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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON , 1997
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REGISTRATION NO. 34-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-A
FOR REGISTRATION OF CERTAIN
CLASSES OF SECURITIES PURSUANT
TO SECTION 12(b) OR 12(g) OF THE
SECURITIES EXCHANGE ACT OF 1934
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WHEREHOUSE ENTERTAINMENT, INC.
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(Exact name of registrant as specified in its charter)
Delaware 95-4608339
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(State of (I.R.S. Employer Identification No.)
incorporation or organization)
19701 Hamilton Avenue, Torrance, California 90502-1334
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(Address of principal executive offices) (Zip Code)
Securities to be registered pursuant to Section 12(b) of the Act
Title of Each Class Name of Each Exchange on Which
to be so Registered Each Class is to be Registered
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1. If this form relates to the registration of a class of debt securities
and is effective upon filing pursuant to General Instruction A(c)(1),
please check the following box. / /
2. If this form relates to the registration of a class of debt securities
and is to become effective simultaneously with the effectiveness of a
concurrent registration statement under the Securities Act of 1933
pursuant to General Instruction A(c)(2), please check the following
box. / /
Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock par value $0.01 per share
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(Title of class)
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(Title of class)
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INFORMATION REQUIRED IN REGISTRATION STATEMENT
ITEM 1. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED.
The authorized capital stock of the registrant consists of
24,000,000 shares of common stock, par value $0.01 per share
("Common Stock"), and 3,000,000 shares of Preferred Stock, par value
$0.01 per share ("Preferred Stock"), which can be issued in more than
one series. As of April 30, 1997, an aggregate of 10,257,808 shares
of Common Stock have been issued and are outstanding and no shares of
Preferred Stock have been issued or are outstanding. The registrant
has reserved 1,769,380 shares of Common Stock for issuance pursuant to
the exercise of certain warrants and options discussed below.
The following description of the registrant's capital stock is
a summary of the material terms of such stock. It does not purport to be
complete and is subject in all respects to applicable Delaware law, the
provisions of certain agreements described below and the provisions of the
registrant's Certificate of Incorporation, the Certificate of Amendment to
the registrant's Certificate of Incorporation and the registrant's By-laws
each of which are incorporated herein by respective reference to Exhibits
1.1, 1.2 and 1.3 hereto.
COMMON STOCK
The holders of Common Stock are entitled to one vote for each
share held of record on all matters submitted to a vote of the
stockholders. Holders of Common Stock have the exclusive right to vote
for the election of directors and for all other purposes, except as may
be provided by law or by the registrant's board of directors (the "Board
of Directors") in a Preferred Stock designation. Holders of Common Stock
are entitled to receive such dividends as may be declared from time to
time by the Board of Directors out of funds legally available therefor.
Holders of Common Stock have no preemptive, conversion, or redemption
rights and are not subject to further assessments by the registrant.
In the event of liquidation, dissolution or winding up of the registrant,
holders of Common Stock are entitled to share ratably in all assets
remaining after payment of liabilities and after satisfaction of the
liquidation preference, if any, accorded to any outstanding Preferred
Stock.
The registrant has entered into two Registration Rights
Agreements, both dated as of January 31, 1997 and each with certain and
distinct holders of the Common Stock (the "Registration Rights
Agreements"). The Registration Rights Agreements are incorporated herein
by reference to Exhibits 1.5 and 1.6 hereto. The Registration Rights
Agreements provide that the holders of the Common Stock who are parties
thereto (the "Registration Rights Holders"), and certain eligible
tranferees of the Common Stock (as defined therein, the "Eligible
Transferees") may require the registrant to register under the Securities
Act of 1933, as amended, (the "Securities Act"), all or a portion of the
Common Stock held by the Registration Rights Holders and the Eligible
Transferees, and to register or qualify under applicable securities laws,
including in connection with an initial public offering of the Common
Stock.
Additionally, the Registration Rights Agreements provide that
in the event the registrant proposes, under certain circumstances, to
register any Common Stock under the Securities Act, the Registration
Rights Holders and Eligible Tranferees of the Common Stock may require the
registrant to include the shares of Common Stock held by the Registration
Rights Holders and Eligible Transferees in such registration.
PREFERRED STOCK
The Board of Directors is authorized to issue from time to time
Preferred Stock in one or more series and to fix from time to time before
issuance the number of shares to be included in any series and the
designation, relative powers, preferences and rights and qualifications,
limitations or restrictions of all shares of such series. The Board of
Directors may also increase or decrease the number of shares in any such
series of Preferred Stock after the issuance of that series, but not below
the number of shares of such series then outstanding. As to each such
series, the Board of Directors is also authorized to fix or alter the
dividend rights, dividend rate, conversion rights, voting rights, rights
and terms of redemption (including sinking fund provisions), the redemption
price or prices, the liquidation preferences and rights to subscribe for
or purchase any securities of the registrant or any other corporation.
MEETINGS OF STOCKHOLDERS
Annual meetings of stockholders and all other meetings of
stockholders shall be held at any place which may be designated by the
Board of Directors or by the written consent of all persons entitled to
vote at such meeting. Special meetings of stockholders, for any purpose
whatsoever, may be called by the Board of Directors or by the holders of
at least 35% of the shares of the registrant's capital stock then entitled
to vote at an election of the registrant's directors.
The presence at a meeting in person or by proxy of the persons
entitled to vote a majority of the voting shares of registrant's capital
stock constitutes a quorum for the transaction of business. Any annual or
special meeting of the stockholders,
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whether or not a quorum is present, may be adjourned from time to time by
a vote of the majority of the shares present in person or by proxy.
Except as to the election of the registrant's directors or as
otherwise provided by law or the registrant's Certificate of Incorporation,
the affirmative vote of a majority of the shares represented at a meeting
at which a quorum is present shall be the act of the stockholders. The
registrant's directors shall be elected at a meeting by a plurality of the
votes of the shares present in person or represented by proxy.
WARRANTS
The registrant has issued three tranches of warrants
(collectively, the "Warrants"), to purchase up to an aggregate of 776,000
shares of Common Stock (the "Warrant Shares"), pursuant to a Tranche A
Warrant Agreement, Tranche B Warrant Agreement and Tranche C Warrant
Agreement, each incorporated herein by respective reference to Exhibits
1.7, 1.8 and 1.9 hereto. As of July 7, 1997, Warrants to purchase an
aggregate of 775,749 shares of Common Stock have been issued and are
outstanding. The registrant anticipates that Warrants to purchase the
balance of the Warrant Shares will be issued in the near future.
The Tranche A Warrants represent the right to purchase 576,00
shares of Common Stock at an exercise price of $2.38 per share and have
a five year maturity. The Tranche B Warrants represent the right to
purchase 100,000 shares of Common Stock at an exercise price of $9.00 per
share and have a seven year maturity. The Tranche C Warrants represent
the right to purchase 100,000 shares of Common Stock at an exercise price
of $11.00 per share and have a seven year maturity. The Warrants do not
confer upon the holders of the Warrants any voting or other rights of the
shareholders of the registrant.
The number of Warrant Shares and the exercise price of the
Warrants will be adjusted to prevent dilution in the event of a split or
reverse split of the Common Stock, and in the event that the registrant
pays a dividend or makes a distribution which is paid or made in the
registrant's capital stock or in rights to purchase capital stock. An
adjustment will also be made in the event the registrant distributes any
of the registrant's assets to holders of its Common Stock, including cash
dividends or distributions out of retained earnings other than cash
dividends or distributions made on a quarterly or other periodic basis.
In such event, the adjustment will enable a Warrant holder to purchase the
kind and number of shares or other securities or property (including cash)
receivable by a holder of the kind and number of shares of Common Stock
that might otherwise have been purchased upon exercise of such Warrant.
At its option, the Board of Directors may at any time during the
term of a Warrant reduce the exercise price or increase the number of
shares of Common Stock purchasable upon exercise of a Warrant.
Each holder of a Warrant that is an "Initial Holder" under that
certain Tag-Along Rights Agreement, dated as of January 31, 1997 among
Cerberus Partners, L.P. ("Cerberus"), United States Trust Company of New
York and the Initial Holders, in the form of Exhibit 1.10 hereto which is
incorporated herein by this reference, possesses a tag-along right. The
tag-along right provides that in the event that any third party proposes
to purchase from Cerberus beneficial ownership of at least 750,000 shares
of Common Stock, an Initial Holder may require that such third party
purchase from the Initial Holder the number of Warrant Shares already
exercised by the Initial Holder that is proportional to the number of
shares that the third party's proposed purchase represents with respect to
the sum of the number of shares of Common Stock held by Cerberus and the
number of shares of Common Stock exercisable or already exercised under the
Warrants. The tag-along right is non-transferable and expires three years
after the issuance of the Warrants. As of July 7, 1997, only six Initial
Holders holding an aggregate of 4,595 Warrants still possess tag-along
rights.
OPTIONS
The registrant entered into that certain Non-Transferable Stock
Option Agreement, dated as of January 31, 1997 (the "Option Agreement"),
between the registrant and A&M Investment Associates #3, LLC ("A&M"),
incorporated by reference to Exhibit 1.11 hereto. Under the Option
Agreement, A&M has the right and option to purchase 331,127 shares of
Common Stock at an exercise price of $9.56 per share (the "First Option"),
331,127 shares of Common Stock at an exercise price of $11.58 per share
(the "Second Option"), and 331,126 shares of Common Stock at an exercise
price of $14.10 per share (the "Third Option," all such options
individually, an "Option," and collectively, the "Options").
The Options vest and become exercisable in equal monthly
installments on the last day of each month commencing on February 28, 1997,
through October 31, 1998, and all unexercised Options expire on January 31,
2003.
Until January 31, 1998, the number of shares purchasable upon
the exercise of each Option and the exercise price of each Option are
subject to adjustment in the event that the registrant issues additional
shares of Common Stock. In such event (i) the number of shares purchasable
under each Option will be increased by the number of shares equal to three
and one- third percent (3 1/3%) of the aggregate number of the additional
shares of Common Stock issued, (ii) the exercise price of the First
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Option will be adjusted to equal the quotient of $95,000,000 divided by
the total number of outstanding shares of Common Stock, (iii) the exercise
price of the Second Option will be adjusted to equal the quotient of
$115,000,000 divided by the total number of outstanding shares of Common
Stock, and (iv) the exercise price of the Third Option will be adjusted to
equal the quotient of $140,000,000 divided by the total number of
outstanding shares of Common Stock.
The number of Option shares will be adjusted to prevent dilution
in the event of a split or reverse split of the Common Stock, and in the
event that the registrant pays a dividend or makes a distribution which is
paid or made in the registrant's capital stock or in rights to purchase
capital stock.
The exercise price of the Option shares will be adjusted in the
event the registrant distributes any of the registrant's assets to holders
of its Common Stock, including cash dividends or distributions out of
retained earnings other than cash dividends or distributions made on a
quarterly or other periodic basis. In such event, the exercise price of
the Option shares will be reduced by the percent of the then current market
price per share of Common Stock that is represented by the fair value of
the portion of the assets distributed per share of Common Stock. However,
if the then current market price per share of Common Stock is less than the
then fair value of the portion of the assets distributed per share of
Common Stock, the exercise price will not be adjusted and instead the
holder of each Option, upon exercise of such Option, will receive in
addition to the Common Stock the assets that such holder would have
received had such Option been exercised immediately prior to such
distribution.
At its option, the Board of Directors may at any time during the
term of an Option reduce the exercise price or increase the number of
shares of Common Stock purchasable upon exercise of an Option.
ITEM 2. EXHIBITS.
The following exhibits are incorporated by reference into this registration
statement.
1.1 Certificate of Incorporation of the registrant filed with the
Delaware Secretary of State on November 15, 1996.
1.2 Certificate of Amendment to Certificate of Incorporation of the
registrant filed with the Delaware Secretary of State on
January 31, 1997.
1.3 By-laws of the registrant.
1.4 Specimen of Common Stock Certificate.
1.5 Registration Rights Agreement dated as of January 31, 1997 among
the registrant, Cerberus Partners, L.P., CS First Boston Securities
Corporation and Bank of America Illinois.
1.6 Registration Rights Agreement dated as of January 31, 1997 between
the registrant and A&M Investment Associates #3, LLC.
1.7 Tranche A Warrant Agreement dated as of January 31, 1997 between the
registrant and United States Trust Company of New York, as the
Warrant Agent. (Incorporated by reference to Exhibit 4.1 of the
registrant's Annual Report on Form 10-K for the year ended
January 31, 1997.)
1.8 Tranche B Warrant Agreement dated as of January 31, 1997 between
the registrant and United States Trust Company of New York, as the
Warrant Agent. (Incorporated by reference to Exhibit 4.2 of the
registrant's Annual Report on Form 10-K for the year ended
January 31, 1997.)
1.9 Tranche C Warrant Agreement dated as of January 31, 1997 between the
registrant and United States Trust Company of New York, as the
Warrant Agent. (Incorporated by reference to Exhibit 4.3 of the
registrant's Annual Report on Form 10-K for the year ended
January 31, 1997.)
1.10 Form of Tag-Along Rights Agreement among Cerberus Partners, L.P.,
United States Trust Company of New York and the Initial Holders (as
defined therein).
1.11 Non-Transferable Stock Option Agreement dated as of January 31, 1997
between the registrant and A&M Investment Associates #3, LLC.
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SIGNATURE
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the registrant has duly caused this registration statement to be signed
on its behalf by the undersigned, thereto duly authorized.
WHEREHOUSE ENTERTAINMENT, INC.
By: /s/ ELIOT COBB
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Title: Assistant Secretary and Treasurer
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Dated: July 28, 1997
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CERTIFICATE OF INCORPORATION
OF
WEI ACQUISITION CO.
(A DELAWARE CORPORATION)
FIRST: The name of the corporation is WEI Acquisition Co. (the
"Corporation").
SECOND: The address of the Corporation's registered office in the
State of Delaware is 1013 Centre Road, City of Wilmington, County of New Castle,
Delaware 19805. The name of its registered agent at such address is Corporation
Service Company.
THIRD: The purpose of the Corporation is to engage in any lawful
act or activity for which corporations may be organized under the General
Corporation Law of the State of Delaware.
FOURTH: The Corporation is authorized to issue two classes of
capital stock, designated Common Stock and Preferred Stock. The total number of
shares of stock which the Corporation shall have authority to issue is twenty-
seven million (27,000,000), consisting of twenty-four million (24,000,000)
shares of Common Stock, par value $0.01 per share (the "Common Stock"), and
three million (3,000,000) shares of Preferred Stock, par value $0.01 per share
(the "Preferred Stock").
Shares of the Preferred Stock of the Corporation may be issued from
time to time in one or more series. The Board of Directors is hereby authorized
to issue the shares of Preferred Stock in such series and to fix from time to
time before issuance the number of shares to be included in any series and the
designation, relative powers, preferences and rights and qualifications,
limitations or restrictions of all shares of such series. Without limiting the
generality of the foregoing, as to each such series of Preferred Stock, the
Board of Directors is authorized to fix or alter the dividend rights, dividend
rate, conversion rights, voting rights, rights and terms of redemption
(including sinking fund provisions), the redemption price or prices, the
liquidation preferences, rights to subscribe for or purchase any securities of
the Corporation or any other corporation, and the number of shares constituting
such series, or any or all of them, all as shall be determined from time to time
by the Board of Directors and shall be stated in a resolution or resolutions
providing for the issuance of such Preferred Stock (a "Preferred Stock
Designation"). The Board of Directors may increase or decrease the number of
shares in any such series after the issue of shares of that series, but not
below the number of shares of such series then outstanding. Should the number
of shares of any series be so decreased, the shares constituting such decrease
shall resume the status which they had prior to the adoption of the resolution
originally fixing the number of shares of such series.
Each holder of Common Stock of the Corporation entitled to vote shall
have one vote for each share thereof held.
Except as may be provided by the Board of Directors in a Preferred
Stock Designation or by law, the Common Stock shall have the exclusive right to
vote for the election of directors and for all other purposes (which vote may be
made by voice vote or written ballot, in accordance with the Bylaws of the
Corporation), and holders of Preferred Stock shall not be entitled to receive
notice of any meeting of stockholders at which they are not entitled to vote or
consent.
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The Corporation shall be entitled to treat the person in whose name
any share of its stock is registered as the owner thereof, for all purposes, and
shall not be bound to recognize any equitable or other claim to, or interest in,
such share on the part of any other person, whether or not the Corporation shall
have notice thereof, except as expressly provided by applicable law.
FIFTH: The name and mailing address of the incorporator is as
follows:
Name Mailing Address
---- ---------------
Joyce J. Ono O'Melveny & Myers LLP
400 South Hope Street
Los Angeles, CA 90071-2899
SIXTH: The number of directors of the Corporation shall, prior to
the appointment of additional directors following the Acquisition (as defined in
Article II of the Bylaws), be one, and immediately upon such appointment, shall
consist of not less than three but not more than nine directors, or such greater
number as is provided in the following paragraph. The number of directors shall
be changed from time to time within the foregoing limits by, or in such manner
as may be provided in, the By-laws of the Corporation.
Notwithstanding the foregoing, whenever the holders of any one or more
classes or series of preferred stock issued by the Corporation shall have the
right, voting separately by class or series, to elect directors at an annual or
special meeting of stockholders, the election, term of office, filling of
vacancies and other features of such directorships shall be governed by the
terms of the Preferred Stock Designation applicable thereto, and such directors
so elected shall be in addition to the number of directors provided for in the
preceding paragraph.
SEVENTH: The Board of Directors shall have the power to adopt, amend
or repeal the By-Laws, and to fill any vacancies on the Board of Directors,
except as may otherwise be provided in the By-Laws.
EIGHTH: The personal liability of the directors of the Corporation
is hereby eliminated to the fullest extent permitted by the General Corporation
Law of the State of Delaware, as the same may be amended or supplemented, and
the initial Bylaws adopted by the Board of Directors shall set forth the terms
and conditions under which the Corporation shall provide indemnification to the
directors of the Corporation. Such indemnification obligations shall apply in
addition to such other rights to indemnification as may be available to the
directors under applicable law, or in equity, pursuant to any contract or
agreement or otherwise.
NINTH: All of the powers of the Corporation, insofar as the same
may be lawfully vested by this Certificate of Incorporation in the Board of
Directors, are hereby conferred upon the Board of Directors of the Corporation.
TENTH: Whenever a compromise or arrangement is proposed between the
Corporation and its creditors or any class of
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them and/or between the Corporation and its stockholders or any class of
them, any court of equitable jurisdiction within the State of Delaware may,
on the application in a summary way of the Corporation or of any creditor or
stockholder thereof or on the application of any receiver or receivers
appointed for the Corporation under the provisions of Section 291 of Title 8
of the Delaware Code or on the application of trustees in dissolution or of
any receiver or receivers appointed for the Corporation under the provisions
of Section 279 of Title 8 of the Delaware Code, order a meeting of the
creditors or class of creditors, and/or of the stockholders or class of
stockholders of the Corporation, as the case may be, to be summoned in such
manner as the said court directs. If a majority in number representing
three-fourths in value of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of the Corporation, as the case may be,
agree to any compromise or arrangement and to any reorganization of the
Corporation as a consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders, of the Corporation, as the case may be, and also on the
Corporation.
ELEVENTH: No nonvoting equity securities of the Corporation may be
issued; this provision, included in this Certificate of Incorporation in
compliance with Section 1123 of the United States Bankruptcy Code, 11 U.S.C.
Section 1123, shall have no force and effect except to the extent required by
such Section and to the extent such Section is in effect and applicable to the
Corporation.
I, the undersigned, being the sole incorporator hereinbefore named,
for the purpose of forming a corporation in pursuance of the General Corporation
Law of the State of Delaware, do make and file this Certificate of
Incorporation, hereby declaring and certifying that the facts herein stated are
true, and accordingly have hereunto set my hand this 15th day of November 1996.
/s/ Joyce J. Ono
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Joyce J. Ono
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CERTIFICATE OF AMENDMENT
TO
CERTIFICATE OF INCORPORATION
OF
WEI ACQUISITION CO.
WEI Acquisition Co. (the "Corporation"), a corporation duly organized
and existing under the General Corporation Law of the State of Delaware (the
"General Corporation Law"), DOES HEREBY CERTIFY that:
ONE: Article First of the Corporation's Certificate of
Incorporation is hereby amended to read in its entirety as set forth below:
"FIRST: The name of the corporation is Wherehouse Entertainment, Inc."
TWO: The foregoing amendment was duly adopted by the Corporation
pursuant to Sections 242 and 303 of the General Corporation Law. Provision for
the filing of this Certificate of Amendment is contained in an order, dated
January __, 1997, of the United States Bankruptcy Court for the District of
Delaware in IN RE: WHEREHOUSE ENTERTAINMENT, INC., AND WEI HOLDINGS, INC.,
Debtors, Chapter 11, Case No. 95-911 (HSB)(Jointly Administered).
[Remainder of page intentionally left blank.]
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IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
signed by Robert C. Davenport, its Secretary and Treasurer, this 31st day of
January, 1997.
WEI ACQUISITION CO.
/s/ Bob Davenport
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Robert C. Davenport
Secretary and Treasurer
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BYLAWS
OF
WEI ACQUISITION CO.
(A DELAWARE CORPORATION)
----------------------------------------
ARTICLE I
OFFICES
SECTION 1. PRINCIPAL EXECUTIVE OFFICE. The principal executive
office for the transaction of the business of the Corporation shall be located
at such place within or without the State of Delaware as shall be fixed from
time to time by the board of directors, and if no place is fixed by the board of
directors, such place as shall be fixed by the president.
SECTION 2. OTHER OFFICES. Branch offices may at any time be
established by the board of directors at any place or places where the
Corporation is qualified to do business.
ARTICLE II
NUMBER OF DIRECTORS
The authorized number of directors of the Corporation shall be not
less than as stated in the Certificate of Incorporation. The initial number of
directors shall be one. In connection with the acquisition by the Corporation
of the assets of WEI Holdings, Inc. and Wherehouse Entertainment, Inc. (the
"Acquisition"), the initial director shall appoint other members to the board of
directors and the board shall consist of five directors, until changed by an
amendment to the By-Laws duly adopted by the board of directors amending this
Article II in accordance herewith. Directors need not be stockholders of the
Corporation. As used in these Bylaws, the term "authorized number of directors"
means the total number of directors which the Corporation would have if there
were no vacancies.
ARTICLE III
MEETINGS OF STOCKHOLDERS
SECTION 1. PLACE OF MEETINGS. All annual meetings of stockholders
and all other meetings of stockholders shall be held at any place within or
without the State of Delaware which may be designated by the board of directors,
or by the written consent of all persons entitled to vote thereat, given either
before or after the meeting and filed with the secretary of the Corporation.
Absent such designation or written consent, meetings shall be held at the
principal executive office of the Corporation.
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SECTION 2. ANNUAL MEETINGS. The annual meeting of stockholders of
the Corporation shall be held in each year on such date and at such time as may
be designated from time to time by the board of directors. Directors shall be
elected at the annual meeting, and any other business may be transacted which is
within the power of the stockholders and allowed by law.
SECTION 3. SPECIAL MEETINGS. Special meetings of the stockholders,
for any purpose whatsoever, may be called by the board of directors or by the
holders of at least 35% of shares then entitled to vote at an election of
directors.
SECTION 4. NOTICE OF MEETINGS, ANNUAL OR SPECIAL. Except as
otherwise required by law, written notice of each annual or special meeting of
stockholders shall be given not less than ten (10) nor more than sixty (60) days
before the date of the meeting to each stockholder entitled to vote thereat.
Such notice shall state the place, date and hour of the meeting and, in the case
of a special meeting, shall also state the purpose or purposes for which the
meeting is called. Except as otherwise expressly required by law, notice of any
adjourned meeting of the stockholders need not be given if the time and place
thereof are announced at the meeting at which the adjournment is taken.
Notice of a stockholders' meeting shall be given either personally or
by mail or by other means of written communication, addressed to the stockholder
at the address of such stockholder appearing on the books of the Corporation or
given by the stockholder to the Corporation for the purpose of notice. Notice
by mail shall be deemed to have been given at the time a written notice is
deposited in the United States mail, postage prepaid. Any other written notice
shall be deemed to have been given at the time it is personally delivered to the
recipient or is delivered to a common carrier for transmission, or actually
transmitted by the person giving the notice by electronic means, to the
recipient.
SECTION 5. PERSONS ENTITLED TO VOTE. If no record date is fixed by
the board of directors pursuant to Section 6 of this Article III, the record
date for the determination of stockholders entitled to notice of or to vote at
any meeting of stockholders or any adjournment thereof shall be at the close of
business on the day next preceding the day on which notice is given, or, if
notice is waived, at the close of business on the day next preceding the day on
which the meeting is held; the record date for determining stockholders for any
other purpose shall be at the close of business on the date on which the board
of directors adopts the resolution relating thereto.
SECTION 6. RECORD DATE. The board of directors may fix, in advance,
a record date for the determination of the stockholders entitled to notice of
any meeting or to vote at such meeting, entitled to vote by written consent on
matters approved by the board of directors or entitled to receive payment of any
dividend or other distribution, or any allotment of rights, or to exercise
rights in respect of any other lawful actions. The record date so fixed shall
be not more than sixty (60) days nor less than ten (10) days prior to the date
of the meeting, not prior to nor more than ten (10) days after the date of the
resolution fixing the
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record date for votes by written consent and not more than sixty (60) days prior
to any other action, respectively.
SECTION 7. PRESIDING OFFICER. Unless the board of directors shall
otherwise provide in advance of any meeting of stockholders, at each meeting of
the stockholders, the chairman of the board shall preside, or if none, or if
absent or unable to act, the president shall preside, or in the case of the
absence or inability to act of the chairman of the board and of the president, a
vice president shall preside, or in the case of the absence of inability to act
of the chairman of the board, president and a vice president, a director or
stockholder, appointed by the stockholders at the meeting, shall preside.
SECTION 8. QUORUM. The presence at a meeting in person or by proxy
of the persons entitled to vote a majority of the voting shares constitutes a
quorum for the transaction of business. The stockholders present at a duly
called or held meeting at which a quorum is present may continue to do business
until adjournment of such meeting, notwithstanding the withdrawal of such number
of stockholders so as to leave less than a quorum, if any action taken, other
than adjournment, is approved by at least a majority of the shares required to
constitute a quorum. Except as otherwise provided by law, or in the Certificate
of Incorporation of the Corporation, the affirmative vote of a majority of the
shares represented at a meeting at which a quorum is present shall be the act of
the stockholders.
SECTION 9. ADJOURNED MEETINGS AND NOTICE THEREOF. Any annual or
special meeting of the stockholders, whether or not a quorum is present, may be
adjourned from time to time by a vote of the majority of the shares present in
person or by proxy. When a meeting is adjourned for thirty (30) days or more,
or if a new record date for the adjourned meeting is fixed by the board of
directors, notice of the adjourned meeting shall be given to such stockholders
of record entitled to vote at the adjourned meeting as in the case of any
original meeting. When a meeting is adjourned for less than thirty (30) days,
and a new record date is not fixed by the board of directors, it shall not be
necessary to give any notice of the time and place of the adjourned meeting or
of the business to be transacted thereat other than by announcement at the
meeting at which the adjournment is taken, provided that only business which
might have been transacted at the original meeting may be conducted at such
adjourned meeting.
SECTION 10. VOTING. In all matters other than the election of
directors, when a quorum is present at any meeting, the vote of the holders of a
majority of the capital stock having voting power present in person or
represented by proxy shall decide any question brought before such meeting,
unless the question is one upon which by express provision of applicable law or
of the Certificate of Incorporation, a different vote is required in which case
such express provision shall govern and control the decision of such question.
Directors shall be elected by a plurality of the votes of the shares present in
person or represented by proxy. Such vote may be by voice vote or by written
ballot; PROVIDED, HOWEVER, that the board of directors may, in its discretion,
require a written ballot for any vote.
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Unless otherwise provided in or pursuant to the Certificate of
Incorporation, each stockholder shall at every meeting of the stockholders be
entitled to one vote in person or by proxy for each share of the capital stock
having voting power held by such stockholder.
SECTION 11. ACTION WITHOUT MEETING. Any action which, under any
provision of the General Corporation Law of the State of Delaware, may be taken
at a meeting of the stockholders may be taken without a meeting and without
prior notice and without a vote if a consent or consents in writing, setting
forth the action so taken, (i) shall be signed by the holders of outstanding
shares having not less than the minimum number of votes that would be necessary
to authorize or take such action at a meeting at which all shares entitled to
vote thereon were present and voted, and (ii) shall be delivered to the
Corporation by delivery to its registered office by hand or by certified or
registered mail, return receipt requested, its principal place of business, or
an officer or agent of the Corporation having custody of the book in which
proceedings of meetings of stockholders are recorded; provided, however, that if
any action is approved by written consent of less than all stockholders entitled
to vote, prompt notice shall be given (in the same manner as notice of meetings
is to be given) of such action to all stockholders entitled to vote who did not
consent in writing to such action.
SECTION 12. PROXIES. Each stockholder entitled to vote at a meeting
of stockholders or to express consent or dissent to corporate action in writing
without a meeting may authorize another person or persons to act for him by
proxy; provided, however, that no such proxy shall be voted or acted upon after
3 years from its date, unless the proxy expressly provides for a longer period.
Without limiting the manner in which a stockholder may authorize another person
or persons to act for him as a proxy pursuant to this section, the following
shall constitute a valid means by which a stockholder may grant such authority:
(1) A stockholder may execute a writing authorizing another
person or persons to act for him as proxy. Execution may be
accomplished by the stockholder or his authorized officer, director,
employee or agent signing such writing or causing his or her signature
to be affixed to such writing by any reasonable means including, but
not limited to, by facsimile signature.
(2) A stockholder may authorize another person or persons
to act for him as proxy by transmitting or authorizing the
transmission of a telegram, cablegram, or other means of electronic
transmission to the person who will be the holder of the proxy or to a
proxy solicitation firm, proxy support service organization or like
agent duly authorized by the person who will be the holder of the
proxy to receive such transmission, provided that any such telegram,
cablegram or other means of electronic transmission must either set
forth or be submitted with information from which it can be determined
that the telegram, cablegram or other electronic transmission was
authorized by the stockholder. If it is determined that such
telegrams, cablegrams or other electronic transmissions are valid, the
inspectors or, if there are no inspectors, such other persons making
that determination shall specify the information upon which they
relied.
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Any copy, facsimile telecommunication or other reliable reproduction of the
writing or transmission created pursuant to this section may be substituted or
used in lieu of the original writing or transmission for any and all purposes
for which the original writing or transmission could be used, provided that such
copy, facsimile telecommunication or other reproduction shall be a complete
reproduction of the entire original writing or transmission. A duly executed
proxy shall be irrevocable if it states that it is irrevocable and if, and only
as long as, it is coupled with an interest sufficient in law to support an
irrevocable power. A proxy may be made irrevocable regardless of whether the
interest with which it is coupled is an interest in the stock itself or an
interest in the Corporation generally.
SECTION 13. LIST OF STOCKHOLDERS. It shall be the duty of the
secretary or other officer of the Corporation who shall have charge of its stock
ledger, either directly or through another officer of the Corporation designated
by him or through a transfer agent or transfer clerk appointed by the board of
directors, to prepare, at least ten (10) days before every meeting of the
stockholders, a complete list of the stockholders entitled to vote thereat,
arranged in alphabetical order and showing the address of each stockholder and
the number of shares registered in the name of each stockholder. Such list
shall be open to the examination of any stockholder for any purpose germane to
the meeting, during ordinary business hours, for a period of at least ten (10)
days prior to the meeting, either at the place where the meeting is to be held
or at another place within the city where the meeting is to be held if such
other place is specified in the notice of the meeting. The list shall be
produced at and for the duration of the meeting for inspection by any
stockholder who shall be present thereat. The original or duplicate stock
ledger shall be exclusive evidence of the stockholders entitled to examine such
list or the books of the Corporation, or to vote in person or by proxy at such
election.
ARTICLE IV
DIRECTORS AND MANAGEMENT
SECTION 1. GENERAL POWERS. The business and affairs of the
Corporation shall be managed by or under the direction of the board of
directors, which may exercise all such authority and powers of the Corporation
to do all such lawful acts and things as are not by law, the Certificate of
Incorporation of the Corporation or these ByLaws directed or required to be
exercised or done by the stockholders. Without limiting the generality of the
foregoing, it is hereby expressly declared that the directors shall have the
power:
(a) to appoint and remove at pleasure all officers, managers,
management companies, agents and employees of the Corporation, prescribe
their duties in addition to those prescribed in these Bylaws, supervise
them, fix their compensation and require from them security for faithful
service; such compensation may be increased or diminished at the pleasure
of the directors;
(b) to conduct, manage and control the affairs and business of
the Corporation; to make rules and regulations not inconsistent with the
Certificate of
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Incorporation or Delaware law or these Bylaws; to make all lawful orders
on behalf of the Corporation and to prescribe the manner of executing the
same;
(c) to appoint by resolution passed by a majority of the
authorized number of directors an executive and other committees, each
committee to consist of 1 or more of the directors of the Corporation. The
board may designate one or more directors as alternate members of any
committee who may replace any absent or disqualified member at any meeting
of the committee. The directors may designate by resolution to any such
committee any of the powers and authority of the board of directors in the
management of the business and affairs of the Corporation; provided,
however, that no such committee shall have the power or authority in
reference to amending the Certificate of Incorporation of the Corporation
(except that a committee may, to the extent authorized in the resolution or
resolutions providing for the issuance of shares of stock adopted by the
board of directors in accordance with the provisions of the General
Corporation Law of the State of Delaware fix the designations and any of
the preferences or rights of such shares relating to dividends, redemption,
dissolution, any distribution of assets of the Corporation or the
conversion into, or the exchange of such shares for, shares of any other
class or classes or any other series of the same or any other class or
classes of stock of the Corporation or fix the number of shares of any
series of stock or authorize the increase or decrease of the shares of any
series), adopting an agreement of merger or consolidation, recommending to
the stockholders the sale, lease or exchange of all or substantially all of
the Corporation's property and assets, recommending to the stockholders a
dissolution of the Corporation or a revocation of a dissolution, or
amending these Bylaws; and, unless the resolution expressly so provides, no
such committee shall have the power or authority to declare a dividend, to
authorize the issuance of stock or to adopt a certificate of ownership and
merger pursuant to Section 253 of the General Corporation Law of the State
of Delaware. The executive committee, if any, shall be composed of two (2)
or more directors. The provisions of these Bylaws regarding notice and
meetings of directors shall apply to all committees;
(d) to designate from time to time the person or persons who may
sign or endorse checks, drafts, or other orders for payment of money,
notes, or other evidences of indebtedness, issued in the name of, or
payable to, the Corporation, and to prescribe the manner of collecting and
depositing funds of the Corporation, and the manner of drawing of checks
thereon;
(e) to authorize the issuance of stock of the Corporation, from
time to time, upon such terms as may be lawful;
(f) to prepare an annual report to be sent to the stockholders
after the close of the fiscal or calendar year of this corporation, which
report shall comply with the requirements of law. To the extent permitted
by law, the requirements that an annual report be sent to stockholders and
the time limits for sending such reports are
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hereby waived, the directors, nevertheless, having the authority to cause
such report to be prepared and sent to stockholders;
(g) to adopt, make and use a corporate seal, and to prescribe
the forms of certificates of stock, and to alter the form of such seal and
such certificates from time to time as in their judgment they may deem
best; and
(h) to borrow money and incur indebtedness for the purposes of
the Corporation, and to cause to be executed and delivered therefor, in the
corporate name, promissory notes, bonds, debentures, deeds of trust,
mortgages, pledges, hypothecations or other evidences of debt and
securities therefor.
SECTION 2. TERM OF OFFICE. Each director shall hold office until the
annual meeting of the stockholders next following his election and until his
successor is elected and qualified, or until his earlier death, or resignation
or removal in the manner hereinafter provided.
SECTION 3. QUORUM AND MANNER OF ACTING. A majority of the directors
in office (but in no event less than one-third of the authorized number of
directors) shall constitute a quorum for the transaction of business at any
meeting, and the act of a majority of the directors present at any meeting at
which a quorum is present shall be the act of the board of directors. A
majority of the directors present may adjourn any meeting from time to time.
Notice of any adjourned meeting shall be given in the manner provided in Section
5 of this Article IV.
SECTION 4. VACANCIES. A vacancy in the board of directors exists in
case of the happening of any of the following events:
(a) The death, resignation, or removal of any director.
(b) The authorized number of directors is increased.
(c) At any annual, regular, or special meeting of stockholders
at which any director is elected, the stockholders fail to elect the full
authorized number of directors to be elected at that meeting.
(d) The board of directors declares vacant the office of a
director who has been declared of unsound mind by an order of the court or
convicted of a felony, or otherwise in a manner provided by law.
All vacancies (other than vacancies created by removal of a director) may be
filled by the majority of the remaining directors, though less than a quorum, or
by a sole remaining director. Each director so elected shall hold office until
his successor is elected at an annual, regular, or special meeting of the
stockholders. The stockholders may, by vote or written consent of a majority of
the outstanding shares entitled to vote in election of
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directors, elect a director at any time to fill any vacancy not filled by the
directors. If the board of directors accepts the resignation of a director
tendered to take effect at a future time, the board or the stockholders may
elect a successor to take office when the resignation becomes effective. A
reduction of the authorized number of directors does not remove any director
prior to the expiration of his term of office.
SECTION 5. MEETINGS OF DIRECTORS.
(a) The board of directors may hold meetings, both regular and
special, either within or outside the State of Delaware.
(b) All special meetings of the board of directors shall be
called by the chairman of the board (if any), or the president, or, if both
are absent or unable or refuse to act, by any two (2) directors.
(c) Written or oral notice of the time and place of special
meetings of the board of directors shall be given or delivered personally
to each director, or sent to each director by mail or by other form of
written or telephonic communication (including cable, telegram, telex and
telephone), at least twenty-four (24) hours before the meeting if personal
delivery is made or if the telephone, telegraph, cable or telex is used,
and at least four (4) days before the meeting if mail is used. If the
address of a director is not shown on the records and is not readily
ascertainable, notice shall be addressed to such director at the place and
city in which the meetings of the directors are regularly held. Proof that
notice was given shall be by affidavit of the chairman of the board,
president, vice president, secretary or two (2) directors, or of the person
acting under the direction of any of the foregoing, who gives such notice
and such proof of notice shall be made a part of the minutes of the
meeting. Notice of the time and place of holding an adjourned meeting
shall be given to absent directors if the time fixed at the meeting which
was adjourned for the adjourned meeting is more than twenty-four (24) hours
after adjournment. Notwithstanding the foregoing, sufficient notice of a
meeting of the board of directors to be held immediately following a
stockholders meeting at which one or more directors is elected, may be
given by announcement thereof at such stockholders' meeting.
(d) At the meeting of the board of directors next following each
annual meeting of the stockholders, the board shall elect officers.
(e) Notice of a meeting need not be given to any director who
signs a waiver of notice or a consent to holding the meeting or an approval
of the minutes thereof, whether before or after the meeting, or who attends
the meeting without protesting, prior thereto or at its commencement, the
lack of notice to such director. All such waivers, consents, or approvals
shall be filed with the corporate records or made a part of the minutes of
the meeting.
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(f) Meetings of the directors may be held at any place within or
without the State of Delaware designated in the notice of the meeting or,
if not stated in the notice or if there is no notice, designated by
resolution of the board.
(g) The members of the board of directors or of any committee
thereof may participate in a meeting of such board of directors or
committee by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can
hear each other, and participation in a meeting by such means shall
constitute presence in person at such a meeting.
SECTION 6. CONSENT OF DIRECTORS IN LIEU OF MEETING. Any action
required or permitted to be taken by the board of directors of this corporation
or of any committee thereof under the General Corporation Law of the State of
Delaware may be taken without a meeting if all members of the board or
committee, as the case may be, individually or collectively, consent thereto in
writing and the writing or writings evidencing such consent are filed with the
minutes of proceedings of the board or committee.
SECTION 7. FEES AND COMPENSATION. One or more of the directors may,
by resolution of the board of directors, receive such compensation for services
as director, and may be allowed such reimbursement of expenses as may be fixed
or determined by the board of directors. Nothing herein contained shall be
construed to preclude any director from serving the Corporation in any capacity
as an officer, agent, employee or otherwise, and receiving compensation
therefor.
SECTION 8. RESIGNATIONS. Any director of the Corporation may resign
at any time by giving written notice to the board of directors. The resignation
of any director shall take effect at the date of receipt of such notice or at
any later date specified therein and, unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective.
SECTION 9. REMOVAL OF DIRECTORS. Any director or the entire board of
directors may be removed, with or without cause, by the holders of a majority of
the shares of the Corporation then entitled to vote at an election of directors.
SECTION 10. RIGHTS OF INSPECTION. Every director shall have the
absolute right at any reasonable time to inspect and copy all the books, records
and documents of every kind and to inspect physical properties of the
Corporation and also of its subsidiary corporations, domestic or foreign. Such
inspection by a director may be made in person or by agent or attorney and
includes the right to copy and obtain extracts.
SECTION 11. OFFICERS. The officers of the Corporation shall be a
president, one or more vice presidents as the board of directors shall determine
(any one or more of whom the board of directors may designate executive vice
president or senior vice president or similar title), a secretary, and a
treasurer, each of whom shall be chosen by and hold office at the pleasure of
the board of directors. Any number of offices may be held by the same
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person. The board of directors may from time to time choose such other officers,
including but not limited to a chairman of the board, one or more vice
presidents or assistant vice presidents, a treasurer, and one or more assistant
secretaries, as may be deemed expedient, to hold office at the pleasure of the
board of directors, with such authority as may be specifically delegated to such
officers by the board of directors.
SECTION 12. ELECTION OF OFFICERS; TERM OF OFFICE; QUALIFICATIONS;
DUTIES. The officers shall be chosen by the board of directors. Each officer
shall hold office until a successor is elected or until his or her death, or
until he or she shall have resigned or shall have been removed in the manner
hereinafter provided. Officers may be, but need not necessarily be, selected
from the members of the board of directors or from the stockholders. The
officers shall each have such powers and duties as are set forth in these Bylaws
and as generally pertain to their respective offices, and as from time to time
may be conferred upon them by the board of directors.
SECTION 13. REMOVAL OF OFFICERS. Any officer may be removed, either
with or without cause, at any time, by the board of directors. Any such removal
shall be without prejudice to the rights, if any, of any contract of employment
of the officer.
SECTION 14. RESIGNATION OF OFFICERS. Any officer may resign at any
time by giving written notice to the board of directors. Any such resignation
shall take effect at the date of receipt of such notice or at any later date
specified therein and, unless otherwise specified therein, the acceptance of
such resignation shall not be necessary to make it effective.
SECTION 15. VACANCIES OF OFFICERS. A vacancy in any office because
of death, resignation, removal or any other cause shall be filled in the manner
prescribed in these Bylaws for election to such office.
SECTION 16. CHAIRMAN OF THE BOARD OF DIRECTORS. Should the board of
directors elect a chairman of the board, he shall, subject to the control of the
board of directors, have such supervision, direction and control of the business
and other officers of the Corporation as the board of directors may delegate to
such officer from time to time. Absent such specific delegation, and unless
provided otherwise by resolution of the board of directors, the chairman of the
board shall have the duties and authority of a chief executive officer. The
chairman of the board shall preside at all meetings of the stockholders, and, if
a director, at all meetings of the board of directors.
SECTION 17. PRESIDENT. The president shall, subject to the control
of the board of directors, have such supervision, direction and control of the
business and officers of the Corporation as the board of directors may delegate
to such officer from time to time. Absent such specific delegation, and in the
absence of the existence of the office of chairman of the board, the president
shall have the duties and authority of a chief executive officer, and shall
preside at all meetings of the stockholders and, if a director, at all meetings
of the board of directors. Should the office of chairman of the board exist,
the
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president shall have such duties and authority as may be granted to such
officer by the board of directors or as may be delegated to such officer by the
chairman of the board.
SECTION 18. SECRETARY. The secretary shall be the custodian of the
seal of the Corporation and of the books and records and files thereof, and
shall affix the seal of the Corporation to all certificates of stock, papers and
instruments requiring the same. The secretary shall, in the manner provided by
law, keep, or cause to be kept, at the principal executive office, or such other
place as the board of directors may order, a minute book of all meetings of
directors and stockholders. The secretary shall keep, or cause to be kept, at
the principal executive office or at the office of the Corporation's transfer
agent, a share register, or a duplicate share register, showing the names of the
stockholders and their addresses, the number and classes of shares held by each,
and the number and date of cancellation of every certificate surrendered for
cancellation. The secretary shall give, or cause to be given, notice of all
meetings of the stockholders and of the board of directors and of any committees
thereof required by the Bylaws or by law to be given, shall keep the seal of the
Corporation in safe custody, and shall have such other powers and perform such
other duties as may be prescribed by the board of directors.
SECTION 19. TREASURER. The treasurer shall keep and maintain, or
cause to be kept and maintained, adequate and correct accounts of the properties
and business transactions of the Corporation, including accounts of its assets,
liabilities, receipts, disbursements, gains, losses, capital, surplus and
shares. The treasurer shall render to the president or the board of directors,
whenever such officer or board so requests, an account of the financial
condition of the Corporation.
SECTION 20. VICE PRESIDENTS. In the absence or disability of the
president, the vice president or vice presidents, if any, in order of their rank
as fixed by the board of directors or, if not ranked, the vice president
designated by the board of directors, shall perform all duties of the president
and, when so acting, shall have all the powers of, and be subject to all the
restrictions upon, the president. The vice president or vice presidents shall
have such other powers and perform such other duties as from time to time may be
prescribed for them respectively by the board of directors.
ARTICLE V
STOCK
SECTION 1. CERTIFICATE OF SHARES. Every owner of shares in this
corporation shall be entitled to have a certificate in such form, not
inconsistent with the Certificate of Incorporation or any law, as shall be
prescribed by the board of directors, certifying the number of shares and class
or series owned by such stockholder in the Corporation. Every certificate for
shares shall be signed by, or in the name of the Corporation signed by, the
chairman of the board, the president or a vice-president, and by the treasurer
or an assistant treasurer or the secretary or an assistant secretary. Subject
to the restrictions provided by law, signatures may be a facsimile and shall be
effective irrespective of whether any person
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whose signature appears on the certificate shall have ceased to be such officer
before the certificate is delivered by the Corporation. Each certificate issued
shall bear all statements or legends required by law to be affixed thereto.
SECTION 2. TRANSFER OF SHARES. Transfer of shares of the Corporation
shall be made only on the books of the Corporation by the registered holder
thereof or by such other person as may under law be authorized to endorse such
shares for transfer, or by such stockholder's attorney thereunto authorized by
power of attorney duly executed and filed with the secretary or with the
transfer agent or transfer clerk. Except as otherwise provided by law, upon
surrender to the Corporation or its transfer agent or transfer clerk of a
certificate for shares duly endorsed and accompanied by all applicable taxes
thereon, it shall be the duty of the Corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate, and record the
transaction upon its books. The secretary or transfer agent may require that
all signatures shall be guaranteed. Whenever any transfer of shares shall be
made for collateral security and not absolutely, such facts shall be so
expressed in the entry of transfer if, when the certificate or certificate shall
be presented to the Corporation for transfer, both the transferor and transferee
request the Corporation so to do.
SECTION 3. LOST, STOLEN, DESTROYED OR MUTILATED CERTIFICATES. The
holder of any shares of the Corporation shall immediately notify the Corporation
of any loss, theft, destruction or mutilation of the certificate therefor. The
board of directors may direct a new certificate or certificates to be issued in
place of any certificate or certificates theretofore issued by the Corporation
alleged to have been lost, stolen or destroyed, or upon the surrender of any
mutilated certificate, if the Corporation shall not theretofore have received
notice that the certificate alleged to have been lost, destroyed or stolen has
been acquired by a bona fide purchaser thereof, and the board of directors may,
at its discretion, require the owner of the lost, stolen, or destroyed
certificate or such owner's legal representatives to give the Corporation a bond
in such sum, limited or unlimited, in such form and with such surety or sureties
as the board of directors shall, in its uncontrolled discretion, determine, to
indemnify the Corporation against any claim that may be made against it on
account of alleged loss, theft, or destruction of any such certificate or the
issuance of such new certificate.
SECTION 4. REGISTERED STOCKHOLDERS. Except as otherwise provided by
law, the Corporation shall be entitled to recognize as the exclusive owner of
shares or other securities of the Corporation, for all purposes as regards the
Corporation, the person in whose name the shares or other securities stand
registered on its books as the owner, and such person exclusively shall be
entitled to receive dividends and to vote as such owner. To the extent
permissible under law, the Corporation shall be entitled to hold liable for
calls and assessments a person registered on its books as the owner of the
shares or other securities, and shall not be bound to recognize any equitable or
other claim to or interest in such share or shares or other securities on the
part of any person, whether or not it shall have express or other notice
thereof.
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SECTION 5. REGULATIONS. The board of directors shall have power and
authority to make all such rules and regulations not inconsistent with law or
with the Certificate of Incorporation as may be deemed expedient concerning the
issue, transfer and registration of certificates for shares of the capital stock
of the Corporation, and may appoint transfer agents, transfer clerks and
registrars thereof.
ARTICLE VI
INDEMNIFICATION
SECTION 1. RIGHT TO INDEMNIFICATION. Each person who was or is a
party or is threatened to be made a party or is involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he or she, or a person
of whom he or she is the legal representative, is or was a director of the
Corporation, whether the basis of such proceeding is alleged action in an
official capacity or in any other capacity while serving as a director, shall be
indemnified and held harmless by the Corporation to the fullest extent permitted
by the laws of Delaware as the same exist or may hereafter be amended (but in
the case of such amendment, only to the extent that such amendment permits the
Corporation to provide broader indemnification rights than said laws permitted
the Corporation to provide prior to such amendment) against all costs, charges,
expenses, liabilities and losses (including attorneys' fees, judgments, fines,
ERISA excise taxes or penalties and amounts paid or to be paid in settlement and
amounts expended in seeking indemnification granted to such person under
applicable law, this bylaw or any agreement with the Corporation) reasonably
incurred or suffered by such person in connection therewith and such
indemnification shall continue as to a person who has ceased to be a director
and shall inure to the benefit of his or her heirs, executors and
administrators. The right to indemnification conferred in this Section 1 shall
be a contract right and shall include the right to be paid by the Corporation
the expenses incurred in defending any such proceeding in advance of its final
disposition; PROVIDED, HOWEVER, that if the Delaware General Corporation Law so
requires, the payment of such expenses incurred by a director in his or her
capacity as a director (and not in any other capacity in which service was or is
rendered by such person while a director, including, without limitation, service
to an employee benefit plan) in advance of the final disposition of a proceeding
shall be made only upon delivery to the Corporation of an undertaking, by or on
behalf of such director, to repay all amounts so advanced if it shall ultimately
be determined that such director is not entitled to be indemnified under this
Section 1 or otherwise.
SECTION 2. RIGHT OF CLAIMANT TO BRING SUIT. If a claim under Section
1 of this Article VI is not paid in full by the Corporation within thirty (30)
days after a written claim has been received by the Corporation, the claimant
may at any time thereafter bring suit against the Corporation to recover the
unpaid amount of the claim and, if successful in whole or in part, the claimant
shall be entitled to be paid also the expense of prosecuting such claim. It
shall be a defense to any such action (other than an action brought to enforce a
claim for expenses incurred in defending any proceeding in advance of its final
disposition
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where the required undertaking, if any is required, has been tendered to the
Corporation) that the claimant has failed to meet a standard of conduct which
makes it permissible under Delaware or other applicable law for the Corporation
to indemnify the claimant for the amount claimed. Neither the failure of the
Corporation (including the board of directors, independent legal counsel or its
stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is permissible in the circumstances
because he or she has met such standard of conduct, nor an actual determination
by the Corporation (including the board of directors, independent legal counsel
or its stockholders) that the claimant has not met such standard of conduct,
shall be a defense to the action or create a presumption that the claimant has
failed to meet such standard of conduct.
SECTION 3. NON-EXCLUSIVITY OF RIGHTS. The right to indemnification
and the payment of expenses incurred in defending a proceeding in advance of its
final disposition conferred in this Article VI shall not be exclusive of any
other right which any person may have or hereafter acquire under any statute,
provision of the Certificate of Incorporation, Bylaw, agreement, vote of
stockholders or disinterested directors or otherwise.
SECTION 4. INSURANCE. The Corporation may maintain insurance, at its
expense, to protect itself and any director of the Corporation, whether or not
the Corporation would have the power to indemnify such person against such
expense, liability or loss under Delaware law.
SECTION 5. INDEMNITY AGREEMENTS. The Corporation may enter into
indemnity agreements with the persons who are members of the board of directors
from time to time, such indemnity agreements to provide in substance that the
Corporation will indemnify such persons to the fullest extent permitted.
SECTION 6. EFFECT OF AMENDMENT. Any amendment, repeal or
modification of any provision of this Article VI by the stockholders and the
directors of the Corporation shall not adversely affect any right or protection
of a director or other officer of the Corporation existing at the time of the
amendment, repeal or modification.
ARTICLE VII
SEAL
The board of directors may adopt a corporate seal. It shall not be
necessary to the validity of any instrument executed by any authorized officer
or officers of the Corporation that the execution of such instrument be
evidenced by the corporate seal, and all documents, instruments, contracts and
writings of all kinds signed on behalf of the Corporation by any authorized
officer or officers shall be as effectual and binding on the Corporation without
the corporate seal, as if the execution of the same had been evidenced by
affixing the corporate seal thereto. The board of directors may give general
authority to any officer to affix the seal of the Corporation and to attest the
affixing by signature.
14
<PAGE>
ARTICLE VIII
FISCAL YEAR
The fiscal year of the Corporation shall be as determined by the board
of directors from time to time.
15
<PAGE>
THIS IS TO CERTIFY: That I am the duly elected, qualified and acting
Secretary of said corporation and that the foregoing Bylaws were adopted as the
Bylaws of said corporation on the 20th day of November, 1996.
/s/ Bob Davenport
------------------------------
Robert Davenport, Secretary
16
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
COMMON STOCK [LOGO] COMMON STOCK
[ ] [ ]
INCORPORATED UNDER THE LAWS OF SEE REVERSE FOR
THE STATE OF DELAWARE CERTAIN DEFINITIONS
THE WHEREHOUSE
CUSIP 963281 10 0
-----------------------------------------------------------------------
THIS CERTIFIES THAT
SPECIMEN
is the record holder of
-----------------------------------------------------------------------
FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK, PAR VALUE $.01 PER
SHARE, OF
--------------------WHEREHOUSE ENTERTAINMENT, INC.--------------------
transferable on the books of the Corporation by the holder hereof in person
or by duly authorized attorney upon surrender of this Certificate properly
endorsed. This Certificate is not valid unless countersigned and
registered by the Transfer Agent and Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile
signatures of its duly authorized officers.
/s/ Elliot Cott [CORPORATE SEAL] /s/ Antonio C. Alvarez
TREASURER CHAIRMAN
COUNTERSIGNED AND REGISTERED:
CHASEMELLON SHAREHOLDER OFFICES, L.L.C.
TRANSFER AGENT AND REGISTRAR
BY
AUTHORIZED SIGNATURE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
<TABLE>
<S> <C>
The following abbreviations, when used in the inscription on the face of this certificate, shall be
construed as though they were written out in full according to applicable laws or regulations:
TEN COM -- as tenants in common UNIF GIFT MIN ACT- __________________Custodian_________________
TEN ENT -- as tenants by the (Cust) (Minor)
entireties
JT TEN -- as joint tenants with under Uniform Gifts to Minors
right of survivorship Act___________________________________________
and not as tenants in (State)
common
UNIF TRF MIN ACT - ________Custodian (until age_____)
(Cust)
_____________________under Uniform Transfers
(Minor)
to Minors Act ______________________________
(State)
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, _________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
--------------------------------------
| |
| |
--------------------------------------
- -----------------------------------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
Shares
- ----------------------------------------------------------------------------------------------------
of the common stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
Attorney
- ---------------------------------------------------------------------------------------------------
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated
-------------------------
X
--------------------------------------------------------------------
X
--------------------------------------------------------------------
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME(S)
AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER
Signature(s) Guaranteed
By
---------------------------------------
THE SIGNATURE(S) SHOULD BE GUARANTEED BY
AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN
ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE
GUARANTEE MEDALLION PROGRAM), PURSUANT TO
S.E.C. RULE 17Ad-13.
</TABLE>
<PAGE>
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT") is made and
entered into as of January 31, 1997 by WEI ACQUISITION CO., a Delaware
corporation (the "COMPANY"), and Cerberus Partners, L.P. ("CERBERUS"), CS
First Boston Securities Corporation ("FIRST BOSTON") and Bank of America
Illinois ("BOFA") (collectively, the "SHAREHOLDERS"), as the holders of the
Registrable Shares (as defined below) and for the benefit of any Eligible
Transferee (as defined below). Unless otherwise indicated, all capitalized
terms used in this Agreement shall have the meanings given thereto in Section 1
of this Agreement, or if not defined in Section 1, in the section in which such
term is used.
RECITALS
WHEREAS, pursuant to the Debtors' First Amended Chapter 11 Plan, as
Revised for Technical Corrections dated October 4, 1996 and Supplemental
Amendments on December 2, 1996 and December 13, 1996 (the "POR") and an Asset
Purchase Agreement dated as of January 31, 1997 (the "ASSET PURCHASE
AGREEMENT"), the Company will acquire substantially all of the assets of
Wherehouse Entertainment, Inc., and its parent, WEI Holdings, Inc., which
companies are debtors and debtors-in-possession (collectively, the "DEBTORS"),
in Case No. 95-911 (HSB) (Jointly Administered) in the Bankruptcy Court for the
District of Delaware; and
WHEREAS, the POR and the Asset Purchase Agreement provide that the
Registrable Shares shall be issued to the Shareholders in connection with the
closing of the Asset Purchase Agreement; and
WHEREAS, the Company desires to grant, and the Shareholders desire to
accept, the registration rights set forth in this Agreement in respect of the
Registrable Shares.
NOW, THEREFORE, in consideration of the premises and for other good
and valuable considerations, the receipt and adequacy of which is hereby
acknowledged, the parties hereto agree as follows:
1
<PAGE>
SECTION 1. DEFINITIONS.
The terms set forth below are used herein as so defined:
"ANTI DILUTIVE ADJUSTMENTS" has the meaning given thereto in Section
2(b).
"ASSET PURCHASE AGREEMENT" has the meaning given thereto in the
first WHEREAS paragraph of the Recitals hereto.
"COMMISSION" means the Securities and Exchange Commission, or any
other federal agency at the time administering the Exchange Act or the
Securities Act.
"COMPANY" means WEI Acquisition Co., a Delaware corporation.
"DEMAND REGISTRATION" means a registration requested pursuant to the
terms of Section 2 hereof.
"EFFECTIVE DATE" means the date the POR becomes effective.
"ELIGIBLE TRANSFEREE" means any successor or permitted transferee,
in a single transaction or series of related transactions, of all, but not less
than all, of the Registrable Shares.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, or any
successor federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect from time to time.
"EXPIRATION DATE" means the date that is two years after the
expiration of the holding period under Rule 144 in respect of the Registrable
Shares.
"HOLDER" means the Shareholders or the Eligible Transferees.
"INDEMNIFIED PERSON" has the meaning assigned to that term in
Section 8(a) hereof.
"INSPECTORS" has the meaning assigned to that term in Section 6(e)
hereof.
"NEW COMMON STOCK" means the common stock, par value $0.01 per
share, of the Company.
"PARTICIPATING HOLDER" means any Holder that has Registrable Shares
registered for sale pursuant to a Registration Statement.
"PERSON" means any individual, partnership, joint venture,
corporation, trust, unincorporated organization, or other entity.
2
<PAGE>
"PIGGY-BACK REGISTRATION" has the meaning assigned to that term in
Section 3(a) of this Agreement.
"POR" has the meaning given thereto in the first WHEREAS paragraph
of the Recitals hereto.
"RECORDS" has the meaning assigned to that term in Section 6(e)
hereof.
"REGISTRABLE SHARES" means the shares of New Common Stock issued to
the Shareholders pursuant to the POR and the Asset Purchase Agreement and held
by the Holder from time to time. A share of New Common Stock will cease to be a
Registrable Share when (a) a registration statement covering a Registrable Share
has been declared effective by the Commission and such share has been disposed
of by a Holder pursuant to such effective registration statement, (b) the
Registrable Share is transferred to a Person other than an Eligible Transferee,
(c) such share (after initial issuance) is held by the Company or one of its
subsidiaries or otherwise ceases to be outstanding, or (d) the share of New
Common Stock may be traded without restriction pursuant to paragraph (k) of Rule
144, if applicable.
"REGISTRATION EXPENSES" has the meaning assigned that term in
Section 7 hereof.
"REGISTRATION STATEMENT" means any registration statement or
comparable document under the Securities Act through which a public sale or
disposition of the Registrable Shares may be registered for public sale,
including the prospectus, amendments and supplements to such registration
statement, all exhibits, and all material incorporated by reference or deemed to
be incorporated by reference in such Registration Statement.
"REQUESTING HOLDERS" has the meaning assigned to that term in
Section 2(a) of this Agreement.
"REQUISITE HOLDERS" means Holders holding at least 35% of the
initial total number of Registrable Shares of New Common Stock.
"RULE 144" means Rule 144 under the Securities Act, as such Rule may
be amended from time to time, or any similar rule (other than Rule 144A) or
regulation hereafter adopted by the Commission providing for offers and sales of
securities made in compliance therewith resulting in offers and sales by
subsequent holders that are not affiliates of an issuer of such securities being
free of the registration and prospectus delivery requirements of the Securities
Act.
"SECURITIES ACT" means the Securities Act of 1933, as amended, or
any successor federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect from time to time.
3
<PAGE>
"SELLING HOLDER" means a Holder who is selling Registrable Shares
pursuant to a Registration Statement under this Agreement.
SECTION 2. DEMAND REGISTRATION RIGHTS.
(a) At any time prior to the Expiration Date, Requisite Holders may
by written notice to the Company request that the Company register all or a
portion of the Registrable Shares held by such Holders under the Securities Act
and register or qualify under applicable securities laws, including in
connection with an initial public offering of the New Common Stock, and, subject
to the provisions of this Agreement, the Company shall use its reasonable best
efforts to effect such demand registration promptly; PROVIDED, HOWEVER, that the
Company shall have no obligation under this Section 2(a) if the sale of the
shares by the Holders is then covered under any other Registration Statement
(including, pursuant to Section 3 hereof) that includes such shares on a
continuing basis.
Each notice to the Company shall set forth (i) the names of the
Requisite Holders requesting registration ("REQUESTING HOLDERS") and the
number of shares to be sold by each and (ii) the proposed manner of sale.
Within ten (10) days after receipt of notice from the Requisite Holders, the
Company shall notify any Holder who is not a party to the written notice served
on the Company and offer to them the opportunity to include their shares in such
registration. Each such Holder shall have 20 days following delivery of such
notice to elect, by notice to the Company, to have such Holder's Registrable
Shares included in such registration. The Company shall have no obligation to
effect any Demand Registration under this Section 2 unless the number of
Registrable Shares in such Demand Registration shall be equal to at least
250,000 shares or, if lesser, the remaining Registrable Shares (including shares
subject to the A&M Options) but not less than 125,000 shares, each of such
numbers to be subject to adjustment to reflect any antidilutive adjustments made
to the Registrable Shares (the "ANTI-DILUTIVE ADJUSTMENTS"). The maximum
number of such demands under this Section 2 shall be two (2); PROVIDED, HOWEVER,
that no such demand may be made after the Expiration Date. A Registration
Statement will not count as a Demand Registration hereunder unless it is
declared effective by the Commission and remains effective for at least ninety
(90) days or such shorter period which shall terminate when all of the
Registrable Shares covered by such Demand Registration have been sold pursuant
to such Demand Registration; PROVIDED, HOWEVER, that in the event a Registration
Statement is withdrawn at the request of the Requesting Holders (other than a
withdrawal pursuant to Section 2(c) of this Agreement), such Requesting Holders
will forfeit the demand registration rights granted pursuant to this Section 2.
These rights are in addition to, and shall not limit, the registration rights of
the Holders of Registrable Shares granted pursuant to Section 3 hereunder.
(b) If the managing underwriter of an underwritten offering under
this Section 2 advises the Company in writing that in its opinion the number of
shares requested to be included in such registration (including, without
limitation, shares to be included in such registration pursuant to "piggyback"
rights heretofore or hereafter granted by the Company) exceeds the number which
can be sold in such offering, the Company will include in such registration only
the number of shares which in the opinion of such underwriter can be sold. If
the number of shares which can be sold is less than the number of shares
proposed to be registered, the amount to be so registered shall be allocated pro
rata among the Holders of Registrable Shares desiring to participate in such
4
<PAGE>
registration, the Company and the other holders of the Company's securities
requested and entitled to be included in such registration, based on the numbers
of shares initially proposed to be registered by all such holders.
(c) The Company shall not be obligated to effect any Demand
Registration within three (3) months after the effective date of a previous
registration for an underwritten offering under which the Holders had piggyback
rights pursuant to Section 3 hereof (irrespective of whether such rights were
exercised). The Company may (i) postpone for up to 60 days the filing or the
effectiveness of a Registration Statement for a Demand Registration if, based on
the good faith judgment of the Company's Board of Directors, such registration
and offering would materially interfere with any material financing,
acquisition, corporate reorganization, security offering or other material
transaction, or such postponement or withdrawal is necessary in order to avoid
premature disclosure of a matter the Board of Directors of the Company has
determined would not be in the best interest of the Company to be disclosed at
such time or (ii) postpone the filing of a Demand Registration for a period of
not more than 60 days in the event the Company shall be required to prepare
audited financial statements as of a date other than its fiscal year end (unless
the Holders requesting such registration agree to pay the expenses of such an
audit); PROVIDED, HOWEVER, that in no event shall the Company withdraw a
Registration Statement under clause (i) after such Registration Statement has
been declared effective; and PROVIDED, FURTHER, that in any of the events
described in clause (i) or (ii) above, the Holders initiating the request for
such Demand Registration shall be entitled to withdraw such request (without
expense to such Holders) and, if such request is withdrawn, such Demand
Registration shall not count as a permitted Demand Registration. The Company
shall provide prompt written notice to the Requesting Holders of (x) any
postponement or withdrawal of the filing or effectiveness of a Registration
Statement pursuant to this paragraph (c), (y) the Company's decision to file or
seek effectiveness of such Registration Statement following such withdrawal or
postponement and (z) the effectiveness of such Registration Statement.
(d) If any of the Registrable Shares covered by a Demand Registration
are to be sold in an underwritten offering, the Company shall have the right to
select the managing underwriter(s) to administer the offering, subject to the
approval of the Holders of a majority in interest of the Registrable Shares
initiating the request for registration, which approval shall not be
unreasonably withheld.
SECTION 3. PIGGY-BACK REGISTRATION RIGHTS.
(a) If the Company, at any time prior to the Expiration Date,
proposes to register any New Common Stock under the Securities Act (other than
pursuant to Section 2 of this Agreement or pursuant to a registration statement
on a form exclusively for the sale or
5
<PAGE>
distribution of securities by the Company to employees of the Company or its
subsidiaries or for use exclusively in connection with a business combination)
whether or not for sale for its own account, and the registration form to be
used may be used for the registration of Registrable Shares, it will give prompt
written notice to all Holders of the Company's intention to effect such a
registration and include in such registration all Registrable Shares with
respect to which the Company has received written notice from a Holder for
inclusion therein within 20 days after the date of the Company's notice;
PROVIDED, that:
(i) if, at any time after giving written notice of its intention
to register any shares and, prior to the effective date of the Registration
Statement filed in connection with such registration, the Company shall
determine for any reason not to register such shares, the Company may, at
its election, give written notice of such determination to each Holder
requesting inclusion therein, and, thereupon, the Company shall be relieved
of its obligation to register any Registrable Shares in connection with
such withdrawn or unfiled registration (but not of its obligation to pay
the Registration Expenses in connection therewith);
(ii) if such registration shall be in connection with an
underwritten public offering and the managing underwriter shall advise the
Company in writing that in its opinion the number of shares requested to be
included in such registration exceeds the number of such securities which
can be sold in such offering or would have an adverse impact on the price
of such securities, the amount to be registered shall be allocated first,
to the Company if such registration is not being effected as a result of
the exercise of any demand registration rights by a holder of the Company's
securities, and second, pro rata among the Requesting Holders desiring to
participate in such registration and the other holders of the Company's
securities requested to be included in such registration, based on the
numbers of shares initially proposed to be included by such holders. If
such registration is being effected as a result of the exercise of any
demand registration rights by a holder of the Company's securities, the
amount of securities to be included in such registration shall be allocated
pro rata among the Holders of Registrable Shares desiring to participate in
such registration, the Company and among other holders of the Company's
securities requested and entitled to be included in such registration,
based on the numbers of shares initially proposed to be registered by the
Company and all such holders; and
(iii) the number of shares to be sold by the Holders is not
less than 50,000 (subject to Anti-Dilutive Adjustments).
(b) If any Registration pursuant to this Section 3 is an underwritten
primary offering, the Holders shall not have the right to select the managing
underwriter to administer such offering.
(c) The maximum number of Piggy-Back Registrations under this Section
3 shall be two.
6
<PAGE>
SECTION 4. SUSPENSION OF EFFECTIVENESS.
The Company's obligations under Section 2(a) and Section 3(a) shall
not restrict its ability to suspend the effectiveness of, or direct Holders not
to offer or sell securities under, any Demand Registration or a Piggy-Back
Registration, at any time, for such reasonable period of time not to exceed 60
days which the Company believes is necessary to prevent the premature disclosure
of any events or information having a material effect on the Company. In
addition, the Company shall not be required to keep a Piggy-Back Registration or
any Demand Registration, effective, or may, without suspending such
effectiveness, instruct the holders of Registrable Shares included in a Piggy-
Back Registration or any Demand Registration, not to sell such securities,
during any period during which the Company is instructed, directed, ordered or
otherwise requested by any governmental agency or self-regulatory organization
to stop or suspend such trading or sales.
SECTION 5. HOLDBACK AGREEMENT.
(a) In the event of any filing of a prospectus supplement or the
commencement of an underwritten public distribution of New Common Stock under a
Registration Statement, whether or not Registrable Shares are included, each
Holder agrees not to effect any public sale or distribution of New Common Stock
(except as part of such underwritten public distribution), including a sale
pursuant to Rule 144 or Rule 144A under the Securities Act, during a period
designated by the Company in a written notice duly given to the Holders in
accordance with Section 10(b), which period shall commence approximately 14 days
prior to the effective date of any such filing of such prospectus supplement or
the commencement of such underwritten public distribution of New Common Stock
under a Registration Statement and shall continue for up to 134 consecutive
days.
(b) The foregoing provisions shall not apply to any Holder to the
extent such Holder is prohibited by applicable law from agreeing to withhold
from sale pursuant to a binding commitment entered into prior to receipt of the
notice contemplated by Section 5(a).
SECTION 6. REGISTRATION PROCEDURES.
Except as otherwise expressly provided herein and subject to Section
7, in connection with any registration of Registrable Shares pursuant to this
Agreement, the Company shall, as expeditiously as possible:
(a) prepare and file with the Commission a Registration Statement on
the appropriate form with respect to such Registrable Shares and use its
reasonable best efforts to cause such Registration Statement to become effective
as soon as practicable thereafter; and before filing a Registration Statement or
prospectus or any amendments or supplements thereto, furnish to each Selling
Holder copies of such Registration Statement and such other documents as
proposed to be filed (including copies of any document to be incorporated by
reference therein), and thereafter furnish to each Selling Holder such number of
copies of
7
<PAGE>
such Registration Statement, each amendment and supplement thereto (including
copies of any document to be incorporated by reference therein), at the written
request of the Selling Holder, including all exhibits thereto, the prospectus
included in such registration statement (including each preliminary prospectus),
and, promptly after the effectiveness of a Registration Statement, the
definitive final prospectus filed with the Commission, and such other documents
as such Selling Holder may reasonably request in order to facilitate the
disposition of the Registrable Shares owned by such Selling Holder;
(b) use its reasonable best efforts to register or qualify such
Registrable Shares under such other securities or blue sky laws of such
jurisdictions within the United States as any Selling Holder reasonably (in
light of such Selling Holder's intended plan of distribution) requests; PROVIDED
that the Company will not be required to (i) qualify generally to do business in
any jurisdiction where it would not otherwise be required to qualify but for
this Section 6(b), (ii) subject itself to taxation in any such jurisdiction or
(iii) consent to general service of process in any such jurisdiction;
(c) notify each Selling Holder of such Registrable Shares, at any
time when a prospectus relating thereto is required to be delivered under the
Securities Act, of the occurrence of any event as a result of which the
prospectus included in such Registration Statement (including any document to be
incorporated by reference therein) contains an untrue statement of a material
fact or omits any fact necessary to make the statements therein not misleading
and, at the request of any such Selling Holder, the Company shall prepare a
supplement or amendment to such prospectus so that, as thereafter delivered to
the purchasers of such Registrable Shares, 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 each Selling Holder any such supplement or
amendment;
(d) in connection with an underwritten public offering, enter into
customary agreements (including, if requested, an underwriting agreement),
reasonably satisfactory in form and substance to the Company, and take such
other actions in connection therewith as the Holders of at least a majority in
interest of the Registrable Shares being sold or the underwriter shall
reasonably request in order to consummate the disposition of such Registrable
Shares;
(e) make available for inspection during business hours on reasonable
advance notice by any Selling Holder of such Registrable Shares, any underwriter
participating in any disposition pursuant to a Registration Statement, and any
attorney, accountant or other professional retained by any such Selling Holder
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 such Inspector in connection with such Registration Statement. Records
which the Company determines, in good faith, to be confidential and which it
notifies the Inspectors are
8
<PAGE>
confidential shall not be disclosed by the Inspectors unless (i) the
disclosure of such Records is necessary to avoid or correct a material
misstatement or omission in the Registration Statement or (ii) the release
of such Records is ordered pursuant to a subpoena or other order from a court
of competent jurisdiction. Each Selling Holder of such Registrable Shares
further agrees that it will, upon learning that disclosure of such Records
is sought in a court of competent jurisdiction, give written notice to the
Company, and allow the Company, at the Company's expense, to undertake
appropriate action to prevent disclosure of the Records it deemed confidential.
Each Selling Holder of such Registrable Shares further agrees that information
obtained by it as a result of such inspections which is deemed confidential by
the Company shall not be used or disclosed by it, and it shall cause each of its
Inspectors not to use or disclose such confidential information, as the basis
for any market transactions in securities of the Company or for any purpose
other than any due diligence review with respect to decisions regarding such
Selling Holder's investment in the Registrable Shares, unless and until such
information is made generally available to the public;
(f) in the event such sale is pursuant to an underwritten offering,
use its reasonable best efforts to obtain (i) a comfort letter or comfort
letters from the Company's independent public accountants in customary form and
covering such financial and accounting matters of the type customarily covered
by comfort letters as the Selling Holders of a majority in interest of the
Registrable Shares being sold or the managing underwriter reasonably request,
and (ii) an opinion or opinions from counsel for the Company, addressed to the
underwriters, covering the matters customarily covered in opinions given by
counsel in similar transactions; and
(g) notify the Selling Holders and the managing underwriters, if any,
promptly, and (if requested by any such Person) confirm such advice in writing,
(i) when the Registration Statement, the prospectus or any prospectus supplement
or post-effective amendment has been filed, and, with respect to the
Registration Statement or any post-effective amendment, when the same has become
effective, (ii) of the issuance by the Commission of any stop order suspending
the effectiveness of a Registration Statement or of any order preventing or
suspending the use of any preliminary prospectus or the initiation of any
proceedings for that purpose and the Company shall promptly use its reasonable
best efforts to prevent the issuance of any stop order or to obtain its
withdrawal if such stop order should be issued and (iii) of the receipt by the
Company of any notification with respect to the suspension of the qualification
or exemption from qualification of a Registration Statement or any of the
Registrable Shares for offer or sale in any jurisdiction, or the initiation or
threatening of any proceeding for such purpose.
The Company may require each Selling Holder of Registrable Shares as
to which any registration is being effected to furnish to the Company such
information regarding the Selling Holder and the distribution of such
Registrable Shares as the Company may from time to time reasonably request in
writing and such other information as may be legally required in connection with
such registration. Each Selling Holder agrees, by its acquisition of
Registrable Shares and its acceptance of the benefits provided to it hereunder,
to furnish
9
<PAGE>
promptly to the Company all information required to be disclosed in order to
make the information previously furnished to the Company by such Selling Holder
not materially misleading.
Each Holder agrees that upon receipt of any notice from the Company of
the happening of any event of the kind described in Sections 4, 6(c), (g)(ii) or
(g)(iii) hereof, such Holder will forthwith discontinue disposition of
Registrable Shares pursuant to the Registration Statement covering such
Registrable Shares until such Holder's receipt of the copies of the supplemented
or amended prospectus contemplated by Section 6(c) hereof, or until it is
advised in writing by the Company that the use of the prospectus may be resumed,
and, if so directed by the Company, such Holder will deliver to the Company (at
the Company's expense) all copies, other than permanent file copies then in such
Holder's possession, of the prospectus covering such Registrable Shares current
at the time of receipt of such notice. In the event the Company shall give any
such notice under Section 6(c), (g)(ii) or (g)(iii), the Company shall extend
the period during which such Registration Statement shall be maintained
effective by the number of days during the period from and including the date of
the giving of such notice pursuant to Section 6(c) hereof to and including the
date when each Holder of Registrable Shares covered by such Registration
Statement shall have received the copies of the supplemented or amended
prospectus contemplated by Section 6(c) hereof.
SECTION 7. REGISTRATION EXPENSES.
All expenses incident to the Company's performance of or compliance
with this Agreement, including, without limitation, all registration and filing
fees, fees and expenses of compliance with securities or "blue sky" laws
(including reasonable fees and disbursements of counsel of the Company and
counsel for the underwriters in connection with "blue sky" qualifications of
the Registrable Shares), fees and expenses associated with filings required to
be made with the National Association of Securities Dealers, Inc., and with
listing on any national securities exchange or exchanges in which listing may be
sought, printing expenses, messenger and delivery expenses, fees and expenses of
counsel for the Company and its independent certified public accountants
(including the expenses of any special audit or "cold comfort" letters
required by or incident to such performance), securities acts liability
insurance (if the Company elects to obtain such insurance), the fees and
expenses of any special experts retained by the Company in connection with such
registration, and fees and expenses of other persons retained by the Company
(all such expenses being herein called "REGISTRATION EXPENSES") will be borne
(i) by the Company in respect of a Piggy-Back Registration and (ii) by the
Selling Holders in respect of any Demand Registration, in each case whether or
not any registration statement becomes effective; PROVIDED that in no event
shall Registration Expenses payable by the Company include any (A) underwriting
discounts, commissions, or fees attributable to the sale of the Registrable
Shares, (B) fees and expenses of any counsel, accountants, or other persons
retained or employed by the Holders or underwriters, or (C) transfer taxes, if
any.
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SECTION 8. INDEMNIFICATION; CONTRIBUTION.
(a) INDEMNIFICATION BY COMPANY. The Company agrees to indemnify and
hold harmless each Selling Holder of Registrable Shares, its officers,
directors, partners and agents and each Person, if any, who controls such
Selling Holder within the meaning of either Section 15 of the Securities Act or
Section 20 of the Exchange Act (each such person being sometimes hereinafter
referred to as an "INDEMNIFIED PERSON") from and against any and all losses,
claims, damages, liabilities and judgments (including, the reasonable legal
expenses incurred in connection with any action, suit or proceeding) arising out
of or based upon (i) any untrue statement or alleged untrue statement of a
material fact contained in any Registration Statement or prospectus or in any
amendment or supplement thereto or in any preliminary prospectus relating to a
registration hereunder or arising out of or based upon any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein in light of the circumstances under
which they were made, not misleading, or (ii) any violation by the Company of
any federal, state or common law rule or regulation applicable to Company and
relating to action or inaction required by the Company in connection with any
such registration; PROVIDED, HOWEVER, that the Company shall not be liable for
any losses, claims, damages, liabilities or judgments arise out of, or are based
upon, any such untrue statement or omission or allegation thereof based upon
information furnished in writing to the Company by such Selling Holder or on
such Selling Holder's behalf for use therein, or by any Holder's failure to
deliver a copy of the Registration Statement or prospectus or any amendment or
supplement thereto after being furnished with a sufficient number of copies
thereof by the Company.
(b) CONDUCT OF INDEMNIFICATION PROCEEDINGS. If any action or
proceeding (including any governmental investigation) shall be brought or
asserted against any Indemnified Person in respect of which indemnity may be
sought from the Company, such Indemnified Person shall promptly notify the
Company in writing, and the Company shall assume the defense thereof, including
the employment of counsel reasonably satisfactory to such Indemnified Person and
the payment of all reasonable expenses. Such Indemnified Person shall have the
right to employ separate counsel in any such action and to participate in the
defense thereof, but the fees and expenses of such counsel shall be at the
expense of such Indemnified Person unless (i) the Company has agreed to pay such
fees and expenses or (ii) the named parties to any such action or proceeding
(including any impleaded parties) include both such Indemnified Person and the
Company, and such Indemnified Person shall have been advised in writing by the
counsel employed by the Company in accordance with the provisions of this
Section 8(b) that there exists a conflict of interest between such Indemnified
Person and the Company with respect to such claim (in which case, if such
Indemnified Person notifies the Company in writing that it elects to employ
separate counsel at the expense of the Company, the Company shall not have the
right to assume the defense of such action or proceeding on behalf of such
Indemnified Person, it being understood, however, that the Company shall not, in
connection with any one such action or proceeding or separate but substantially
similar or related actions or proceedings in the same jurisdiction arising out
of the same general allegations or circumstances, be liable for the
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reasonable fees and expenses of more than one separate firm of attorneys at any
time for such Indemnified Person and any other Indemnified Persons, which firm
shall be designated in writing by a majority of such Indemnified Persons and be
reasonably acceptable to the Company). The Company shall not be liable for any
settlement of any such action or proceeding effected without the Company's prior
written consent, but if settled with its prior written consent, or if there be a
final, unappealable judgment for the plaintiff in any such action or proceeding,
the Company agrees to indemnify and hold harmless such Indemnified Persons from
and against any loss or liability (to the extent stated above) by reason of such
settlement or judgment.
(c) INDEMNIFICATION BY HOLDERS OF REGISTRABLE SHARES. Each Selling
Holder agrees severally and not jointly to indemnify and hold harmless the
Company, its directors, officers and agents and each Person, if any, who
controls the Company within the meaning of either Section 15 of the Securities
Act or Section 20 of the Exchange Act to the same extent as the foregoing
indemnity from the Company to such Selling Holder, but only with respect to
information furnished in writing by such Selling Holder or on such Selling
Holder's behalf for use in any Registration Statement or prospectus or any
amendment or supplement thereto, or any preliminary prospectus or by any
Holder's failure to deliver a copy of the Registration Statement or prospectus
or any amendment or supplement thereto after being furnished with a sufficient
number of copies thereof by the Company. In case any action or proceeding shall
be brought against the Company or its directors, officers or agents or any such
controlling person, in respect of which indemnity may be sought against such
Selling Holder, such Selling Holder shall have the rights and duties given to
the Company, and the Company or its directors, officers or agents or such
controlling person shall have the rights and duties given to such Selling Holder
by the preceding Section 8(b).
(d) CONTRIBUTION. If the indemnification provided for in this
Section 8 is unavailable to or unenforceable by the Company or the Indemnified
Persons in respect of any losses, claims, damages, liabilities or judgments
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, liabilities and
judgments in such proportions as is appropriate to reflect the relative fault of
the Company and the Indemnified Persons in connection with the actions or
inactions which resulted in such losses, claims, damages, liabilities and
judgments, as well as any other relevant equitable considerations (including the
relative fault and indemnification or contribution obligations of other relevant
parties). The relative fault of the indemnifying party on the one hand and of
the indemnified person 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 the indemnifying party or by the indemnified party, and
by such party's relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.
The Company and the Indemnified Persons agree that it would not be
just and equitable if contribution pursuant to this Section 8(d) were determined
by pro rata
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allocation or by any other method of allocation which does not take account of
the equitable considerations referred to in the immediately preceding paragraph.
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.
SECTION 9. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS.
No Person may participate in any underwritten registration hereunder
unless such Person (a) agrees to sell such Person's securities on the basis
provided in any underwriting arrangements approved by the persons entitled
hereunder to approve such arrangements, (b) completes and executes all
questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents reasonably required under the terms of such underwriting
arrangements and (c) agrees to pay such Person's pro rata portion of all
underwriting discounts, commissions and fees.
SECTION 10. MISCELLANEOUS.
(a) AMENDMENTS AND WAIVERS. The provisions of this Agreement may not
be amended, modified or supplemented, and waivers or consents to departures from
the provisions hereof may not be given unless the Company has obtained the
written consent of Holders of at least a majority in interest of the Registrable
Shares. Notwithstanding the foregoing, (i) if a waiver or consent to departure
from the provisions hereof does not adversely affect the rights of all of the
Holders, the Company shall not be required to obtain the consent of any such
Holder not adversely affected thereby, and (ii) if such waiver or consent to
departure relates exclusively to the rights of Holders whose Registrable Shares
are being sold pursuant to a Registration Statement and does not directly or
indirectly affect the rights of other Holders, such waiver or consent to
departure may be given by Holders of a least a majority in interest of the
Registrable Shares being sold by such Holders pursuant to such Registration
Statement; PROVIDED that the provisions of this sentence may not be amended,
modified or supplemented except in accordance with the provisions of the
immediately preceding sentence.
(b) NOTICES. All notices and other communications provided for or
permitted hereunder shall be in writing and shall be delivered personally or by
first-class mail, telecopier or overnight courier:
(i) if to a Holder of Registrable Shares, at the most current
address set forth on the books of the Company, and
(ii) if to the Company, initially at 19701 Hamilton Avenue;
Torrance, California 90502-1334, Attention: Henry Del Castillo, and
thereafter at such other address, notice of which is given in accordance
with the provisions of this Section 10(b).
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All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five business
days after being deposited in the mail (postage prepaid), if mailed; upon
receipt of a telecopy confirmation sheet, if telecopied; and on the day
delivered if sent by an air courier guaranteeing overnight delivery.
(c) CERBERUS APPOINTED ATTORNEY-IN-FACT; INDEMNIFICATION. First
Boston and BofA hereby irrevocably appoint Cerberus as their attorney-in-fact,
with full authority in the place and stead of First Boston and BofA, from time
to time in Cerberus' discretion to take any action and to execute any instrument
that Cerberus may deem necessary or advisable to accomplish the purposes of this
Agreement, including without limitation, to exercise the registration rights set
forth in Sections 2 and 3 of this Agreement. First Boston and BofA agree to
indemnify Cerberus from and against any and all claims, losses and liabilities
in any way relating to, growing out of or resulting from this Agreement and the
transactions contemplated hereby, except to the extent such claims, losses or
liabilities result solely from Cerberus' gross negligence or willful misconduct
as finally determined by a court of competent jurisdiction.
(d) SUCCESSORS AND ASSIGNS. This Agreement shall inure to the
benefit of and be binding upon the successors and, to the extent set forth
herein, the assigns of each of the parties, including without limitation and
without the need for an express assignment, Eligible Transferees.
(e) COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(f) HEADINGS. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(g) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
UNDER AND INTERPRETED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW
YORK, WITHOUT REGARD TO CONFLICTS OF LAW PRINCIPLES.
(h) SEVERABILITY. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall not invalidate the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable any such provision in
any other jurisdiction.
(i) ENTIRE AGREEMENT. This Agreement is intended by the parties as a
final expression of their agreement and is intended to be a complete and
exclusive statement of the agreement and understanding of the parties hereto in
respect of the subject matter contained herein. There are no restrictions,
promises, warranties or undertakings, other
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than those set forth or referred to herein with respect to the registration
rights granted by the Company with respect to the Registrable Shares. This
Agreement supersedes all prior agreements and understandings between the
parties with respect to such subject matter.
(j) EFFECTIVENESS. This Agreement shall become effective on the
Effective Date.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.]
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IN WITNESS WHEREOF, the Company and the Holder have executed this
Agreement as of the date first written above.
COMPANY:
WEI ACQUISITION CO.
/s/ Bob Davenport
By
------------------------------
Name: Robert C. Davenport
Title: Chief Financial Officer and Secretary
HOLDERS:
CERBERUS PARTNERS, L.P.
/s/ Stephen Feinberg
By
------------------------------
Name: Stephen Feinberg
Title: General Partner Cerberus Associates, L.P.
General Partner Cerberus Partners
CS FIRST BOSTON SECURITIES CORPORATION
/s/ David J. Matlin
By
------------------------------
Name: David J. Matlin
Title: Managing Director
BANK OF AMERICA ILLINOIS
/s/ Christopher S. Field
By
------------------------------
Name: Christopher S. Field
Title: Attorney-in-Fact
16
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REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT") is made and
entered into as of January 31, 1997 by WEI ACQUISITION CO., a Delaware
corporation (the "COMPANY"), and A&M INVESTMENT ASSOCIATES #3, LLC, (the
"AFFILIATE") as the holders of the Registrable Shares (as defined below) and for
the benefit of any Eligible Transferee (as defined below). Unless otherwise
indicated, all capitalized terms used in this Agreement shall have the meanings
given thereto in Section 1 of this Agreement, or if not defined in Section 1, in
the section in which such term is used.
RECITALS
WHEREAS, pursuant to the Debtors' First Amended Chapter 11 Plan, as
Revised for Technical Corrections dated October 4, 1996 and Supplemental
Amendments on December 2, 1996 and December 13, 1996 (the "POR") and an Asset
Purchase Agreement dated as of January 31, 1997 (the "ASSET PURCHASE
AGREEMENT"), the Company will acquire substantially all of the assets of
Wherehouse Entertainment, Inc., and its parent, WEI Holdings, Inc., which
companies are debtors and debtors-in-possession (collectively, the "DEBTORS"),
in Case No. 95-911 (HSB) (Jointly Administered) in the Bankruptcy Court for the
District of Delaware; and
WHEREAS, the Company, Alvarez & Marsal, Inc. ("A&M"), of which the
Affiliate is an affiliate, and certain of A&M's employees have entered into a
Management Services Agreement dated as of January 31, 1997 (the "MANAGEMENT
SERVICES AGREEMENT"), which will become effective on the Effective Date (as
defined therein);
WHEREAS, pursuant to the terms of the Management Services Agreement,
the Company and the Affiliate entered into the Stock Subscription Agreement,
pursuant to which the Affiliate agreed to purchase from Company, and Company
agreed to sell to the Affiliate a number of shares of the New Common Stock, upon
the terms and subject to the conditions set forth therein;
WHEREAS, pursuant to the terms of the Management Services Agreement,
the Company and the Affiliate entered into the A&M Option Agreement, pursuant to
which the Company granted to A&M the A&M Options upon the terms and conditions
set forth in the A&M Option Agreement; and
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WHEREAS, pursuant to the terms of the Management Services Agreement,
the Company agreed to grant to the Affiliate the registration rights set forth
in this Agreement in respect of the Registrable Shares.
NOW, THEREFORE, in consideration of the premises and for other good
and valuable considerations, the receipt and adequacy of which is hereby
acknowledged, the parties hereto agree as follows:
SECTION 1. DEFINITIONS.
The terms set forth below are used herein as so defined:
"A&M OPTIONS" means the options granted to the Affiliate and evidenced
by the A&M Option Agreement.
"A&M OPTION AGREEMENT" means the Non-Transferable Stock Option
Agreement dated as of the date hereof between the Company and the Affiliate
pursuant to which the A&M Options were granted.
"ANTI-DILUTIVE ADJUSTMENTS" has the meaning given thereto in Section
2(b).
"ASSET PURCHASE AGREEMENT" has the meaning given thereto in the first
WHEREAS paragraph of the Recitals hereto.
"COMMISSION" means the Securities and Exchange Commission, or any
other federal agency at the time administering the Exchange Act or the
Securities Act.
"COMPANY" means WEI ACQUISITION CO., a Delaware corporation.
"DEMAND REGISTRATION" means a registration requested pursuant to the
terms of Section 2 hereof.
"EFFECTIVE DATE" means the date the POR becomes effective.
"ELIGIBLE TRANSFEREE" means any successor or permitted transferee, in
a single transaction or series of related transactions, of all, but not less
than all, of the Registrable Shares.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, or any
successor federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect from time to time.
"EXPIRATION DATE" means the date that is two years after the later of
(i) the expiration of the holding period under Rule 144 in respect of the
Registrable Shares or (ii) the payment in full or cancellation of the Promissory
Notes.
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"HOLDER" means the Affiliate or the Eligible Transferee.
"INDEMNIFIED PERSON" has the meaning assigned to that term in Section
8(a) hereof.
"INSPECTORS" has the meaning assigned to that term in Section 6(e)
hereof.
"MANAGEMENT SERVICES AGREEMENT" has the meaning given thereto in the
second WHEREAS paragraph of the Recitals hereto.
"NEW COMMON STOCK" means the common stock, par value $0.01 per share,
of the Company.
"PARTICIPATING HOLDER" means any Holder that has Registrable Shares
registered for sale pursuant to a Registration Statement.
"PERSON" means any individual, partnership, joint venture,
corporation, trust, unincorporated organization, or other entity.
"PIGGY-BACK REGISTRATION" has the meaning assigned to that term in
Section 3(a) of this Agreement.
"POR" has the meaning given thereto in the first WHEREAS paragraph of
the Recitals hereto.
"PROMISSORY NOTES" means the Secured Non-Recourse Promissory Note in
the aggregate principal amount of $5,005,000 issued by the Affiliate in favor of
the Company and the Secured Recourse Promissory Note in the aggregate principal
amount of $335,000 issued by the Affiliate in favor of the Company.
"RECORDS" has the meaning assigned to that term in Section 6(e)
hereof.
"REGISTRABLE SHARES" means the shares of New Common Stock purchased by
the Affiliate pursuant to the Stock Subscription Agreement and the shares of New
Common Stock issued or issuable upon exercise of an A&M Option and held by a
Holder from time to time. A share of New Common Stock will cease to be a
Registrable Share when (a) a registration statement covering a Registrable Share
has been declared effective by the Commission and such share has been disposed
of by a Holder pursuant to such effective registration statement, (b) the
Registrable Share or an A&M Option (in respect thereof) is transferred to a
Person other than an Eligible Transferee, or (c) such share (after initial
issuance) or an A&M Option (in respect thereof) is held by the Company or one of
its subsidiaries or otherwise ceases to be outstanding.
"REGISTRATION EXPENSES" has the meaning assigned that term in Section
7 hereof.
"REGISTRATION STATEMENT" means any registration statement or
comparable document under the Securities Act through which a public sale or
disposition of the Registrable Shares
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<PAGE>
may be registered, including the prospectus, amendments and supplements to such
registration statement, all exhibits, and all material incorporated by reference
or deemed to be incorporated by reference in such Registration Statement.
"REQUESTING HOLDERS" has the meaning assigned to that term in Section
2(a) of this Agreement.
"REQUISITE HOLDERS" means Holders holding at least 25% of the total
number of Registrable Shares of New Common Stock that were issued or issuable
pursuant to the Stock Subscription Agreement or upon exercise of any A&M Option.
"RULE 144" means Rule 144 under the Securities Act, as such Rule may
be amended from time to time, or any similar rule (other than Rule 144A) or
regulation hereafter adopted by the Commission providing for offers and sales of
securities made in compliance therewith resulting in offers and sales by
subsequent holders that are not affiliates of an issuer of such securities being
free of the registration and prospectus delivery requirements of the Securities
Act.
"SECURITIES ACT" means the Securities Act of 1933, as amended, or any
successor federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect from time to time.
"SELLING HOLDER" means a Holder who is selling Registrable Shares
pursuant to a Registration Statement under this Agreement.
"STOCK SUBSCRIPTION AGREEMENT" means the Stock Subscription Agreement
dated as of the date hereof between the Company and the Affiliate pursuant to
which the Affiliate purchased a number of shares of New Common Stock from the
Company.
SECTION 2. DEMAND REGISTRATION RIGHTS.
(a) At any time after any shares of New Common Stock shall have been
registered under the Securities Act but prior to the Expiration Date, Requisite
Holders may by written notice to the Company request that the Company register
all or a portion of the Registrable Shares held by such Holders under the
Securities Act and register or qualify under applicable state securities laws
and, subject to the provisions of this Agreement, the Company shall use its
reasonable best efforts to effect such demand registration promptly; PROVIDED,
HOWEVER, that the Company shall have no obligation under this Section 2(a) if
the public sale of the shares by the Holders is then covered under any other
Registration Statement (including, pursuant to Section 3 hereof) that includes
such shares on a continuing basis.
Each notice to the Company shall set forth (i) the names of the
Requisite Holders requesting registration ("REQUESTING HOLDERS") and the number
of shares to be sold by each and (ii) the proposed manner of sale. Within ten
(10) days after receipt of notice from the
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<PAGE>
Requisite Holders, the Company shall notify any Holder who is not a party to
the written notice served on the Company and offer to them the opportunity to
include their shares in such registration. Each such Holder shall have 20
days following delivery of such notice to elect, by notice to the Company, to
have such Holder's Registrable Shares included in such registration. The
Company shall have no obligation to effect any Demand Registration under this
Section 2 unless the number of Registrable Shares in such Demand Registration
shall be equal to at least 250,000 shares or, if lesser, the remaining
Registrable Shares (including shares subject to the A&M Options) but not less
than 125,000 shares, each of such numbers to be subject to adjustment as
contemplated by Section 8 of the A&M Option Agreement (the "ANTI-DILUTIVE
ADJUSTMENTS"). The maximum number of such demands under this Section 2 shall
be one (1); PROVIDED, HOWEVER, that no such demand may be made after the
Expiration Date. A Registration Statement will not count as a Demand
Registration hereunder unless it is declared effective by the Commission and
remains effective for at least ninety (90) days or such shorter period which
shall terminate when all of the Registrable Shares covered by such Demand
Registration have been sold pursuant to such Demand Registration; PROVIDED,
HOWEVER, that in the event a Registration Statement is withdrawn at the
request of the Requesting Holders (other than a withdrawal pursuant to
Section 2(c) of this Agreement), such Requesting Holders will forfeit the
demand registration rights granted pursuant to this Section 2. These rights
are in addition to, and shall not limit, the registration rights of the
Holders of Registrable Shares granted pursuant to Section 3 hereunder.
(b) If the managing underwriter of an underwritten offering under
this Section 2 advises the Company in writing that in its opinion the number of
shares requested to be included in such registration (including, without
limitation, shares to be included in such registration pursuant to "piggyback"
rights heretofore or hereafter granted by the Company) exceeds the number which
can be sold in such offering, the Company will include in such registration only
the number of shares which in the opinion of such underwriter can be sold. If
the number of shares which can be sold is less than the number of shares
proposed to be registered, the amount to be so registered shall be allocated pro
rata among the Holders of Registrable Shares desiring to participate in such
registration and among other holders of shares of New Common Stock requested to
be included in such registration, based on the numbers of shares initially
proposed to be registered by all such holders.
(c) The Company shall not be obligated to effect any Demand
Registration within three (3) months after the effective date of a previous
registration for an underwritten offering under which the Holders had piggyback
rights pursuant to Section 3 hereof (irrespective of whether such rights were
exercised). The Company may (i) postpone for up to 60 days the filing or the
effectiveness of a Registration Statement for a Demand Registration if, based on
the good faith judgment of the Company's Board of Directors, such registration
and offering would materially interfere with any material financing,
acquisition, corporate reorganization, security offering or other material
transaction, or such postponement or withdrawal is necessary in order to avoid
premature disclosure of a matter the Board of Directors of the Company has
determined would not be in the best interest of the Company to be disclosed at
such time or (ii) postpone the filing of a Demand
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<PAGE>
Registration for a period of not more than 60 days in the event the Company
shall be required to prepare audited financial statements as of a date other
than its fiscal year end (unless the Holders requesting such registration
agree to pay the expenses of such an audit); PROVIDED, HOWEVER, that in no
event shall the Company withdraw a Registration Statement under clause (i)
after such Registration Statement has been declared effective; and PROVIDED,
FURTHER, that in any of the events described in clause (i) or (ii) above, the
Holders initiating the request for such Demand Registration shall be entitled
to withdraw such request (without expense to such Holders) and, if such
request is withdrawn, such Demand Registration shall not count as a permitted
Demand Registration. The Company shall provide prompt written notice to the
Requesting Holders of (x) any postponement or withdrawal of the filing or
effectiveness of a Registration Statement pursuant to this paragraph (c), (y)
the Company's decision to file or seek effectiveness of such Registration
Statement following such withdrawal or postponement and (z) the effectiveness
of such Registration Statement.
(d) If any of the Registrable Shares covered by a Demand Registration
are to be sold in an underwritten offering, the Company shall have the right to
select the managing underwriter(s) to administer the offering, subject to the
approval of the Holders of a majority in interest of the Registrable Shares
initiating the request for registration, which approval shall not be
unreasonably withheld.
SECTION 3. PIGGY-BACK REGISTRATION RIGHTS.
(a) If the Company, at any time prior to the Expiration Date,
proposes to register any New Common Stock under the Securities Act (other than
pursuant to Section 2 of this Agreement or pursuant to a registration statement
on a form exclusively for the sale or distribution of securities by the Company
to employees of the Company or its subsidiaries or for use exclusively in
connection with a business combination) whether or not for sale for its own
account, and the registration form to be used may be used for the registration
of Registrable Shares, it will give prompt written notice to all Holders of the
Company's intention to effect such a registration and include in such
registration all Registrable Shares with respect to which the Company has
received written notice from a Holder for inclusion therein within 20 days after
the date of the Company's notice; PROVIDED, that:
(i) if, at any time after giving written notice of its intention
to register any shares and, prior to the effective date of the Registration
Statement filed in connection with such registration, the Company shall
determine for any reason not to register such shares, the Company may, at
its election, give written notice of such determination to each Holder
requesting inclusion therein, and, thereupon, the Company shall be relieved
of its obligation to register any Registrable Shares in connection with
such withdrawn of unfiled registration (but not of its obligation to pay
the Registration Expenses in connection therewith);
(ii) if such registration shall be in connection with an
underwritten public offering and the managing underwriter shall advise the
Company in writing that in its
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opinion the number of shares requested to be included in such registration
exceeds the number of such securities which can be sold in such offering
or would have an adverse impact on the price of such securities, the
amount to be registered shall be allocated first, to the Company if such
registration is not being effected as a result of the exercise of any
demand registration rights by a holder of the Company's securities, and
second, pro rata among the Requesting Holders desiring to participate in
such registration and the other holders of the Company's securities
requested to be included in such registration, based on the numbers of
shares initially proposed to be included by such holders. If such
registration is being effected as a result of the exercise of any demand
registration rights by a holder of the Company's securities, the amount of
securities to be included in such registration shall be allocated pro rata
among the Holders of Registrable Shares desiring to participate in such
registration, the Company and among other holders of the Company's
securities requested and entitled to be included in such registration,
based on the numbers of shares initially proposed to be registered by the
Company and all such holders;
(iii) with respect to any unissued shares to be included
therein, the Holder delivers a commitment to timely exercise the A&M
Options prior to the effective date of the registration for inclusion
therein of such shares, if the Registration Statement does not otherwise
contemplate a continuing or "shelf" registration of shares issuable under
the A&M Options; and
(iv) the number of shares to be sold by the Holders is not less
than 50,000 (subject to Anti-Dilutive Adjustments).
(b) If any Registration pursuant to this Section 3 is an underwritten
primary offering, the Holders shall not have the right to select the managing
underwriter to administer such offering.
(c) The maximum number of Piggy-Back Registrations under this Section
3 shall be two.
SECTION 4. SUSPENSION OF EFFECTIVENESS.
The Company's obligations under Section 2(a) and Section 3(a) shall
not restrict its ability to suspend the effectiveness of, or direct Holders
not to offer or sell securities under, any Demand Registration or a
Piggy-Back Registration, at any time, for such reasonable period of time not
to exceed 60 days which the Company believes is necessary to prevent the
premature disclosure of any events or information having a material effect on
the Company. In addition, the Company shall not be required to keep a
Piggy-Back Registration or any Demand Registration, effective, or may,
without suspending such effectiveness, instruct the holders of Registrable
Shares included in a Piggy-Back Registration or any Demand Registration, not
to sell such securities, during any period during which the Company is
instructed, directed, ordered or otherwise requested by any governmental
agency or self-regulatory organization to stop or suspend such trading or
sales.
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SECTION 5. HOLDBACK AGREEMENT.
(a) In the event of any filing of a prospectus supplement or the
commencement of an underwritten public distribution of New Common Stock under a
Registration Statement, whether or not Registrable Shares are included, each
Holder agrees not to effect any public sale or distribution of New Common Stock
(except as part of such underwritten public distribution), including a sale
pursuant to Rule 144 or Rule 144A under the Securities Act, during a period
designated by the Company in a written notice duly given to the Holders in
accordance with Section 10(b), which period shall commence approximately 14 days
prior to the effective date of any such filing of such prospectus supplement or
the commencement of such underwritten public distribution of New Common Stock
under a Registration Statement and shall continue for up to 134 consecutive
days.
(b) The foregoing provisions shall not apply to any Holder to the
extent such Holder is prohibited by applicable law from agreeing to withhold
from sale pursuant to a binding commitment entered into prior to receipt of the
notice contemplated by Section 5(a).
SECTION 6. REGISTRATION PROCEDURES.
Except as otherwise expressly provided herein and subject to Section
7, in connection with any registration of Registrable Shares pursuant to this
Agreement, the Company shall, as expeditiously as possible:
(a) prepare and file with the Commission a Registration Statement on
the appropriate form with respect to such Registrable Shares and use its
reasonable best efforts to cause such Registration Statement to become effective
as soon as practicable thereafter; and before filing a Registration Statement or
prospectus or any amendments or supplements thereto, furnish to each Selling
Holder copies of such Registration Statement and such other documents as
proposed to be filed (including copies of any document to be incorporated by
reference therein), and thereafter furnish to each Selling Holder such number of
copies of such Registration Statement, each amendment and supplement thereto
(including copies of any document to be incorporated by reference therein), at
the written request of the Selling Holder, including all exhibits thereto, the
prospectus included in such registration statement (including each preliminary
prospectus), and, promptly after the effectiveness of a Registration Statement,
the definitive final prospectus filed with the Commission, and such other
documents as such Selling Holder may reasonably request in order to facilitate
the disposition of the Registrable Shares owned by such Selling Holder;
(b) use its reasonable best efforts to register or qualify such
Registrable Shares under such other securities or blue sky laws of such
jurisdictions within the United States as any Selling Holder reasonably (in
light of such Selling Holder's intended plan of distribution) requests; PROVIDED
that the Company will not be required to (i) qualify generally to do business in
any jurisdiction where it would not otherwise be required to
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qualify but for this Section 6(b), (ii) subject itself to taxation in any
such jurisdiction or (iii) consent to general service of process in any such
jurisdiction;
(c) notify each Selling Holder of such Registrable Shares, at any
time when a prospectus relating thereto is required to be delivered under the
Securities Act, of the occurrence of any event as a result of which the
prospectus included in such Registration Statement (including any document to be
incorporated by reference therein) contains an untrue statement of a material
fact or omits any fact necessary to make the statements therein not misleading
and, at the request of any such Selling Holder, the Company shall prepare a
supplement or amendment to such prospectus so that, as thereafter delivered to
the purchasers of such Registrable Shares, 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 each Selling Holder any such supplement or
amendment;
(d) in connection with an underwritten public offering, enter into
customary agreements (including, if requested, an underwriting agreement),
reasonably satisfactory in form and substance to the Company, and take such
other actions in connection therewith as the Holders of at least a majority in
interest of the Registrable Shares being sold or the underwriter shall
reasonably request in order to consummate the disposition of such Registrable
Shares;
(e) make available for inspection during business hours on reasonable
advance notice by any Selling Holder of such Registrable Shares, any underwriter
participating in any disposition pursuant to a Registration Statement, and any
attorney, accountant or other professional retained by any such Selling Holder
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
such Inspector 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 material
misstatement or omission in the Registration Statement or (ii) the release of
such Records is ordered pursuant to a subpoena or other order from a court of
competent jurisdiction. Each Selling Holder of such Registrable Shares further
agrees that it will, upon learning that disclosure of such Records is sought in
a court of competent jurisdiction, give written notice to the Company, and allow
the Company, at the Company's expense, to undertake appropriate action to
prevent disclosure of the Records it deemed confidential. Each Selling Holder
of such Registrable Shares further agrees that information obtained by it as a
result of such inspections which is deemed confidential by the Company shall not
be used or disclosed by it, and it shall cause each of its Inspectors not to use
or disclose such confidential information, as the basis for any market
transactions in securities of the Company or for any purpose other than any due
diligence review with respect to dec-
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<PAGE>
isions regarding such Selling Holder's investment in the Registrable Shares,
unless and until such information is made generally available to the public;
(f) in the event such sale is pursuant to an underwritten offering,
use its reasonable best efforts to obtain (i) a comfort letter or comfort
letters from the Company's independent public accountants in customary form and
covering such financial and accounting matters of the type customarily covered
by comfort letters as the Selling Holders of a majority in interest of the
Registrable Shares being sold or the managing underwriter reasonably request,
and (ii) an opinion or opinions from counsel for the Company, addressed to the
underwriters, covering the matters customarily covered in opinions given by
counsel in similar transactions; and
(g) notify the Selling Holders and the managing underwriters, if any,
promptly, and (if requested by any such Person) confirm such advice in writing,
(i) when the Registration Statement, the prospectus or any prospectus supplement
or post-effective amendment has been filed, and, with respect to the
Registration Statement or any post-effective amendment, when the same has become
effective, (ii) of the issuance by the Commission of any stop order suspending
the effectiveness of a Registration Statement or of any order preventing or
suspending the use of any preliminary prospectus or the initiation of any
proceedings for that purpose and the Company shall promptly use its reasonable
best efforts to prevent the issuance of any stop order or to obtain its
withdrawal if such stop order should be issued and (iii) of the receipt by the
Company of any notification with respect to the suspension of the qualification
or exemption from qualification of a Registration Statement or any of the
Registrable Shares for offer or sale in any jurisdiction, or the initiation or
threatening of any proceeding for such purpose.
The Company may require each Selling Holder of Registrable Shares as
to which any registration is being effected to furnish to the Company such
information regarding the Selling Holder and the distribution of such
Registrable Shares as the Company may from time to time reasonably request in
writing and such other information as may be legally required in connection with
such registration. Each Selling Holder agrees, by its acquisition of
Registrable Shares and its acceptance of the benefits provided to it hereunder,
to furnish promptly to the Company all information required to be disclosed in
order to make the information previously furnished to the Company by such
Selling Holder not materially misleading.
Each Holder agrees that upon receipt of any notice from the Company of
the happening of any event of the kind described in Sections 4, 6(c), (g)(ii) or
(g)(iii) hereof, such Holder will forthwith discontinue disposition of
Registrable Shares pursuant to the Registration Statement covering such
Registrable Shares until such Holder's receipt of the copies of the supplemented
or amended prospectus contemplated by Section 6(c) hereof, or until it is
advised in writing by the Company that the use of the prospectus may be resumed,
and, if so directed by the Company, such Holder will deliver to the Company (at
the Company's expense) all copies, other than permanent file copies then in such
Holder's possession, of the prospectus covering such Registrable Shares current
at the time of receipt
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of such notice. In the event the Company shall give any such notice under
Section 6(c), (g)(ii) or (g)(iii), the Company shall extend the period during
which such Registration Statement shall be maintained effective by the number
of days during the period from and including the date of the giving of such
notice pursuant to Section 6(c) hereof to and including the date when each
Holder of Registrable Shares covered by such Registration Statement shall
have received the copies of the supplemented or amended prospectus
contemplated by Section 6(c) hereof.
SECTION 7. REGISTRATION EXPENSES.
All expenses incident to the Company's performance of or compliance
with this Agreement, including, without limitation, all registration and filing
fees, fees and expenses of compliance with securities or "blue sky" laws
(including reasonable fees and disbursements of counsel of the Company and
counsel for the underwriters in connection with "blue sky" qualifications of the
Registrable Shares), fees and expenses associated with filings required to be
made with the National Association of Securities Dealers, Inc., and with listing
on any national securities exchange or exchanges in which listing may be sought,
printing expenses, messenger and delivery expenses, fees and expenses of counsel
for the Company and its independent certified public accountants (including the
expenses of any special audit or "cold comfort" letters required by or incident
to such performance), securities acts liability insurance (if the Company elects
to obtain such insurance), the fees and expenses of any special experts retained
by the Company in connection with such registration, and fees and expenses of
other persons retained by the Company (all such expenses being herein called
"REGISTRATION EXPENSES") will be borne (i) by the Company in respect of a Piggy-
Back Registration and (ii) by the Selling Holders in respect of any Demand
Registration, in each case whether or not any registration statement becomes
effective; PROVIDED that in no event shall Registration Expenses payable by the
Company include any (A) underwriting discounts, commissions, or fees
attributable to the sale of the Registrable Shares, (B) fees and expenses of any
counsel, accountants, or other persons retained or employed by the Holders or
underwriters, or (C) transfer taxes, if any.
SECTION 8. INDEMNIFICATION; CONTRIBUTION.
(a) INDEMNIFICATION BY COMPANY. The Company agrees to indemnify and
hold harmless each Selling Holder of Registrable Shares, its officers,
directors, partners and agents and each Person, if any, who controls such
Selling Holder within the meaning of either Section 15 of the Securities Act or
Section 20 of the Exchange Act (each such person being sometimes hereinafter
referred to as an "INDEMNIFIED PERSON") from and against any and all losses,
claims, damages, liabilities and judgments (including, the reasonable legal
expenses incurred in connection with any action, suit or proceeding) arising out
of or based upon (i) any untrue statement or alleged untrue statement of a
material fact contained in any Registration Statement or prospectus or in any
amendment or supplement thereto or in any preliminary prospectus relating to a
registration hereunder or arising out of or based upon any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein in light of the circumstances under
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which they were made, not misleading, or (ii) any violation by the Company of
any federal, state or common law rule or regulation applicable to Company and
relating to action or inaction required by the Company in connection with any
such registration; PROVIDED, HOWEVER, that the Company shall not be liable
for any losses, claims, damages, liabilities or judgments arise out of, or
are based upon, any such untrue statement or omission or allegation thereof
based upon information furnished in writing to the Company by such Selling
Holder or on such Selling Holder's behalf for use therein, or by any Holder's
failure to deliver a copy of the Registration Statement or prospectus or any
amendment or supplement thereto after being furnished with a sufficient
number of copies thereof by the Company.
(b) CONDUCT OF INDEMNIFICATION PROCEEDINGS. If any action or
proceeding (including any governmental investigation) shall be brought or
asserted against any Indemnified Person in respect of which indemnity may be
sought from the Company, such Indemnified Person shall promptly notify the
Company in writing, and the Company shall assume the defense thereof, including
the employment of counsel reasonably satisfactory to such Indemnified Person and
the payment of all reasonable expenses. Such Indemnified Person shall have the
right to employ separate counsel in any such action and to participate in the
defense thereof, but the fees and expenses of such counsel shall be at the
expense of such Indemnified Person unless (i) the Company has agreed to pay such
fees and expenses or (ii) the named parties to any such action or proceeding
(including any impleaded parties) include both such Indemnified Person and the
Company, and such Indemnified Person shall have been advised in writing by the
counsel employed by the Company in accordance with the provisions of this
Section 8(b) that there exists a conflict of interest between such Indemnified
Person and the Company with respect to such claim (in which case, if such
Indemnified Person notifies the Company in writing that it elects to employ
separate counsel at the expense of the Company, the Company shall not have the
right to assume the defense of such action or proceeding on behalf of such
Indemnified Person, it being understood, however, that the Company shall not, in
connection with any one such action or proceeding or separate but substantially
similar or related actions or proceedings in the same jurisdiction arising out
of the same general allegations or circumstances, be liable for the reasonable
fees and expenses of more than one separate firm of attorneys at any time for
such Indemnified Person and any other Indemnified Persons, which firm shall be
designated in writing by a majority of such Indemnified Persons and be
reasonably acceptable to the Company). The Company shall not be liable for any
settlement of any such action or proceeding effected without the Company's prior
written consent, but if settled with its prior written consent, or if there be a
final, unappealable judgment for the plaintiff in any such action or proceeding,
the Company agrees to indemnify and hold harmless such Indemnified Persons from
and against any loss or liability (to the extent stated above) by reason of such
settlement or judgment.
(c) INDEMNIFICATION BY HOLDERS OF REGISTRABLE SHARES. Each Selling
Holder agrees severally and not jointly to indemnify and hold harmless the
Company, its directors, officers and agents and each Person, if any, who
controls the Company within the meaning of either Section 15 of the Securities
Act or Section 20 of the Exchange Act to the same extent as the
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<PAGE>
foregoing indemnity from the Company to such Selling Holder, but only with
respect to information furnished in writing by such Selling Holder or on such
Selling Holder's behalf for use in any Registration Statement or prospectus
or any amendment or supplement thereto, or any preliminary prospectus or by
any Holder's failure to deliver a copy of the Registration Statement or
prospectus or any amendment or supplement thereto after being furnished with
a sufficient number of copies thereof by the Company. In case any action or
proceeding shall be brought against the Company or its directors, officers or
agents or any such controlling person, in respect of which indemnity may be
sought against such Selling Holder, such Selling Holder shall have the rights
and duties given to the Company, and the Company or its directors, officers
or agents or such controlling person shall have the rights and duties given
to such Selling Holder by the preceding Section 8(b).
(d) CONTRIBUTION. If the indemnification provided for in this
Section 8 is unavailable to or unenforceable by the Company or the Indemnified
Persons in respect of any losses, claims, damages, liabilities or judgments
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, liabilities and
judgments in such proportions as is appropriate to reflect the relative fault of
the Company and the Indemnified Persons in connection with the actions or
inactions which resulted in such losses, claims, damages, liabilities and
judgments, as well as any other relevant equitable considerations (including the
relative fault and indemnification or contribution obligations of other relevant
parties). The relative fault of the indemnifying party on the one hand and of
the indemnified person 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 the indemnifying party or by the indemnified party, and
by such party's relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.
The Company and the Indemnified Persons agree that it would not be
just and equitable if contribution pursuant to this Section 8(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. 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.
SECTION 9. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS.
No Person may participate in any underwritten registration hereunder
unless such Person (a) agrees to sell such Person's securities on the basis
provided in any underwriting arrangements approved by the persons entitled
hereunder to approve such arrangements, (b) completes and executes all
questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents reasonably required under the terms of such underwriting
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arrangements and (c) agrees to pay such Person's pro rata portion of all
underwriting discounts, commissions and fees.
SECTION 10. MISCELLANEOUS.
(a) AMENDMENTS AND WAIVERS. The provisions of this Agreement may not
be amended, modified or supplemented, and waivers or consents to departures from
the provisions hereof may not be given unless the Company has obtained the
written consent of Holders of at least a majority in interest of the Registrable
Shares. Notwithstanding the foregoing, (i) if a waiver or consent to departure
from the provisions hereof does not adversely affect the rights of all of the
Holders, the Company shall not be required to obtain the consent of any such
Holder not adversely affected thereby, and (ii) if such waiver or consent to
departure relates exclusively to the rights of Holders whose Registrable Shares
are being sold pursuant to a Registration Statement and does not directly or
indirectly affect the rights of other Holders, such waiver or consent to
departure may be given by Holders of a least a majority in interest of the
Registrable Shares being sold by such Holders pursuant to such Registration
Statement; PROVIDED that the provisions of this sentence may not be amended,
modified or supplemented except in accordance with the provisions of the
immediately preceding sentence.
(b) NOTICES. All notices and other communications provided for or
permitted hereunder shall be in writing and shall be delivered personally or by
first-class mail, telecopier or overnight courier:
(i) if to a Holder of Registrable Shares, at the most current
address set forth on the books of the Company, and
(ii) if to the Company, initially at 19701 Hamilton Avenue;
Torrance, California 90502-1334, Attention: Henry Del Castillo, and
thereafter at such other address, notice of which is given in accordance
with the provisions of this Section 10(b).
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five business
days after being deposited in the mail (postage prepaid), if mailed; upon
receipt of a telecopy confirmation sheet, if telecopied; and on the day
delivered if sent by an air courier guaranteeing overnight delivery.
(c) SUCCESSORS AND ASSIGNS. This Agreement shall inure to the
benefit of and be binding upon the successors and, to the extent set forth
herein, the assigns of each of the parties, including without limitation and
without the need for an express assignment, Eligible Transferees.
(d) COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so
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executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(e) HEADINGS. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(f) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
UNDER AND INTERPRETED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW
YORK, WITHOUT REGARD TO CONFLICTS OF LAW PRINCIPLES.
(g) SEVERABILITY. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall not invalidate the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable any such provision in
any other jurisdiction.
(h) ENTIRE AGREEMENT. This Agreement is intended by the parties as a
final expression of their agreement and is intended to be a complete and
exclusive statement of the agreement and understanding of the parties hereto in
respect of the subject matter contained herein. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein with respect to the registration rights granted by the Company with
respect to the Registrable Shares. This Agreement supersedes all prior
agreements and understandings between the parties with respect to such subject
matter.
(i) EFFECTIVENESS. This Agreement shall become effective on the
Effective Date.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.]
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IN WITNESS WHEREOF, the Company and the Holder have executed this
Agreement as of the date first written above.
COMPANY:
WEI ACQUISITION CO.
/s/ Bob Davenport
By
------------------------------
Name: Robert C. Davenport
Title: Chief Financial Officer and Secretary
HOLDER:
A&M INVESTMENT ASSOCIATES #3, LLC
/s/ Antonio C. Alvarez II
By
------------------------------
Name: Antonio C. Alvarez
Title: Manager
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FORM OF TAG-ALONG RIGHTS AGREEMENT
This Tag-Along Rights Agreement (this "AGREEMENT") is made as of
January 31, 1997 by and between Cerberus Partners, L.P., a Delaware limited
partnership ("CERBERUS") on behalf of itself and its affiliates and the accounts
referred to in clause (B) of Section 1(b)(ii) below, United States Trust Company
of New York, as the warrant agent (together with its successor and assigns, the
"WARRANT AGENT") under the Warrant Agreements (as defined below) and the Initial
Holders (as defined below).
RECITALS
WHEREAS, pursuant to the Debtors' First Amended Chapter 11 Plan, as
Revised for Technical Corrections dated October 4, 1996 and Supplemental
Amendments on December 2, 1996 and December 13, 1996, (the "POR"; all
capitalized terms used herein without definition having the meanings given
thereto in the POR), and an Asset Purchase Agreement dated as of January 31,
1997, WEI Acquisition Co., a Delaware corporation (the "COMPANY") will acquire
substantially all of the assets of Wherehouse Entertainment, Inc., and its
parent, WEI Holdings, Inc., which companies are debtors and debtors-in-
possession in Case No. 95-911 (HSB) (Jointly Administered) in the United States
Bankruptcy Court for the District of Delaware;
WHEREAS, Cerberus and the other holders of the Senior Lender Claims
will acquire pursuant to the POR a majority of the shares of common stock, par
value $0.01, of the Company (the "COMMON STOCK");
WHEREAS, the POR provides that the Company shall issue to the holders
of the Senior Subordinated Note Claims three tranches of warrants and such
warrants will be issued pursuant to (i) that certain Warrant Agreement dated as
of the date hereof (the "TRANCHE A WARRANT AGREEMENT") by and between the
Company and the Warrant Agent relating to the Tranche A Warrants (the "TRANCHE A
WARRANTS"), (ii) that certain Warrant Agreement dated as of the date hereof (the
"TRANCHE B WARRANT AGREEMENT") by and between the Company and the Warrant Agent
relating to the Tranche B Warrants (the "TRANCHE B WARRANTS") and (iii) that
certain Warrant Agreement dated as of the date hereof (the "TRANCHE C WARRANT
AGREEMENT"; and, together with the Tranche A Warrant Agreement and the Tranche B
Warrant Agreement, the "WARRANT AGREEMENTS") by and between the Company and the
Warrant Agent relating to the Tranche C Warrants (the "TRANCHE C WARRANTS"; and,
together with the Tranche A Warrants and the Tranche B Warrants, the
"WARRANTS");
WHEREAS, the POR provides that this Agreement shall have been entered
into by Cerberus and the Warrant Agent as a condition to the effectiveness of
the POR.
NOW, THEREFORE, in consideration of the foregoing and for other good
and valuable consideration, the parties hereto agree as follows:
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11. TAG-ALONG RIGHT; NOTICES; EXERCISED SHARES; CUTBACKS; EXPIRATION.
(a) TAG-ALONG RIGHT. Prior to the Expiration Date (as defined in
Section 1(e) below), each Holder (as defined below) that executes and delivers a
counterpart of this Agreement (each an "INITIAL HOLDER") shall have the right
(the "TAG-ALONG RIGHT") to require Cerberus to cause any third party (the "THIRD
PARTY PURCHASER") who proposes to purchase from Cerberus (or any of its
affiliates or any accounts managed by Cerberus after which purchase Cerberus
shall cease to have the power to exercise control of the shares of Common Stock
so transferred) in one or a series of related transactions beneficial ownership
to at least 750,000 shares of Common Stock acquired by Cerberus under the POR
(as adjusted for any stock split, stock dividend, subdivision, reissuance,
reclassification or other adjustment to the Common Stock held by Cerberus) (such
sale, a "TAG-ALONG SALE") to purchase from such Initial Holder up to the number
of whole Exercised Shares (as defined in Section 1(c) below and rounded to avoid
fractional shares) equal to the number (the "WARRANTHOLDER'S PORTION") derived
by multiplying the total number of shares of Common Stock subject to the
Warrant(s) initially distributed to such Initial Holder exercising a Tag-Along
Right and held by such Initial Holder prior to the Tag-Along Sale (whether
through unexercised Warrants or through Exercised Shares (as defined in Section
1(c) below)) by a fraction, the numerator of which is the number of shares of
Common Stock proposed to be purchased by the Third Party Purchaser in the Tag-
Along Sale and the denominator of which is the sum of (x) the total number of
shares of Common Stock held by Cerberus, (y) the total number of shares of
Common Stock issuable upon exercise of all of the unexercised Warrants and the
total number of Exercised Shares, in each case, held by all of the Initial
Holders prior to the Tag-Along Sale and (z) if Alvarez & Marsal, Inc. or its
affiliates (collectively, "A&M") have the right to participate in the Tag-Along
Sale, the total number of shares of Common Stock issuable to A&M upon the
exercise of all stock options, rights or warrants held by A&M, in each case on a
fully diluted basis, assuming the exercise in full of all such Warrants, options
and other rights outstanding. The purchase price for any Exercised Shares
purchased from the Initial Holders pursuant to this Section 1 shall be at the
same price per share and the sale shall also be made upon the same terms and
conditions as such proposed transfer by Cerberus (the "TRANSFER TERMS"). As
used in this Agreement, "Holder" shall mean only those holders of Senior
Subordinated Note Claims (i) that are holders of Senior Subordinated Note Claims
as of January 31, 1997 (the "Record Date") and (ii) that have provided evidence
reasonably satisfactory to the Warrant Agent that they were holders of Senior
Subordinated Note Claims as of the Record Date. No other holders of Senior
Subordinated Note Claims or Warrants shall be entitled to any rights under this
Agreement.
(b) NOTICES; ELECTION TO SELL. (i) If a Tag-Along Sale is a
negotiated sale to a non-broker-dealer Third-Party Purchaser, Cerberus shall
promptly notify the Warrant Agent if Cerberus proposes to make a Tag-Along Sale
giving rise to the Tag-Along Right, and shall furnish to the Warrant Agent the
Transfer Terms and a copy of any written offer or agreement pertaining thereto
(the "CERBERUS NOTICE"). Upon receipt of the Cerberus Notice, the Warrant Agent
shall, within three (3) Business Days of the receipt of such notice from
Cerberus, provide written notice to the Initial Holders (the "WARRANT AGENT
NOTICE") of the
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proposed Tag-Along Sale setting forth the Transfer Terms, together with a
letter of transmittal in the form set forth on Exhibit A attached hereto (the
"LETTER OF TRANSMITTAL"). The Tag-Along Right may be exercised by an Initial
Holder by delivery of a properly completed Letter of Transmittal, together
with the share certificates, to the Warrant Agent within fifteen (15)
Business Days following its receipt of the Warrant Agent Notice. Among other
matters, the Letter of Transmittal shall state the number of Exercised Shares
that the Warrantholder proposes to include in the Tag-Along Sale (not to
exceed the Warrantholder's Portion). Any Tag-Along Rights held by an Initial
Holder to participate in a Tag-Along Sale shall expire with respect to that
Tag-Along Sale if a properly completed Letter of Transmittal, together with
the requisite certificates and other documents required thereby, are not
timely received by the Warrant Agent.
(ii) Notwithstanding anything to the contrary in this Agreement, Tag-
Along Sales shall be deemed NOT to include, and Tag-Along Rights shall not be
available in connection with, any of the following transfers: (A) transfers to
affiliates of Cerberus; (B) transfers to funds or accounts managed by Cerberus
after which Cerberus continues to have the power to exercise control of the
shares of Common Stock so transferred; and (C) sales into the market or through
customary broker transactions.
(iii) In the case of a sale of Common Stock that in the absence of
clause (C) of paragraph (ii) above would constitute a Tag-Along Sale, Cerberus
shall notify the Warrant Agent of the number of shares sold and the cash price
received in such sale (the "CERBERUS TERMS") promptly following completion of
the sale. Upon receipt of such notice, the Warrant Agent shall promptly provide
written notice to the Initial Holders of the Cerberus Terms, together with a
letter of transmittal (a "MARKET SALE COMMITMENT") in the form set forth in
Exhibit B attached hereto. An Initial Holder may sell to Cerberus, and Cerberus
shall purchase at the cash price specified in the Cerberus Terms (a "TAG-ALONG
MARKET SALE"), the Warrant Holder's Portion of the Market Sale (calculated as if
it were a Tag-Along Sale) if such Initial Holder delivers a properly completed
Market Sale Commitment to the Warrant Agent within ten (10) Business Days after
receipt by such Initial Holder of notice from Cerberus of the Cerberus Terms.
Any right to cause Cerberus to purchase shares hereunder shall expire if a
properly completed Market Sale Commitment, together with the requisite
certificates and other documents required thereby, is not timely received by the
Warrant Agent.
(c) EXERCISED SHARES. Notwithstanding anything to the contrary
contained herein, only those Warrants that are exercised into shares of Common
Stock pursuant to the terms of the Warrant Agreement under which they were
issued (the "EXERCISED SHARES") prior to the Tag-Along Sale or Tag-Along Market
Sale, shall be entitled to the Tag-Along Right. On or prior to the date on
which the Tag-Along Sale or Tag-Along Market Sale pursuant to Section 1(b)(i) or
(iii) above, respectively, is scheduled to close, each Initial Holder that
submitted a Letter of Transmittal or Market Sale Commitment, as the case may be,
shall exercise that number of Warrants equal to the number of Exercised Shares
(not exceeding the Warrantholder's Portion) set forth in the Letter of
Transmittal or Market Sale Commitment, as the case may be (the "Noticed Shares")
in accordance with the terms of the
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Warrant Agreement under which such Warrants were issued, such exercise to be
effective upon consummation of the sale, and any such Warrants not so
exercised shall be deemed exercised to the extent of the Noticed Shares for
all purposes on the date of the Tag Along Sale or the Tag-Along Market Sale,
as the case may be, as reduced pursuant to Section 1(d) below, as applicable,
and in such event the Exercise Price shall be deducted from the purchase
price and delivered to the Warrant Agent.
(d) CUT-BACKS. If the Third Party Purchaser purchases a number of
shares of Common Stock that is less than the number of shares set forth in the
Transfer Terms or the number of shares that all persons entitled to participate
in the Tag-Along Sale propose to include in the Tag-Along Sale, the number of
shares to be included in the Tag-Along Sale by the Initial Holders, Cerberus and
the other parties entitled to participate in the Tag-Along Sale shall be reduced
pro-rata based on the number of shares originally permitted to be included by
such parties prior to such reduction. Any Exercised Shares not actually sold by
an Initial Holder as a result of the application of the previous sentence shall
not be deemed exercised.
(e) EXPIRATION. Each Initial Holder's rights under Section 1 shall
expire upon the earliest of (the "EXPIRATION DATE") (i) three years after the
issuance of the Warrants, (ii) the completion of a public offering of the Common
Stock yielding proceeds of at least $5,000,000 pursuant to a registration
statement under the Securities Act of 1933, as amended, (iii) the 181st day
after the listing of the Common Stock on the New York Stock Exchange or the
American Stock Exchange, or the commencement of bid and ask or similar price
quotations for the Common Stock on the "National Market" system of NASDAQ, and
(iv) with respect to the Warrants and Exercised Shares so transferred, upon the
sale, disposition, grant or other transfer of a Warrant or Exercised Share.
2. NON-TRANSFERABLE. The Tag-Along Right granted to an Initial
Holder under this Agreement shall not be transferrable by the Initial Holder and
the Warrant Agent shall not recognize or give effect to any such transfer.
3. GENERAL.
(a) AMENDMENT. No modification or amendment of, or waiver under,
this Agreement shall be valid unless in writing and signed by each of the
parties hereto.
(b) GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the internal laws of the State of California without regard
to conflict of law principles.
(c) SEVERABILITY. If any term, provision, covenant or restriction
herein is held by a court of competent jurisdiction to be invalid, void or
unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and shall
in no way be affected, impaired or invalidated thereby.
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(d) NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given when
delivered personally or sent by overnight courier express service or two days
after having been deposited in the United States mail, registered or certified,
return receipt requested, postage prepaid, addressed as follows:
(1) If to the Warrant Agent, to:
United States Trust Company of New York
Corporate Trust Division
114 West 47th Street, 15th Floor
New York, NY 10036-1532
Attention: Louis Young
(2) If to the Company, to:
19701 Hamilton Avenue
Torrance, California 90502-1334
Attention: Henry Del Castillo
with a copy to:
O'Melveny & Myers LLP
400 South Hope Street
Los Angeles, California 90071
Attention: Ben H. Logan, Esq. and
C. James Levin Esq.
and a copy to:
Cerberus Partners, L.P.
950 Third Avenue
New York, New York 10022
Attention: Robert Davenport
(3) If to the Initial Holders, to the address set forth in the
register maintained by the Warrant Agent
or to such other address or addresses as each of the parties hereto (except the
Initial Holders) may communicate in writing to the other. Written notice given
by any other method shall be deemed effective only when actually received by the
party to whom given.
(e) ENTIRE AGREEMENT. This Agreement contains the entire
understanding of the parties hereto respecting the subject matter hereof and
supersedes all prior discussions and understandings.
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(f) ASSIGNMENT. This Agreement may not be assigned by the Initial
Holders.
(g) COUNTERPARTS. This Agreement may be signed in counterparts and
each such counterpart shall be deemed to be an original and all such
counterparts shall be deemed to be one and the same instrument.
(h) NON-SIGNING HOLDERS. This Agreement shall be effective with
respect to each Initial Holder irrespective of whether there are other holders
of Senior Subordinated Note Claims who were eligible to become an Initial Holder
with rights under this Agreement, but failed to execute this Agreement or failed
to provide evidence to the Warrant Agent that they were holders of Senior
Subordinated Note Claims as of the Record Date. Any holder of a Senior
Subordinated Note Claim who fails to execute this Agreement by the date that is
two-months from the Effective Date (the "INITIAL HOLDER DEADLINE") shall not be
entitled to any Tag-Along Rights or other rights under this Agreement
irrespective of whether such holder would otherwise have qualified as an Initial
Holder. Warrant Agent shall use its commercially reasonable best efforts to
identify the parties entitled to become an Initial Holder hereunder prior to the
Initial Holder Deadline, but shall not have any obligation to identify such
parties after the Initial Holder Deadline.
[remainder of page intentionally left blank]
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IN WITNESS THEREOF, the parties have executed this Agreement as of the
day and year first above written.
CERBERUS PARTNERS, L.P.
By:
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Name:
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Its: General Partner
UNITED STATES TRUST COMPANY OF NEW YORK
By:
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Name:
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Its:
-----------------
INITIAL HOLDERS
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NON-TRANSFERABLE STOCK OPTION AGREEMENT
THIS NON-TRANSFERABLE STOCK OPTION AGREEMENT (as it may be amended,
supplemented or otherwise modified from time to time, the "AGREEMENT") is dated
as of the 31st day of January, 1997, and is entered into between WEI ACQUISITION
CO., a Delaware corporation (the "COMPANY"), and A&M INVESTMENT ASSOCIATES #3,
LLC, a Delaware limited liability company (the "OPTIONEE").
W I T N E S S E T H
WHEREAS, pursuant to the Debtors' First Amended Chapter 11 Plan, as
Revised for Technical Corrections dated October 4, 1996 and Supplemental
Amendments on December 2, 1996 and December 13, 1996 (the "POR") and an Asset
Purchase Agreement dated as of January 31, 1997 (the "ASSET PURCHASE
AGREEMENT"), the Company will acquire substantially all of the assets of
Wherehouse Entertainment, Inc., and its parent, WEI Holdings, Inc., which
companies are debtors and debtors-in-possession (collectively, the "DEBTORS"),
in Case No. 95-911 (HSB) (Jointly Administered) (the "BANKRUPTCY CASE") in the
Bankruptcy Court for the District of Delaware (the "BANKRUPTCY COURT"); and
WHEREAS, the Company, the Optionee, Alvarez & Marsal, Inc. ("A&M"),
Cerberus Partners, L.P. and certain of A&M's employees have entered into a
Management Services Agreement dated as of January 31, 1997 (the "MANAGEMENT
SERVICES AGREEMENT"), which will become effective on the Effective Date (as
defined below) and, pursuant to the terms thereof, the Company has granted to
the Optionee options to purchase authorized but unissued shares of Common Stock,
$0.01 par value per share, of the Company (the "COMMON STOCK"), upon the terms
and subject to the conditions set forth herein.
NOW, THEREFORE, in consideration of the services of Optionee provided
and to be provided to the Company under the Management Services Agreement, the
mutual promises and covenants made herein, the parties agree as follows:
1. DEFINED TERMS, EFFECTIVENESS. This Agreement, and the options
granted hereunder, shall become effective on the date on which the POR becomes
effective by order of the Bankruptcy Court (the "EFFECTIVE DATE"). Unless
otherwise indicated, capitalized terms used herein and not otherwise defined
herein shall have the meaning assigned to such terms in the POR. The term
"SHARES", as used herein, refers to shares of the Common Stock and
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of any stock or any other securities or property into which the Shares may
hereafter be changed.
2. GRANT OF OPTION; EXERCISE PRICE; EXERCISABILITY PERIOD.
(a) GRANT OF OPTION AND EXERCISE PRICE. Subject to the terms and
conditions set forth herein, this Agreement evidences the Company's grant to the
Optionee of the following options:
(1) the right and option to purchase all or any part of an
aggregate of 331,127 shares of the Common Stock, (which, on the Effective
Date, equals three and one/third percent (3 1/3%) of 9,933,808 Shares,
which is the total number of Shares issued and outstanding and into which
any convertible or exercisable securities may be converted or exercised on
a diluted basis, in each case, pursuant to the POR, taking into account any
Warrants issued pursuant to the POR (the "BASELINE OUTSTANDING SHARES")),
at a purchase price (the "FIRST OPTION EXERCISE PRICE") equal to $9.56, as
such number of shares and purchase price may from time to time be adjusted
hereunder (such option, the "FIRST OPTION");
(2) the right and option to purchase all or any part of an
aggregate of 331,127 additional Shares (which, on the Effective Date,
equals an additional three and one/third percent (3 1/3%) of the Baseline
Outstanding Shares), at a purchase price (the "SECOND OPTION EXERCISE
PRICE") equal to $11.58, as such number of shares and purchase price may
from time to time be adjusted hereunder (the "SECOND OPTION"); and
(3) the right and option to purchase all or any part of an
aggregate of 331,126 additional (which, on the Effective Date, equals an
additional three and one/third percent (3 1/3%) of the Baseline Outstanding
Shares), at a purchase price (the "THIRD OPTION EXERCISE PRICE") equal to
$14.10,(1) as such number of shares and
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(1) The First Option Exercise Price, the Second Option Exercise
Price and the Third Option Exercise Price as set forth in this Section 2(a) have
been calculated based on the following formulas: (i) the First Option Exercise
Price equals the quotient of $95,000,000 divided by the Baseline Outstanding
Shares; (ii) the Second Option Exercise Price equals the quotient of
$115,000,000 divided by the Baseline Outstanding Shares; and (iii) the Third
Option Exercise Price equals the quotient of $140,000,000 divided by the
Baseline Outstanding Shares. The parties agree and acknowledge that the Company
may, after the Effective Date, issue additional shares of Common Stock pursuant
to Section 5.05(a) of the POR, and in order to account for the issuance of such
additional shares, the number of Shares purchasable upon exercise of each A&M
Option, and the First Option Exercise Price, the Second Option Exercise Price
and the
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purchase price may from time to time be adjusted hereunder (the "THIRD
OPTION; the First Option, the Second Option and the Third Option, being
referred to herein individually as an "A&M OPTION," and, collectively,
as the "A&M OPTIONS").
(b) EXERCISABILITY PERIOD. Subject to Section 6 hereof, the options
to purchase Shares under each A&M Option shall vest and become exercisable in
equal monthly installments on the last day of each month commencing on the last
day of the first month succeeding the Effective Date through October 31, 1998,
and each unexpired and unexercised A&M Option shall expire and cease to become
exercisable at 5:00 p.m. (Pacific time) on the sixth anniversary of the
Effective Date (the "EXPIRATION DATE"). The First Option Exercise Price, the
Second Option Exercise Price and the Third Option Exercise Price and the number
of Shares purchasable upon exercise of each A&M Option shall be subject to
adjustment as provided in Section 8. Notwithstanding anything to the contrary
contained in this Agreement, each A&M Option, and the rights of the Company and
the Optionee with respect to each A&M Option, shall be subject to, and be
governed by, the provisions of Sections 7 and 8 of the Management Services
Agreement, as such Sections 7 and 8 apply to the A&M Options.
3. EXERCISABILITY OF OPTION. Upon payment of the exercise price at
the time in effect hereunder with respect to the A&M Option being exercised, the
Company shall cause to be issued and shall deliver to the Optionee a certificate
for the Shares issuable upon such exercise. Such certificate shall be deemed to
have been issued as of the date of the surrender of the A&M Option being
exercised as to such number of Shares and payment of the exercise price. If
less than all of any A&M Option is exercised, Optionee or the Company may
request an exchange of this Agreement for a new option agreement in
substantially the same form in respect of the remaining number of Shares subject
to such A&M Option. Fractional share interests shall be disregarded, but may be
accumulated. No fewer than 50 Shares may be purchased at any one time, unless
the number purchased is the total number at the time remaining for purchase
under the A&M Option being exercised. No adjustment shall be made for any cash
dividends on Shares issuable on the exercise of the A&M Option being exercised.
4. METHOD OF EXERCISE OF OPTION. (a) DELIVERY OF NOTICE AND
PURCHASE PRICE. Each A&M Option shall be exercisable by the delivery to the
Company of a written notice substantially in the form of EXHIBIT A hereto
stating the number of Shares to be purchased pursuant to the A&M Option being
exercised and accompanied by payment in full in accordance with the provisions
of Section 4(b), in an amount equal to the exercise price per Share of the A&M
Option being exercised multiplied by the number of Shares to be purchased. In
addition, the Optionee shall furnish any written statements required hereby.
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Third Option Exercise Price shall be adjusted in the manner set forth in
Section 8(a) of this Agreement.
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(b) PERMITTED CONSIDERATION. The purchase price of any Shares
purchased upon exercise of an A&M Option shall be paid in full at the time of
each purchase in one or a combination of the following methods: (i) in cash or
by electronic funds transfer; (ii) by check payable to the order of the Company;
(iii) by notice and third party payment in such manner as may be permitted by
the Board of Directors, or the Compensation Committee of the Board of Directors,
of the Company (the "Committee"); (iv) in the event A&M shall exercise any A&M
Options and sell the Shares acquired upon such exercise to the Company in
connection with the occurrence of any of the events described in Sections 7 and
8 of the Management Services Agreement and with the prior written consent of the
Company, by a "cashless exercise" whereby A&M shall pay the applicable exercise
price with the proceeds of such sale; or (v) by the delivery of Shares already
owned by the Optionee (other than shares subject to the Pledge Agreement);
PROVIDED, HOWEVER, that the Committee may in its absolute discretion limit or
deny the Optionee's ability to exercise any A&M Option by the means set forth in
clauses (iii), (iv) or (v) above. Any Shares that the Committee permits to be
used to satisfy the exercise price of any A&M Option shall be valued at their
Market Price (as defined in Section 8(d)) on the date of exercise and shall have
been owned by the Optionee for at least six months prior to the exercise.
5. COMPLIANCE WITH LAWS.
(a) SECURITIES LAWS. The issuance and delivery of the Shares are
subject to compliance with all applicable federal and state securities laws, and
to such approvals by any listing, regulatory or governmental authority as may be
necessary in connection therewith. Any securities delivered under this
Agreement shall be subject to such restrictions, and the person acquiring such
securities shall, if requested by the Company, provide such assurances and
representations to the Company as the Company may reasonably deem necessary to
assure compliance with such legal requirements.
Each certificate for the Shares initially issued upon exercise of any A&M
Option shall bear the following legend, unless, at the time of exercise, such
Shares are subject to a currently effective registration statement under the
Securities Act of 1933, as amended (the "ACT"):
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY
STATE SECURITIES LAWS AND MAY NOT BE SOLD, EXCHANGED,
HYPOTHECATED OR TRANSFERRED IN ANY MANNER EXCEPT PURSUANT TO
A REGISTRATION OR AN EXEMPTION FROM SUCH REGISTRATION AND IN
COMPLIANCE WITH THE NON-TRANSFERABLE OPTION AGREEMENT DATED
JANUARY 31, 1997 PURSUANT TO WHICH THEY WERE ISSUED."
Any certificate issued at any time in exchange or substitution for any
certificate bearing such legend (except a new certificate issued upon completion
of a public distribution
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pursuant to a registration statement under the Act, of the securities
represented thereby) shall also bear the above legend unless, in the opinion
of the Company's counsel, the securities represented thereby need no longer
be subject to such restrictions.
(b) TAX WITHHOLDING. Upon exercise of any A&M Option, the Optionee
shall be responsible for the payment and shall indemnify the Company for any
nonpayment of any taxes on income or gain which the Optionee may be required to
pay or the Company may be required to withhold with respect to such event.
(c) PAYMENT OF TAXES. The Company shall pay all documentary stamp
taxes, if any, attributable to this Agreement or the issuance of any of the
Shares or other securities upon the exercise of any A&M Option, PROVIDED,
HOWEVER, that the Company shall not be required to pay any tax or taxes which
may be payable in respect of any permitted transfer involved in the issue of any
certificates for Shares in a name other than that of the Optionee. The Company
shall not be required to issue or deliver such certificates unless or until the
persons requesting the issuance thereof shall have paid to the Company the
amount of such tax or shall have established to the satisfaction of the Company
that such tax has been paid.
(d) RESERVATION OF SHARES. The Company will at all times reserve and
keep available, free from preemptive rights, out of the aggregate of its
authorized but unissued Shares or its authorized and issued Shares held in its
treasury, for the purpose of enabling it to satisfy any obligation to issue
Shares upon exercise of the A&M Options, the full number of Shares deliverable
upon exercise of the A&M Options. Before taking any action which would cause an
adjustment pursuant to Section 8 that would reduce the exercise price below the
then par value (if any) of the Shares issuable upon exercise of any A&M Option,
the Company will take any corporate action which may, in the opinion of its
counsel (who may be counsel employed by the Company), be necessary in order that
the Company may validly and legally issue fully paid and nonassessable Shares at
the exercise price of the A&M Option being exercised as so adjusted.
(e) REPRESENTATIONS OF THE COMPANY; OBTAINING APPROVALS; NO
REGISTRATION RIGHTS. The Company covenants and represents that all Shares which
may be issued upon the exercise of the A&M Options will, upon issuance, be fully
paid and nonassessable and free from all taxes (other than as provided in
Section 5(b)), liens, charges and security interests with respect to the issue
thereof. The Company will in good faith, and as expeditiously as reasonably
possible, take all action which may be necessary to obtain and keep effective
any and all permits, consents and approvals of governmental agencies and
authorities, and will make any and all filings under Federal and State
securities laws, necessary in connection with the issuance of the A&M Options,
the exercise of the A&M Options, and the issuance, sale, transfer and delivery
of Shares upon exercise of the A&M Options to the Optionee, PROVIDED THAT,
subject to A&M's rights under the Registration Rights Agreement (as defined in
the Management Services Agreement), the foregoing provisions of this sentence
shall not be deemed to require registration of the A&M Options
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or the Shares issuable on exercise of the A&M Options under the Securities
Act of 1933, as amended, or similar state securities laws.
(f) REPRESENTATIONS AND WARRANTIES OF OPTIONEE. Optionee hereby
acknowledges, represents and warrants to, and agrees with, the Company as
follows:
(1) REVIEW OF DOCUMENTS, INVESTMENT RISK. Optionee and
Optionee's advisers have reviewed the Disclosure Statement for Debtors'
First Amended Chapter 11 Plan dated October 4, 1996 and have been afforded
an opportunity to review and receive certain confidential descriptive
information relating to the Company, the Company's business and finances,
and any and all other information deemed relevant by Optionee in order to
make an informed investment decision regarding this Agreement, the A&M
Options and the Shares (the "INFORMATION"), (ii) Optionee has been given
the opportunity to obtain any additional information or documents from, and
to ask questions and receive answers of, the officers and representatives
of the Company and its subsidiaries to the extent necessary to evaluate the
merits and risks related to an investment in the Company, (iii) Optionee
has, to the extent Optionee deemed necessary, been advised by legal counsel
of Optionee's choice in connection with this Agreement, the A&M Options and
the issuance and sale of the Shares pursuant hereto, and (iv) Optionee's
financial condition is such that Optionee can afford to bear the economic
risk of holding unregistered Common Stock for which there is no market and
to suffer a complete loss of Optionee's investment therein.
(2) PURCHASE FOR INVESTMENT. Optionee represents and warrants
that (i) the Optionee is, and the Shares acquired upon the exercise of any
A&M Options will be, acquired for Optionee's own account for investment and
not with a view to or for sale in connection with any distribution of the
Common Stock, (ii) Optionee does not presently have any reason to
anticipate any change in Optionee's circumstances or any other particular
occasion or event which would cause Optionee to sell any of such Shares,
and (iii) Optionee is fully aware that in agreeing to sell or issue such
Shares to Optionee the Company is relying upon the truth and accuracy of
these representations and warranties. Optionee agrees that Optionee will
not sell or otherwise dispose of any Shares except in compliance with the
Act, the rules and regulations of the Securities and Exchange Commission
thereunder, the relevant state securities laws applicable to Optionee's
actions, and the terms of this Agreement and the Management Services
Agreement.
(3) NO MARKET. The Optionee acknowledges that no trading market
for the Common Stock is expected to exist following the proposed
acquisition of the Debtors and that, as the result, Optionee may be unable
to sell any of the Shares for the foreseeable future.
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6. LIMITATIONS ON TRANSFERS AND EXCHANGES OF SHARES.
(a) NO SALE OR TRANSFER. The Optionee agrees that Optionee will not,
directly or indirectly, sell, pledge, give, bequeath, transfer, assign or in any
other way whatsoever encumber or dispose of (a "transfer") any Shares issued
upon exercise of an A&M Option (or any interest therein), except as permitted or
required by this Agreement and the Management Services Agreement, or as may be
specifically authorized by the Board of Directors of the Company in its sole
discretion.
(b) DURING TERM OF MANAGEMENT SERVICES AGREEMENT OR RULE 144 HOLDING
PERIOD. Prior to (i) October 14, 1998 or, (ii) the expiration of the applicable
holding period under Rule 144 of the Act ("RULE 144"), whichever is later,
Optionee shall not sell, transfer, encumber or otherwise dispose of any of the
Shares, except as required by Sections 7 and 8 of the Management Services
Agreement, and, after October 14, 1998, only in accordance with Rule 144 or
pursuant to an effective registration statement under the Act. Any sale,
transfer, assignment, pledge or hypothecation in contravention of this
proscription shall be void ab initio.
(c) RIGHT OF FIRST REFUSAL. If the holder of any Shares is permitted
to and desires to sell, transfer or otherwise dispose of the Shares or any
interest therein (a "DISPOSITION"), the holder shall first send a notice to the
Company which shall include the consideration and manner of payment thereof of
the proposed Disposition and identify the potential transferees (the
"DISPOSITION NOTICE"). Such Disposition Notice shall constitute an offer by the
holder to sell the Shares or any interest therein as set forth in the
Disposition Notice to the Company ( or its assignee) upon the terms set forth in
the Disposition Notice (the "HOLDER OFFER"). The Company (or its assignee)
shall have a period of 15 days in which to accept the Holder Offer by delivery
of a notice to the Holder (the "COMPANY ACCEPTANCE"). In the event the Company
(or its assignee) accepts the Holder Offer, it shall be obligated to buy, and
the holder shall be obligated to sell, on the terms and conditions of the Holder
Offer, the Shares, or any interest therein to which the offer relates, except
that (i) the closing of such purchase and sale shall take place at the principal
offices of the Company on a date to be selected by the Company (or its assignee)
which shall be no later than 20 days after the date of the Company Acceptance
and (ii) in the event that the Holder Offer included as all or part of the
purchase consideration any consideration other than cash, the Company (or its
assignee) shall pay, in lieu of such non-cash consideration, an amount in cash
equal to the fair market value of such non-cash consideration as determined in
good faith by the Company's Board of Directors. In the event that the Company
(or its assignee) does not accept the Holder Offer within the 15-day period
specified above, the holder may make the Holder Offer to any or all of the
parties identified in the Disposition Notice and sell the Shares or the interest
therein for the consideration and manner of payment no less favorable than as
set forth in the Holder Notice, within 60 days after the end of the first 15-day
period specified above; provided, however, that if the sale of the Shares or
interest therein to such third party has not been consummated by the date 60
days after the expiration of the first 15-day period specified above, the Shares
and any interest therein shall again become subject to the first refusal right
of the Company set forth above and the
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holder may not sell, transfer or otherwise dispose of the Shares or any
interest therein except in accordance with the foregoing. Any election by
the Company not to accept any Holder Offer in any instance shall not
constitute a waiver of its right to receive a Holder Offer in each case in
the future in which the holder desires to sell, transfer or otherwise dispose
of the Shares or any interest therein.
(d) EVIDENCE OF COMPLIANCE. Notwithstanding anything in this
Agreement to the contrary, the Company shall have no obligation to cause any
Shares to be transferred to any person unless (i) the holder-transferor of such
Shares shall furnish to the Company evidence of compliance with, or exemption
from, the Act, as specifically set forth in the next paragraph and shall comply
in all material respects with all conditions set forth in this Agreement to a
transfer of such Shares, and (ii) such transferee shall assume in writing
transferor's obligations under this Section 6 and agree to be bound by the
provisions of this Agreement.
(e) TRANSFER REQUIREMENTS. Optionee and each person to which any
Shares are transferred (by acceptance of such transfer) hereby agrees that it
will not dispose of any Shares except pursuant to (1) an effective registration
statement under the Act and the receipt of all applicable qualifications under
state securities laws or (2) a written opinion of counsel, reasonably
satisfactory in form and substance to the Company, delivered to the Company,
that the Shares may be transferred without registration under the Act or
qualification under such laws. Each person proposing to transfer Shares, other
than pursuant to an effective registration statement under the Act, shall, if
requested by the Company, as a condition precedent to the effectiveness of such
transfer, deliver to the Company:
(1) an investment representation letter and investment covenant
reasonably satisfactory in form and substance to the Company and its
counsel signed by the proposed transferee; and
(2) the agreement required to be delivered pursuant to clause
(ii) of paragraph (d) above.
7. NON-TRANSFERABILITY OF OPTION. Each A&M Option and any other
rights of the Optionee under this Agreement are exercisable only by the
Optionee, and are nontransferable and shall not be subject in any manner to
anticipation, alienation, sale, transfer, assignment, pledge, encumbrance or
charge (other than to the Company).
8. ADJUSTMENT OF EXERCISE PRICE, NUMBER OF SHARES PURCHASABLE. The
First Option Exercise Price, the Second Option Exercise Price and the Third
Option Exercise Price, and the number of Shares purchasable upon the exercise of
each A&M Option are subject to adjustment from time to time as provided in this
Section 8.
(a) ISSUANCE OF ADDITIONAL SHARES. Effective as of the last day of
each fiscal quarter through January 31, 1998, the First Option Exercise Price,
the Second Option
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Exercise Price and the Third Option Exercise Price, as the
case may be, and the number of Shares purchasable under each A&M Option shall be
adjusted as follows in order to account for any shares of Common Stock issued by
the Company after the Effective Date pursuant to Section [5.05(a)] of the POR
(such shares being referred to herein as the "ADDITIONAL SHARES."
(1) The number of Shares purchasable upon exercise of each A&M
Option shall be increased by a number of shares equal to three and one-
third percent (3 1/3%) of the aggregate number of Additional Shares that
have been issued since (A) the Effective Date, in the case of the first
adjustment made under this Section 8(a)(1), and (B) the effective date of
any adjustment most recently made pursuant to this Section 8(a) in the case
of all other adjustments made under this Section 8(a)(1) (the "TOTAL
OUTSTANDING PLAN SHARES");
(2) The First Option Exercise Price shall be adjusted to equal
the QUOTIENT OF (A) $95,000,000 DIVIDED BY (B) Total Outstanding Plan
Shares (as such Total Outstanding Plan Shares shall have been adjusted to
reflect the increase required by Section 8(a)(1)), as further adjusted to
reflect any adjustments previously made pursuant to the other adjustment
provisions of this Section 8;
(3) The Second Option Exercise Price shall be adjusted to equal
THE QUOTIENT of (A) $115,000,000 DIVIDED BY (B) Total Outstanding Plan
Shares, (as such Total Outstanding Plan Shares shall have been adjusted to
reflect the increase required by Section 8(a)(1)), as further adjusted to
reflect any adjustments previously made pursuant to the other adjustment
provisions of this Section 8;
(4) The Third Option Exercise Price shall be adjusted to equal
THE QUOTIENT of (A) $140,000,000 DIVIDED BY (B) Total Outstanding Plan
Shares, (as such Total Outstanding Plan Shares shall have been adjusted to
reflect the increase required by Section 8(a)(1)), as further adjusted to
reflect any adjustments previously made pursuant to the other adjustment
provisions of this Section 8.
(b) STOCK DIVIDENDS, SPLITS, ETC. If the Company shall at any time
after the date of this Agreement (i) pay a dividend or make a distribution on
its Common Stock which is paid or made (A) in Common Stock or other shares of
the Company's capital stock or (B) in rights to purchase Common Stock or other
securities of the Company if such rights are not exercisable or separable from
the Common Stock except upon the occurrence of a contingency, (ii) subdivide its
outstanding Common Stock into a greater number of shares of Common Stock,
(iii) combine its outstanding shares into a smaller number of shares of Common
Stock or (iv) issue by reclassification of its Common Stock other securities of
the Company, then, in any such event the number of Shares purchasable upon
exercise of each A&M Option immediately prior thereto shall be adjusted so that
the Optionee shall be entitled to receive upon exercise of such A&M Option the
kind and number of shares of the Common Stock and rights to purchase Common
Stock or other securities of the Company (or, in the event of the redemption of
any such rights, any cash paid in respect of such
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<PAGE>
redemption) or another entity that the Optionee would have owned or have been
entitled to receive after the happening of any of the events described above
had such A&M Option been exercised immediately prior to the happening of such
event or any record date with respect thereto. An adjustment made pursuant
to this paragraph (b) shall become effective immediately after the opening of
business on the next business day following the record date in the case of
dividends or other distributions and shall become effective immediately after
the opening of business on the next business day following the effective date
in the case of a subdivision or combination.
(c) DISTRIBUTIONS OF ASSETS. If the Company shall at any time after
the date of this Agreement distribute to all holders of its Common Stock
evidences of indebtedness of the Company or assets of the Company (excluding
cash dividends or distributions out of retained earnings) or rights or warrants
to subscribe for securities of the Company (excluding those referred to in
paragraph (b) above), then in each such case the First Option Exercise Price,
the Second Option Exercise Price and the Third Option Exercise Price, as the
case may be, shall be adjusted to a price determined by multiplying the First
Option Exercise Price, the Second Option Exercise Price and the Third Option
Exercise Price, as the case may be, in effect immediately prior to such
distribution by a fraction, of which the numerator shall be the then current
market price per share of Common Stock (as defined in paragraph (d) below) on
the record date for determination of shareholders entitled to receive such
distribution, less the then fair value (as determined by the Board of Directors
of the Company, whose determination shall be conclusive) of the portion of the
assets or evidences of indebtedness so distributed or of such subscription
rights or warrants which are applicable to one share of Common Stock, and of
which the denominator shall be such market price per share of Common Stock;
PROVIDED, HOWEVER, that if the then current market price per share of Common
Stock on the record date for determination of shareholders entitled to receive
such distribution is less than the then fair value of the portion of the assets
or evidences of indebtedness so distributed or of such subscription rights or
warrants which are applicable to one share of Common Stock, the foregoing
adjustment of the First Option Exercise Price, the Second Option Exercise Price
and the Third Option Exercise Price, as the case may be, shall not be made and
in lieu thereof the number of Shares purchasable upon exercise of each A&M
Option immediately prior to such distribution shall be adjusted so that the
Optionee shall be entitled to receive upon exercise of such A&M Option the kind
and number of assets, evidences of indebtedness, subscription rights and
warrants (or, in the event of the redemption of any such evidences of
indebtedness, subscription rights and warrants, any cash paid in respect of such
redemption) that Optionee would have owned or have been entitled to receive
after the happening of such distribution had such A&M Option been exercised
immediately prior to the record date for such distribution. Such adjustment
shall be made whenever any such distribution is made, and shall become effective
on the date of distribution retroactive to the record date for the determination
of shareholders entitled to receive such distribution.
(d) COMPUTATION OF MARKET PRICE. For the purpose of any computation
under paragraphs (a), (b) and (c) of this Section, the current market price per
share of Common Stock at any date shall be deemed to be the average of the daily
Market Price (as defined
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below) per share for the 30 consecutive Trading Days (as defined below)
commencing 45 Trading Days before the date in question. "Market Price" is
defined as the closing sale price (or, if no closing sale price is reported,
the closing bid price) for the Common Stock in the over-the-counter market,
as reported by the National Association of Securities Dealers Automated
Quotation System ("NASDAQ") or, if the Common Stock is not quoted on NASDAQ,
as reported by the National Quotation Bureau Incorporated. In the event that
the Common Stock is hereafter listed for trading on one or more United States
national or regional securities exchanges, Market Price shall be the closing
price on the exchange or system designated by the Board of Directors of the
Company as the principal United States market in which the Common Stock is
traded. If Market Price cannot be established as described above, Market
Price shall be determined in accordance with the procedure set forth in
Section 7(e) of the Management Services Agreement for the determination of
the "Fair Market Value" of the Common Stock thereunder. "Trading Day" shall
mean a Monday, Tuesday, Wednesday, Thursday or Friday on which banking
institutions in the State of California, are not authorized or obligated by
law or executive order to close or, if the Common Stock is listed or admitted
to trading on a national securities exchange, a day on which the principal
national securities exchange on which the Common Stock is listed or admitted
to trading is open for the transaction of business.
(e) MINIMUM ADJUSTMENT. No adjustment in the number of Shares
purchasable hereunder shall be required unless such adjustment would require an
increase or decrease of at least one per cent (1%) in the number of Shares
purchasable upon the exercise of each A&M Option; PROVIDED, HOWEVER, that any
adjustments which by reason of this paragraph (e) are not required to be made
shall be carried forward and taken into account in any subsequent adjustment.
(f) EXERCISE PRICE ADJUSTMENT. Whenever the number of Shares
purchasable upon the exercise of each A&M Option is adjusted pursuant to Section
8(b), the First Option Exercise Price, the Second Option Exercise Price and the
Third Option Exercise Price, as the case may be, per Share payable upon exercise
of each A&M Option shall be adjusted (to the nearest cent) by multiplying such
First Option Exercise Price, the Second Option Exercise Price and the Third
Option Exercise Price, as the case may be, immediately prior to such adjustment
by a fraction, of which the numerator shall be the number of Shares purchasable
upon the exercise of each A&M Option immediately prior to such adjustment, and
of which the denominator shall be the number of Shares so purchasable
immediately thereafter; PROVIDED, HOWEVER, that if, as a result of an adjustment
of the Shares purchasable upon the exercise of an A&M Option, the Optionee shall
be entitled upon exercise to receive shares of two or more classes of capital
stock or Common Shares and other capital stock of the Company, the Board of
Directors shall determine in good faith the allocation of the First Option
Exercise Price, the Second Option Exercise Price and the Third Option Exercise
Price, as the case may be, between or among shares of such classes of capital
stock or Common Stock and other capital stock.
(g) DEFINITION OF COMMON STOCK. For the purpose of this Section 8,
the term "Common Stock" shall mean (i) the class of stock designated as the
Common Stock of the
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Company at the date of this Agreement or (ii) any other class of stock
resulting from successive changes or reclassifications of such shares
consisting solely of changes in par value, or from par value to no par value
or from no par value to par value. In the event that at any time, as a
result of an adjustment made pursuant to paragraph (b) above, the Optionee
shall become entitled to purchase any securities of the Company other than
Common Stock, thereafter the number of such other securities so purchasable
upon exercise of each A&M Option and the First Option Exercise Price, the
Second Exercise Price and the Third Option Exercise Price, as the case may
be, of such securities 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 Shares contained in this Section 8 with respect to the
Shares, shall apply on like terms to any such other securities.
(h) READJUSTMENT OF EXERCISE PRICE AND NUMBER OF OPTION SHARES. If,
upon the expiration of any rights or warrants with respect to which there shall
have been an adjustment of the number of Shares purchasable upon the exercise of
each A&M Option or of the First Option Exercise Price, the Second Exercise Price
and the Third Option Exercise Price, as the case may be, any of such rights or
warrants shall not have been exercised, the First Option Exercise Price, the
Second Exercise Price and the Third Option Exercise Price, as the case may be,
and the number of shares of Common Stock purchasable upon the exercise of an A&M
Option shall, upon such expiration, be readjusted and shall thereafter be such
as it would have been had it been originally adjusted (or had the original
adjustment not been required, as the case may be) on the basis of (A) the fact
that the only shares of Common Stock so issued were the Common Stock, if any,
actually issued or sold upon the exercise of such rights or warrants and (B) the
fact that such shares of Common Stock, if any, were issued or sold for the
consideration actually received by the Company upon such exercise plus the
consideration, if any, actually received by the Company for the issuance, sale
or grant of all such rights or warrants whether or not exercised; PROVIDED, that
no such readjustment shall have the effect of increasing the First Option
Exercise Price, the Second Exercise Price and the Third Option Exercise Price,
as the case may be, or reducing the number of Common Stock purchasable upon
exercise of an A&M Option by an amount in excess of the amount of the adjustment
initially made in respect of the issuance, sale or grant of such rights or
warrants.
(i) COMPANY MAY REDUCE EXERCISE PRICE OR INCREASE NUMBER OF OPTION
SHARES PURCHASABLE. The Company may, at its option, at any time during the term
of the A&M Option, reduce the then current First Option Exercise Price, the
Second Exercise Price and the Third Option Exercise Price, as the case may be,
or increase the number of Common Shares purchasable upon exercise of each A&M
Option, to any amount deemed appropriate by the Board of Directors of the
Company.
(j) NO ADJUSTMENT FOR DIVIDENDS. Except as provided in subsections
8(a) through (i), no adjustment in respect of any dividends shall be made during
the term of an A&M Option or upon the exercise of an A&M Option.
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(k) CONSOLIDATION, MERGER OR SALE OF ASSETS. Subject to any election
by the Company pursuant to Section 8(l) hereof, if (i) the Company shall at any
time consolidate with or merge with or into another corporation and (ii) the
Common Stock is exchanged, cancelled or reclassified in connection with such
transaction, Optionee will thereafter receive, upon the exercise thereof in
accordance with the terms of this Agreement, the securities, property or cash to
which the holder of the number of shares of Common Stock deliverable upon the
exercise of each A&M Option immediately prior to such transaction would have
been entitled upon such consolidation or merger, and the Company shall take such
steps in connection with such consolidation or merger as may be necessary to
assure that the provisions hereof shall thereafter be applicable, as nearly as
reasonably may be, in relation to any securities or property thereafter
deliverable upon the exercise of each A&M Option. Prior to or simultaneously
with such transaction, the Company or the successor corporation, as the case may
be, shall execute and deliver to Optionee a supplemental agreement so providing.
A sale of all or substantially all the assets of the Company for a consideration
(apart from the assumption of obligations) consisting primarily of securities
shall be deemed a consolidation or merger for the purposes of clause (i) of the
first sentence of this Section 8(k). The provisions of this Section 8(k) shall
similarly apply to successive mergers or consolidations or sales or other
transfers.
(l) ELECTION UPON MERGER OR CONSOLIDATION. Notwithstanding anything
in this Agreement to the contrary, if at any time prior to the Expiration Date
(i) the Company proposes to consolidate with or merge with or into another
corporation (other than in a merger or consolidation, directly or indirectly,
with a person or entity that is controlled by an affiliate of the Company), (ii)
the Common Stock would be exchanged, cancelled or reclassified in connection
with such transaction, and (iii) as a result of such transaction and any
substantially related transactions (including, without limitation, a tender
offer for the Common Stock which precedes a merger involving the Company), the
Board of Directors of the Company determines that the beneficial holders of the
Common Stock of the Company immediately prior to such transaction would
beneficially own less than one-half of the issued and outstanding equity of the
surviving or resulting corporation or the parent corporation thereof following
such transaction or transactions, then the Company may, at its option, notify
A&M that it must exercise all vested and unexercised A&M Options (in full) into
Shares as of a date prior to the completion of such transaction (or, in the case
of a tender offer for the Common Stock which precedes a merger involving the
Company, immediately prior to the termination of such tender offer). Any A&M
Option (or the portion thereof) not exercised by A&M by the day immediately
prior to the completion of such a transaction shall be cancelled and be of no
further force and effect. For purposes of clause (i) of the preceding sentence,
"affiliate" shall mean any person or entity controlling, controlled by or under
common control with the Company, and whether a person or entity is controlled by
an affiliate of the Company shall be tested as of the date of the merger or
consolidation giving rise to the application of this Section 8(l) (except that
in the case of a tender offer for the Common Stock which precedes a merger
involving the Company, shares of Common Stock acquired pursuant to such tender
offer shall be disregarded). Notwithstanding the giving of a notice as provided
herein, in the event that the proposed transaction which results in the Company
giving such notice is not completed, then the
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A&M Options shall be deemed fully reinstated as if such notice had not been
given. A sale of all or substantially all the assets of the Company for a
consideration shall be deemed to be a merger for the purposes of this Section
8(l). If the Company shall determine to exercise its option under this
Section 8(l), it shall give notice of the proposed transaction at least 30
days prior to the proposed effective date thereof (or, in the case of a
tender offer) to A&M as follows: Notice of such proposed transaction,
specifying the date or approximate date set for the consummation thereof,
shall be mailed to A&M to its last addresses as it appears upon the registry
books of the Company in accordance with Section 10. Any notice which is
mailed in the manner herein provided shall be deemed given, whether or not
the holder receives the notice.
(m) TERMINATION OF AWARDS ON DISSOLUTION. If any unexpired and
unexercised A&M Option or other right under any unexpired and unexercised A&M
Option is not exercised prior to a dissolution of the Company, express provision
shall be made in the plan of dissolution or otherwise for the substitution or
other settlement of any unexpired and unexercised A&M Option for the payment of
the fair value thereof, or upon exercise and payment of the exercise price, for
the payment of value equivalent to that paid in the dissolution to the holders
of a like number of Shares as then are subject to any unexpired and unexercised
A&M Option immediately prior thereto.
(n) EFFECTIVE DATE OF ADJUSTMENT. Except as provided herein,
adjustments under this Section 8 shall become effective immediately after the
record date for the determination of shareholders entitled to receive the
applicable rights contemplated thereby. Nevertheless, the Company may elect to
defer the effectiveness of such adjustment (but in no event until a date later
than the effective time of the event or payment giving rise to such adjustment),
in which case the Company shall, with respect to any unexpired and unexercised
A&M Option exercised after such record date and before such adjustment shall
have become effective (i) defer issuing the number of Shares or other securities
or property of the Company deliverable upon such exercise in excess of the
number of Shares or other securities or property of the Company issuable
thereupon only on the basis of the First Option Exercise Price, the Second
Option Exercise Price or the Third Option Exercise Price, as the case may be,
prior to adjustment, and (ii) not later than five business days after such
adjustment shall have become effective issue to such holder the additional
Shares or other securities or property of the Company issuable, if any, on such
exercise.
(o) EXERCISE PRICE ON CERTIFICATE. Irrespective of any adjustments
in the First Option Exercise Price, the Second Option Exercise Price or the
Third Option Exercise Price, as the case may be, or the number or kind of shares
that may be acquired upon the exercise of any A&M Option, this Agreement may
continue to express the same First Option Exercise Price, Second Option Exercise
Price or Third Option Exercise Price, as the case may be, per Share and number
and kind of Shares as are originally set forth in this Agreement.
(p) TAX RELATED ADJUSTMENTS. Anything in this Section 8 to the
contrary notwithstanding, the Company shall be entitled to make such reductions
in the First Option
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Exercise Price, the Second Option Exercise Price or the Third Option Exercise
Price, as the case may be, or increase in the number of Shares purchasable
upon exercise of any A&M Option, in addition to those required by this
Section, as it in its discretion shall reasonably determine to be advisable
in order that any stock dividend, subdivision of shares, distribution of
rights or warrants to purchase stock or securities, or distribution of other
assets (other than cash dividends) hereafter made by the Company to its
stockholders shall not be taxable.
9. NOTICES TO OPTIONEE.
(a) ADJUSTMENTS. Subject to Section 8(l), upon any adjustment of the
exercise price or the number of Shares the Optionee shall be entitled to
purchase upon exercise thereof pursuant to Section 8, the Company within 20 days
thereafter shall (i) mail to the Optionee (at the address last appearing on the
Company's records for such purposes) a certificate of a firm of independent
public accountants of recognized standing selected by the Board of Directors of
the Company (who may be the regular auditors of the Company) setting forth the
exercise price after such adjustment and the adjusted number of Shares (or
fraction thereof) purchasable upon exercise of any unexpired and unexercised A&M
Option and setting forth in reasonable detail the method of calculation and the
facts upon which the calculation is based.
(b) DISTRIBUTIONS; CERTAIN MAJOR EVENTS. If:
(i) the Company shall declare a dividend (or any other
distribution) payable to the holders of Shares otherwise than in cash; or
(ii) the Company shall authorize the granting to the holders of
Shares of rights to subscribe for or purchase any shares of any class or of
any other rights; or
(iii) the Company shall authorize any reclassification or
change of the Shares (other than a subdivision or combination of its
outstanding Shares), or any reclassification, consolidation, merger or
other reorganization to which the Company is a party and for which approval
of any shareholders of the Company is required, or the sale or conveyance
of all or substantially all the property or business of the Company; or
(iv) there shall be proposed any voluntary or involuntary
dissolution, liquidation or winding up of the Company;
then, subject to Section 8(l),the Company shall cause to be mailed to the
Optionee, (at the address last appearing on the Company's records for such
purposes), at least 20 days prior to the applicable record date or effective
date hereinafter specified or as soon thereafter as practicable, by first class
mail, postage prepaid, a written notice stating (i) the date as of which the
holders of record of Shares to be entitled to receive any such rights, warrants
or distribution are to be determined, or (ii) the date on which any such
consolidation, merger,
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conveyance, transfer, dissolution, liquidation or winding up is expected to
become effective, and the date as of which it is expected that holders of
record of Shares shall be entitled to exchange their Shares for securities or
other property, if any, deliverable upon such reclassification,
consolidation, merger, reorganization, conveyance, transfer, dissolution,
liquidation or winding up. If any action referred to in this Section 9(b)
requires the approval of holders of Shares, the Company shall cause notice of
the proposed action and the record date for the determination of holders of
Shares entitled to vote on such matter to be mailed to the Optionee (at such
address), at least 20 days prior to such record date or as soon thereafter as
practicable, by first class mail, postage prepaid. The failure to give any
notice required by this subsection 9(b) or any defect therein shall not
affect the legality of any such reclassification, consolidation, merger,
reorganization, conveyance, transfer, dissolution, liquidation or winding up,
or the vote upon any action; PROVIDED, HOWEVER, that the failure to give any
notice will extend the period during which any unexpired and unexercised A&M
Option may be exercised by a like number of days and during which the holder
is entitled to receive securities or other property, as the case may be, upon
exercise of any unexpired and unexercised A&M Option.
Nothing contained in this Agreement shall be construed as conferring
upon the Optionee (v) the right to vote or receive dividends or rights or to be
deemed for any purpose the holder of Shares or of any other securities of the
Company which may at any time be issuable on the exercise of any unexpired and
unexercised A&M Option, (w) any other rights of a shareholder of the Company,
(x) any right to vote upon any matter submitted to shareholders at any meeting
thereof, (y) any authority to give or withhold consent to any corporate action
(whether upon any recapitalization, issue of stock, reclassification of stock,
change of par value, consolidation, merger, conveyance, or otherwise), or (z)
except as provided herein, to receive notice of meetings, until any unexpired
and unexercised A&M Option shall have been exercised as provided herein.
10. NOTICES. Any notice to be given under the terms of this
Agreement shall be in writing and addressed to the Company at its principal
offices located at 19701 Hamilton Avenue, Torrance, California 90502-1334, to
the attention of the Chief Financial Officer and Corporate Secretary, and to the
Optionee at the address given beneath the Optionee's signature hereto, or to
such other address as either party may hereafter designate in writing delivered
to the other party expressly for such purposes. Notices or demands authorized
by this Agreement to be given or made by Optionee to or on the Company shall be
sufficiently given or made if sent by first-class mail, postage prepaid, to the
address set forth above (until another address is filed in writing). Notices or
demands authorized by this Agreement to be given or made by the Company to the
Optionee shall be sufficiently given or made if sent by first-class mail,
postage prepaid, addressed to Optionee at the address of the Optionee given
beneath its signature hereto.
11. AMENDMENTS. This Agreement may be amended, but only by writing
signed by the Company and the Optionee.
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12. SUCCESSORS; BENEFIT. All the covenants and provisions of this
Agreement by or for the benefit of the Company or the Optionee shall bind and
inure to the benefit of their respective successors and permitted assigns
hereunder. Nothing in this Agreement shall be construed to give to any person
or corporation other than the Company and the Optionee any legal or equitable
right, remedy or claim under this Agreement; and this Agreement shall be for the
sole and exclusive benefit of the Company, the Optionee and any such permitted
assigns or successors.
13. TERMINATION. This Agreement shall terminate at 5:00 p.m.
(Pacific time) on the Expiration Date. Notwithstanding the foregoing, this
Agreement will terminate on any earlier date on which all unexpired and
unexercised A&M Options have been exercised in their entirety.
14. GOVERNING LAW. This Agreement and the A&M Options shall be
deemed to be a contract made under the laws of the State of New York and for all
purposes shall be governed by and construed in accordance with the laws of such
state applicable to contracts to be made and performed entirely within such
state, subject to the General Corporation Law of the state of incorporation of
the Company as to matters governed thereby as a matter of corporation law.
15. COUNTERPARTS. This Agreement may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and all such counterparts shall together constitute but one and
the same instrument.
16. HEADINGS. The headings used in this Agreement are inserted for
convenience only and neither constitute a portion of this Agreement nor in any
manner affect the construction of the provisions of this Agreement.
17. EFFECTIVE DATE. This Agreement and the A&M Options evidenced
hereby shall be granted as of the Effective Date and subject to the
effectiveness of the POR.
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IN WITNESS WHEREOF, each of the Company and the Optionee has caused
this Agreement to be executed on its behalf by a duly authorized officer.
WEI ACQUISITION CO.
(a Delaware corporation)
By /s/ Bob Davenport
--------------------------------------------
Title Chief Financial Officer and Secretary
---------------------------------------
A&M INVESTMENT ASSOCIATES #3, LLC
By /s/ Antonio C. Alvarez II
--------------------------------------------
Title Manager
---------------------------------------
c/o Alvarez & Marsal, Inc.
885 Third Avenue, Suite 1700
-----------------------------
(Address)
New York, New York 10022
----------------------------------------------
(City, State, Zip Code)
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Notational Record of Exercise:
FIRST A&M OPTION
- ------------------------------------------------------------------------------
Date Number of Shares Amount Received
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
SECOND A&M OPTION
- ------------------------------------------------------------------------------
Date Number of Shares Amount Received
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
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THIRD A&M OPTION
- ------------------------------------------------------------------------------
Date Number of Shares Amount Received
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
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EXHIBIT A
FORM OF EXERCISE OF OPTION
( To be executed upon each exercise of any A&M Option )
The undersigned hereby irrevocably elects to exercise the right,
evidenced by the Non-Transferrable Stock Option Agreement dated as of January
31, 1997 (the "Agreement"; capitalized terms used herein without definition
having the meanings given thereto in the Agreement), to purchase
shares (the "Shares") under the [check applicable box(es)] [/ / First A&M
Option] [/ / Second A&M Option] [/ / Third A&M Option] and herewith tenders
payment in full for such Shares as follows: [check applicable box(es)]
/ / by certified or official bank check payable to the order of
[ ] in the amount of $
------- -------------
/ / by delivery of shares with a value of
$ per share, or $ in the aggregate
---------- --------------
in accordance with the terms of the Agreement.
Optionee requests that a certificate for such Shares be registered to Optionee
[or a designee permitted by the Committee pursuant to Section 4 of the
Agreement] and delivered to Optionee at: [insert address] .
--------------------------------------
If said number of Shares is less than all of the shares purchasable under the
[check applicable box(es)] [/ / First A&M Option] [/ / Second A&M Option] [/ /
Third A&M Option] under the Agreement, Optionee represents that it has made (and
authorizes the Company to likewise make) notation of the partial exercise and
the date hereof on its executed copy of the Agreement.
Optionee acknowledges that the Shares have not been registered under the
Securities Act of 1933, as amended, or any applicable state laws and may be sold
or otherwise transferred only in compliance with such laws, and represents that
it will comply with all such laws as
A-1
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to any transactions with respect to the Shares and as to all restrictions
applicable to the Shares under the Agreement.
Dated: A&M INVESTMENT ASSOCIATES #3, LLC
By
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Its
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(Insert Taxpayer I.D. No.
of Optionee.)
To be completed by Company after the price, value (if applicable) and receipt of
funds verified:
ACCEPTED BY:
WEI ACQUISITION CO.
By:
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Its:
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