT TO CERTAIN RESTRICTIONS
UPON TRANSFER, AS SET FORTH IN THAT CERTAIN WARRANT AGREEMENT DATED
JULY 31, 1996."
Section 7. MISCELLANEOUS.
7.01 EXPENSES. The parties hereby agree and acknowledge that pursuant to
the terms of the Credit Agreement, the Company has agreed to pay certain
expenses arising in connection with the issuance of the Warrants as contemplated
hereby. Additionally, the Company agrees to pay any and all stamp, transfer and
other similar taxes payable or determined to be payable in connection with the
execution and delivery of this Agreement, the Warrants or the issuance or
transfer of the Warrants.
7.02 NOTICES. All notices and other communications provided for herein
(including, without limitation, any modifications of, or waivers or consents
under, this Agreement) shall be given or made by telex, telegraph, telecopy,
cable or other writing and telexed, telecopied, telegraphed, cabled, mailed or
delivered to the intended recipient at the "Address for Notices" specified below
its name on the signature pages hereof; or, as to any party, at such other
address as shall be designated by such party in a notice to the Company given in
accordance with this Section 7.02. All such communications shall be deemed to
have been duly given when transmitted by telex or telecopier, delivered to the
telegraph or cable office or personally delivered or, in the case of a mailed
notice, upon receipt, in each case given or addressed as aforesaid.
7.03 EXCLUSION. This Agreement and the Warrants shall be binding upon, and
inure solely to the benefit of, the Company and the Holders, and no other Person
shall acquire or have any right under or by virtue of this Agreement or the
Warrants (other than any such Person to whom such Holders have transferred an
interest in the Warrants pursuant to the terms thereof and hereof).
7.04 SPECIFIC PERFORMANCE. The Company acknowledges and agrees that in the
event of any breach of this Agreement or the Warrants by the Company, the
Holders would be irreparably harmed and could not be made whole by monetary
damages. The Company accordingly agrees (i) to waive the defense in any action
for specific performance that a remedy at law would be adequate, and (ii) that
the Holders, in addition to any other remedy to which they may be entitled at
law or in equity, shall be entitled to compel specific performance of this
Agreement or the Warrants in any action instituted in the United States District
Court for the Southern District of New York, or, in the event such Court would
not have jurisdiction for such action, in any court of the United States or any
state thereof having subject matter jurisdiction for such action.
7.05 HOLDER NOT A SHAREHOLDER. Prior to the exercise of any of its
Warrants, no Holder shall, except as specifically provided herein, be entitled
to any of the rights of, or be deemed to be, a shareholder in the Company.
7.06 NO WAIVERS. No failure or delay by any party in exercising any
rights, power or privilege hereunder or under the Warrants shall operate as a
waiver thereof nor shall any single or partial exercise thereof preclude any
other or further exercise thereof or the exercise of any other right, power or
privilege. The rights and remedies provided herein shall be cumulative and not
exclusive of any rights or remedies provided by law.
22
7.07 AMENDMENTS AND WAIVERS.
(a) Any provision of this Agreement or the Warrants may be amended or
waived if, but only if, such amendment or waiver is in writing and signed by the
Company and the Required Holders; provided, however, that no amendment or waiver
which adversely affects any one Holder (the "Affected Holder") VIS-A-VIS the
other Holders shall be effective without the approval in writing of a majority
of the Affected Holders.
(b) Any such amendment, modification or waiver effected pursuant to this
Section 7.07 shall be binding upon the Holders of all Warrants and Warrant
Shares and upon the Company. In the event of any such amendment, modification
or waiver, the Company shall give prompt written notice thereof to all Holders
and, if appropriate, notation thereof shall be made on all Warrants thereafter
surrendered for registration of transfer or exchange.
7.08 GOVERNING LAW. This Agreement and the Warrants shall be governed by
and construed in accordance with the laws of the State of New York, without
giving effect to the principles of conflict of laws thereof.
7.09 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
* * * * *
23
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered as of the day and year first above written.
VARI-LITE INTERNATIONAL, INC.
By: /s/ ▇.▇. ▇▇▇▇▇▇▇▇ III
------------------------------------
▇.▇. ▇▇▇▇▇▇▇▇ III
President
Address for Notices:
▇▇▇ ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopier No.: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇.▇. ▇▇▇▇▇▇▇▇ III
PER PRO ▇▇▇▇▇ BROTHERS ▇▇▇▇▇▇▇▇ & CO.
By: /s/ ▇. ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ III
------------------------------------
▇. ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ III
Senior Manager
Address for Notices:
▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopier No.: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇. ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ III
NBD BANK
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
------------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
------------------------------
Title: Vice President
-----------------------------
Address for Notices:
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopier No.: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
Warrant Agreement Signature Page
SUNTRUST BANK, ATLANTA
(formerly known as Trust Company Bank)
By: /s/ ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
------------------------------------
Name: ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
------------------------------
Title: Assistant Vice President
-----------------------------
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇
------------------------------------
Name: ▇▇▇▇ ▇. ▇▇▇▇▇▇
------------------------------
Title: Vice President
-----------------------------
Address for Notices:
▇▇ ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopier No.: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
COMERICA BANK - TEXAS
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇
------------------------------------
Name: ▇▇▇▇▇ ▇▇▇▇▇
------------------------------
Title: Corporate Banking Officer
-----------------------------
Address for Notices:
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopier No.: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇
Warrant Agreement Signature Page
SCHEDULE A
SHARES OF CLASS B COMMON STOCK
UNDERLYING WARRANTS
Shares of Class B Common Stock
Underlying Warrants
-----------------------------------------
Trigger Date Occurs:
-----------------------
9/1/98 to On or after
Initial Holder Initially 8/31/99 9/1/99
-------------- --------- ------- ------
▇▇▇▇▇ Brothers ▇▇▇▇▇▇▇▇ & Co. 14,301 16,173 18,065
NBD Bank 21,458 24,267 27,105
SunTrust Bank, Atlanta 14,301 16,173 18,065
Comerica Bank - Texas 14,301 16,173 18,065
Warrant Agreement Signature Page
